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Are you a business that sells goods or buys goods on credit? You need to ensure you are aware of the laws surrounding security interests. The main act regulating security interests in New Zealand is the Personal Property Securities Act 1999 (PPSA). The purpose of the PPSA is to consolidate the confusing common law that governed security interests for many years. One of the features of the PPSA is that it defines common terms very clearly, including security interests. This article will explain what a security interest is under the PPSA in New Zealand.

What is the Personal Properties Securities Act 1999?

When you sell goods on credit, you may need to make sure your buyer follows through with the rest of the transaction. However, if your buyer goes bankrupt before paying off the rest of their payment, there could be an issue. This is because several creditors may want to take the good you sold to pay off the buyer’s debt. The PPSA clarifies who has priority over a good when there are competing creditors vying for it. One of the main features of the PPSA is the Personal Property Securities Register.

What is the Personal Property Securities Register?

The PPSA created the Personal Property Securities Register (PPSR) to offer a public database of all registered security interests in New Zealand. Registering a security interest on the PPSR is known as ‘perfecting’ it. A perfected security interest will always have priority over an unperfected one under the PPSA. This means that to have the best chance of receiving your goods back if your buyer goes bankrupt. Therefore, you should always register your security interests. 

What is a Security Interest under the Personal Property Securities Act 1999?

A security interest is a legal interest that secures the payment or performance of an obligation. Security interests are automatically established in certain circumstances. However, they are not foolproof unless they are registered on the PPSR. 

Surprisingly, the court does not consider legal ownership when dealing with a security interest under the PPSA. 

For example, a security interest can arise in the case of leased goods. If you lease goods to a business for a term of more than one year, then you must register this on the PPSR. Otherwise, if the business goes insolvent and another creditor prioritises the business’ assets, they can take your leased goods to pay off any debt owing. This is the case even if you have the full legal title to those goods. However, if you have a perfected security interest, you will have the highest priority to the goods you lease. 

A security interest under the PPSA can also be a commercial consignment. If you leave goods in the hands of a third party to sell on your behalf, you must register this as a security interest. If you do not register your security interest, then another creditor might have better priority to the good. 

Attachment 

You must make sure that you attach your security interest. An attached security interest is one that you back up with some sort of collateral. Even though attachment will not give you the best priority over a good, it is necessary to perfect a security interest. For a good to be attached, the secured party must give some value in the good, and the debtor must have rights in the collateral.

Key Takeaways

The Personal Property Securities Act 1999 governs security interests in New Zealand. It is an important part of the law as many businesses deal with security interests in their commercial dealings. However, many parties may have a security interest over the same good. This means that you must register your security interest on the Personal Property Securities Register to have the best priority over it. It is also important that your security interest is attached to collateral when you register it. For legal assistance with the PPSA, contact LegalVision’s New Zealand corporate lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Do I still have a claim over a good if I don’t register my security interest?

You may still have a claim over a good, but this is only if no other party has registered a security interest over the same good. A registered security interest will always have priority over an unregistered one. 

Will I always get goods that I own back if the business that is in possession of my goods goes insolvent?

No, you will only get them back if you have the best priority over them. The PPSA does not consider legal title, so you must register your security interests. 

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