A glimpse into the Personal Property Securities Register

Friday 22 March, 2019

The use of credit is an essential part of commercial transactions and is made easier by, and usually dependent on, the debtor’s ability to provide security for the credit.

Security interests over personal property (for example, plant and equipment, trucks, trailers and tractors, stock in trade, accounts receivable and the like) are granted on a daily basis in New Zealand.  The rules relating to these security interests are set out in the Personal Property Securities Act 1999 (“PPSA”).

The PPSR

The Personal Property Securities Register (“PPSR”) is the centralised electronic register established by the PPSA where security interests over personal property are registered by a secured party.

Anyone can access the PPSR and register their security interest (called a “financing statement”) for a small fee.  The financing statement identifies the debtor (the party giving security), the secured party (the person being given security) and the collateral (the assets over which the security applies).

A secured party would register a financing statement on the PPSR so that their security interest over the collateral has the best priority possible.  The PPSR also acts as a notice board where anyone can search a person to see what financing statements (if any) are registered against that person and over what collateral.

The importance of the PPSR is that it establishes the order in which competing creditors will receive their share of any proceeds in the event the debtor becomes insolvent and assets are disposed of to repay debt.

Registration is key

The order of registration of a security interest establishes priority between competing perfected interests in personal property.

In general, all perfected security interests rank ahead of unperfected security interests, and all registered security interests rank ahead of unregistered security interests.  In general, priority relates to the date of registration, even if the underlying security agreement was completed much earlier. Therefore, registration of a financing statement as soon as possible is key!  It is not unusual for a bank (for example) to register its financing statement before a transaction is actually completed and funds flow.

Where a debtor becomes insolvent and an insolvency practitioner is appointed, the priority position is “crystallised” and a creditor cannot enhance their protection by registering at that stage.

PMSI

In the trade supply and leasing of goods sectors, there is an exception to the normal priority rules around registered security interests.

A purchase money security interest (“PMSI”) is a security interest which arises in certain circumstances, and is given “super priority” under the PPSA.

Common examples of when a PMSI arises include where a creditor lends money to a debtor to enable the debtor to purchase goods or equipment, where the sale of goods on usual trade terms is on credit subject to a “retention of title” clause or where a lessor leases personal property (for example, motor vehicles, telephones, photocopiers or portaloos) in the ordinary course of business to a lessee.

A PMSI registered later in time will leapfrog and have ‘super priority’ over an earlier registered security interest in the same collateral (for example, where the debtor has also granted a general security interest over its assets to its bank).

What do you need to do?

In order to perfect a security interest, a creditor must ensure that:

• the debtor has agreed in writing to the security interest being created over the collateral;
• value has been given by the creditor and the debtor has rights in the collateral (e.g. the relevant goods have been supplied by the creditor to the debtor); and
• a financing statement has been registered on the PPSR (there are rules around the timing of registration, depending on what type of collateral is involved but best practice is to register prior to supply).

A creditor is not required to register a separate financing statement every time it supplies goods, but rather can register a financing statement at the start of the supply relationship to secure amounts owing on goods supplied from time to time.

Losing Priority

A financing statement registered on the PPSR only lasts for 5 years.  If the supply or creditor/debtor relationship extends beyond that time, the financing statement must be renewed before the expiry date.  If the registration is allowed to expire without renewal then priority could be lost to a competing creditor of that debtor.

The PPSA and associated regulations contain rules around the content of a financing statement.  A creditor must keep the content of a financing statement up to date, and a financing statement which is found to be seriously misleading will be invalid.  For example, if a debtor changes its name, then priority can be lost if the financing statement is not updated for the new name within 15 working days of the secured party knowing about the debtor’s name change.

How Tompkins Wake can help

Every business in New Zealand which supplies goods on retention of title terms or deferred payment arrangements, and each lessor which supplies goods in the ordinary course of business, should be familiar with the PPSA and the PPSR.