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Purchase money security interests (PMSI)

A registration must indicate whether the security interest to which it relates is (or will be) a PMSI to any extent. To do this you check the box “A Purchase Money Security Interest (PMSI) is claimed” in step 2 of the registration process.

A PMSI is a particular type of security interest. A PMSI is distinguished from a standard security interest in two main ways: its manner of creation and the priority it receives relative to other security interests in the same collateral.

You must choose PMSI when you first register your security interest. You cannot amend a registration later to indicate PMSI.

PMSIs are typically commercial not consumer

A PMSI will not arise in property that the grantor intends to use for personal domestic or household purposes unless the asset is serial- numbered property (such as motor vehicle).

A PMSI is likely in four main scenarios

A loan or credit to purchase personal property

This is where funds are provided by a financer or other lender to a grantor specifically for the purchase of personal property and security for the repayment of those funds is taken over that property. This is the most common transaction that gives rise to a PMSI and covers purchases of motor vehicles where finance is provided at the point of sale.

Personal property advanced to the grantor with an outstanding debt

A PMSI will arise where the secured party has supplied personal property in advance of all or part of the purchase price being received and security for the repayment of this is taken over the supplied property.

The most common transactions in which this occurs are retention of title arrangements. This typically involves the transfer of possession of the collateral with the title only passing after the full payment price is paid.

A PPS lease transaction

This is where personal property is provided by a bailor or lessor under a PPS Lease and security for payments due in relation to the lease is taken over the leased property.

A PPS Lease is defined under the Personal Property Securities Act 2009. On 20 May 2017,the Personal Property Securities Amendment (PPS Leases) Act 2017 (Cth) changed the definition of ‘PPS Lease’. This change:

  • extends the minimum duration of a PPS lease from more than one year, to more than two years and
  • clarifies that leases of an indefinite term will not be deemed to be a PPS lease unless, the lessee’s or bailee’s possession extends for more than two years

Any agreements entered into on or after 20 May 2017 are affected by this change.

For more information about leases and bailments, including those entered into prior to 20 May 2017 see the Leases and Bailments page.  

A commercial consignment transaction

A commercial consignment is a specific type of consignment defined under the PPS Act. In a typical consignment transaction, a person (the consignor) delivers possession of personal property to another person (the consignee) for the purpose of selling or disposing of it on their behalf. For more information about what is required to have a consignment that is a ‘commercial consignment’, see the commercial consignment glossary page.

Note: a non-commercial consignment security interest may still be a PMSI if it has the characteristics of a transaction that falls into one of the other three PMSI scenarios.

PMSIs and priorities

A secured party with a PMSI may benefit from a ‘super-priority’ which defeats all other registered security interests in the collateral. This includes registered security interests created and registered before the PMSI.

Registration requirements for super-priority

Certain registration requirements must be complied with in order for the PMSI to benefit from the super-priority.

An example of super-priority

ABC Pty Ltd grants an all-assets floating charge to Bankcorp Pty Ltd, which duly registers this security interest. At a subsequent time ABC Pty Ltd receives a supply of inventory on a retention of title basis from Supply-2 -U Pty Ltd, which is also registered. ABC Pty Ltd subsequently becomes insolvent.

The effect of the super-priority is that the PMSI held by Supply-2-U Pty Ltd defeats the security interest of Bankcorp Pty Ltd.

The rationale for this priority rule is that the earlier secured party should not benefit by having recourse to assets of the grantor that would not have been acquired other than with the assistance of the subsequent financier. If the subsequent PMSI secured party did not have the super-priority, they may not have advanced the money or assistance necessary for the grantor to acquire the collateral and develop their business further.

An exception to super-priority is inventory financing

In the instance of inventory financing a PMSI in accounts as proceeds of a supply of inventory is defeated by a deemed security interest in those accounts arising from a factors purchase of those accounts.

PMSI registration requirements for a super-priority

To receive a super-priority a PMSI must be registered within specific timeframes. These vary according to the type of personal property and its intended use by the grantor.

The timeframe is dependent on whether the collateral is tangible or intangible property, and if the collateral is inventory or not.

  Where the collateral is tangible property: Where the collateral is intangible property:
Where the collateral is inventory:

The security interest must be registered before the time the grantor obtains possession of the collateral.

The security interest must be registered before the time the PMSI attaches, or is created, over the inventory.
Where the collateral is not inventory: The security interest must be registered within 15 business days of the grantor obtaining possession of the collateral. The security interest must be registered within 15 business days of the time of attachment, or creation, of the PMSI.

A PMSI that is not registered within these timeframes is still validly created. However, it will not benefit from the PMSI super-priority. The secured party continues to have a security interest and the default priority rules apply.

Ongoing supply arrangements

It is common in commercial practice for a supplier to make repeated supplies of property to the same receiver (grantor). These supplies are commonly made on the same terms.

In these cases, the secured party only needs to make a single registration against the grantor. They do not need to make a registration for each supply advanced. This is because a single registration is valid for one or more security interests.