D-Day For PPSA
The vast majority of New Zealand businesses are not ready for the onset from this week of the Personal Property Securities Act, says a leading commentator on credit management Peter Hattaway.
“Most New Zealand businesses will learn about the Act the hard way, when they’re hit with a bad debt which should have been avoidable,” he says.
“The Act comes into force on 1 May and it’s the biggest change in commercial law in a decade,” says Mr Hattaway.
“It covers securities over personal property. The easiest example for people to understand is hire purchase agreements but the biggest problem is for businesses with ‘retention of title clauses’ where businesses selling goods on credit to other businesses put such clauses in their sales terms.”
“Such clauses say, in essence, ‘if the goods aren’t paid for, we can take them back’. These clauses often come into play when a bank appoints a receiver, and under the current law, for technical reasons, they often don’t work.”
Mr Hattaway says the new Act will significantly improve the chances of a creditor with a retention of title clause being able to take back goods in the case of a receivership. However, they will be largely unenforceable, he adds, unless the agreement has been registered.
“There will be a six – month transition period for existing securities but any new contracts will have to comply.”
“It’s a relatively complex Act for most small to medium sized businesses to understand and dramatically different to the law it replaces,” says Mr Hattaway, who is the author of leading books on credit management in New Zealand and Australia. With Tauranga lawyer Alan Liddell he has just published a book entitled ‘Credit Revolution: A Guide to Surviving the Personal Property Securities Act’.
The book explains how the Act sets out a comprehensive set of rules for creditors to register securities on the new Internet-based Personal Property Securities Register. Registration costs only $5 and can be done quickly on the Internet.
“The PPSA is based on Canadian law and is a normal part of doing business over there. New Zealand creditors need to realise that it will become a normal part of doing business here too,” says Mr Hattaway.