Did you know that not using the Personal Property Securities Register (PPSR) could expose your business to unnecessary risk?

Despite the fact that the online register is celebrating its 10th anniversary in May this year, a surprising number of small business owners are not aware of the reduced financial risk that comes with registering security interests on the PPSR.

In the event of a company failing, it is likely that a small business will lose any property provided to a debtor if its interest in the property is not registered on the PPSR – this includes goods provided on consignment or credit.

Let’s look at an example of the PPSR in action with a company supplying sound systems to retail stores. This company delivered and installed a sound system to the value of $20,000 in a store. The equipment was supplied under their standard terms of trade – that is, the customer would receive an invoice and payment was due by the 20th of the month. Such arrangements were also known as Romalpa or Retention of Title clauses.

Two days after the sound system was installed, the store was placed into liquidation. Upon learning this information the company supplying the sound system sought legal advice in an attempt to recover the goods.

As the company had not registered a financing statement on the PPSR in respect of their security interest they became an unsecured creditor. Secured creditors (those who have registered their security interests on the PPSR) were given a higher priority over unsecured creditors in the liquidation.

If the sound system company had registered its security interest on the PPSR, they may have been able to recover the goods or money owed in the liquidation.

“The first time many small businesses learn about the importance of the PPSR is when a debtor has gone into liquidation. It only costs a few dollars to register a financing statement and it could well be the deciding factor in the future of a business in the case of a debtor becoming insolvent,” said Michael Brosnahan, Operations Manager - Registries at the Ministry of Economic Development.

For businesses lending equipment as part of leases and trade agreements, failure to register that property on the PPSR can be costly.

The PPSR is also often used to establish priority in releasing collateral to pay off any outstanding debt. So, if a debtor becomes insolvent, in most cases the liquidator will pay the creditors or return goods in the order in which they registered financing statements against the collateral on the PPSR.

The PPSR has other uses too. The online register is searchable for a small fee. This enables small businesses to establish the creditworthiness of a new customer or verify if something they are about to buy or accept has been used as collateral, giving added peace of mind.

Since its inception ten years ago, the PPSR has seen 65,000 secured parties (or creditors) register 5.7 million financing statements over a range of personal property. Personal property interests that can be registered on the PPSR include interests in equipment, hire purchase agreements, livestock, machines, money, and motor vehicles – but exclude land and large ships.

PPSR search

When you search for a company on the Companies Register, you also have the option of searching the Personal Property Securities Register (PPSR).

Begin by searching for the company of your choice, then from the company details screen click on the PPSR Search tab to initiate a PPSR search for that company.

Note that -

• This search will use only the company's incorporation number as the search criteria.
• When searching for a New Zealand company we recommend conducting two separate searches. In addition to completing this search (which is by incorporation number only) you should also complete a search using the company's name at www.ppsr.govt.nz.
• You (or your search agent) will be required to confirm on screen that your search is for one of the purposes set out in the Personal Property Securities Act 1999.

What does it cost?

Most searches are FREE and you don't need to log on (or even be a registered user) to search the register.

One exception is the PPSR Search. Using the PPSR Search option costs $3 and you must be logged on. Read more...

We also recommend that you log on before starting your search if you intend to update the register.

Find out more about registering on the PPSR and searching the PPSR.

This article is not intended to provide legal advice. We recommend discussing your security interests with your lawyer or accountant.

Monthly Business Growth Tips Disclaimer

Important: We cannot be held liable should Clients act solely on the basis of the material contained in the Monthly Business Growth Tips. Items herein are general comments only and do not constitute nor convey advice per se. The Monthly Business Growth Tips are issued as helpful guides to our clients. We cannot guarantee that your business will grow if you follow the guide of the Monthly Business Growth Tips as many other factors that can lead to decline are not necessarily influenced by making one change to the way your business operates.