An overseas supplier sells a specialised engine, pump, control unit or other high-value component to an Australian customer on credit. Before the invoice is paid, the customer installs the component in a larger machine or piece of equipment. Payment then stops.
The supplier may appear to have a serious problem: the goods it supplied are no longer sitting separately in a warehouse and may now form part of property owned or financed by someone else.
Under Australia’s Personal Property Securities Act 2009 (Cth) (PPSA), installation does not necessarily destroy an existing security interest. A component that becomes an accession can remain subject to a security interest, and in the right circumstances a secured party may be entitled to remove it after default.
But the result depends on much more than ownership. Attachment, perfection, timing, competing interests and the statutory removal procedure can all determine whether the supplier has an effective recovery mechanism or merely an unpaid invoice.
When does an installed component become an accession?
Section 10 of the PPSA defines an accession to other goods as goods that are installed in, or affixed to, those other goods, subject to a specific exception where both sets of goods are required or permitted to be described by serial number.
A typical commercial example is a separately supplied component installed into a larger item of machinery.
An industrial motor may be incorporated into a production line. A replacement pump may be installed into processing equipment. A specialised module may be fitted into a larger machine. An electronic control system may become part of equipment owned by the Australian purchaser.
The important point is that an accession is not the same problem as goods that have lost their identity through manufacturing or mixing.
If supplied material is transformed, processed or commingled so that it becomes an unidentifiable part of a larger product or mass, Part 3.4 of the PPSA may apply instead. We examine that different mechanism in our analysis of commingled goods in Australia and supplier rights under the PPSA.
Section 99 deals with goods whose identity is lost in a product or mass, including situations where restoring them to their original state is no longer commercially practical. By contrast, Part 3.3 deals specifically with accessions.
The physical and commercial facts therefore matter. A supplier should identify what actually happened to its goods before assuming that every component incorporated into another product is governed by the same PPSA rules.
The security interest can continue after installation
Section 88 establishes the starting rule: a security interest in goods that become an accession to other goods continues in the accession.
This is significant for suppliers using properly structured retention-of-title or other secured supply arrangements. Installing the component does not, by itself, extinguish the security interest that already existed in it.
Section 89 then provides the default priority rule. Subject to other provisions of the PPSA, a security interest that was attached when the goods became an accession has priority over a claim to the goods as an accession made by a person with an interest in the whole.
Consider a simplified example.
A European manufacturer supplies an AUD 120,000 industrial drive unit to an Australian company. The supply agreement creates an enforceable security interest and the relevant PPSR steps are taken before the unit is installed. The Australian customer then incorporates the drive into production equipment worth substantially more.
If the customer later defaults, the fact that the drive is physically inside the larger machine does not automatically make the supplier’s security interest disappear.
That does not, however, mean that every registered supplier can automatically dismantle equipment and take its component away. Priority must first be established, and the PPSA contains specific exceptions and enforcement rules.
Late perfection can change the priority result
Timing becomes particularly important between the moment the component is installed and the moment the supplier’s security interest is perfected.
Section 90 protects several categories of persons who obtain relevant interests after the goods have become an accession but before the security interest in the accession is perfected.
For example, priority may be given to a person who acquires for value an interest in the whole during that period. The section also protects, to the extent specified by the Act, a holder of a perfected security interest in the whole that makes a further advance before the accession interest is perfected.
Section 91 deals with an even weaker position: where the security interest in the component attaches only after the goods have already become an accession.
In that situation, the security interest can be subordinate to an existing interest in the other goods where the statutory conditions are satisfied, as well as to certain interests acquired in the whole before the accession interest is perfected.
This creates a practical lesson for foreign suppliers.
The safest time to analyse the Australian security position is generally before delivery and installation, not after the customer has stopped paying. Trying to create, document or perfect the relevant interest only after the component has become part of valuable equipment may produce a very different priority result.
A PPSR registration does not create security by itself
A supplier should also distinguish the underlying security interest from its PPSR registration.
Non-payment alone does not create a security interest. The transaction must first give rise to an interest recognised by the PPSA, and the requirements for enforceability against third parties and perfection must then be considered.
