Publications
Personal Property Securities Act
The Personal Property Securities Act 1999 (the PPSA) is one of the most significant commercial laws enacted in New Zealand since the introduction of the Companies Act in 1993.
The PPSA will affect most businesses, from banks and large corporates to small companies, sub-contractors and leasing companies. The PPSA comes into force on 1 May 2002.
At that time, existing security interests may need to be re-registered, or otherwise perfected, within a six-month transitional period. Otherwise, the secured party may lose its priority.
Frequently Asked Questions
1. Who does the PPSA affect?
Just about everyone in business, including banks, finance companies, manufacturers, wholesalers, retailers, other retention of title suppliers and certain lessors.
2. What does the PPSA cover?
The perfection of security interests over personal property, the resolution of competing security interests, the enforcement of security interests and the operation of the new personal property securities register.
3. What does the PPSA not cover?
There are several exceptions, but the most important is security interests over land.
4. When does the PPSA come into force?
1 May 2002. There will be a six-month transitional period beginning on that date. During that period, creditors with existing security interests in personal property may re-register their interest and preserve their priority.
5. Why do we need a new Act?
The existing law on personal property securities is fragmented and inconsistent. Currently, the applicable regime depends on who the debtor is, what the property is and what type of security interest is taken. Under the PPSA, these distinctions will not be relevant.
6. Do other countries follow similar regimes?
Yes. The PPSA is modelled on Canadian legislation, which has operated successfully for over 30 years. The Canadian legislation, in turn, is modelled on Article 9 of the US Uniform Commercial Code.
7. What legislation does it replace?
-
Companies (Registration of Charges) Act
-
Chattels Transfer Act
-
Motor Vehicle Securities Act
8. What will replace the registers under these Acts?
There will be a central internet-based register, which will be completely paperless.
9. What will be the advantages of the new register?
An internet-based register has several advantages: it will accessible and searchable 24 hours a day, seven days a week and registrations will be completed almost instantaneously.
10. How will priorities between competing interests be resolved?
Generally, the first creditor to register a financing statement, or take possession of the collateral, will have priority.
11. Does the PPSA cover things that previously weren't covered by any statutory regime?
Yes. Most importantly, romalpa or retention of title clauses will be covered. This means that suppliers of goods will have to comply with the requirements of the PPSA in order to maintain the same level of priority that they currently have.
The PPSA also covers arrangements that are not traditionally regarded as creating security interests. These "deemed" security interests include commercial consignments, transfers of chattel paper and accounts receivable, and leases of personal property longer than one year.
12. What will the compliance costs be?
A registration will cost $5. Search fees range from $1.50 to $3.50.
13. How much of our company's existing documentation will need to be re-written?
Most existing documentation should be compatible with the new regime. However, some existing documentation will deal with concepts that will no longer be relevant under the PPSA (notably, the floating charge under a debenture). Accordingly, it may be possible to simplify existing documentation prior to the PPSA coming into force.
14. Will we need to review our existing practices relating to security interests?
Yes. Your practices relating to security interests may need to change even if your documentation does not. For example, a retention of title supplier may not have to change its supply contract but may now have to register its security interest under that contract.
15. What happens to existing security interests?
To maintain priority, you may need to re-register existing security interests (or register them if they were not already registered under the existing regime) within the six-month transitional period.
16. Are there new information requirements to register security interests?
The PPSA requires different information than the existing regime to register a security interest. For example, you will need to know the name and date of birth (when a natural person is granting a security interest) of the debtor and detailed information about the collateral.
17. Who should I contact for more information?
David McPherson or Murray King in Auckland or David Craig in Wellington.
Question and Answers
Please submit your questions via the form set out below.
