A Purchase Money Security Interest (PMSI) is defined by the PPSA as occurring where ‘collateral secures its own purchase price’.
This happens when a supplier sells their goods subject to a Retention of Title right – it also happens when goods are sold out of a Consignment Stock arrangement or Leased.
The PMSI designation is important because it allows the supplier to enjoy a ‘super priority’ over the goods they are selling that will rank higher than any bank’s general security interest even when the bank’s interest was lodged earlier.
However, the security interest is ONLY over the supplier’s unpaid stock as long as it is in their customer’s possession.
A PMSI security right MUST be identified on the supplier’s PPSR registration if it is to achieve its maximum potential effectiveness.
PMSI registrations over goods that will form part of the buyer’s inventory (eg, for on-sale, or inclusion in a product for eventual on-sale) must be lodged before the goods are delivered to the buyer although the PPSA allows an additional 15 days’ grace for any other goods.
Note: You should only ‘tick the PMSI box’ if you have been granted PMSI rights (eg, you have a Retention of Title over the goods) – ticking the box when a PMSI right has not been granted may invalidate an otherwise effective registration.