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Agriculture: Lentil farmer Len

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Scenario – Using PPSR to raise finance against crops and land

Concepts covered:

  • Raising finance

  • Priority rights.

The scenario

Lentil farmer, Len, borrows from Fastpulse to finance the next season’s crop to be planted next month.

Fastpulse takes security over the crop for the debt, and registers a security interest on the PPSR (collateral type ‘agriculture’).

Len later gives a mortgage over the farm land on which the crops are growing,

to Landslend to secure borrowing for new plant and equipment.

Len goes bankrupt two months later owing money to Fastpulse and to Landslend.

Landslend claims that the crop, still unharvested, is part of the land.

Fastpulse is able to recover the crop (and can re-enter the land to do so) because a security interest in growing crops is not affected by any subsequent sale or mortgage of the land. Landslend could have searched the PPSR before taking security over the land, to see if any crop security was registered against Len.

Tip

If Len had given security to Fastpulse after having given a mortgage of the farm land to Landslend, the result would be different. In this case, Fastpulse could have searched the land titles register to discover Landslend’s security over the land.

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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