How to register your security interest on the New Zealand Personal Property Securities Register as a creditor
If your business gives credit, the NZ Personal Property Securities Register (PPSR) affects you. It also affects you if you lend money and take an interest in an item of the borrower's personal property as security for the loan. In both those situations you have a "security interest" in personal property: you'll therefore need to understand how to use the PPSR and how registering your security interest will protect you.
Having a system of official registration of security interests is not new. What was new about the PPSR system when it was introduced in 2002 was that it created a single, centralised and much more accessible register for security interests over personal property (basically all property other than land). The PPSR replaced an outdated and uncoordinated system involving several different registers.
If you had security interests in personal property that were registered on the old system of registers, you had to reregister them on the PPSR in order to continue to get the protection of official registration. And any new security interests that you took had to be registered on the PPSR in order to be protected.
Further, the PPSR covers some types of security interest â€“ such as hire-purchase agreements â€“ that didn't have to be registered under the old system in order to be protected.
The PPSR is established under the PERSONAL PROPERTY SECURITIES ACT 1999. The Register is run by the Business and Registries Branch of the Ministry of Economic Development.
When did the PPSR take effect?
New security interests were able to be registered on the PPSR from 1 May 2002, and the old registers no longer operated after that date. But there was a transition period to 1 November 2002; the PPSR did not fully replace the old registers until then. This transition is explained in detail below.
Adapting to the PPSR: What to do?
As a creditor, you should consider which of your existing security interests, and which future interests, you should register on the PPSR in order to be protected against other creditors and people who buy from the debtor.
You should also review your business documents to make sure that you are collecting all the information you need to register on the PPSR. For example, you should be recording each debtor's full name and date of birth.
How does registering my interest protect me?
Registering your interest on the PPSR gives it priority if the debtor later uses the same property as security for a loan from another creditor. Your registered interest has priority over other interests that are registered after your own registration date, and also over any unregistered interests, whenever they were created. If you have priority over another creditor's interest, that means they will have to wait in line behind you to recover their money from any sale of the property.
However, there is an exception for an interest called a "purchase money security interest", which has priority over other registered interests: see below, "Special status for - purchase money security interest' (PMSI)".
In general, if your interest is registered, you will also be protected if the debtor sells the property to a third party. In those cases you will still be able to require the property to be sold so that you can recover the money owed to you, regardless of the fact that the debtor has sold it on to someone else. But there are some important exceptions to this that protect ordinary consumers: see below, "When does registration not protect me against people buying from the debtor?".
What if I don't register my interest?
If you don't register your security interest, another creditor with a registered interest in the same property will have priority over yours, even if their interest was registered after your unregistered interest was created.
When does registration not protect me against people buying from the debtor?
The general rule is that if you have a registered security interest, your rights are superior to someone who buys the property from the debtor. But there are some exceptions to this rule that protect ordinary consumers, and in these situations a person who buys property subject to a registered security interest gets full rights in the property. This means that you won't be able to force a sale of the property to recover the debt, and must instead pursue other legal remedies against the debtor.
A third-party buyer gets full ownership, despite any registered security interest, in any of the following cases:
- Buying from a dealer
- - Third parties get full ownership if they buy the goods from a dealer, rather than in a private sale.
- Consumer goods under $2,000
- - Third parties are protected if they buy goods that are normally bought for personal or household use, and that were worth less than $2,000 when the security was taken out. Note that this $2,000 limit usually applies to the price at which you sold the goods to the debtor or to the value of the goods when the debtor took out the loan from you (as the case may be), and not the price at which the third party bought the goods from the debtor.
- Buying from registered car dealers
- - Third parties are protected if they buy a car from a motor vehicle trader who is registered with the Ministry of Economic Development.
In other words, third parties won't be protected from a registered security interest when they:
- buy non-consumer goods (say, a printing press) in a private sale, or
- buy consumer goods in a private sale, if the goods were worth more than $2,000 when the debtor originally bought them or used them as security for the loan
Special status for "purchase money security interest" (PMSI)
There is a special rule that gives priority to a registered "purchase money security interest" over other types of registered security interests. You hold a "purchase money security interest" (PMSI) in property if you provide credit to the debtor so that the debtor can buy the property. So if you sell property to a buyer under a hire-purchase agreement, and you (not a finance company) are the lender, then your registered security interest will take priority over other kinds of registered security interests, regardless of when they were registered.
