The Personal Property Securities Act 1999 (PPSA) came in to effect in New Zealand in May 2002.
Prior to introduction of the PPSA, most people in business would have been familiar with the company debenture which was a registered charge over the assets of a company, normally placed by a lender to secure repayments of a loan.
There was also contractual retention of title or ‘romalpa’ clauses by which suppliers and vendors would state in their contract of sale that if goods were not paid at the time of receipt, then the legal ownership remained with the vendor or creditor, until paid off. Examples of this are any sale on credit, hire purchase arrangements or vendor finance where on the sale of a business the vendor leaves money in as a loan to the purchaser. While the contractual clause may still be around, it will not provide any protection to the supplier unless they have followed it up with filing a charge on the PPSA register. This web based Personal Property Securities Register (PPSR) is where all charges under the Act must be filed to be valid.
All of those systems were replaced by the PPSA system, which allows any person to file a charge on a public web based register against the assets or personal property of any other person or entity where the second person owes something to the first, and has agreed to allow the charge to be placed.
In PPSA language, the lender or supplier is referred to as the “secured party”, and the borrower / purchaser as the “debtor”. There are two broad types of charge.
The first is known as a General Security (or a GSA) which is given when the lending or obligation is not attached to the acquisition of a specific asset, for example a bank term loan or overdraft to a franchisee used for general funding and set up or working capital. This type of charge more or less replaces the company debenture system. The first creditor to file their charge usually has priority over all other creditors. The assets have to be described and most will be “all present and future acquired property of the debtor” or similar. In other words “everything you own now or acquire is mine until I am repaid”.
The second type of charge is a Purchase Security (sometimes referred to as a PMSI) which is given where the money or value given by the secured party is tied to particular assets. Typical examples of this include a hire purchase agreement where money is loaned to buy a vehicle or equipment then the charge is registered against the same vehicle or equipment. Also all credit sales of product or supplies. A creditor with a Purchase Security will have priority over all other creditors who claim an interest in the particular asset including anyone that has a General Security over all property.
Under the Act, if you sell on credit, you no longer actually retain ownership – you become the first creditor in the queue with an interest in the item, but only if you register a Purchase Security within a certain strict time frame. This rule also applies to leased items for a term of more than one year, for example car or equipment leases.
The most important thing to know about the different types of security are that the holder of the first filed General Security over all present and future property effectively owns all the assets of the debtor except where any of those assets have a specific Purchase Security charge registered. The strongest General Security holder will usually be the bank. Purchase Security usually relates to suppliers and hire purchase or finance leases.
Knowing and using the PPSA system in advance is the only way it will work for a business owner. It can not be called upon as a remedy or solution if things go wrong unless you have completed the right documents and registrations at the right times, and thought about whether it is a tool you need in your business, and if so, how it will be utilised.
During the normal course of trade, suppliers of any significance will expect a Purchase Security to be granted against the goods or equipment before supplying on credit. Often this will be in their standard credit application or terms of trade which the business owner will have signed or at least accepted by continuing to make the purchases.
Business people owe it to themselves to be familiar with their rights and obligations under the PPSA and take good practical steps in advance when supplying products on credit or lease.
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