29/09/2011

The intended start date of the PPSA has now been moved from 31 October 2011 until early in 2012.  But many businesses will be affected by it and should use this additional time to become familiar with the new law and how it will impact on their operations.

Each month BLB has been providing comment and explanation of the new Personal Property Securities legislation.

This month we focus on a significant part of the PPSA  - the new Purchase Money Security Interest (a "PMSI").

The PPSA will have a major impact on large and small companies and on consumers across a number of common transactions that before now have not had to be registered or were registered in various state-based and other Commonwealth registers.  The PMSI is part of that.

A PMSI is a type of security interest that has special rules in regard to its creation, registration and subsequent priority over other general security interests.

In summary, a PMSI will arise where assistance or finance is provided by Party A to Party B for Party B to acquire agreed goods.

Three examples of a transaction that creates a PMSI are:

1. funds are provided by a lender to a company or individual to buy the specified goods;
2. goods are sold to a buyer and all or part of the purchase price is to be paid after delivery (eg - retention of title / conditional sale agreement); or
3. goods are sold under commercial consignment.

In accordance with section 62 of the PPSA, registration of a PMSI must be done within the specified timeframe in the PPSA to be a valid PMSI.  If the PMSI relates to inventory of goods, then the PMSI must be registered at the time the goods are delivered to Party B.  If the PMSI is not related to inventory then the PMSI must be registered within 15 days of delivery.

In regard to enforcement of security interests registered on the PPSR, the default rules are that the earlier registered security interest has priority over a later registered security interest. 
However, in regard to a PMSI (if correctly registered), it has priority over other registered general security interests even if those general security interests are registered prior to the PMSI.  The PMSI has what is termed "super priority".

The rationale for the super priority is that had Party A not provided finance to Party B it would not have had the funds to purchase the extra goods and therefore the earlier general security interest holder would not have had the additional goods as security over their earlier interest.

As you can see from the above, the PMSI is one example of a major shift in the provision of finance that is covered by the PPSA and therefore financiers/suppliers and borrowers/retailers need to be aware of the changes and how it affects their daily business transactions.

If you have any questions in regard to this article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.