Personal property law a mixed bag

By Brian Fallow

WELLINGTON - New law governing security interests on personal property will provide more certainty and consistency, but at some expense in compliance costs and privacy.

The Personal Property Securities Bill passed last week sets up a central register, accessed through the internet, listing charges over personal property. Personal property is anything except land, ships and life insurance, whether owned by individuals or companies.

In addition to setting up a centralised place for lenders and trade creditors to register their interests, the legislation clarifies the relative priority of different security interests in the same assets.

The register will include the existing motor vehicle security register, chattels security registers maintained by the High Court, and charges against companies such as debentures currently registered with the Companies Office.

Trade suppliers who now often rely on printing Romalpa clauses, such as "title does not pass until payment is received", on their invoices will instead have to register those arrangements, incurring costs in the process.

But the good news, says Kensington Swan partner Simon McArley, is that the legislation gives priority to "purchase money security interests", where credit is extended to fund the purchase of goods and the goods themselves are the collateral. The security agreement has to be in writing and signed by the debtor.

"If they give the appropriate notice to holders of general securities, usually a bank holding a debenture, these purchase money lenders will gain priority," Mr McArley said.

Consumers also get new protection. If they buy goods from a retailer or second-hand they will not be affected by any security over those goods, registered or not, unless they know of the security.

The Retail Merchants Association argued that retailers should retain the right to repossess good worth less than $2000 (the threshold in the legislation) when they are on-sold by the original purchaser.

But the commerce select committee considered that providing certainty to the buyers of consumer goods was more important.

The chief executive of Farmers Credit, Bruce Gordon, does not think the provision will make much difference to the availability or cost of hire purchase credit, however.

"It's no less protection than exists today. As far as we are concerned it is the individual who has incurred the debt. If the goods are stolen or damaged and there is no [insurance] cover the finance company does not waive the debt." The fact the goods are a security is a secondary consideration.

The register will not record the value of the property or security interest.

It will be possible to search the register simply by reference to the debtor's name and gain a complete picture of all securities granted by that borrower or those borrowers, in the event of common names. The risk of confusion can be reduced by borrowers opting to include their address or date of birth, but that information will not be required.

The select committee considered that requiring searchers to know the debtor's address or date of birth as well would have increased the risk of typographical errors or mistakes due to a changed address. That would reduce confidence in the register and its effectiveness.

The new law comes into effect in June next year and existing securities, registered under one of the existing systems remain valid for six months after that. Beyond that they will lose priority unless the lender reregisters under the new system.