However, 8 years on it is clear that parties in the business of providing credit, goods or leasing (amongst many others) can still fall foul of simple mistakes when it comes to registering their security interests in the correct time frames to fully maximize their chances of successful recovery.
In the context of the Act, a party granting a security interest is known as a grantor and a party who obtains the benefit of a security interest is known as a secured party.
Failure to register security interests can result in a loss of priority when it comes to recovery and enforcing security otherwise valid security interests. The collateral may be lost in circumstances of insolvency, even where it is the property of the secured party.
Purchase Money Security Order Registrations
A Purchase Money Security Order (“PMSI”), which is a special type of security interest that has superior priority over other security interests, has strict requirements on the time frames for registrations. These vary depending upon the form of collateral. For:
- inventory that are goods, registration must be before the grantor obtains possession of the goods.
- inventory that aren’t goods, registrations must be before the security attaches to the collateral.
- non-inventory that are goods, registrations must be 15 business days after the grantor obtains possession of the goods.
- non-inventory that aren’t goods, within 15 business days after the day the security interest attaches to the collateral.
Inventory is any commercial personal property that is leased, held under a contract for services, used as raw materials or consumed as materials. Examples of this include a builders building materials, a manufacturer’s raw materials and a firm’s office supplies. Not all commercial property will necessarily be inventory.
Goods are personal property that is tangible, such as crops, livestock and minerals but does not include intangible property and financial property or intermediated securities.
The time frames for registration and attachment are varied and depend upon several factors.
Registrations for companies
On top of these requirements in the Act, there are further requirements imposed under the Corporations Act 2001 when a company grants a security interest (making them the grantor). In those circumstances, registration must take place within 20 business days of the security agreement that gave rise to the security interest came into force.
If this isn’t done and the company becomes insolvent then the security interest vests in the company at that time, meaning the collateral will be lost and the administrator or liquidator will be entitled to the collateral.
Extension of timeframes for registration
While the timeframes for registration can be extended by a court under the Act or by a court under the Corporations Act 2001 where the grantor is a company, there are strict requirements that must first be met. There is certainly no guarantee of success when trying to extend timeframes.
Registrations under the Act can be complex and if not registered in the correct timeframe a valid security interest can become subordinate to other, and sometimes later, security interests.
If you have any questions or require advice on the PPSA and timeframes for registrations, whether as a grantor or secured party, feel free to contact our Commercial Team for advice and assistance on 3345 4388 or at firstname.lastname@example.org