Super Priority Notice Execution against Senior Lenders for Inventory Consignments
Super priority consignment notices must reach senior lenders before distributor gate receipt to defeat pre-existing floating liens under UCC Article 9.
PMSI Inventory
Meaning
A special category of security interest gives a supplier first priority over a debtor’s inventory even if another lender has already filed a blanket lien. To establish a PMSI inventory claim, the supplier must file a financing statement and notify the existing senior lenders before the debtor takes possession of the goods. This status is limited to the specific goods financed by the supplier and does not extend to other assets.
Priority Advantage
This mechanism allows suppliers to deliver inventory on credit without risking their position to pre-existing bank loans. The supplier has the right to reclaim their specific stock if the distributor defaults.
Notification Process
Secured parties must send a formal notice to all prior secured parties before the inventory is delivered to the debtor’s warehouse. This communication must describe the inventory to be supplied and state the intent to take a purchase money security interest. This step is critical because it prevents the debtor from double-borrowing against the new inventory without the existing lenders’ knowledge.
Collateral Scope
The special priority extends to the inventory itself and any cash proceeds received from its sale. This protection does not cover accounts receivable generated from the sales.