Priority Deed in Australia: What It Is and When You Need One

If your business has more than one lender or financier, you’ll almost certainly hear the term “priority deed” (sometimes called a deed of priority or intercreditor deed). It’s a document that decides who gets paid first, who can enforce security, and how competing interests are managed if something goes wrong.

That might sound technical, but the idea is simple: a priority deed reduces uncertainty between secured creditors and protects your business from being stuck in the middle of a dispute.

In this guide, we’ll explain what a priority deed does in plain English, when you’ll be asked to sign one, how it interacts with Australia’s Personal Property Securities Act (PPSA), and the key clauses you should look out for before you agree to anything.

What Is A Priority Deed?

A priority deed is a binding agreement between two or more creditors (for example, your bank and an invoice financier) that sets the “pecking order” over your business’s assets and cash flows. It doesn’t usually create security itself - it sits alongside existing security documents (like a General Security Agreement) and tells creditors how to behave if there’s a default, a sale, or a refinance.

Under a priority deed, creditors decide who has first claim over specific assets (e.g. equipment, receivables, stock, IP) and in what order debts are repaid. It will often include enforcement standstills (so only one creditor can enforce at a time), turnover provisions (so the junior creditor hands over recoveries that belong to the senior creditor), and consent mechanics for things like releasing or replacing security.

Because it is a deed, it has particular execution and formality rules. If you’re signing on behalf of a company, it’s best to execute in line with section 127 of the Corporations Act, or follow your deed signing requirements to ensure enforceability.

When Would Your Business Need One?

You’ll generally be asked for a priority deed any time multiple creditors take security over overlapping assets. Common small business scenarios include:

• Bank + invoice finance (debtors): Your bank holds a whole-of-business GSA. You bring on a debtor financier to fund your receivables. The financier needs first priority over the receivables, while the bank keeps priority over everything else.
• Bank + equipment finance: A bank’s GSA coexists with an equipment financier’s purchase money security interest (PMSI) over new machinery. A priority deed confirms the equipment financier’s first claim on that gear, with rules for surplus sale proceeds.
• Senior + mezzanine loans: Growth funding often involves a senior bank facility and a junior (mezz) lender. The deed subordinates the mezzanine lender and sets standstills and payment waterfalls.
• Shareholder loans + bank facility: Founders or a parent company lend funds to the business. The bank will require the insider loans to be postponed (no repayments until the bank is paid in full) via a priority or subordination deed.
• Trade creditor with retention of title: A key supplier registers retention of title on the PPSR. A bank may ask for clarity on who gets the goods or sale proceeds if there’s a default - this is often captured in a multi-party priority arrangement.

If you’re juggling more than one financier, plan for a priority deed early. It can delay settlement if it’s left to the last minute, as each lender’s credit and legal teams will need to sign off on the terms.

PPSA Priorities And Why A Deed Still Matters

Australia’s Personal Property Securities Act 2009 (PPSA) sets default rules about who has priority over personal property (most business assets other than land). Generally, priority follows “perfection” - the creditor who properly perfects first (often by registering on the PPSR) wins. PMSIs (like many asset and stock financings) can also jump the queue if correctly perfected.

Even with those rules, creditors often want a bespoke agreement. A priority deed does three important things that the PPSA on its own does not:

• Allocates priority across different asset pools: For example, lender A has first priority over receivables; lender B has first priority over plant and equipment.
• Controls enforcement timing and process: Standstill periods give the senior creditor time to decide how to respond before a junior creditor takes action.
• Dictates cash waterfalls and turnover: If a junior creditor receives cash that the deed says belongs to the senior creditor, the junior must “turn over” those funds.

In short, PPSA registration is necessary but not sufficient for multi-lender deals. The PPSR sets the baseline. A priority deed customises the priority and enforcement rules so everyone knows where they stand.

Key Clauses To Watch (And How They Affect You)

Priority deeds vary, but most contain a familiar set of provisions. Here’s what they do - and what to consider from a small business perspective.

1) Priority Of Security Interests

This section sets out the order of priority over different asset classes and any caps or carve-outs. It might split assets into buckets (e.g. present and after-acquired book debts; equipment; IP; bank accounts) and allocate first, second (and sometimes third) ranking rights.

