“Super Priority” – Purchase Money Security Interests

Published: 11.11.2008

Under the Personal Property Securities Act, the general rule for priority of financing statements is outlined in Section 66 - where the first secured party to register a security interest takes priority over the secured collateral.

The exception to this rule is where a Purchase Money Security Interest (PMSI) exists. A PMSI allows you to have priority over existing creditors in relation to particular goods secured by the security agreement. A PMSI will have priority over a non-PMSI, similar to a perfected security having priority over an unperfected security.

A PMSI may arise in two situations:

A seller has provided goods on credit using a retention of title clause
A lender has provided specific finance for the purchase of particular goods

Practical examples include:

a hire purchase agreement relating to the purchase of a television
a loan by a bank for the purchase of a car where the loan is secured by the car, and the proceeds are applied towards the car’s purchase.

For a PMSI to exist, you must perfect your security interest as you would for a non-PMSI, with the exception that you must register your financing statement within certain time periods depending on the type of collateral:

If the collateral is inventory, you must register a financing statement before the debtor takes possession of the goods.
If the collateral is an intangible, the financing statement must be registered within ten workings days after the security interest attached.
With other types of collateral (not inventory or an intangible), you must register a financing statement within ten working days after the debtor takes possession of the collateral.

When searching on the PPSR, it is not possible to identify if a PMSI exists in a financing statement. It is also not possible when registering a financing statement to indicate on it that the secured party has a PMSI. Any disputes in relation to who has priority over particular collateral may be resolved by legal proceedings.

For more information please refer to the Personal Property Securities Act.

Please note this information is intended to be a guide only. You should seek your own independent legal advice for more information