Professor Hugh Beale

OUTLINE OF A TYPICAL PPSA SCHEME

Creation (aspects) and attachmentPerfection

registration, also possession, control of financial collateral

Priority vs other SIs, other purchasersRights and duties before defaultRemedies on defaultPrivate International law provisionsNot only traditional securities

Quasi-securities RoT devices

Deemed SIs Outright sales of trade receivables Operating leases, commercial consignments

GENERAL COVERAGE

Any device with a security purpose, created by any party company, sole trader/partners, consumer

Traditional securitiesPledge, mortgage or charge, contractual lien

Fixed and floating charges not distinguishedSI may authorise debtor to dispose of some or all

collateralDebtor has power to dispose of cash, inventory and

other items usually sold

SCOPE OF APPLICATION

• Conditional sales, Hire-purchase agreements, Finance leases

• Consignments (and sometimes other…)• Retention of title clauses for inventory

– Priority and perfection rules apply• PMSI super-priority

– On D’s default, treated as security only • any surplus to D• SP must resell in reasonable fashion

• No need to distinguish• “single security interest”

QUASI-SECURITY

• Operating leases, commercial consignments (e.g. floor plans with sale-or-return) • “Deemed SIs”

• UCC: outside scheme - but if in doubt file!

• Canada, NZ: Operating leases > 1 year, commercial consignments– file or lose effectiveness and priority– rights on D’s default not affected

REGISTRATION OF SIMILAR-LOOKING TRANSACTIONS

Perfection and priority rules applySurplus rules do not

Even if on recourse basisFinancier may collect in full

OUTRIGHT SALES OF RECEIVABLES

• SP (or agent) may file to perfect SI• Filing before or after security

agreement• Multiple transactions with same debtor• Voluntary, but unfiled non-possessory

SI– ineffective in debtor’s insolvency– loss of priority against other SPs– ineffective against buyers who don’t know

of SI

“NOTICE FILING”

• No submission of charge document• Financing statement -

– Borrower’s (‘debtor’s) name and address– Creditor’s (‘secured party’s’) name and

address– brief details of property (‘collateral’)

• On-line registration• On-line searching

NOTICE FILING

• Filing a financing statement• Possession (by SP or 3rd person

holding for SP)• Automatic perfection (i.e. when SI

attaches)• Temporary perfection

– ‘Continuous perfection’ when method changes

• Control (investment securities, bank accounts)

METHODS OF PERFECTION

• Date of filing (or perfection by possession)

• SP with control has priority• SP who provided finance to buy the

collateral has priority over previously perfected SIs (PMSI ‘super-priority’)– ‘purchase-money security interest’ (PMSI)– whether supplies collateral or finances

purchase– ‘cross-collateralisation’

– Provided registration and notice

PRIORITY VS SECURITY INTERESTS

SI normally attaches to proceedsWith same priority

ProceedsProceeds of saleFruitsProducts (commingled goods, accessions, new

goods)

Thus RoT supplier’s PMSI priority continues into new goods, proceeds But as against receivables financier, by date of registration

PROCEEDS

• Unperfected (unfiled) SI ineffective against buyer who doesn’t have actual knowledge of it

• Perfected SI effective against buyer, unless– buys from D in ordinary course of D’s

business– small value for private purposes

PRIORITY AGAINST BUYERS

• File and search by VIN• If FS omits VIN, SI ineffective against

buyer unless has actual knowledge of SI

• If filed, SI effective against any buyer except– sales by dealer in ordinary course of

business, where B takes free of SI created by the dealer [(but not by a previous owner)]

MOTOR VEHICLES

Greater publicityIf search at each stage, existing SIs

will be revealedOtherwise, check at each stage of

provenance

NON-SERIAL NUMBER EQUIPMENT

• Scheme for distribution of surplus and payment of deficit

• n/a ‘deemed’ SIs• Remedies• Some mandatory

• Surplus rules• Notice of sale

• Good faith provision on manner of sale

REMEDIES

Collection of receivables by SPPossession on default (anticipated?)Disposal by sale in reasonable mannerNotice before sale unless ready marketEffect of dispositionAccount of distributionRetention (foreclosure)Redemption

REMEDIES