Financial Law

Finance Law Lecture 4

-The term ‘security interest’ replaced all terms such as ‘mortgages, ‘charges’ (where the collateral was personal property; these old terms remain relevant for interests in property not covered by PPSA)

-PPSA made it clear that all the following forms of security are security interests:

-Charges, mortgages, retention of title arrangements; conditional sale agreements, leases (whether PPS lease or not), hire purchase agreements, consignment, pledges, and trust receipts – see s 12(2) which specifically recognises the old forms of security.

-All PPSA recognised security interests are subject to the same PPSA rules

-s 12(3) deems the following arrangements security interests (regardless of whether they secure payment or performance of an obligation):

-Interest of a transferee under a transfer of account (e.g. a receivable) or chattel paper (e.g., a hire purchase agreement)

-Interest of a consignor who delivers goods to a consignee under a commercial consignment)

-Interest of a lessor or bailor of goods under a PPS lease

-Under s 13, a PPS lease is a lease or bailment for more than a year (purpose to exclude short term rentals such as a car for a weekend). Under the previous provision, leases of serial numbered goods for 90 days or more fell under the definition of PPS lease.

-But a PPS lease does not include a lease where the lessor is not regularly engaged in the business of leasing of goods, or a bailment by a bailor who is not regularly engaged in the business of bailing goods

-Lessor or Bailor, must not be in the business of doing that, the hiring activity should not be a business activity for them

-(See Re Arcabi Pty Ltd (Receivers and Managers Appointed (in liq) [2014] WASC 310 where the Court held that rare coins and notes owned by investors under bailment (not registered) and consignment arrangements with Arcabi did not amount to security interests as the bailors (i.e., the investors) were not ‘regularly engaged in the business of bailing goods’ and was just a hobby and not registered security interests.

Purchase Money Security Interest (PMSI)

-A PMSI is a security interest that enjoys super-priority over ordinary security interests.

-When a vendor gives finance to a buyer and takes a security interest in price of the item that is being sold

-Definition is s. 14:

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-1(a) classic case when the vendor, straight takes security of the item being sold

-1(b) if you give a loan to someone to buy a particular item, where the financier takes the security in the item sold e.g. vendor gives 80% and bank gives 20% finance, 20% and 80% of the security in the car; Lendor PMSI