What security interests does the new system cover that weren't covered under the old?
Under the PPSR system, a "security interest" in an item of property means any interest created by a transaction that, in substance, secures payment or performance of an obligation. Unlike the previous system, the particular technical form of the transaction is not important â€“ it's the substance that matters. This definition covers all the security interests that were covered under the old law, and some new ones, such as hire-purchase agreements and "reservation of title" clauses (see "How to be aware of your rights under a -Romalpa' clause (-reservation of title')"
Under the old system, there were a number of technical distinctions that are now irrelevant. For example, previously a business that sold goods on credit could choose between
- selling the goods outright to the debtor, and taking a mortgage (a "chattel mortgage") on the goods, or
- supplying the goods to the buyer under an agreement (a "conditional sale") that kept full ownership with the seller until the buyer paid the full price (for example, a hire-purchase agreement)
If the business chose the first option it would have to register its interest on the High Court Chattels Register in order to protect itself. But if it chose the second, it wouldn't have to register its interest, because under a "conditional sale" such as this the buyer couldn't legally sell or deal with the goods in any case, and so the seller would be protected without having to register its interest.
By contrast, the new PPSR system says that this distinction doesn't matter anymore - a hire-purchase agreement is essentially the same as an outright sale with a mortgage, and therefore both should be subject to the same laws as to registration and status. This means that if your business sells goods with "reservation of title" clauses or under hire-purchase agreements (and you supply the finance), you must now register your security interest on the PPSR to be protected.
How does the new PPSR system differ from the old registers?
The PPSR replaced several old registers. These were not co-ordinated and were often difficult for ordinary members of the public to find their way around. These were:
- the Motor Vehicle Securities Register
- the Chattels Registers at High Court registries
- the Companies Charges registers at regional Companies Offices
- the Industrial and Provident Societies Charges register
Which register a security interest would be on depended on several factors:
- the technical form of the transaction that created the security interest
- the kind of property it was
- whether the person who owned the property was a company or an individual
So if the property was a car, the security interest was registered on the separate Motor Vehicle Securities Register - but not if the owner was a company, in which case the interest would be registered on the Companies Charges register held at one of the five regional Companies Offices. If it was some other kind of property - say, a boat â€“ then the interest would be registered on the Chattels Register at the High Court if the debtor was an individual, but on the Companies Charges register if the debtor was a company.
There was a transition period from 1 May to 1 November 2002, during which the PPSR co-existed with the old registers. Since 1 November 2002, there has been only one register to check - the PPSR.
The 2002 transition period
The old system of registers and the PPSR existed side-by-side for a six-month transition period from 1 May to 1 November 2002. This gave time to reregister any existing interests that people had on the old registers. The Ministry of Economic Development chose not to simply transfer the old registration information, because the PPSR requires more detailed information than the old registers. You must therefore actively reregister.
If you reregistered during the transition you retained the date of registration on the old register as the priority date for your interest as against other creditors.
During the transition period you could also register existing security interests - such as hire-purchase agreements â€“ that didn't have to be registered under the old system. Similarly, registering these interests on the PPSR during the transition meant that you retained the date on which the interest was created as the priority date for that interest.
But during the transition period people could also register new interests on the PPSR. What this meant is that a potential buyer of the property had to search both the PPSR and the old registers during the transition. For example, if you were buying a car privately and wanted to check that no money is owed on it, you had to check the old Motor Vehicle Securities Register, the Companies Charges register and the PPSR.
It wasn't until after the transition period, from 1 November 2002, that as a creditor you could be certain that there was not some security interest that could have priority over a new interest that you registered on the PPSR during the transition period. This is because an old registered interest or an unregistered interest could be registered on the PPSR at any time up to 1 November 2002, and its priority date was then the date of the original registration or, if it was never registered, its creation date.
