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PART ONE: How do the PPSA (Personal Property Securities Act 1999) and the PPSR (Personal Property Securities Register) affect you?

Every business owner in New Zealand that supplies goods on trade credit or deferred payment arrangement should be familiar with the PPSA (Personal Property Securities Act 1999) and the PPSR (Personal Property Securities Register) and how the system operates.

Surprisingly, many businesses are not and fit into one of the following categories:

  • Operate with no knowledge of the personal property securities system or security over products they are supplying;

  • Know they should be doing something but are not sure of what or where to get advice;

  • Have some knowledge of the personal property securities system but consider it too complicated to bother with;

  • Know something of the PPSR but have a system that is not routinely followed.

For these businesses, their first experience of the law relating to the PPSR will often be when they are refused the return of goods they have supplied to a debtor that has gone into liquidation or receivership.

In this context, ownership and non-payment of goods alone are irrelevant. Proper documentation and the right procedures having been followed are what counts.

Thousands of dollars are often lost due to small procedural oversights such as failing to keep a copy of a signed Terms of Trade or registering a financing statement on the PPSR.

This is a general summary of the Personal Property Securities Act and Register incorporating some general tips. This summary is a guide only and is not intend to replace legal advice.

What is the PPSA and the PPSR?

"PPSA" stands for the Personal Property Securities Act 1999. The PPSA was introduced in 2002 and has significantly reformed the law relating to security interests in personal property. The PPSA contains a single set of rules for security in all finance transactions including lending, leasing and other credit-providing transactions. If you are in business, then you should have knowledge of the PPSA and how it affects your business.

The PPSA only extends to personal property and does not cover security interests in land. Personal property that has been permanently affixed to buildings or land may also be deemed to form part of land.

Personal property includes chattels, goods, documents of title, intangibles, money, investment securities and negotiable instruments. Essentially, personal property is every type of thing capable of being owned that is not land.

The PPSA does the following:

a. Defines what a security interest is;

b. Provides the way priority competitions are determined between secured parties with an interest in the same personal property;

c. Provides for the establishment of a register of security interests called the Personal Property Securities Register.

PPSR

1.5 "PPSR" stands for the Personal Property Securities Register. The PPSR is an electronic internet-based register where a secured party can register its financing statement against a debtor. A financing statement is an electronic notice lodged by a secured creditor that describes the security interest the secured creditor has in the debtor's personal property.

What is the Purpose of the PPSR?

The PPSR has the following functions:

a. "Perfects" a security interest by registration of the financing statement;

b. Acts as a notice board where certain people can check what securities are registered against a particular debtor and collateral.

"Perfection" is a term used in the PPSA which means a financing statement has been registered in respect of the security interest (or the creditor has possession of the collateral). Whether a security interest is registered or unregistered is crucial if there is a competition between creditors to claim goods as collateral. It also is critical for a supplier wishing to have a super-priority to the goods it has supplied on credit.

Registration of a financing statement does not give a creditor any better rights than what it has under its security agreement. For example, if the creditor has a Terms of Trade that secures all the debtor's washing machines, by registering a financing statement that records the collateral as all the debtor's washing machines and clothes dryers, the creditor will still only be able to claim it is secured in relation to the washing machines. Conversely, if a creditor has a Terms of Trade that secures all the debtor's washing machines and dryers, and the creditor registers a financing statement which records the collateral as only the debtor's washing machines, then the creditor has not perfected its security interest in relation to the clothes dryers. The creditor will still have a security interest in the clothes dryers but it may lose priority to another creditor with a perfected security interest in the same collateral.

Who can search the PPSR?

The PPSR may only be searched for one of the following reasons:

a. An individual (or a person with the consent of the individual), for the purpose of searching for information about that individual;

b. A debtor or secured party for a purpose that relates to the debtor's or secured party's security interest in respect of which a financing statement has been registered;

c. A person for the purpose of:

i. Establishing whether or not personal property that is to be purchased or otherwise dealt with by the person is subject to a security interest:

ii. Establishing whether to provide credit to, or to obtain a guarantee or an indemnity from, the person named in the search or the person with an interest in the personal property described in the search or a related company;

iii. Establishing whether to invest in, with, or through, the person named in the search or a related company;

d. In limited circumstances, a liquidator, receiver or the Official Assignee, executor or administrator of a deceased estate, a lien holder, a charge holder, a bailiff, a news medium, the Registrar, professional advisors of those people may perform a search.

Check our June 12 2014 blog for part two of our PPSA/PPSR series - we will be covering what PPSA/PPSR can give the secured supplier and security agreements.

Personal Property Securities Register

PPSR Website

A secured party is responsible for registering and updating its financing statements.

The web address for the PPSR is www.ppsr.govt.nz.

Secured Party Group

The secured party must register itself online as a "Secured Party Group" before it is able to register financing statements. The secured party only needs to register as a Secured Party Group once. The Secured Party Group will be sent identification and pin numbers for the PPSR. These should be securely stored as they will be needed each a financing statement is registered or amended.

Financing Statements

Details guidelines and tutorials for completing financing statements can be obtained at www.ppsr.govt.nz. The following are some further tips.

The secured party will need to know certain information about its debtor before it can finalise the registration of a financing statement. All this information should have been obtained from the debtor on its application for credit/terms of trade or other security agreement. For individuals, take a copy of personal identification. For companies, perform a Companies Office search to confirm the registered name and incorporation number.

Care should be taken when completing financing statements. Mistakes in the debtor's name, incorporation number, collateral serial numbers or collateral description can potentially invalidate the financing statement or render it partially ineffective.

If the secured party has an ongoing supply agreement with the debtor, it is only necessary to register one financing statement. However, care should be taken to ensure that the collateral description is broad enough to cover all supplies both present and future.

Once a financing statement has been registered, confirmation and security details will be emailed to the secured party. These details will need to be stored as they will be necessary to renew, amend or delete the financing statement. A filing system should be put in place to keep all financing statement pins/passwords and security agreements. You will need these in the future.

Registrations of financing statement on the PPSR only last for 5 years. If a financing statement is not registered at the expiry of the 5 years then the financing statement will expire and become invalid.

You must re-register a financing change statement if the company or personal customer changes their name. You must do this within 15 days of becoming aware of the customer's new name or otherwise your security interest may be subordinated to any other creditors who register a security interest in your goods after that time.

Immediately register any other amendments to financing statements such as changes to the collateral description.

Written by Nicola Scott at 09:00

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