Watch for broad definitions of asset classes that accidentally sweep in assets a junior lender needs, or that capture proceeds you expected to use for working capital.

2) Standstill And Enforcement

Usually, only the senior creditor can enforce security for a period after a default - the junior creditor agrees to “stand still” and let the senior run the process. Standstills protect value by avoiding chaotic, competing enforcement.

As a borrower, prolonged standstills can tie up your business. Push for clear triggers and reasonable timeframes so a solution (refinance, restructure, or sale) isn’t unnecessarily delayed.

3) Payment Waterfall And Turnover

The deed sets who gets paid first from recoveries or ordinary cash flows (e.g. repayments, proceeds of sale). If the junior creditor receives money that belongs in the senior’s bucket, turnover clauses require it to hand that money over.

Check that ordinary-course payments you rely on (e.g. payroll, rent, taxes) are permitted ahead of distributions to creditors, and that your operating accounts can function normally unless a default occurs.

4) Subordination Of Debt

Where shareholder loans or intercompany loans exist, the deed often postpones those debts. You typically cannot be repaid until the senior lender has been paid in full, and you may need to assign any recoveries to the senior lender.

If your growth plan includes periodic repayments to related parties, understand how subordination affects your cash flow and whether exceptions can be agreed.

5) Amendments, Increases And Refinancing

Deals evolve. The deed should explain when a creditor can increase limits, amend terms, or refinance without needing everyone’s consent. Senior lenders prefer broad flexibility; juniors prefer caps or consent rights.

Seek clarity on thresholds for “permitted refinancings” and whether new facilities inherit the same priority. This matters whenever you change banks or add new funding lines.

6) Permitted Security And Carve-Outs

To keep your business running, you may need ordinary-course security arrangements - for example, small equipment leases, trade finance PMSIs, or merchant facilities. The deed can whitelist these so they don’t breach the priority regime.

Make sure practical needs are covered: permitted overdrafts, card acquiring arrangements, lease bonds, and other day-to-day facilities that keep cash flowing.

7) Releases And Asset Sales

If you sell assets or refinance, you’ll need a clean release of security interests. The deed can set a simple process for releases (for example, upon receipt of the agreed payoff amount), which avoids last-minute settlement headaches.

Agree upfront how payoff letters, PPSR discharges and releases will be handled so asset sales don’t stall.

8) Information Sharing And Control Accounts

Some deeds require operational controls (like lockbox or control accounts for receivables) or regular financial reporting to the senior creditor. These can impact how you manage collections and payments.

Confirm how funds flow day-to-day and who has control over bank accounts in normal times versus default scenarios.

9) Defaults And Waivers

The deed will define defaults that trigger standstills or cash sweeps, and set rules for waivers. Try to align these with your primary facility agreements to avoid accidental missteps.

If circumstances change, you may need a Deed of Variation or a Deed of Novation to update or replace parties without upsetting the agreed priority.

Putting A Priority Deed In Place: A Practical Guide

Getting a priority deed right is about coordination and clarity. Here’s a straightforward process to follow.

Step 1: Map Your Funding And Security

List each current and proposed lender, facility type, limits, and which assets are (or will be) secured. Pull copies of any GSAs, equipment leases, retention of title terms, and PPSR registrations so everyone sees the full picture.

If any new security will be granted, consider how you’ll register a security interest to preserve priority under the PPSA. Correct and timely registration is still essential even with a deed in place.

Step 2: Agree The Asset Buckets And Priority Split

With your lenders, allocate assets into clear buckets and set who ranks first on each. For example, receivables to the debtor financier, plant and equipment to the asset financier, all else to the bank. Keep definitions tight to avoid overlap or ambiguity.

Step 3: Align Enforcement, Standstill And Waterfalls

Confirm the standstill period, who controls enforcement, and how money flows in both business-as-usual and default scenarios. Be practical about how your business operates - collections, payroll, taxes and critical suppliers need to be paid on time.

