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Protection under the Personal Property Securities Act 2009 (Cth) of security interests created by ROT arrangements

This article deals with retention of title (ROT) arrangements involving personal property in certain serial number goods (for example motor vehicles) or in goods for commercial purposes (collateral).

Under provisions of the Personal Property Securities Act 2009 (Cth) (PPSA)which became effective at the end of January 2012, when a supplier provides finance or value under a ROT arrangement to enable a customer to acquire collateral, the customer (not the supplier) is treated as if it is the owner of the collateral and the supplier has the rights of a secured creditor.

The supplier is granted a form of security interest in the collateral.  This is known as a Purchase Money Security Interest (PMSI).  It secures the amount or value provided by the supplier to the customer but does not secure any other amounts owed to the supplier by the customer or other party on other accounts.  Before the relevant PPSA provisions became effective, this form of security interest was not recognised under Australian law.

Provided the supplier registers its PMSI in the collateral on the Personal Property Securities Register (PPSR) within timeframes specified in the PPSA, the PMSI has what is colloquially known as “PMSI super priority”, that is the PMSI: (a) takes priority over any other security interest in the same collateral, including any earlier registered security interest; and (b) affords the supplier protection against a trustee in bankruptcy or liquidator if the customer becomes insolvent.

With such a registered PMSI the supplier under a ROT arrangement has a high level of protection against the security interests others may have in the same collateral.  On the other hand, without a registered PMSI the supplier is badly unprotected against any such interest as is registered (whenever created) and against any such unregistered interest created before the ROT arrangement becomes effective. In these circumstances, under the PPSA the supplier cannot fall back on ownership rights (as mentioned above in the second paragraph).

To avoid the risk of such an unhappy outcome, a supplier of certain serial numbered goods or of goods for commercial purposes under a ROT arrangement needs to register its interest in the collateral within the prescribed timeframes.

Author: Frances Saggers

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