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The Personal Property Securities Act 1999: Ready, Set, File!

The long-awaited Personal Property Securites Act, which comes into force later this year, will radically change existing practices. Good Returns explains what the act is all about.

Monday, March 19th 2001, 12:18AM

A Personal Property Securities Act was first drafted by the New Zealand Law Commission more than 10 years ago.

This long awaited piece of legislation, which is going to radically change existing practices relating to charges over personal property, is due to come into force later this year.

The original draft closely followed the equivalent Canadian legislation but has been substantially remodelled by the Ministry of Commerce to arrive at its current form. These changes have introduced many inconsistencies and anomalies which could reduce the precedent value of 25 years of Canadian case law and see the New Zealand courts tied up interpreting this far reaching legislation.

Certainly the act, which will create one centralised, electronic register to replace all existing registers covering personal property (including the motor vehicle securities register, the company charges registers and the registers under the Chattels Transfer Act) can be seen as a welcome overhaul of existing rules and systems.

However the raft of new concepts and terminology the act introduces may take some time for business professionals and advisers to come to grips with.

Definitions

Personal property is divided into a number of classes but is basically all property except for land. New terms introduced include "chattel paper" which covers hire purchase agreements and "investment securities" which covers shares, options etc. Personal property also includes intangibles and "present and after acquired personal property". Securities such as the floating charge are thus made redundant under this legislation.

The term "security interest" is fundamental to the Act and is defined in s.17 as:

"an interest in personal property created or provided for by a transaction that in substance secures payment or performance of an obligation, without regard to:

i) the form of the transaction; and

ii) the identity of the person who has title to the collateral."

The definition goes on to capture other transactions that are deemed to be security interests, including leases for a term of more than one year.

Attachment and perfection. Not the path to true love, but two more concepts fundamental to understanding the functioning of the new act. A security interest must attach to collateral to be enforceable.

There are wider requirements where third party rights are involved.

Perfection is achieved by registration of a financing statement. Perfection can not occur without attachment but registration of a financing statement can take place prior to executing a security agreement. It is the time of registration rather than perfection which determines the priority of the security interest.

Priority Rules

The general priority rule under the act is first to file wins. There are two main exceptions to this; ordinary course purchasers and a super priority to purchase money security interests (PMSI). To take advantage of the PMSI super priority suppliers will need a signed security agreement and must register a financing statement. This need only be done once for each customer but is likely to be overlooked by many suppliers who have till now relied on Romalpa type clauses on invoices. Under current practice Romalpa clauses, (or retention of title statements), generally gave the supplier priority over the holder of a security interest in the property.

The Register

A six month phase-in period is promised for secured parties to reregister existing securities on the new register. Large financing organisations are likely to need all of that as information required may be more detailed than they currently hold. For an individual, date of birth is required as well as name and address. For an organisation, incorporation number is needed. There are also several fields for describing the collateral depending on the type of personal property involved.

The maximum period of registration under the PPSA is five years. Renewals must be made before the original registration expires to maintain priority position.

The Registrar is required to send a verification statement to the registering party following the registration of a financing statement or financing change statement.

If all this has got you worried, the Ministry of Economic Development, (MED), which is responsible for implementing the act is staging a series of regional seminars over the next three weeks to assist organisations to prepare. You can get more information from its website at www.ppsr.govt.nz.

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AMP Home Loans LVR <80% - - 5.99 -
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ASB Bank Special - - - -
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BNZ - Mortgage One 6.60 - - -
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BNZ - Std, FlyBuys 6.19 5.85 6.29 6.29
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Credit Union Baywide 5.85 5.90 6.50 -
Credit Union North 6.45 - - -
Credit Union South 5.75 - - -
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First Credit Union 6.45 - - -
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Housing NZ Corp 5.75 5.50 6.30 6.40
HSBC Premier 6.24 5.59 6.29 6.55
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HSBC Special - - 5.79 -
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Kiwibank 5.90 5.69 5.99 6.40
Kiwibank - Capped 5.65 6.50 - -
Kiwibank - Offset 5.60 - - -
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RESIMAC LVR < 80% 5.84 5.64 5.99 6.55
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RESIMAC LVR < 85% 6.84 6.64 6.99 7.55
RESIMAC LVR < 90% 7.84 7.64 7.99 8.55
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Silver Fern 5.95 6.10 6.55 7.05
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