Business Law

PMSI’s and Transitional Security Interests on the PPSR

By B2B Editor 28 May 2013
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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