Purchase money security interests

Personal Property Securities Act 2009 (PPSA 2009) recognises and regulates purchase money security interests.  A purchase money security interest (PMSI) is a security interest that is granted to a person who facilitates the acquisition of personal property.  The person who facilitates the acquisition could be a lender, a lessor, a consignor or a supplier.  They could provide assistance by advancing the deposit or the full purchase price or by leasing or supplying the personal property on credit or retention of title terms.  When a lessor facilitates the acquisition of personal property the arrangement is called a financing lease.  A financing lease could take the form of a PPS lease.  When a supplier facilitates the acquisition of the personal property this is usually done on retention of title terms, with the supplier retaining title until the full purchase price is paid.  A PMSI cannot be taken in certain types of personal property but they are commonly granted in relation to goods and more rarely in relation to intellectual property, such as patents and copyrights.

PMSIs must be registered to preserve their priority.  Indeed, PPSA 2009 gives PMSIs a super-priority over many other security interests.  The priority rules will be covered in a subsequent bulletin.

For present purposes, the important point is that the financing statement that is used to apply for registration of a PMSI must expressly indicate that the secured party is claiming a PMSI in the collateral.  It is not possible to claim a PMSI in all the grantor’s present and after‑acquired property.  The PMSI only applies to the personal property actually acquired with the assistance of the secured party.  This is known as the ‘direct nexus rule’.  If the secured party merely provides funds as extra working capital it will not have a PMSI and it will not enjoy the super‑priority conferred by PPSA 2009.

PMSI's existed under pre-PPSA 2009 law but they did not generally require registration.  It will be necessary for lenders, suppliers, consignors or bailors to review their leases, contracts, and other documents to determine whether they have PMSI's and to take steps to register their PMSI's.

For further information about PMSI's or PPSA 2009, please contact: