Understanding a Typical PPSA Scheme by Professor Hugh Beale
This comprehensive outline delves into the key aspects of a typical PPSA scheme, covering creation, attachment, perfection, registration, priority issues, rights and duties pre-default, remedies on default, and more. It explores the scope of application, quasi-securities, registration of similar-looking transactions, outright sales of receivables, and the importance of notice filing for perfecting security interests.
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Presentation Transcript
OUTLINE OF A TYPICAL PPSA SCHEME Professor Hugh Beale
GENERAL COVERAGE Creation (aspects) and attachment Perfection registration, also possession, control of financial collateral Priority vs other SIs, other purchasers Rights and duties before default Remedies on default Private International law provisions Not only traditional securities Quasi-securities RoT devices Deemed SIs Outright sales of trade receivables Operating leases, commercial consignments
SCOPE OF APPLICATION Any device with a security purpose, created by any party company, sole trader/partners, consumer Traditional securities Pledge, mortgage or charge, contractual lien Fixed and floating charges not distinguished SI may authorise debtor to dispose of some or all collateral Debtor has power to dispose of cash, inventory and other items usually sold
QUASI-SECURITY 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
REGISTRATION OF SIMILAR-LOOKING TRANSACTIONS 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
OUTRIGHT SALES OF RECEIVABLES Perfection and priority rules apply Surplus rules do not Even if on recourse basis Financier may collect in full
NOTICE FILING 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
METHODS OF PERFECTION 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)
PRIORITY VS SECURITY INTERESTS 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
PROCEEDS SI normally attaches to proceeds With same priority Proceeds Proceeds of sale Fruits Products (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
PRIORITY AGAINST BUYERS 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
MOTOR VEHICLES 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)]
NON-SERIAL NUMBER EQUIPMENT Greater publicity If search at each stage, existing SIs will be revealed Otherwise, check at each stage of provenance
REMEDIES 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 SP Possession on default (anticipated?) Disposal by sale in reasonable manner Notice before sale unless ready market Effect of disposition Account of distribution Retention (foreclosure) Redemption
