Media release

March 21, 2011

PPSA in Australia could have negative impacts for NZ businesses

New Zealanders carrying out business in Australia need to be aware of the implications of the introduction in Australia of a version of the Personal Properties Securities Act (PPSA) that we’ve worked under in this country since 2002.

The introduction of a PPSA in New Zealand changed our way of doing business for all providers of credit and most lessors of personal property.

Our PPSA was based on North American law and introduced new concepts which provided security to those with security interests in personal property who take advantage of its protective mechanisms.

Now, Australia is to follow our lead and later this year will introduce a version of the PPSA which is largely similar to the law in New Zealand but with a few important distinctions.

With that in mind anyone doing business in Australia should be aware that their business practices will also be subject to the same changes we experienced in 2002 and should seek out the necessary professional advice to ensure they protect their security interests under the soon to be introduced Australian law.

It is still surprising how many New Zealand businesses either remain unaware or choose not to use the protection provided by the PPSA.

It may be a conscious risk management strategy or a lack of understanding of the benefits of registering. The downsides of not registering can be considerable and perhaps the best known case law, the Portacom Decision, highlights the downside.

A company had leased, on a long term basis, a portable cabin used for temporary office accommodation. The company had borrowed money from a bank who had registered a security interest on the Personal Properties Security Register (PPSR) over all the assets and undertakings of the company. Portacom, the supplier of the portable cabin, retained ownership of the cabin but failed to register their security interest in the collateral on the PPSR.

When receivers were appointed by the bank, they sold the portable cabin and paid the proceeds to the bank, which had the strongest security position. Even though the asset belonged to Portacom, they lost their claim to their own asset because they had failed to perfect their security interest.

Put simply, a security interest exists where one party gives value to another, in the expectation that the recipient of that value will perform an agreed upon obligation. In this instance, as in many other standard transactions, a vendor supplies goods on credit in the expectation that the purchaser will pay an agreed price for those goods.

By registering such security interest on the PPSR the party providing the credit makes it known publicly that they have a security interest which that registration has perfected.

The PPSR is an online register maintained by the Ministry of Economic Development and is accessible for scrutiny or registration of security interests 24 hours a day, 7 days a week.

Failure to effect such registration could see the interests of the provider of the credit lose their priority interest in the goods, or collateral, in question. The operation of the PPSA even makes legal title in personal property irrelevant in some cases.

Many business people struggle with this concept, but the advantage of registering a charge on the PPSR is best seen where a supplier of goods retains ownership of those goods pending payment for them and registers that security interest.

Even if there is a charge-holder such as a bank with an all-encompassing charge, that supplier would enjoy a super-priority in their goods or the proceeds there from.

This is a complex piece of legislation and a detailed analysis goes beyond the scope of this piece. However, the law is well established in New Zealand and is coming soon to Australia. Anyone providing credit or leasing goods in either jurisdiction should be taking suitable professional advice on how to protect themselves through a relatively simple registration process and to avoid being burnt.

For further information please contact:                          

Gareth Hoole                                                                                                 

Corporate Advisory Director                                                                    

Staples Rodway                                                                              

(09) 373 1133           

Note to editors:

Gareth Hoole has accumulated over 25 years of experience, both locally and abroad, principally in the chartered accounting environment. He has had experience in auditing, taxation consulting, business advisory services and corporate recovery, mainly in respect of liquidations, receiverships, business turnaround and security reviews. He has an interest in adding value to businesses with solvency issues and assisting clients to realise their potential. Gareth is a member of Insol and is engaged in the area of corporate recovery, performance improvement, creditor compromises and managed workouts at Staples Rodway.