New Zealand's personal property securities law has long been criticized by lawyers and financiers as being overly complicated and lacking in certainty. The absence of an integrated registration system for charges over personal property has created confusion and the additional expense involved has proved a disincentive to the use of personal property assets as collateral for all types of financing facilities. These problems have arisen because New Zealand's personal property securities laws are set out in a number of different statutes which provide different systems of registration and different priority rules depending on the nature of the property, the type of legal entity giving the security and the form of the security itself.
However, New Zealand's minister of commerce recently announced that legislation reforming the law on personal property security interests will be introduced into parliament later this year. This significant commercial law development has taken nine years to reach this stage, having been first recommended by the Law Commission in 1989.
Although the proposed legislation is still being drafted, the Law Commission's earlier draft was modelled on Article 9 of the Uniform Commercial Code and it is likely the legislation introduced will be similar.
The policy objectives expressed are to make registering interests and searches of prior registered interests cheaper and easier. The legislation will simplify this area of law by, among other things, providing a reliable registration system which establishes clear priorities between competing interests.
It is likely that the reforms will have a noticeable impact on banks and other retail financial institutions. While financial institutions may initially focus on the costs of revising existing security documentation and lending procedures, in the long term the reforms should realize significant benefits for banks because registering security over personal property should become simpler. Banks can also take comfort from the introduction of more consistent priority rules which will mean that the value of those securities will become more certain.
James Aitken and Vaughan Spurdle