PPSR – PMSIs and Retention of Title

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This is a webinar power point presentation (in web format) for our PPSA/PPSR webinar series. This was presentation was delivered on 29 September 2016.

Each slide beginning is in bold.

  • PMSIs Explained
  • Risks of claiming you have a PMSI if you don’t really have one
  • Stricter time limits for registration of a PMSI
  • Retention of Title (a type of PMSI)
  • Title is no longer king
  • Understanding → “Title” = the “security interest”
  • Where is the Security Agreement and what needs to be in it?
  • Timing issues for inventory

PPSR – PMSIs Explained

A Purchase Money Security Interest is:

  1. a) A security interest securing all or part of the purchase price of collateral; or
  2. b) A security interest where the secured party gives value to be applied in enabling the grantor to acquire rights in the collateral; or
  3. c) An interest arising under a PPS lease; or
  4. d) An interest arising under a commercial consignment.

S 14(1) Personal Property Securities Act 2009 (“PPSA”)

PPSR – PMSIs Explained

A Purchase Money Security Interest is:

  1. a) A security interest securing all or part of the purchase price of collateral
  • Hire purchase agreements
  • Selling goods on credit (ROT basis)

PPSR – PMSIs Explained

A Purchase Money Security Interest is:

  1. b) A security interest where the secured party gives value to be applied in enabling the grantor to acquire rights in the collateral
  • Loan agreements
  • Vendor finance repayments

PPSR – PMSIs Explained

A Purchase Money Security Interest is:

  1. c) An interest arising under a PPS lease

A PPS Lease is a lease or bailment of goods:

  1. a) > 1 year term
  2. b) Indefinite term
  3. c) Up to 1 year + renewable term(s) totalling > 1 year
  4. d) Up to 1 year + uninterrupted possession totalling > 1 year

S 13(1) PPSA

PPSR – PMSIs Explained

A PPS Lease does not include:

  • a lease by a lessor who is not regularly engaged in the business of leasing goods; or
  • a bailment by a bailor who is not regularly engaged in the business of bailing goods; or
  • a lease of consumer property as part of a lease of land where its use is incidental to the use and enjoyment of the land; or
  • a bailment for which the bailee (in possession) provides no value.

S 13(2) – (3) PPSA

PPSR – PMSIs Explained

A Purchase Money Security Interest is:

  1. a) An interest arising under a commercial consignment

A Commercial consignment means a consignment if:

  1. a) the consignor retains an interest in goods it delivers to the consignee; and
  2. b) the consignor delivers the goods to the consignee to sell, lease or dispose of; and
  3. c) the consignor and consignee both deal in goods of that kind in the ordinary course of business.

S 10 “Commercial consignment” (a) – (c) PPSA

PPSR – PMSIs Explained

A Commercial consignment does not include agreements under which:

  • Goods are delivered to an auctioneer for the purpose of sale.
  • Goods are delivered to a consignee generally known to the creditors of the consignee to be selling or leasing goods of others.

S 10 “Commercial consignment” (d) – (e) PPSA

PPSR – PMSIs Explained

A Purchase Money Security Interest is not:

  1. a) An interest acquired under a transaction of sale and lease back to the seller; or
  2. b) An interest in original collateral that is certain types of financial property; or
  3. c) An interest in collateral intended by grantor for personal, domestic or household use (unless it may or must be described by serial number).

S 14(2) – (2A) PPSA

PMSIs – Risks of claiming you have a PMSI if you don’t really have one

SECT 164(1) PPSA – Defects in registration – general rule

A registration with respect to a security interest that describes particular collateral is ineffective because of a defect in the register if, and only if, there exists:

  1. a) a seriously misleading defect in any data relating to the registration, other than a defect of a kind prescribed by the regulations; or
  2. b) a defect mentioned in section 165.

PMSIs – Risks of claiming you have a PMSI if you don’t really have one

SECT 165(c) PPSA – Defects in registration – particular defects If:

  • “the registered financing statement (as amended, if at all) indicates that a security interest in the collateral is a purchase money security interest (to any extent)”

But:

  • “the security interest is not a purchase money security interest (to any extent) in the collateral”

Then:

  • a defect in a registration for the purposes of s 164(1)(b) PPSA exists.

PMSIs – Risks of claiming you have a PMSI if you don’t really have one

SECT 164(1)(b) PPSA – Defects in registration – general rule

A registration with respect to a security interest that describes particular collateral is ineffective because of a defect in the register if […] there exists a defect mentioned in section 165.

PMSIs – Stricter time limits for registration of a PMSI

A PMSI has “super priority” over other perfected security interests

in collateral if:

  • Security agreement provides for the SI and covers the collateral;
  • PMSI is perfected by registration;
  • Registration is defect free and indicates the SI is a PMSI; and
  • PMSI is registered by the required time.

PMSIs – Stricter time limits for registration of a PMSI

PMSI Registration times

ROT – Title is no longer king

  • Contracts for sale of goods on credit
  • Raw materials Supply Contracts
  • Supply and install construction contracts
  • Recover goods in hands of third parties

ROT – Title is no longer king

  • S 12 introduces concept of security interest in personal property
  • Transaction must in substance secure payment or performance of an obligation
  • Includes range of transactions – fixed and floating charges, conditional sale agreements (retention of title)
  • Priority disputes determined by first in time perfection of security interests
  • PMSI is the exception to general rule “Super Priority”

ROT – Understanding → “Title” = the “security interest”

Central Cleaning Supplies (Aust) P/L v Elkerton [2014]

  • Central Cleaning Supplies (CCS) supplied cleaning equipment and products to Swan Services P/L on credit
  • All invoices issued to Swan had a retention of title condition of sale
  • Swan went into administration – liquidation
  • Liquidators argued CCS security interest was not perfected and therefore it vested in Swan when it went into administration

(s 267 PPSA)

ROT – Understanding → “Title” = the “security interest”

Decision: Supreme Court

  • Each invoice created a contract
  • ROT clause created security interest in favour of CCS
  • Security interests vested in Swan when it went into administration
  • Overturned on Appeal

Lessons:

  • Identify security interest
  • Take steps to perfects security interest within time
  • If customer is placed into administration – unperfected security interest will vest in the customer

ROT – Timing issues for inventory

Inventory – perfected before delivery of goods = Super Priority

  • Key is to identify inventory accurately
  • Consider S 10 Definition
  • Other issues to consider

ROT – Timing issues for inventory

Inventory – S 10 Definition

“ Personal property (whether goods or intangible property) that, in the course or furtherance, to any degree, of an enterprise to which an ABN has been allocated :

(a) is held by the person for sale or lease, or has been leased by the person as lessor; or

(b) is held by the person to be provided under a contract for services, or has been so provided; or

(c) is held by the person as raw materials or as work in progress; or

(d) is held, used or consumed by the person, as materials.”

Where is the Security Agreement and what needs to be in it?

What is a Security Agreement?

  • Formal written evidence of security interest in collateral
  • Offers protection against 3rd parties
  • May be incorporated in various commercial agreements including:

o Lease Agreements

o Supply Agreements

o Credit Application

o Loan Applications

Where is the Security Agreement and what needs to be in it?

What needs to be in your Security Agreement

  • Security interest clause
  • Definition of collateral
  • Restricted / Permitted Dealings with collateral

• Exclusions of PPSA provisions

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