By Karen Lee | Legal Know-How,
January 25, 2018
More PPS matters being contested
Did you know that there were at least 27 cases that commented on the PPSA or the PPSR in 2017? By comparison, there were around 23 such cases in 2016, and around 18 such cases in 2015. The numbers are on the rise largely for one reason - some of us still do not appreciate the PPSA's reach, and by not properly applying the PPSA, security interests are either not perfected or perfected out of time, making the security interest the subject of disputes and vulnerable to a priority contest.
Another PMSI decision
30 January 2018 marks the 6th anniversary of the PPSA. As we approach this date, let us take a look at another decision on purchase money security interests (PMSIs). This is 1 of at least 5 PPSA decisions that concern PMSIs in the last 12 months. What can we learn from it?
In November 2017, the South Australian Supreme Court handed down its decision on Allied Distribution Finance Pty Ltd v Samwise Holdings Pty Ltd [2017] SASC 163. For those of us who would like a PPS refresher, this judgement is good summer reading, as Justice Blue gave an overview of the PPSA and its major principles. These include the meaning of “personal property”, “security interest”, “PPS lease” and “PMSI”, He also covered key PPSA concepts such as attachment, perfection and priority.
What we have in Allied Distribution v Samwise Holdings is a priority contest between the 2 parties. In essence, the action was for a declaration that Allied Distribution's PMSI has priority over other security interests with respect to 40 motorcycles. In his judgement, Justice Blue made it clear that, in the PPSA, the reference to a grantor obtaining “possession” of goods that are inventory (in section 62(2) regarding PMSI priority) is a reference to the grantor obtaining possession of that very inventory as a grantor of the PMSI and not in some other capacity. As a result, Allied Distribution is entitled to a declaration that its security interest has priority over Samwise Holdings' security interest.
The lesson
Without deep diving into legal analysis, the key lesson here is a simple one - the PMSI provisions in the PPSA afford priority to security holders who provide to the grantor the means of acquiring the grantor's interest in the personal property over other security holders as it is equitable to do so, but a security holder must follow the rules in the PPSA to enjoy PMSI priority. In particular, the security interest must be registered on the Personal Property Securities Register (PPSR) before the time the grantor obtains possession of the goods if they are inventory, and the security interest must be registered within 15 business days of the grantor obtaining possession of the goods if they are not inventory. We have shared some insights regarding this with you before, for example, see here.
A practice tip
On a practical note, it is very important to remember that you must tick the PMSI box when you first register your security interest on the PPSR as you cannot amend a registration later to indicate PMSI.
Join us for a complimentary PPS webinar on Wednesday, February 21st at 12:00 PM AEDT. We will take a look at more recent decisions to leverage the lessons learnt so they are not lessons lost.
In the meantime, read more about the PPSA and the PPSR in SAI Global's industry news, including:
SAI Global has helped many customers develop strategies to manage registrations on the PPSR, including to make registrations in a timely manner. Discover how we can help you protect your assets by contacting us for a free consultation today.