The law governing security over personal property in New Zealand is in a confusing state. Different rules apply depending on the nature of the property, the legal status of the person giving the security and the type of security. The Personal Property Securities Act (PPSA), passed by Parliament in October 1999, is intended to simplify this quagmire. Concepts familiar to North American lawyers, such as the attachment and perfection of securities, are important features of the PPSA.
Under the PPSA a holder of a security interest must register prescribed details of the interest on a central register in order to perfect the interest. This requires the registration of a financing statement. This will, with limited exceptions, ensure priority for that security over another security for which a financing statement has not been registered. Where two security interests in the same collateral have been perfected, the first secured party to register a financing statement will usually have priority. These rules mean that the timing of registration and of searching the register to ensure that no previous interests have been registered will be of critical importance.
Central to the PPSA is the creation of a single electronic register of security interests. Any search for and registration of a security interest will be conducted electronically. Regulations will prescribe the data required in a financing statement. For some property (to be itemised in the regulations) it will be necessary to register serial numbers; for other property a description of it will be sufficient.
Lenders who take security over personal property will be greatly affected by the PPSA. It will be necessary for them to revise or replace their security documentation to ensure consistency with the PPSA and to take advantage of the greater certainty made possible by the PPSA. The PPSA applies to security over all types of personal property including goods, motor vehicles, livestock, shares and other investment products. As a consequence, the Chattels Transfer Act, Motor Vehicles Securities Act and provisions relating to registration of charges given by companies will all be repealed when the PPSA comes into force.
When goods are sold subject to a retention of title until they are paid for (a Romalpa clause) a PPSA security interest will arise. To ensure priority of a retention of title interest it will be necessary to register a financing statement. This is a major departure from existing law and will involve significant changes in procedures for retention of title suppliers. Retention of title clauses may need to be amended to give suppliers the full benefit of the PPSA provisions. But it is not only suppliers who will benefit. Secured lenders should, by searching the register, be able to ascertain with greater certainty the extent to which a borrower's stock of raw materials and work in progress are subject to suppliers' prior security interests.
There will be a six-month transitional period from the date the PPSA comes into force. To ensure priority is retained for a security existing on that date a financing statement will need to be registered by the end of the transitional period. If this is not done securities for which financing statements have been registered in the interim, even though given later in time, will have priority in most circumstances. Because no dispensations will be available for late registration, lenders will need to ensure that financing statements are registered promptly for all existing securities.
Regulations, relating to the register and other matters, still need to be promulgated. It is expected that these regulations will be in place by April 2000. An Order in Council will be made fixing the date on which the Act will come into force. That date is likely to be in the second half of 2000 or early in 2001.
James Aitken and John Nankervis