Introduction
Personal Property Securities in New Zealand
Main Features of the New Regime
What Should Lenders Do?
Introduction
The Personal Property Securities Bill was reported back to parliament in late July 1999 and at the time there was considerable confidence that the bill would be passed into law within two months. However, it has been frustratingly held back by the passage of other legislation regarded as more important prior to the forthcoming general election, and will now not become law until at least the first parliamentary session in the year 2000.
Nonetheless, the bill has the general support of the major political parties in New Zealand and the general expectation is that it will become law relatively early next year regardless of the result of the election. When enacted, the Personal Property Securities Act (the 'Act') will replace the current law relating to security over personal property (almost all property other than land) with a comprehensive system that is intended to clarify and simplify the law in this area. The Act, which is largely modelled on Canadian legislation, will represent a considerable departure from the current law in New Zealand and will require both domestic and foreign lenders which take, or which hold, security in New Zealand to reconsider their current practices and documentation.
Personal Property Securities in New Zealand
At present, the registration requirements and priority rules concerning security interests in non-land property in New Zealand are contained in a variety of legislation. Of principal interest to foreign banks and lending institutions are the rules governing the registration of charges over the assets of companies registered in New Zealand, contained in Part IV of the Companies Act 1955. In general, these rules provide that unless a copy of the charge over such assets is registered at the Companies Office, that charge will (after a prescribed period) be void against the liquidator or a creditor of that company.
Main Features of the New Regime
The Act will replace Part IV of the Companies Act and a number of other acts regulating security interests. The main features of the new regime are:
- Uniform priority rules for all types of security interests in personal property, such as charges, mortgages, hire purchase agreements and consignments. In general, the first secured party to register a financing statement relating to a security interest will take priority. The Act will encompass interests which are not treated as security interests under the present law, including retention of title clauses, transfers of accounts receivable or chattel paper, and leases for a term of more than one year;
- There will be special rules of 'super' priority for purchase money security interests (typically including secured acquisition financing and retention of title interests);
- The abolition of the concept of the floating charge. Lenders will be able to take a security interest (essentially a fixed charge) in all of a debtor's present and after-acquired property, including stock in trade and book debts;
- Introduction of new key concepts, such as 'attachment' (when the debtor has rights in the collateral, the security interest is given and the creditor gives value) and 'perfection' by registration of a financing statement or possession of the collateral; and
- A centralized electronic registry of all security interests indexed by debtor and collateral.
What Should Lenders Do?
Banks, financial institutions and their advisers need to consider the following issues in the remaining months before the bill is passed into law (or, at the latest, before the Act, when it is passed, comes into effect):
- Re-registration of Existing Charges: There is no provision for the automatic re-registration of charges and instruments registered under the current law. The bill provides for a transitional period of six months from the date of commencement of the Act during which security interests that were enforceable prior to the Act will continue to be enforceable. However, in order to ensure priority under the new Act, it will be necessary for financing statements for each security interest to be registered prior to the expiry of the transitional period. For many lenders there will be a considerable undertaking required to review the securities they currently hold to determine which will need to be re-registered.
- Review Loan and Security Documents: In light of the new legal concepts introduced by the Act, the current loan and security documentation used by lenders, especially standard form documents, will need to be reviewed and redrafted in order to ensure consistency with the new regime and to take advantage of the greater certainty made possible by the new rules.
- Review Lending Procedures: Secured lenders will need to review their lending and security procedures. It will be crucial to ensure that searching of the register and registration itself occurs at the most appropriate points in the lending process. To this end, education of employees about the concepts and practical consequences of the Act will be essential.
Lenders considering the above concerns should seek more detailed legal advice prior to the commencement of the Act early next year.
For further information on this topic please contact John Nankervis at Buddle Findlay's Wellington office by telephone (+64 4 498 7317) or by fax (+64 4 499 4141) or by e-mail ([email protected]). Alternatively, contact Dermot Ross at Buddle Findlay's Auckland office by telephone (+64 9 358 7024) or by fax (+64 9 358 2055) or by e-mail ([email protected])
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