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The Personal Property Securities Act and Purchase Money Security Interests

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The introduction of the Personal Property Securities Act 2009 (PPSA) in May 2011 has far reaching implications for every Australian business. As part of our ongoing series, this week we explain what a Purchase Money Security Interest (PMSI) is and the implications for businesses that supply goods on Retention of Title Terms.

Purchase Money Security Interest

A PMSI is a security interest granted to finance all or part of the purchase price of the collateral. For example, a Retention of Title clause in a agreement where a manufacturer supplies goods to a retailer, or commercial consignment or other security interests that secures all or part of its purchase price.

A perfected PMSI will provide the secured party with a priority for any outstanding debt or unpaid purchase price (including credit charges and interest) and future obligations. A PMSI does not include any interest that is intended to be used for personal domestic or household use unless it has a serial number attached.

Once a PMSI has been registered (for a fee on the online PPS Register) and deemed a perfected security interest, it will have a ‘super priority’ over other security interests. Importantly, a perfected PMSI will have priority over any other PMSI that is granted by the same grantor in the same collateral providing the PMSI has been registered at the earliest possible time. If the collateral is inventory, the PMSI needs to be registered before the purchaser takes possession of the goods. Time is of the essence in a priority competition under the PPSA.

Remember, if the security interest is not perfected by registration and the grantor goes in to liquidation, the supplier who may think they are entitled to the goods will lose priority to the security interest. If this occurs, the liquidator will take the goods free of the unperfected security interest and the supplier will stand as an unsecured creditor. In short, the importance of acting expeditiously and within prescribed time frames cannot be over emphasized.

What you need to do

MST recommends that you:

  • identify what interests in goods or services can  be registered as a PMSI
  • review the terms of Retention of Title/ Supplier agreements as they will need to be amended to reflect the new legislative regime
  • consider what systems will need to be established to effectively manage registration of security interests in a timely manner

MST has been working closely with the governing authorities and is well placed to assist you with any questions you have regarding the new legislation.  We cannot emphasise the importance of understanding the requirements and having your documents and procedures in place by early 2011.

Our Corporate Advisory team can assist you with any questions that you may have.

Author:  Susan Reece Jones