From 1 November 2002, holders of old registered or unregistered interests could still register them on the PPSR, but their priority date was not backdated, and was instead the actual date of registration on the PPSR.
How is the PPSR accessed?
The Personal Property Securities Register is a centralised electronic register that is available to the public over the Internet. It is accessed on-line at www.ppsr.govt.nz, and is available 24 hours a day, seven days a week. You can check it from your own computer if you have access to the Internet. It's also expected that the public will be able to access it from computers available in places such as Courts, Government departments and libraries.
The PPSR cannot be accessed in any other way: there is no alternative paper system that can be accessed at a Government office.
How do I register security interests on the PPSR?
To do this, you'll need to register a "financing statement" on the PPSR containing basic details about yourself, the debtor and the property. You must do this on-line. The Ministry of Economic Development will not accept any paper documents.
In general, you'll have to provide the following information:
- the debtor's name, date of birth and address, if it's an individual
- if the debtor is an organisation, its name, and the name and address of a person acting for it, and the unique number the organisation received when it incorporated as a company or incorporated society
- your name and address, if you're an individual
- if you're an organisation, your name, and the name and address of a person acting for your organisation
- your email address and fax number
- the category that the property falls into, a description of the property if the category requires this, and a serial number in the case of vehicles and aircraft
The system distinguishes between different types of property (the property is called "collateral"). You'll have to select the category to which the property belongs, and the Register will ask for different types of information depending on the particular category.
Once you've registered the financing statement, the Register will automatically email you (and the debtor, if you provided an email address for the debtor) with a verification statement, confirming the registration.
How much will it cost to register an interest on the PPSR?
It costs $3 (including GST) to register a new "financing statement" for a security interest on the PPSR.
Users of the PPSR can pay fees either by credit card or by opening an account.
How long does registration last for?
Registration lasts for five years. You can renew the registration of a security interest for another five years for a further fee of $5 (including GST).
What if I need to use the PPSR frequently?
Large organisations that use the PPSR frequently can choose to use a "host-to-host" (or "business-to-business") connection with the Register. This means that their "financing statements" that they register on the PPSR can be formatted on their own computer system, and then simply transferred to the Register.
Does the security agreement creating my security interest have to be in writing?
A spoken agreement is valid as between you and the debtor in creating your security interest in the property. But for registration of this interest to provide protection against other creditors and third-party buyers either
- the agreement must be in writing, or
- you must have possession of the property
In other words, if the agreement creating the security interest was merely a spoken one, you won't be protected against third parties when the debtors sells the goods or uses them for further security, unless you still have possession of the goods.
How do I enforce my registered security against a debtor who defaults on the loan?
The PERSONAL PROPERTY SECURITIES ACT 1999 sets out how you go about enforcing your registered security interest against the debtor. These procedures don't apply to consumer goods â€“ that is, things used or acquired mainly for personal or household purposes. Consumer goods are covered instead by the CREDIT (REPOSSESSION) ACT 1997, for which see "How to exercise a creditor's right to repossession.
In cases other than consumer goods, if debtors "default" in their obligations to you, and your registered interest has priority over all other third parties, you can either:
- take possession of the property and sell it, or
- take the property as satisfaction of the debt or obligation that it secured
A debtor "defaults" if:
- the debtor fails to pay the debt or perform the obligation when he or she was required to under the agreement that created the security interest, or
- an event occurs that, under the security agreement, gives you the right to enforce the security
You must notify the debtor and other interested parties before you sell the property. You have a duty to get the best price that is reasonably obtainable.
After the sale you must account for the proceeds of the sale, and distribute any surplus to other creditors and then the debtor. If there's any dispute over who's entitled to the money, you must pay it into Court, where it will be held until the dispute is resolved.
The debtor's right to redeem the property or reinstate the security agreement
If you've repossessed the property but not sold it, the debtor has the right to obtain the property from you by paying you the full amount owing under the debt, along with your repossession costs and other reasonable costs. Other creditors can also redeem the property from you in this way, but the debtor's right to redeem takes priority over theirs.
The debtor can also reinstate the agreement that created your original interest by paying you the arrears owed on the debt and your reasonable costs, and remedying any other relevant default.