Guest Blogger: Andrew Nicoll, Martelli McKegg
The New Zealand Personal Property Securities Act 1999 determines priority between security interests over, or retention of title to, goods sold on credit. This law effects not only transactions in New Zealand, but also international transactions where the goods sold are intended to be exported to New Zealand. Once any goods have been moved to New Zealand, then New Zealand law will take precedence.
While retention of title (or Romalpa) clauses remain a valid form of security in New Zealand for goods sold on credit, the effectiveness of retention of title clauses relies on the vendor/creditor registering notice of its interest on a central statutory (electronic) register. By registering notice of this interest under the Personal Property Securities Act within strict time limits a vendor/creditor will ensure that its security has “super” priority over all other competing claims for the goods or their proceeds (whether such claims were created before or after this particular interest).
The effect in New Zealand of this law is that failure to register notice of the interest (whether in time or at all) has seen other creditors (including those who would appear not to have priority in their claim to title over the particular goods) actually succeed in claiming priority to such goods upon an event of default occurring. Those other creditors have been able to claim the proceeds from those goods to reduce the debt due to them by the purchaser/borrower while leaving the actual vendor of the goods unable to recover its debt.
This scenario, which has already been rather surprising to many vendors of goods in New Zealand, also applies to exporters of goods toNew Zealandwhere those goods have entered or are intended to enter New Zealand and so are subject to New Zealand law. Any offshore vendor wishing to retain title to (or at the very least obtain enforceable security over) such goods pending payment must register notice of their interest in the goods on the New Zealand register within the applicable time limits or risk losing their priority over such goods to other creditors of the purchaser/debtor who do register a security interest in all goods owned or held by the purchaser/debtor. The priority regime is strictly enforced – failure to use the provisions of the Act will see an exporter of goods on credit to New Zealand being classed simply as an unsecured creditor.
Registration of a retention of title or other security interest under the PPSA is completed online, usually by the security holder themselves, and is easily achieved from within New Zealand or overseas. The test for effectiveness of the security interest claimed is an “in substance” test so content rather than form of the interest is important.
Andrew Nicoll is a partner at Meritas New Zealand affiliate Martelli McKegg. He has considerable experience in corporate and commercial law. He acts for individuals, family interests and businesses, through to large corporate entities in several industries, including manufacturing, freight and liquor. He regularly negotiates and drafts commercial contracts. These include contracts for supply and distribution, terms of trade, licensing, shareholder and confidentiality agreements. Andrew also handles corporate insolvency work and is known for acting in shareholder disputes.
Martelli McKegg has assisted many clients with the creation and registration of security interests. Please contact Andrew Nicoll at firstname.lastname@example.org if you’d like further information.