Purchase Money Security Interest (PMSI)

Articles > Commercial Property

What is a Purchase Money Security Interest (PMSI)?

February 1, 2022         openlegal

The Personal Property Securities Act 2009 (Cth) (PPSA) establishes a regime for secured parties to protect their security interests, and resolve priority disputes. Secured parties should register their interests on the Personal Property Securities Register (PPSR), a process known as ‘perfecting’ their interest (PPSA s 21). 

Conflicts can occur when there are multiple secured parties competing to see who gets priority to the same collateral. The general rule is that “first in time is first in line”; the earlier registered interest is paid out first before the subsequently registered interest. However, a PMSI grants super priority and will triumph over an even earlier registerested interest (PPSA s 62). We shall explain below how to know whether you are eligible for a PMSI, and how to register it. 

When is a security interest a PMSI?

The definition of a PMSI is found in s 14 of the PPSA. It means a security interest where the money you have lent is for the purpose of funding all or part of the purchase price of the specific collateral (i.e. the personal property, such as a car). 

There are also other situations where a PMSI can arise, such as under a PPS lease or a commercial consignment. Identifying these can be more complex, and you can speak to our experienced team at OpenLegal to make sure you identify it correctly. 

Registering a PMSI

To register a security interest, you must create a PPSR account and then start a new registration form. Our solicitors can assist you through the registration process, but some general things you will need are the type of collateral, your details, grantor (person giving the security interest) details, and payment. 

On step 2 of the registration process you should select the PMSI option. 

Registering in time

Only a PMSI registered in the correct timeframe will have super priority. Otherwise, your PMSI will be subject to the same ‘first in time first in line’ rule as other security interests. 

The relevant timeframe is determined by whether the secured property is part of the “inventory” of the grantor.

Inventory is defined in PPSA s 10 as personal property which is held for the purposes of a business. For example, held for sale or lease, held to be provided under a contract of service, or held as raw materials. 

If the collateral is part of the grantor’s inventory → the PMSI must be registered BEFORE they take possession of the collateral.

If the collateral is not part of the grantor’s inventory → the PMSI must be registered within 15 days of the grantor taking possession of the property. 

What can defeat a PMSI

It should be noted there is one form of security interest that takes priority over even a PMSI: perfection by control. This is a specific category that rarely applies, but it is something important to identify if it arises. Our friendly team at OpenLegal can assist you in identifying if this form of security interest exists and will be an issue for you. 

About openlegal

OpenLegal is a commercial law firm servicing businesses and individuals right around Australia. We're on a mission to provide businesses with premium legal services at a cost effective rate, coupled with first class service.