Court confirms the super power of PMSI’s

Purchase Money Security Interests (“PMSI”) really do have a super power, according to a Full South Australian Court decision handed down on Friday.

Case name: Samwise Holdings v Allied Distribution Finance [2018] SASCFC 95

The Court granted a PMSI holder a priority over 40 motorcycles above a first-in-time registered general security holder.

The facts were:

• In 2012, BM was bailed 40 motorcycles from CDF
• In 2014, BM granted SH an AllPAAP (ie general security) over all of its assets. Note: SH was a related party of BM
• In 2016, AD acquired ownership of the 40 motorcycles from CDF and granted a new bailment arrangement to BM and validly registered its PMSI
• In mid-2016, BM appointed Voluntary Administrators (who subsequently became Liquidators)

Key question was, does the general security interest granted to SH trump the PMSI granted to AD?

Answer: no.

The PMSI took super priority and so AD was clear to take back possession of the 40 motorcycles.

Why?

1. Section 62(2)(b)(I) PPSA gives a PMSI priority if registration is within the prescribed timeframe “from the time the grantor obtains possession of the inventory.”
2. But when does the grantor obtain possession? Either:
   • (A) when the grantor obtains possession as grantor of the PMSI (ie when AD loans the motorcycles to BM); or
   • (B) when the grantor obtains possession simpliciter (ie when BM first took possession of the motorcycles from CDF)?
3. The Court favoured (A) – just because BM had possession of the 40 motorcycles before AD was involved is irrelevant.

Instead, registration of the PMSI within the prescribed timeframes is all that is required.

#SVVoidables