Personal Property Securities Act concerns with security interests over personal property. A security interest will include a charge or mortgage over personal property other than interests in land. Ownership of goods may count for little if a debtor becomes insolvent. Creditors that have a security interest over the debtor’s property may be entitled to treat an unpaid creditor’s goods as being the debtor’s. An equipment lessor may in effect be dealt as a creditor rather than as a lessor.
Security Interests and Secured Party
In Personal Property Securities Act, some interests that don’t have the same effect as charges or mortgages are deemed to be security interests e.g. an operating lease of goods for a term of more than one year. In all of these cases, the creditor, lessor, etc., are known as the secured party and the purchaser, lessee, etc., are known as debtor. If the debtor has creditors and in particular, secured creditors, the secured party is at risk unless they’ve taken the required steps under the PPS Act.
Under the PPS Act, a secured party needs to first of all make sure that they have a written contract, or assent in writing to their contract. This means that just sending out terms or providing a link to terms, even if the terms are in writing, won’t be enough to move.
The form of contract makes it clear that the secured party has a security interest of some kind, the secured party then needs to register a financing statement through the Personal Property Securities Register. To do this, the secured party first has to register through the Personal Property Securities Register as a secured party group. Once done, they can then file a financing statement. To do that, the secured party has to have certain basic information about their debtor and they have to complete correctly the sections of the financing statement that describe what collateral (property) is covered by the security interest.
Purchase Money Security Interest
Where the security interest is intended to secure the price of goods supplied, or relates to a lease of goods for a term of more than 1 year, the security interest is known as purchase money security interest.
A purchase money security interest will usually give the secured creditor a super priority over other secured parties provided that the PMSI is registered within the time set out in the PPS Act. Where the secured creditor supplies goods on credit that will be inventory for the debtor, the financing statement must be registered before the debtor takes possession of the goods. If the goods are plant or equipment for the debtor, the financing statement must be registered no later than 10 working days after the date on which the debtor takes possession.
A PMS Interest gives the secured creditor a super priority for the price of goods supplied on credit. That priority doesn’t extend to money otherwise owing to by the debtor to the secured party. The contract between the parties might confer a general security interest on the secured party for other monies, but the general security interest will be subject to normal priority rules.