Secure what is owed to you – here’s how

Want to rank with the banks when standing in line to collect payment from a debtor who has gone into liquidation? The PPSR may help you.

The Personal Property Securities Register (PPSR) is the register where security interests over personal property may be registered and can be searched.

The PPSR was created as a result of the Personal Property Securities Act 1999 coming into force on 1 May 2002 and it replaced a number of existing registers including the Chattels Register, Motor Vehicle Securities Register, and the Register of Company Charges.

WHY USE THE PPSR?

Registering your security interest on the PPSR may give you a better chance of recovering a debt if your debtor defaults, at least in the commercial space. You may not be able to use it for residential clients.

The Act contains rules for determining priority between security interests in the same collateral.  It is therefore important to register your security interests as soon as possible.  If you do not register your security interests and a debtor is adjudicated bankrupt or is placed into liquidation, secured creditors will be ahead of you when payments are made or assets distributed.

HOW ELSE CAN THE PPSR PROTECT MY BUSINESS?

The PPSR can be used to assess the level of risk that a debtor may represent to a creditor.  Before entering into a contractual relationship with a debtor search the PPSR to check whether they may pose a risk.

You may:

• Search a debtor to determine whether there are any existing security interests over their collateral, this may mean they have a number of existing debts.
• Search a debtor to identify if the piece of collateral they are offering you as security has been used as security for another party and if so, someone else will have priority over this collateral.
• Search collateral on the PPSR before buying an item.  Check to see if the item is encumbered with an existing registered security.  If you are purchasing a car, you may search on the registration number or VIN.  Alternatively, conduct a debtor search (against the seller of the goods).

KEY TERMS YOU SHOULD KNOW

Collateral– is the personal property that is subject to the security interest.

Debtor– A person or organisation that owes money or performance of an obligation.

Financing Statement – Your security interest is recorded in the form of a financing statement.  A financing statement contains information about your security interest and is registered in the form of a notice on the PPSR.  You are not required to upload your security agreement online or required to provide any financial information.

Personal Property– Personal property covers most things, the main exceptions are land and ships over 24 metres.

Secured Parties– this term generally refers to the creditor (the party lending).

CASE EXAMPLE

Note| This case example is based on a true story however the identity of the parties involved has been concealed to protect their privacy.

XYZ Limited supplies security equipment to the home, commercial and the retail markets.  XYZ Limited delivered and installed security equipment to the value of NZ$50,000 in a retail store in Auckland.  The equipment was supplied under XYZ Limited’s standard terms of trade – that is, the customer would receive an invoice and payment was due by the 20th of the month.  Such arrangements are also known as Romalpa or Retention of Title clauses.

Two days after the equipment was installed, the retail store company was placed into liquidation.  Upon learning this information, XYZ Limited sought legal advice in an attempt to recover the goods.

As XYZ Limited had not registered a financing statement on the Personal Property Securities Register (PPSR) in respect of their security interest they became an unsecured creditor.  Secured creditors (that is, those that had registered their security interests on the PPSR) were given a higher priority over unsecured creditors in the liquidation.

If XYZ Limited had registered its security interest on the PPSR, they may have been able to recover the goods or money owed in the liquidation.

MOVING FORWARD

As a result of XYZ Limited’s experience, it will now ensure that all sales over a certain dollar value will include the registration of a financing statement on the PPSR before the goods are handed over.

Need help with improving your credit control? Give me a call or email me at [email protected] or visit www.tradescoach.co.nz