PPSA Financial Property: the sub-classifications explained

Articles, Loan + Securities

The Personal Property Securities Act 2009 (Cth.) (PPSA) applies to security interests in personal property (i.e. motor vehicles, plant and equipment etc.). The PPSA divides personal property into four main catergories, namely:

  1. goods;
  2. financial property;
  3. intermediated securities; and
  4. intangible property.

Financial Property is defined by section 10 of the PPSA to include any personal property which is:

  • chattel paper;
  • currency;
  • a document of title;
  • an investment instrument; and
  • a negotiable instrument.

It is important to ensure that your registration on the Personal Property Securities Register (PPSR) correctly describes the collateral to which it relates. If the collateral to which the registration relates does not fall within the collateral class described, the registration may be defective.

When it comes to security interests in Financial Property, it can sometimes be unclear to a secured party which classification the collateral falls into. The following is a brief overview of each sub-classification of Financial Property.

Chattel Paper

Section 10 of the PPSA defines chattel paper to mean one or more documents that evidence both a monetary obligation, and a security interest in (or the lease of) specific goods or intellectual property.

For example, if a party enters into a hire-purchase agreement with a car dealership for the supply of a car, that hire purchase agreement is chattel paper. This is because it is a document which evidences a monetary obligation (i.e. for the repayment of the value of the car) and a security interest (i.e. security interest in the car in favour of the car dealership).

The car dealership is free to trade that chattel paper, or offer it as collateral to a third party etc.


Section 10 of the PPSA defines currency to mean any currency authorised by the law of Australia, or any other country, as a medium of exchange. Currency, however, in the context of the PPSA refers to cash. It does not include cheques, bank deposits and other mediums that are often treated like cash. For example, cheques are considered negotiable instruments and a bank deposit is considered an ADI Account (a sub-classification of the Intangible Property collateral class).

Documents of Title

Section 10 of the PPSA defines a document of title to mean a document issued by, or addressed to, a bailee (someone who is delivered goods without the transfer of ownership, i.e. a courier), that both identifies those goods, and states that those goods are to be delivered to another person/entity.

An example of a document of title is a bill of lading. It is transferable and carries with it the right to claim from the bailee the goods to which it relates.

In the context of securities, a person who holds a bill of lading can offer that bill of lading as security to another party. For example, if a bank lends that person some funds, the bill of lading can be endorsed and delivered to the bank as security for the repayment of those funds. If the person defaults in the repayment of those funds, the bank can present the bill of lading to the bailee and take possession of the goods.

Negotiable Instruments

A negotiable instrument is a document which guarantees the payment of money, either on demand or at a set time. The PPSA defines negotiable instruments to mean any of the following documents:

  • a bill of exchange;
  • a cheque;
  • a promissory note; and
  • certain other documents which evidence a right to payment of currency.

It does not include certain rights to payments in connection with the transfer of land, documents of title or intermediated securities.

A negotiable instrument is comparable to a document of title. The main difference is that a document of title evidences ownership of goods, whereas a negotiable instrument evidences ownership of a monetary obligation. For example, a bill of lading is a document of title as it evidences that the holder is entitled to the goods to which it relates, and a cheque is a negotiable instrument because it evidences that the holder is entitled to payment of the monetary obligation to which it relates.

Investment Instruments

An investment instrument (also known as a financing instrument) is a document (such as a share certificate or bond) used as a means to acquire equity capital or loan capital.

The PPSA defines investment instrument to mean any of the following financial products:

  • shares;
  • company and government debentures and bonds;
  • derivatives (a product that derives its value from an underlying variable asset such as interest rates, market indexes etc.);
  • foreign exchange contracts;
  • interests or units in managed investment schemes;
  • a unit in a share in a company;
  • financial products traded on a market or exchange.

The PPSA expressly states that an investment instrument is not:

  • a document of title;
  • intermediated securities;
  • a negotiable instrument;
  • the creation or transfer of a right to payment in connection with interest in land.

Section 27 of the PPSA makes it clear that an investment instrument may be in either certificated or uncertificated form to fall within the PPSA. For example, a share in a company evidence by a share certificate is an example of an investment instrument in certificated form, and a share in a company without a share certificate is an example of an investment instrument in uncertificated form.

However, an uncertificated share (and other securities) which are on the CHESS system are not classified as an investment instrument, rather they are classified as intermediated securities (another sub-classification of the Financial Property collateral class). It is important to recognise this distinction when selecting the appropriate class.

When registering a security interest on the PPSR, it is imperative that your collateral falls within the collateral class that you have selected. So take extra care during the registration process to ensure you have chosen the correct collateral class so as to avoid any possibility of having a defective security interest.

For further assistance or information, please contact us.




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