This is particularly important where the supplier expects purchase money security interest treatment.
A qualifying PMSI can provide important priority advantages, but the statutory definition, registration and timing requirements must actually be satisfied. Registration errors can also have consequences that are far more serious than losing special priority.
We examine those risks separately in PMSI checkbox errors and invalid PPSR registrations in Australia.
For an accession dispute, the practical questions are therefore not simply “Are we still the owner?” or “Did we register something on the PPSR?”
The creditor should establish:
- what security interest the contract actually created;
- when that interest attached;
- whether and when it became perfected;
- what property the registration covers;
- when the component was installed;
- who owns or has security over the larger item;
- whether any competing interest arose before perfection.
A mistake in that sequence can change the priority analysis before enforcement even begins.
Priority does not mean unlimited permission to dismantle equipment
Where the debtor is in default, section 123 generally permits a secured party to seize collateral by a method permitted by law. For accessions, that right must be read together with the specific rules governing removal.
Under section 92, a secured party entitled to remove an accession must do so in a manner that causes no greater damage to the other goods, and no greater inconvenience to the person in possession of the whole, than is necessarily incidental to the removal.
That requirement can be commercially important.
Removing a modular electronic controller may be relatively straightforward. Removing an industrial component from an operating production line may require engineers, shutdown time, specialised lifting equipment and work on surrounding machinery.
The supplier’s legal position should therefore be considered together with the engineering reality of removal.
Section 93 also creates a reimbursement right for a person, other than the grantor, who had an interest in the other goods when the component became an accession and whose interest is damaged by the removal.
However, the statutory reimbursement does not include the reduction in value caused merely because the accession is gone or because a replacement component will be required.
Section 94 goes further: a person entitled to reimbursement may refuse permission for removal until the secured party provides adequate security for that reimbursement.
In other words, even a creditor with a strong priority position should not treat physical removal as an informal repossession exercise.
The 10-business-day notice can be critical
Section 95 establishes a specific notice procedure for the removal of an accession.
A secured party entitled to remove the component must ordinarily give notice to the grantor and to any secured party holding a higher-priority security interest in the accession.
Unless a shorter period has been specified in writing by the recipient, the notice must ordinarily be given at least 10 business days before removal.
The notice must state:
- the name of the secured party;
- a description of the accession and the other goods;
- the obligation owed to the secured party;
- the value of the accession if removed from the other goods; and
- the intention to remove it unless the secured obligation is discharged or the accession value is paid within the applicable period.
The PPSR provides a specific Notice of intention to remove accession for this purpose.
There are statutory circumstances in which notice is not required. These include situations where the relevant person consents after default to removal without notice and certain cases where delay could cause the accession to decline substantially in value or create disproportionately high storage or preservation costs.
Commercial security agreements also require careful review. For collateral not used predominantly for personal, domestic or household purposes, section 115 permits the parties to contract out of specified enforcement provisions, including parts of the accession notice and retention regime. Rights belonging to third parties, however, cannot simply be removed by an agreement to which they are not parties.
The contract therefore matters at the enforcement stage as well as when the security interest is first created.
The component may stay in the machine — if someone pays
One of the most commercially useful accession rules is section 96.
A person other than the grantor who has an interest in the whole that is subordinate to the security interest in the accession may retain the component if the statutory conditions are met.
There are two principal routes.
The secured obligation owed to the party with the highest-priority security interest in the accession can be performed.
Alternatively, that secured party can be paid the value of the accession at the time of payment, calculated on the basis of the accession being removed from the other goods.
This means the economic outcome of an accession dispute does not always need to be physical repossession.
Suppose a specialised drive unit is essential to a production machine. Removing it would stop production and require expensive engineering work. A financier or other person with the relevant interest in the whole may prefer to preserve the machine intact and resolve the accession claim by payment instead.
For the unpaid supplier, the right connected with removal can therefore create leverage to obtain value even where actually taking the component back is commercially unattractive.
A court can postpone removal or determine the retention amount
The PPSA also provides a mechanism for judicial intervention.
