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Agriculture: Flo's cattle feed

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Scenario – supplier uses PPSR to protect their security interest in cattle feed sold on credit

Concepts covered:

  • security interest in cattle feed

  • agricultural PMSI (purchase money security interest)

  • cattle-feed priority claim.

The scenario

Bulkbulling supplies cattle feed to Flo and other cattle farmers, on terms of 30 days credit.

Bulkbulling takes security over all livestock held by Flo to secure any monies owing for feed, and registers a security interest over the cattle (collateral class ‘agriculture’).

Earlier, before any dealings between Bulkbulling and Flo, Stockbank took a security interest over all Flo’s property to secure the overdraft facility granted by Stockbank for Flo’s business, and registered it on the PPSR before Bulkbulling’s registration.

Flo goes bankrupt while still owing Bulkbulling for cattle feed.

Because Bulkbulling secured its interest over goods which it supplied to enable the livestock to be fed, it has special priority over the livestock that have been fed.

Therefore, Bulkbulling takes priority ahead of Stockbank’s general security over those cattle, for the amount owing for the feed.

Tip:

Of course, Bulkbulling also makes sure to properly register its security interest over the feed as a PMSI so that it also has super-priority over any security interests in the feed (such as Flo’s bank – i.e. Stockbank).

The super-priority continues even when the cattle have been fed with that feed.

Disclaimer

This is a general scenario intended to provide typical examples.

This scenario is not legal advice about how the law applies to your particular business and dealings.

You may wish to seek professional advice from your accountant, financial adviser or lawyer.

 

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