The full benefit of a security interest may not be obtained unless specific requirements are met under the Personal Property Securities Act 2009 (Cth) (PPSA) and the Corporations Act 2001 (Cth) (Corporations Act).
The most common method of perfection of a security interest is by registration of the security interest on the Personal Property Securities Register (PPSR) which must occur within specified time limits in order for the security interest to have the utmost protection.
What are the timing requirements for a purchase money security interest (PMSI)?
A PMSI is a special type of security interest which is given a higher priority over most other types of security interests. It arises in circumstances such as retention of title arrangements, where finance is provided for the purchase of a particular item of personal property and consignments.
A PMSI is afforded “super priority” which gives it a higher ranking above other security interests in the same property (potentially including security interests in the property that were registered before the PMSI).
The super priority only arises if the PMSI is registered on the PPSR within the time limits set out in the PPSA and the registration states that the security interest is a PMSI.
The table below summarises the timing requirements which must be met in order for a PMSI to benefit from the super priority:
|Type of Property||Property that will be held as Inventory||Property that is not Inventory|
|Goods||PMSI must be registered by the time the grantor (or a person at their request) takes possession of the property||PMSI must be registered within 15 business days after the grantor (or a person at their request) takes possession of the property|
|Property other than goods||PMSI must be registered by the time the security interest attaches (where the grantor has rights in the property and the security interest is created) to the property||PMSI must be registered by the end of 15 business days after the security interest attaches to the property|
A PMSI that is not registered within these timeframes remains perfected but does not have the super priority.
Special timing requirements for security interests granted by a company
Where the grantor of the security interest is a company, the Corporations Act applies a further set of requirements which must be met.
Before the introduction of the PPSA, fixed and floating charges were required to be registered within 45 days regardless of whether or not the grantor was wound up during that time.
The current position under the Corporations Act is that a security interest will vest in a liquidator if the company is wound up, placed into voluntary administration or under a Deed of Company Arrangement and the security interest is registered after the latest of:
- six months before the commencement of a winding up, voluntary administration or Deed of Company Arrangement;
- 20 business days after the security agreement became enforceable; or
- a later time fixed by the Court.
Courts are required to take into account the following when exercising a discretion to fix a later time period for the registration of security interests:
- if the failure to register the security interest was accidental or inadvertent;
- if the failure to register does not prejudice the position of creditors or other secured parties;
- if any person has acted or not acted in reliance on the registration time period having ended; and
- if it is otherwise just and equitable to grant an extension of time.
Consequences of failing to meet the timing requirements
- Failing to perfect security interests in time may lead to serious and inconvenient consequences. Priority of title may be lost to other secured parties or to parties taking the property free of the security interest. The security interest may even be lost altogether if the grantor of the security interest becomes insolvent.
- Prompt registration of PMSIs and other security interests on the PPSR is therefore highly worthy of consideration. It takes little time and is not expensive.