An easy explanation of the PMSI

This Business Kitz blog will explain in detail what a PMSI is. In the transactional world, lenders strive to ensure that loans are secured, and one way to do so is with PMSI. Assume you have invested in a firm by lending them a vehicle to help them develop for a few years. In the end, it was discovered that the firm was not doing as well as expected, and they filed for bankruptcy. You’re probably wondering, what happens to the automobile you lent out? This is the kind of case where a PMSI can be useful.

What is a PMSI?

The purchase money security interest (PMSI) prioritises your security interests above the security interests of others in the same property, even if they registered their interest on the Personal Properties Securities Register before you. For example, when a company goes insolvent, it must sell and distribute its assets to repay all of its creditors. When creditors are compensated, a personal money security interest assures that you are paid first. If your security interest is a PMSI, you will very certainly be moved to the head of the line, even if you registered your interest on the PPSR last.

This legal term is defined in Personal Property Securities Act 2009 (Cth). The act was introduced to encapsulate a field of law that was once complex and inefficient.

When does a security interest become a PMSI?

In Australia, PMSI’s can be registered with the Personal Property Securities Register (PPSR). However, only some items qualify as PMSI. If you have a security interest, it is usually a PMSI if the money you’ve lent or credit you’ve given is to support all or part of the purchase price of the personal property.

Secured property loans, commercial consignments, PPS leases, and providing goods on credit are examples of agreements that grant the security interest holder a PMSI.

Does a PMSI need to be registered?

The answer is yes, if you do not register a PMSI in the future you won’t be able to claim priority. When registering an interest in personal property, you must specify whether your interest is a PMSI. It is critical to do this properly because:

  • If you do not indicate your registration is a PMSI, you will not be allowed to modify it. Your registration will remain valid, but you will no longer be eligible for the special PMSI priority.
  • If you tick the box that says your registration is a PMSI when it isn’t, your entire registration will be rendered useless.

Making a PPSR registration is done online and is available 24 hours a day, seven days a week. PMSI registration has a time limit. You will not be able to claim PMSI priority if you do not register within the time range. The time frame for registering is determined by whether the property is included in the inventory of the person providing the security interest:

  • If it is a part of their inventory, registration has to be done before they take possession of the property.
  • If it isn’t a part of their inventory: registration has to be done within 15 days of them taking possession of the property.

Legal advice

Purchase of money security interest is a valuable asset for any lender, it will help you to make sure you can claim your loan money or goods back. If you need help taking a case to court, you should get legal counsel. Our sister company, Legal Kitz can help you make your court case as time and cost-efficient as feasible. To arrange a FREE consultation with one of their highly experienced solicitors, click here today, or contact us at or 1300 988 954.

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