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McDonald Vague, Insolvency and Business Recovery Specialists, strongly recommend that businesses register their security interests on the Government's Personal Property Securities Register (PPSR), and increase their awareness of the consequences of non registration.
Failure to utilise this legislation can be a doubly expensive process in the event that their debtor company is placed in liquidation.
Many companies are not aware that the legislation applies to supplies of goods on credit, leases for terms of greater than one year (or indefinite terms) and consignment goods.
Jonathan Barrett, an Associate with McDonald Vague, says valid terms and conditions of trade, as well as registration of a financing statement on the PPSR, are absolutely essential if businesses want to recover any supplies, or the proceeds of sale of those supplies.
Jonathan is regularly dealing with businesses placed into liquidation. When it comes to determining priorities for a distribution from asset realisations, there are almost always a number of competing securities, some valid and others improperly registered.
Generally speaking, businesses that fully utilise the PPSR gain priority over other creditors, and can substantially increase their entitlement to a distribution, return of goods or payment of proceeds.
In a case involving a liquor outlet in South Auckland, 24 trade creditors filed claims in the liquidation and only three had registered their security interest over goods supplied. The three creditors with valid registrations were able to immediately negotiate payment in full for their goods or choose to recover their goods immediately.
Non-registration by the other creditors meant that a finance company holding a General Security Agreement (GSA) gained priority to the surplus business realisations, and the lower ranking creditors ranked below the finance company as third in line. They stood to miss out entirely on payment for supplies made.
Jonathan says in about 90% of cases, these third ranking creditors miss out with an unregistered security interest.
Registration is a very cheap process compared to the potential costs of non-registration. Registering each financing statement costs only $3.07.
Jonathan recommends creditors visit www.ppsr.govt.nz. He is happy to take queries on this subject.
DISCLAIMER
This article is intended to provide general information and should not be construed as legal advice. Parties who require clarification on issues raised in this article should take their own legal advice.