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If you are in business in New Zealand, you may be aware of security interests. Security interests are an enforceable legal claim over a particular good to secure payment or performance of an obligation. They generally occur where businesses buy something on credit, and the seller needs some guarantee the buyer will pay them. The Personal Property Securities Act 1999 (PPSA) is the piece of legislation that governs security interests in New Zealand. There are different types of security interests. One of these is called a purchase money security interest. This article will explain what a purchase money security interest is in the PPSA.

What Is The Personal Property Securities Act 1999?

The New Zealand government created the PPSA to consolidate the common law relating to personal property and security interests. The primary function of the PPSA is to define what a security interest is. It also defines who has priority if more than two people are claiming a particular good. Furthermore, the PPSA created the Personal Property Securities Register. This is a public database of all registered security interests. This register enables individuals to find out who has a security interest over what. 

What Are The PPSA Priority Rules?

The PPSA priority rules determine who gets what if there is more than one claim to a piece of collateral. Generally speaking, the individual who registers their security interest first will have the best priority. A registered security interest is known as being perfected. A perfected security interest will always have priority over an unregistered one.

What Is a Purchase Money Security Interest?

A purchase money security interest (PMSI) is a type of security interest that has priority over all other types of security interests. Even if you have registered a financing statement on a particular good at an earlier date, a PMSI will always take priority. However, there are only certain circumstances where you can define a PMSI. This is where the seller sells goods to a buyer, but the buyer has not yet paid for the goods. In this case, the seller of the goods retains title over them until the buyer makes payment. A PMSI can only exist if the seller registers a financing statement within ten days of the buyer receiving the good in question.  

A PMSI can also exist where a lender has provided finance for a specific purchase and the item being purchased is being used as security for the loan. Another requirement for a PMSI is that the funds must be able to be traced to show the good purchased was intended to be purchased by the party that is securing the loan. 

How Does a Retention of Title Clause Fit in?

Before the PPSA, you could use a retention of title clause to maintain title over goods until the debtor paid for them. However, retention of title clauses are not useful anymore unless you have registered the security interest on the PPSA. This is because a person who has registered their security interest over the same good will have a better priority. Nevertheless, it can still be useful to include retention of title clauses in your contracts. However, always ensure you also register on the PPSR. 

Key Takeaways

You must be familiar with the Personal Property Securities Act 1999 when you are dealing with security interests. The PPSA lays out how you can define a security interest. It also lays out who has priority over a good when someone makes a claim. The PPSA also defines what a purchase money security interest is. A PMSI has priority over all other security interests regardless of when those security interests were perfected. A PMSI can only exist where the seller retains title over the good once it is in possession of the buyer. The title only passes to the buyer once the buyer has paid for the good. For legal assistance with loan contracts, contact LegalVision’s corporate lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Can I register anything as a PMSI?

No, certain circumstances give rise to a PMSI, such as when the seller retains title over good until the buyer pays it off.

Should I still include retention of title clauses in my contracts?

You should still include retention of title clauses in your contracts, but you just have to make sure that you register any security interests correctly. 

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