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An important piece of legislation in New Zealand is the Personal Property Securities Act 1999 (PPSA). This Act was a world leader in consolidating the law around security interests and how commercial entities dealt with them. Before this Act, it was often confusing for business people to understand how security interests were to be used and in what situations they were to have rights to them. A key provision of the PPSA is section 66. This section explains the priority rules when dealing with the Act. This article will explain who takes priority over a good under section 66 of the PPSA.

What is the PPSA?

The Personal Property Securities Act 1999 legislates how to use security interests in commercial dealings. A security interest is a legal right that underpins the performance of an obligation such as payment. Generally, security interests arise when a business sells something on credit. The business will hold a security interest over the goods sold until the buyer pays off their debt. This means that the seller can take the good back if the buyer does not pay off their debt. In this example, the ‘collateral’ of the security interest is the good in question.

Another feature of the PPSA is the Personal Property Securities Register. This is a public database of all registered security interests. This database allows businesses to see who has a registered security interest over what good. It is an essential aspect of the PPSA as it determines priority. 

What Are the Priority Rules Under the PPSA?

The PPSA determines who gets priority when there are competing competitors vying for a particular good. The main rule is that a perfected security interest will always have priority over one that is not perfected. A perfected security interest means one you or someone else did not register on the PPSR. However, if both parties registered their security interests on the PPSR, then the one that a party has registered first will have priority. If they have both registered their security interests simultaneously, then the party who gains possession of the collateral first will have priority over the security interest. 

Unregistered Security Interests

There are also rules around priority for unregistered security interests. For unregistered security interests, the priority goes to the first party to attach their security interest. Attachment occurs where value in the item is given by the secured party, and the debtor has rights in the collateral. 

Personal Money Security Interest

Another type of security interest is a personal money security interest (PMSI). A PMSI arises in certain situations and takes priority over all other security interests. For example, a PMSI can arise where a seller sells their goods to a buyer with the expectation that they retain title over the goods when the buyer is in possession of the goods. A PMSI can also arise when a lender provides finance for a specific purchase.

For a PMSI to occur, you must make sure that you register it within ten days after the debtor has gained possession of the collateral.

Lien

Liens generally have a higher priority over regular security interests under the PPSA. A lien is a legal right granted over collateral to secure payment or performance of an obligation. As long as the materials or services relating to the lien are provided in the ordinary course of business, then it will take priority over a perfected security interest.  The Act also states that a lien must not arise out of another act that does not give the lien priority over a security interest.

Key Takeaways

The Personal Property Securities Act 1999 is one of the most important commercial acts in New Zealand. You must be familiar with its key terms so that you can use them to your advantage in commercial dealings. The Act defines a security interest and determines who takes priority over a good if competing creditors are vying for the same good. The PPSA states that a perfected security interest will always have priority over one that is not perfected. Perfecting a security interest means registering it on the PPSR. However, a personal money security interest will always have priority over any other security interest. 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 to a good if I do not register a security interest?

Yes, you can still have a claim to a good if not other creditors have registered their security interests.

Can I make my security interest a PMSI?

No, a PMSI can only arise in certain situations, such as when a seller retains title over goods they sell until the buyer pays off the good.

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