Purchase Money Security Interest (PMSI) under the PPSA

Purchase money security interest (‘PMSI’) – sounds ‘perfect’, doesn’t it? Priority rules decide which secured party ranks higher (and thus can be paid out first upon liquidating). The rules are mostly quite simple for perfected security– first in time, first in line – in most cases an earlier dated perfected registration beats a later one over the same collateral. An exception to the first in time, first in line rule is a Purchase Money Security Interest (‘PMSI’). If properly registered, a PMSI gives priority over earlier registered security interests over the same collateral.¹

What is a PMSI?

A PMSI is a particular type of security interest, distinguished from a standard security interest in 2 main ways: First, its manner of creation; second, the priority it receives relative to other security interests in the same collateral. The most common transactions in which this occurs are retention of title arrangements.

Do I have a PMSI?

Yes to any of the above, means you have a registerable PMSI interest and must take appropriate steps to protect it.²

Super-Priority

A secured party with a PMSI may benefit from a ‘super-priority’ – which defeats all other registered security interests. This includes registered security interests created and registered before the PMSI. To receive a super-priority a PMSI must be registered within specific timeframes.³ These vary according to the type of personal property and its intended use by the grantor.⁴

Timeframes for Registration

A PMSI not registered within these timeframes will not render the PMSI void, however, it will not benefit from the super-priority. You can only use a PMSI (to claim super-priority) over particular goods, only for outstanding debts owed on those goods, or their proceeds, not for other debts owed to you by the same customer.

Perfection

Perfection means giving your security interest the best priority and effectiveness, enabling it to be enforced against liquidators and third parties. The main form of perfection is registration on the PPSR. You also need to make sure that your security interest is ‘attached’ to the collateral and properly documented. For further information about PMSIs, please contact our team of specialists at TNS Lawyers.

Disclaimer: This article is intended as general information only. It does not purport to be comprehensive advice or legal advice. Readers must seek legal advice before acting in relation to these matters.

——————————–

¹ Personal Properties Security Act 2009 (Cth) Section 62.

² Personal Properties Security Act 2009 (Cth) Section 14(1)

³ Personal Properties Security Act 2009 (Cth) Section 62.

⁴ Available at – https://www.ppsr.gov.au/purchase-money-security-interests-pmsi

⁵ Personal Properties Security Act 2009 (Cth) Section 19.

Let others know you hold a security interest in personal property.

TNS Lawyers can assist with registering on the PPSR or claiming PMSI priority. Get started with a free, no-obligation callback with us!