Under section 97, a person entitled to receive a section 95 notice may apply to a court for an order postponing removal of the accession.
The court may also determine the amount payable under section 96 for the accession to be retained.
Court approval is therefore not automatically required before every accession can be removed. But where there is a dispute about timing or the amount needed to retain the component, the Act expressly provides a route to obtain a judicial determination.
This may become particularly relevant where the component is valuable, the larger equipment is operationally important, or different secured creditors assert competing rights.
Insolvency makes early perfection even more important
Accession rights often become commercially important only after the Australian buyer is already in financial difficulty.
By that stage, the creditor may be dealing not only with the buyer but also with a bank, administrator, liquidator, receiver or another secured creditor.
That can materially affect enforcement.
For example, section 116 provides that the PPSA’s Chapter 4 enforcement regime does not apply to property while a person is acting as its receiver or receiver and manager. The creditor must therefore identify the insolvency status and who controls the property before assuming that the ordinary enforcement process remains available in the same way.
An unperfected security interest can also face much more serious consequences in insolvency than a properly perfected interest.
For this reason, the PPSR analysis should be completed before the customer’s financial distress becomes visible whenever possible.
What if the customer has already stopped paying?
Accession rights become most valuable once the commercial relationship has already broken down and the buyer has stopped paying. At that stage, the supplier should assess two connected issues: recovery of the outstanding debt itself and whether the installed component can still provide an additional source of security.
These remedies are complementary rather than mutually exclusive. The supplier may continue pursuing the contractual debt while separately determining whether its security interest in the component remains enforceable, what priority it has and whether removal or payment under the PPSA accession provisions is commercially realistic.
The appropriate strategy will depend on the debtor’s financial position. If the company remains operational and solvent, the primary focus may be on a formal demand, negotiations and, if necessary, court proceedings. If there are signs of financial distress, insolvency proceedings, receivership or competing secured creditors, the PPSA analysis may become considerably more important.
Once payment default has occurred, the supplier should therefore determine both how the underlying debt can most effectively be recovered and what additional rights remain available in relation to the installed component. The broader process for recovering commercial debt — from pre-litigation measures through court proceedings, enforcement and insolvency procedures — is examined in our guide to debt collection in Australia.
Where a valuable component has already been installed in other equipment, those ordinary recovery options should be considered together with the supplier’s secured position. A well-protected accession may give the creditor additional leverage that would not exist in an ordinary unsecured debt claim.
What should a foreign supplier preserve?
A supplier expecting to rely on an accession security interest should be able to prove both the legal transaction and the physical identity of the component.
Useful records may include:
- the signed supply agreement and incorporated terms of trade;
- retention-of-title and other security clauses;
- purchase orders and invoices;
- proof of delivery;
- PPSR registration details and verification statements;
- the component’s make, model and serial number;
- photographs or technical records showing where it was installed;
- installation and commissioning records;
- correspondence showing the date of installation;
- evidence of the component’s standalone value;
- information about the larger equipment into which it was installed;
- details of competing PPSR registrations or financiers.
Technical evidence may become just as important as contractual evidence. If enforcement is contemplated, the creditor may need to understand whether the component can be removed, what work is required, what damage removal could cause and what its value would be after removal.
Waiting until a liquidator or secured lender already controls the equipment can make that reconstruction substantially more difficult.
The practical lesson for international suppliers
Australian law contains a specific regime for components that become accessions to other goods.
Sections 88–97 of the PPSA can preserve an existing security interest after installation, establish priority rules and, after default, regulate how an accession may be removed or retained.
The strongest position will usually be created before the component is installed.
The supplier should ensure that the transaction actually creates the intended security interest, consider perfection and any applicable PMSI requirements at the correct time, preserve evidence identifying the component and understand what competing interests exist in the larger equipment.
If payment then fails, the next step is not simply to demand that the component be returned. Priority, notice requirements, possible reimbursement, the physical consequences of removal, competing secured parties and any insolvency process all need to be checked first.
For a foreign supplier, that preparation can determine whether an installed component has effectively disappeared into the customer’s assets — or remains a commercially useful source of security.
