All-PAAP Security and PMSI Super-Priority Under the PPSA

Introduction

Under the Personal Property Securities Act 2009 (Cth) (‘PPSA‘), a properly registered Purchase Money Security Interest (PMSI) takes priority over an earlier all present and after-acquired property (All-PAAP) registration on the same collateral. Private lenders and non-bank financiers use this super-priority to recover funds ahead of other creditors.

Holding that priority turns on correct collateral classification and strict PPSR registration timeframes. This article explains how a security agreement and its PPSR registration give a personal property security priority, so private credit funds and mortgage funds can protect their position.

Interactive Tool: See If Your PMSI Gets Priority Over an All-PAAP

Defining All-PAAP Security for Private Lenders & Non-Bank Financiers

The Scope of All Present & After-Acquired Property

An All Present and After-Acquired Property (AllPAAP) security covers the grantor’s current and future personal property. Personal property means property other than land, buildings and fixtures to land, and may include:

• equipment;
• inventory;
• vehicles;
• accounts receivable;
• intellectual property; and
• contract rights.

The security can cover both circulating and non-circulating assets. A General Security Agreement or general security deed may document the security interest, which can then be registered on the Personal Property Securities Register (PPSR) under the PPSA. An AllPAAP may also include express exceptions that remove specified property from its scope.

All-PAAP as a Collateral Description Rather Than a Competing Alternative to a PMSI

An AllPAAP is a collateral class used to describe a broad security interest in a PPSR registration. It is not a competing alternative to a Purchase Money Security Interest (PMSI). Rather, the AllPAAP describes the property covered, while a PMSI identifies a qualifying security interest that may receive special priority over specific collateral.

The PPSR includes collateral classes such as:

• All Present and After-Acquired Property;
• Other Goods;
• Motor Vehicles; and
• Intangible Property.

A lender may hold an AllPAAP over a business’s personal property, while a supplier or financier may register a PMSI over particular goods acquired with its credit or finance.

How a PMSI Secures Super-Priority for Private Credit Funds & Mortgage Funds

The Mechanics of a Purchase Money Security Interest

A purchase money security interest (PMSI) is a security interest securing all or part of the purchase price of specific personal property, or funds provided to enable the grantor to acquire that property. Under Section 14(1) of the PPSA, this can include:

• asset finance;
• secured property loans;
• goods supplied on credit; and
• certain PPS leases or commercial consignments.

The security agreement identifies the relevant collateral and the obligation being secured. The secured party must then register the PMSI on the Personal Property Securities Register (PPSR) and claim PMSI status so the security interest can obtain its special priority under Section 62 of the PPSA.

Circumstances Where a PMSI Displaces an Earlier All-PAAP Registration

A properly perfected PMSI can take priority over an earlier perfected ALLPAAP security interest in the same collateral. This is an exception to the usual priority rules, under which an earlier perfected security interest normally ranks ahead of a later registration.

Under Section 62 of the PPSA, the registration must identify the security interest as a PMSI and meet the applicable timing requirement. Consider a case where a bank holds an earlier ALLPAAP over a business’s assets, but a financier later funds the purchase of a particular machine. If the financier registers a valid PMSI over that machine, its security interest has priority over the bank’s ALLPAAP in that collateral.

Strict Timing Requirements to Preserve PMSI Priority for Sophisticated Investors

Registration Timeframes for Inventory Assets

Under Section 62 of the PPSA, a purchase money security interest (PMSI) over inventory goods must be registered on the Personal Property Securities Register (PPSR) before the grantor obtains possession of the goods. This timing requirement applies where the goods form part of the grantor’s inventory, such as stock held for sale.

However, a security agreement may create an enforceable security interest, but late registration can prevent the PMSI from receiving super-priority. The interest may remain registered on the PPSR, but it will not receive priority over an earlier perfected security interest, such as an All-PAAP.

Registration Timeframes for Non-Inventory Assets

Under Section 62 of the PPSA, a PMSI over non-inventory goods must be registered on the PPSR within 15 business days after the grantor obtains possession of the asset. This rule commonly applies to specific equipment or other goods acquired for use rather than resale.

The register must also identify that a purchase money security interest is claimed. However, missing the 15-business-day period can leave the security interest perfected but without PMSI super-priority against an earlier perfected security interest. In an insolvency, that difference may determine which secured party has priority over the collateral.

Collateral Classes & A Worked Example of PMSI Displacing All-PAAP

Why Selecting the Correct Collateral Class Determines Super-Priority

The collateral class must match the personal property being secured. A lender may use the following collateral classes:

• Other Goods for tangible assets that do not fall within a more specific category; and
• Motor Vehicles for relevant serial-numbered property.

The registration must also identify that a purchase money security interest (PMSI) is claimed. Under Section 62 of the PPSA, failing to claim PMSI status or register within the required period can prevent the security interest from receiving super-priority. An incorrect collateral class may undermine the registration’s priority, while incorrectly claiming PMSI status can make the whole registration ineffective.

Best Practices for High-Net-Worth Individuals & Syndicate Lenders

Conducting Thorough PPSR Searches Before Advancing Funds

Searching the PPSR before advancing funds can reveal existing security interests over the proposed collateral, so private lenders may wish to consult private lender and non-bank finance lawyers at GRM LAW before advancing funds. Different searches may be used, as follows:

• a grantor search may identify an existing All-PAAP; and
• an asset search can show whether specific personal property is already subject to a security interest on the PPSR.

The search results should be reviewed before finance is approved or goods are supplied. Existing registrations may affect:

• whether a new security interest has priority;
• whether a PMSI is available; and
• whether releases, consents or priority arrangements are needed.

A search should also be supported by information about the borrower’s financial position, because the PPSR records security interests but does not show the borrower’s complete financial performance or assets.

Ensuring Accurate Documentation & Proper Registration

The security agreement should match the security interest being registered. It should identify the secured obligations and collateral clearly, while the PPSR registration should use the correct grantor details, collateral class and security interest description.

A registration against the wrong entity or with inaccurate collateral information may be unperfected and may not protect the lender’s position against other creditors or insolvency, so obtaining advice from PPSA security and PPSR registration lawyers can help identify and address registration issues.

Before lodging, check that:

• the grantor’s legal name and ACN or other required identifier are correct;
• the collateral class matches the personal property being secured; and
• the PMSI election and registration timing are correct where a purchase money security interest is claimed.

The PPSA treats registration as a key method of perfecting a personal property security. Keep the verification statement and registration details, and update the interest if the underlying agreement or grantor information changes.

Conclusion

A properly documented and perfected security interest on the PPSR can help private lenders protect their position over a borrower’s personal property. Under the PPSA, a purchase money security interest (PMSI) may take priority over an earlier All-PAAP when the collateral, registration and timing requirements are correct.

With these points in mind, contact GRM Law for assistance with private lending transactions in Queensland. You can get PPSA security and PPSR registration advice from GRM LAW to review the security agreement, assess the PPSR position, and ensure the registration is structured to support the security interest’s priority and reduce risks arising from an unperfected security interest or insolvency.

Frequently Asked Questions

Disclaimer: This is general information only and is not legal advice. For advice on your circumstances, contact GRM LAW.