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PMSI’s and Transitional Security Interests on the PPSR

Since 30 January 2012 if goods are supplied to a business (grantor)on credit, or financed, the supplier/financier must register their interest on the Personal Property Securities Register (PPSR). A common form of registration on the PPSR is a Purchase Money Security Interest (PMSI). A supplier can register a PMSI on the PPSR when a supplier:

• finances the acquisition of new assets; or

• provides goods on credit for the business to sell.

Incorrect or out-of-time registrations will be fatal to

the supplier’s claim.

If registered correctly, a PMSI gains priority status in a competition between creditors of an in solvent grantor business.

The timing of a PMSI registration is critical for it to be valid. The registration must also specify whether the goods financed or supplied are inventory or non-inventory. In correct or out-of-time registrations will be fatal to the supplier’s claim.

Where a security agreement for the supply of goods on credit was entered into prior to 30 January 2012 (RCT) a supplier or creditor will have a transitional security interest. A transitional security interest will protect the supplier/creditor for a period of 24 months from RCT.

Where a PMSI for ongoing supplies of inventory is registered as a transitional security interest, it is arguable that only the goods supplied prior to RCT are truly transitional. If correct, goods supplied after RCT will be the subject of a security agreement that post-dates RCT and will not be transitional. If registered as transitional, this will be an incorrect registration that is flawed: the security interest will therefore not be perfected and will fail against a perfected security interest.

However a supplier trading with a grantor business under a security agreement that involves the supply of inventory from time to time can argue that the continued supply of inventory is covered by the original agreement which pre-dated RCT. Hence each supply is transitional and if registered as transitional, this will be a perfected security interest taking priority over unperfected interests as well as the liquidator’s interests.

There is no case law (yet) on whether a registered PMSI for ongoing supplies of inventory requires a separate registration each time goods are supplied or whether each supply is covered by the original agreement that pre-dated the RCT subject to the transitional provisions – suppliers should seek professional advice to protect themselves.

Suppliers can also be caught out where they rely on a supply agreement prior to RCT as a transitional security interest, however, after RCT they then renegotiate their terms or enter into a new supply agreement. All new agreements must be the subject of a new PMSI, which must be correctly registered on the PPSR.

Darren Carden

Contact Elringtons T: (02) 6206 1300 (02) 6206 1300 FREE

Level 7, 221 London Circuit, Canberra City

visit: elringtons.com.au

 

 

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