Make sure you have Super Priority!
If you are in the business of supplying goods to customers on credit, or lease or hire out equipment or goods to customers for terms of more than one year, or you sell goods on consignment, did you know you can get Super Priority if you register a financing statement on the PPSR within certain time frames. If you do not register a financing statement on the Personal Property Securities Register (PPSR) – you are at risk of not being able to claim the goods back if your customer defaults and goes into liquidation or receivership. Having a retention or reservation of title clause in your terms of trade does not guarantee you any rights in the goods if you don’t register on the PPSR within the appropriate time frames.
In this article we provide an explanation of what the PPSR is and how you can use it protect goods you sell or lease to your customers.
What is PPSR?
The PPSR is the Personal Property Securities Register which was established as a result of the Personal Properties Securities Act 1999 (“the Act”). It is an online noticeboard (www.ppsr.govt.nz) where parties can register their security interest in personal property by way of a financing statement. Personal property is basically anything other than land. Anyone wishing to purchase personal property (for example a car) can check the PPSR to see if anyone else has a security interest over that property. If there is no security interest registered, any purchaser will purchase the item in question free of that security interest.
How does it work?
If your business leases goods for terms of more than one year or supplies goods to customers on credit or consignment where the full purchase price has not yet been paid, you will have a special kind of security interest know as a PMSI (Purchase Money Security Interest). This gives superior priority over all other interests. PSMI status can also be claimed if you loan funds to a third party for the purpose of purchasing personal property.
Timing is vital for the registration of financing statements on the PPSR. This is because the priority of your financing statement will depend on when you registered the financing statement (as compared to other financing statements which are registered over the same item). To ensure you get the super priority afforded by having a PMSI you must register your financing statement within 10 working days from the date your customer takes possession of the goods you supply to them.
If you register your financing statement within this time frame your PMSI over the goods will take priority over all other security interests, including all interests that were registered prior to your financing statement. This means that if your customer goes into liquidation, your goods will not be available to anyone else who has a security interest over the goods – for example a bank. You will also be able to repossess your goods provided you comply with the provision of the Act, and if the goods are sold, you may be able to make a claim from the proceeds of sale and be paid in priority to other parties who have a security interest over the goods.
If your customer purchases goods from you on multiple occasions you do not need to register a financing statement each time they make a purchase. One financing statement registered over the goods within the 10 working days timeframe is sufficient to give you an ongoing PMSI over future supplies of goods to a customer.
Our tips for you:
- Make sure you have a written agreement (e.g. written terms of trade or a leasing/ hire agreement). To be enforceable against third parties you must be able to prove that your customer agreed to you having a security interest in the goods or you have a written agreement signed by your customer which evidences this. There are also other provisions which can be added such as the customer agreeing that you don’t have to provide them with a verification statement within 15 working days of registration. If you want to know more about terms of trade and how it can help you with your business, you can contact Turner Hopkins. You can also access our earlier article Terms and Conditions – Why Your Business Needs its T&Cs here.
- To ensure your financing statement is valid you must describe the goods over which you have a security interest as accurately as possible – just saying “goods” or “equipment” will not be sufficient.
- Financing statements expire after five years. Once they expire your priority is lost. The PPSR will not issue notice of pending expiry of a financing statement. It is up to you to monitor your financing statements to ensure they are renewed before they expire.
If you would like to know more about how to better protect your business and ensure the correct documents and tools are in place for your business, contact Joy Yuan or Lizandra Bailey.
“Joy, we cannot thank you enough for your help with our purchase! You have been wonderful to deal with and so proactive (and patient with my numerous emails). We will be visiting NZ in April so will make sure we drop in to thank you in person.”
“I can't speak highly enough of Jenny. She got everything done in a timely manner and when my ex-husband threw a spanner in the works at the eleventh hour she got the required documentation to his lawyers and settlement back on track.”
“John is very easy to talk to, he never makes you feel dumb, and never makes you feel like you are wasting his time for asking questions. He explains everything very clearly, every time. John's support staff are also very efficient and so easy to deal with. No detail is missed when dealing with them. My husband and I are fans of them all :)”
“I have struggled with different legal firms over the years, but over the past few years I have engaged with Turner Hopkins with various requirements from personal relating to wills, family trust, property settlements and contracts through to commercial engagements including employment advice, commercial lease agreements and general legal advice. I have engaged with a number of the people in the firm and always found them professional, punctual in their responses and very sound in the advice provided.”
“To Michael Robinson – I wanted to thank you and your colleagues for many years of excellent service to the Bank. You have an outstanding business that has proved to be one of the most reliable and ethical businesses that Collections have dealt with in the almost 9 years I was with the Bank.”