Register your security interests or be prepared to lose priority

When a lessor failed to register its security interest on the Personal Property Securities Register, it had to relinquish amounts collected by it to the holder of a registered general security agreement.

In this case¹, money was loaned to a company in return for a security interest over all present and after-acquired property of the borrower. The security interest was registered by the lender on the Personal Property Securities Register (PPSR).

The borrower also leased machinery from a lessor, who collected accounts receivable on behalf of the borrower. The security interest in the machinery was not registered on the PPSR.

When the borrower defaulted on payments to the lender, the lender appointed receivers. The receivers contended that the amounts collected by the lessor were secured by the general security agreement and should accordingly be turned over to the receivers.

The court determined that:

• the lender did have a security interest in the accounts receivable under the general security agreement; and
• the lessor may have a security interest in the accounts receivable under the lease.

The issue of priority was easy to determine because the lender had registered its interest and the lessor had not.

¹ Richard Grant Simpson and Traveor Francis Thornton as receivers of Dryland Contracting Limited (in receivership) v Reymar Contracting Limited, High Court, Hamilton, CIV 2007-419-443, 7 December 2007

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