10/10/2016, 09:19:AM
10/10/2016, 09:19:AM
What is a Purchase Money Security Interests under the PPSA?
Protecting your interests in property whether being through a direct sale agreement or by finance, requires diligent preparation to avoid losing the sellers or lenders rights when competing claims are raised for that property.
ThePersonal Property Securities Act 2009 (Cth), known as the PPSA, has special rules for purchase money security interests, which is also known as a PMSI.
The purpose of the PMSI is to secure either the sellers or lenders rights under the Personal Property Security Register, which is known as the PPSR.
An example of a PMSI is where Party A sells goods to Party B, and party A holds title to those goods until Party B has paid in full for them, with Party A registering their interest in the goods on the PPSR as a PMSI through registration of a financing statement.
Another example is where Party A loans money to Party B for Party B to use in their business and Party A secures their financial interest against Party B for the amount loaned on present and all after-acquired property through the registration of their interest on the PPSR through registration of a financing statement.
Upon a proper and diligent registration being completed of the PMSI through a financing statement on the PPSR, the sellers or lenders rights of claim are secured.
A PMSI is a protection from competing claims against another party who have the same interest in the property. However, there are specific timelines and procedures that are required to be followed to protect either the seller or lender’s rights to gain priority in competing claims.
Section 14(1) of the Act defines a PMSI in part as follows:
(a) A security interest taken in collateral, to the extent that it secures all or part of its purchase price; which this situation is known as a sellers PMSI.
(b) A security interest taken in collateral by a person who gives value for the purpose of enabling the grantor to acquire rights in the collateral; to the extent that the value is applied to acquire those rights; which this situation is known as a lenders PMSI.
So let’s have a look at an example as to how a PMSI works in practice:
Party A who is a lender provides a loan to Party B who is the borrower. Both parties enter into a finance agreement for a $1m loan. Before the money is issued to Party B, loan documents are signed off on which confirm that Party B grants to Party A, a security interest in all its present and future acquired property. Party A registers a finance statement documenting that agreement as a PMSI, on the PPSR before extending the $1m loan to Party B.
Party A then transfers the $1m loan to Party B by direct bank transfer.
Party B purchases a printing press from Party C, who is the seller of the press. Party B only pays 50% of the money for the printing press and the remainder is on a terms agreement but title (ownership) to the printing press has passed to Party B under the sale agreement.
Party B defaults on payments to both Party A and Party C.
Now both Party A and Party C claim a right to the printing press.
The claim for the printing press raised by both Party A and Party C will be subject to the priority rules of registration of the PPSA.
In this example, Party A will have a superior security interest to Party C and will be able to claim a right to the printing press, as Party A perfected their security interest with proper registration of the PMSI through a financing statement on the PPSR.
However, this circumstance would be different if Party C had a finance agreement with Party A for the printing press which confirmed that title to the press did not pass to Party B and titled remained with Party C, and this was correctly documented in the financing statement registered on the PPSR in the correct time frame as per the requirements of the Act, then Party C will hold a superior priority to the printing press over Party A.
Protecting your legal rights to either monies owed or property requires diligence and attention to details with accuracy when dealing with a PMSI under the PPSA. So if you are not sure what is the right procedure to protect your rights, call me, and get that legal advice to protect your legal rights and interests.
The comments in the aforementioned do not constitute legal advice and are general in nature, and if legal advice is required please contact: John Melis at Legal AU Pty Ltd (03) 9999 7799
Legal AU Pty Ltd Lawyers are “Liability limited by a Scheme approved under Professional Standards Legislation.”
