Purchase-money security interest (PMSI)
A purchase-money security interest (PMSI) is a security interest tied to the debtor acquiring the collateral it secures. Ontario’s PPSA definition covers one securing the collateral’s price, and one taken by a person who gives value to enable the debtor to acquire rights in it, to the extent the value is applied to acquire them. Ontario’s Act gives a PMSI priority if its conditions are met.
A supplier that sells equipment on credit, or a lender whose advance pays for it, may hold a PMSI in that equipment. A buyer of a business’s assets can find one in a search alongside other registrations against the same assets. Whether it ranks first depends on the statute. Read how PMSI priority works before assuming either way.
How the statutes treat it
Under Ontario’s Act (s. 33), a PMSI in inventory or its proceeds has priority over any other security interest in the same collateral given by the same debtor if the conditions in s. 33(1) are met, including written notice to earlier registrants whose financing statements describe inventory or accounts. Other collateral has its own conditions in s. 33(2). British Columbia and Alberta have their own PMSI sections (s. 34 in each); the rules are not identical across provinces. See also priority of security interests.
What to ask
- Which asset the secured value actually paid for, since the definition applies only to the extent the value is applied to acquire it
- Whether the registration describes that asset and was made within the time the statute requires
- For inventory, whether notice went to earlier registrants
- Whether the debt is paid and a discharge registered
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of OntarioGovernmentPersonal Property Security Act, R.S.O. 1990, c. P.10
- 02Government of British Columbia (BC Laws)GovernmentPersonal Property Security Act, RSBC 1996, c. 359
- 03Alberta King’s PrinterGovernmentPersonal Property Security Act, RSA 2000, c. P-7
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