North Sydney Commercial Lawyers

The Impact of Section 62 of the PPSAPrint This Post

The Impact of Section 62 of the PPSA

This section gives priority to a purchase money security interest over other security interests. But does it? Consider this real life example:

On 1 January 2016, Acme, an equipment hire company enters into a contract of hire to Beta. The equipment is not inventory. Consistent with section 62(3)(b), registration of the security interest on the PPSR takes place within 15 business days of delivery.

The equipment is a very slow loader and therefore it is not a motor vehicle as defined in Schedule 1 of the Personal Property Security Regulations.

Delivery is delayed but it finally occurs on 15 February 2016. Registration takes place on 19 February 2016. This gives the PMSI security interest a priority over any pre-existing security interest under a general security agreement.

However, no one anticipated that Beta would fall on hard times. A guarantee it had executed some years before was called upon. Beta could not pay it and Beta was liquidated within 6 months of 20 business days after 1 January 2016.That means that, by virtue of s588FL of the Corporations Act, the security interest of Acme vests in Beta.

This is good reason to register no later than the date of the agreement, despite the wording of s62.

Section 10 of the PPSA defines “inventory.” It has a very wide meaning. The definition includes “goods held by a person for sale or lease” and “goods held to be provided under a contract for service.”

So if the loader referred to above was to be provided by the lessee to a third party under a landscaping services contract which exists, but had not yet been effected or acted upon, the registration should have been effected under section 62 no later than when the lessee obtained possession of it – S62(2)(b)(i). That was 15 February 2016, not 19 February 2016.

So the take home thought is: always ask what is the purpose of the hire purchase? What does the person want the equipment for? Is it inventory? Is delivery likely to be delayed?

These sorts of issues can have a huge impact on the SME proprietor. Many of our clients have benefited from our insight into these and other sections of the PPSA and its registration provisions. They are very easy to get wrong, despite the government telling us that the PPSA is intuitive and any one can use it. If you want to have professional help to assist in protecting the assets of your business, then call Leigh on 02 9964 0022 or email him on leigh@lalawyers.com.au. We get you there.