Step 4: Lock In Permitted Security And Ordinary-Course Exceptions

Document carve-outs that let you trade efficiently: card facilities, small leases, PMSI stock arrangements, and landlord or bond requirements. This avoids technical breaches when you enter everyday contracts.

Step 5: Finalise Signing And PPSR Hygiene

Once the deed is agreed, execute it correctly (as a deed) and ensure all related security documents are signed and registered. Keep your PPSR portfolio tidy and consistent with the deed’s allocations to prevent priority disputes.

Step 6: Keep An Eye On Changes

Any material change - a refinance, new facility, asset sale or restructure - may require consent or an update to the deed. Build a habit of notifying your lenders early so amendments are smooth and don’t delay transactions.

Helpful Related Protections

Priority deeds often sit alongside other risk tools. Lenders may also require personal guarantees from directors or bank guarantees for leases or projects. Make sure you understand how these interact so you’re not agreeing to overlapping obligations that increase your exposure unnecessarily.

Don’t Forget The Basics

A priority deed doesn’t replace good security practice. You still need the right security documents (like a General Security Agreement) and solid PPSR registrations. The deed simply coordinates competing interests so everyone can rely on predictable rules.

PPSA FAQs We Hear From Small Businesses

Isn’t PPSR Order Enough To Decide Priority?

It decides a lot, but not everything. The PPSA can’t easily handle nuanced arrangements, like splitting priority across different asset categories, standstill periods, or bespoke payment waterfalls. A priority deed covers these gaps and reduces the risk of disputes between creditors (which ultimately protects your business). If you’re new to PPSR concepts, this overview of the PPSR is a good place to start.

Do We Need A Lawyer For A Priority Deed?

It’s wise. The document is technical, and small tweaks (like a stray definition or a broad turnover clause) can have big consequences for your cash flow and negotiating room later. A legal review helps align the deed with your facilities, your security agreements and your operational reality.

Can A Priority Deed Be Changed Later?

Yes, but you’ll generally need all parties to agree. If your funding mix changes or you’re refinancing, you can update terms via a variation or replace the deed as part of a new deal. Plan ahead so changes don’t push back settlement - and use a formal instrument, such as a Deed of Variation, to keep the priority framework clean and enforceable.

Negotiation Tips So The Deed Works For You

• Be specific about assets: Narrowly define receivables, inventory, equipment and proceeds to avoid accidental overreach. Where needed, use schedules to list key accounts or machines.
• Protect ordinary-course operations: Carve out payments you must make to keep trading (tax, wages, rent, critical suppliers). Agree that only on default do stricter controls kick in.
• Keep standstills reasonable: Balance the senior creditor’s need for control with your need for speed if a workout or refinance is the best path.
• Cap flexibility where appropriate: If juniors are worried about seniors endlessly increasing limits, consider reasonable caps or consent rights without blocking normal drawdowns.
• Plan for change: Bake in a clear refinance and release process. The quicker the payoff/release mechanics, the easier it is to sell assets or switch lenders when the time comes.
• Match the rest of your documents: Align definitions and default triggers with your facilities and security paperwork so you’re not tripped up by inconsistencies.

If you’re unsure where to start, getting targeted help to structure the priority split and align it with your facilities can save a lot of back-and-forth. It’s common to address the priority deed alongside your security documents and PPSR registrations as a single, coordinated workstream.

Key Takeaways

• A priority deed (intercreditor deed) sets the repayment order, enforcement rules and cash waterfalls when you have multiple secured creditors.
• Even with PPSA rules and PPSR registrations, a deed is valuable because it customises priority across assets, controls enforcement timing and avoids creditor disputes.
• Focus on the practical clauses: asset buckets and priority split, standstills, waterfalls, permitted security, releases and change mechanics.
• Protect your day-to-day operations with sensible carve-outs and clear processes for account control, ordinary-course payments and quick releases on refinance or sale.
• Coordinate the deed with your General Security Agreement and PPSR registrations, and consider how related protections like personal guarantees or bank guarantees fit into the overall risk picture.
• Get legal input before signing - a small drafting change can have a big impact on your cash flow and flexibility down the track.

If you’d like a consultation on drafting or reviewing a priority deed for your Australian business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.