Introduction

COVID-19 threatens the viability of numerous New Zealand businesses.  Despite the range of government assistance available, it is anticipated that many will not survive.

It is therefore important for any business which is supplying goods on credit to other businesses to consider and review its security position.  If you do not currently register on the Personal Property Securities Register ("PPSR"), then it is timely to reconsider your approach.

What is the PPSR?

The PPSR was established in 2002 pursuant to the provisions of the Personal Property Securities Act ("Act") and provides a registration system for security interests in personal property.  It should be a familiar registry for all business to business suppliers of goods.

The PPSR enables a secured party to register a financing statement in relation to any security interest it holds in personal property which is owned by, or in the possession of, another party.

The Act has a wide application in terms of the types of assets it captures and the various security arrangements which can give rise to a right to register on the PPSR.  The PPSR does not apply to security interests in land.

Can You Register?

You need to have a written agreement for the supply of goods that provides for a security interest to be granted.  Most businesses will have terms of trade which either specifically refer to the PPSR and the granting of a security interest in goods supplied, or have a "retention of title" clause providing for the supplier to continue to own the goods until they are paid for, even if goods have been delivered to and are in the possession of the customer.

If you do not have terms of trade, or your terms of trade do not provide for a security interest, then now is the time to address this.

Why Register?

Registration determines the priority of certain creditors if a business fails. 

If you do not register on the PPSR, a third party that has a registered security interest in assets of the business may have priority over you even if you have provision for a security interest in your terms of trade.  The most common scenario where your priority may be affected is where a bank holds a general security over all assets of the business - this general security will capture any goods in the possession of the business, including any which you may supply. 

If you register your security interest on the PPSR then, subject to a range of specific provisions around correct registration, timing of registration, and what use the goods have been put to (eg are the goods you supplied still identifiable and in the same form or have they been mixed or incorporated with other goods?),  you should receive priority ahead of any other creditors, giving you the ability to take back possession of any goods which have been supplied by you, but not paid for. 

Whilst registration does not always result in a supplier receiving its goods back should the business fail, it does significantly increase the odds of this occurring.

In some situations, it is also appropriate or necessary to put in place separate priority arrangements with other lenders or suppliers to the business.

Best practice is to register your financing statement as soon as possible, and preferably prior to commencing supply. 

Registration

A supply arrangement can be captured in one registered financing statement, you do not need to register a new financing statement for each supply.

The mandatory information must be  registered correctly.  In particular, parties’ names must be entered correctly with no errors and the description of the collateral secured needs to be clear enough to adequately identify the property.

There is a cost to registration, both in terms of time and fees payable.  The fees payable are modest, especially where goods supplied are of high value or there are concerns about the viability of the customer.

Registrations are valid for five years and must be renewed prior to the five year expiry if your priority is to be maintained. 

Conclusion

If you supply goods on credit and your current position is that you either do not register on the PPSR, or you only register if a value of an account exceeds a set limit, now is the time to reconsider your position.

If you would like to discuss this further, please get in touch with your usual Dawson Harford contact. 

During New Zealand’s nationwide lockdown, even though our offices are closed, it is business as usual for Dawson Harford.  We are here to support and assist you by phone, email and video conferencing to help keep you and your business going. Stay safe.

Disclaimer: This update is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters it addresses.