Guide to PPSA Terms
|
Term |
Meaning of term |
Significance of term |
| After-acquired property | Personal property acquired by a debtor after the security agreement is made. | A security agreement may create a security interest over both present and after-acquired property. |
| Attachment |
A security interest in collateral attaches when:
|
Following attachment, a security interest is enforceable
against the debtor. Also, attachment is a pre-requisite for perfection. |
| Collateral | Personal property that is subject to a security agreement. | This North American term replaces terms that have more commonly been used in New Zealand security documentation (such as "secured property"). |
| Consumer goods | Goods used primarily for personal, domestic or household purposes. | A buyer of consumer goods takes the goods free of any security interest in certain circumstances. |
| Debtor | Principally, the person who is required to pay or perform the obligation secured. | The debtor is one of the two main parties in a secured transaction to which the PPSA applies (the other is the secured party). |
| Equipment | Goods held by a debtor other than as inventory or consumer goods. | Equipment is a catch-all sub-category of goods (which are, themselves, a category of personal property). The categorisation of goods as consumer goods, inventory or equipment is important because the PPSA's rules differ in certain respects for each sub-category. |
| Financing statement | The information required to be entered in the register to effect a registration to perfect a security interest. | The registration of a statement financing is one of two main methods of perfecting a security interest (the other is taking possession of the collateral). A financing statement is submitted in electronic form and transmitted directly to the register. |
| Future advance | The payment of money or other giving of value secured by a security interest, occurring after the security agreement has been signed. | A security agreement may provide for future advances. This will usually be the case, for example, in retention of title arrangements. |
| Goods | Tangible non-documentary personal property. | Goods are one of the seven specified categories of personal property. Goods are classified as consumer goods, inventory or equipment depending on the purpose for which they are used. |
| Intangible | Personal property other than chattel paper, a document of title, goods, an investment security, money or a negotiable instrument. | Just as equipment is a residual sub-category of goods, so too intangibles are a residual category of personal property. Intangibles include trademarks, patents and accounts receivable (book debts). A security interest in intangibles can only be perfected by registering a financing statement. |
| Inventory | Goods held by a person for sale or lease. | Inventory is the third sub-category of goods (consumer goods and equipment being the other two). |
| Perfection |
A security interest in collateral is perfected when:
|
Perfection is a key concept of the PPSA. Broadly, perfection means that the secured party has taken every available step to ensure that its security interest has priority over the interest any third party may have in the same collateral. That said, perfection does not guarantee priority. |
| Personal property | Includes chattel paper, documents of title, goods, intangibles, investment securities, money and negotiable instruments. | This term sets the parameters of the PPSA. If security is to be taken over property that is not personal property (notably land), the PPSA will not apply. |
| Priority | While the term "priority" is not defined in the PPSA, it is widely used. Simply put, if an interest in collateral has priority over another interest in the same collateral, the holder of the first interest has recourse to the collateral ahead of the holder of the second interest. |
Much of the PPSA is devoted to resolving issues of priority. The general rules are that:
|
| Purchase money security interest (PMSI) | A security interest in collateral taken by a secured party who gives value to the debtor to enable the debtor to acquire the collateral (e.g., a retention of title supplier). | A PMSI is an exception to the general priority rules outlined above. A perfected PMSI has a super priority over a perfected security interest that is not a PMSI (even if the non-PMSI were perfected first). |
| Register | The electronic register of personal property securities established under the PPSA. | The register replaces a number of databases established under various statutes (e.g., the Companies Office register of charges). The register can be searched online 24/7. |
| Secured party | A person who holds a security interest. | The secured party is one of the two main parties in a secured transaction to which the PPSA applies (the other is the debtor). |
| Security agreement | An agreement that creates a security interest. | A security agreement can be in any form agreed by the debtor and the secured party. However, the parties are not free to agree to matters (e.g., priority) that affect the rights of third parties. These matters are determined by the PPSA. |
| Security interest | An interest in personal property created by a transaction that, in substance, secures payment or performance of an obligation. | One of the two key terms in the PPSA (the other is "personal property"). The test for whether the PPSA applies is based on the substance, not (as previously was the case) the form, of the transaction. However, the PPSA also applies to certain specified interests ("deemed" security interests) that may not, in substance, be security (e.g., a lease for a term of more than 1 year). |
| Transitional period | The period of 6 months commencing on the commencement of the PPSA (1 May 2002). | During the transitional period, certain existing security interests (e.g., a charge registered at the Companies Office) are deemed to be perfected under the PPSA. However, at the end of the transitional period, any existing security interest that has not been perfected under the PPSA may lose its priority. |
Our PPSA Experts
|
David
McPherson Specialities |
 |
 |
Murray King Specialities
|
|
David Craig Specialities |
 |
Disclaimer
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
