PPSR and the construction industry

If you provide equipment such as plant, machinery or motor vehicles to contractors or other parties in the construction industry, you probably do that through a hire purchase agreement or lease.

Under your hire purchase or lease contract with the hirer/lessee, you hand over possession of the property to the contractor but keep ownership (title) and have the right to take the equipment back if the contractor stops paying. The PPSR may protect your right to do this.

Where a lease is for a term of over a year or if you have retention of title or hire purchase arrangements, then PPSR registration can provide protection for your claim to repossession if the contractor doesn’t pay by the due date and/or goes into receivership.

Leases, hire purchase and retention of title arrangements may fall within the definition of Purchase Money Security Interests (PMSI) too.

PMSI status will give you priority over other non-PMSI in that property, such as that of the contractor’s bank, even if the bank registered a security interest (over ‘all present and after-acquired personal property’ of the contractor) before your registration.

A PMSI will give you priority over other non-PMSI in that property, such as that of the contractor’s bank, even if the bank registered a security interest (over 'all present and after-acquired personal property' of the contractor) before your registration. Your PMSI over that property or its proceeds will have priority if a financing statement is registered in the PPSR within 10 working days after the debtor obtained possession of the property.

To register a financing statement in the PPSR, you must provide correct details of the debtor and the property subject to the security interest.

Searching can be done in the PPSR by debtor details or by motor vehicle serial numbers. Searchers can discover your financing statement and identify your interest in the property if you register the financing statement with correct details of the debtor and property.

The serial numbers of a motor vehicle are the vehicle registration number (that is, number plate), vehicle identification number (VIN) and chassis number. Any construction vehicle which is propelled by a motor and has a registration and/ or chassis number is likely to be a motor vehicle.

When buying property like equipment, motor vehicles, machinery or other goods —searching the register helps you make an informed decision. You can check whether the property you want to buy is being used as security for a debt or other obligation.

Within the PPSR, you can search a number of different categories. You’ll be required to provide specific information about the property, debtor, or registered financing statement number, depending on the type of search you’re making.

Searching the PPSR

• Motor vehicle search
• Searching for a debtor person
• Debtor organisation search (including New Zealand Business Number)
• Searching by aircraft serial number
• Financing statement number search

A correct registration can keep you first in line even when your customer has sold the property you have a security interest in. Your security interest can continue to the proceeds of the sale or sublease rentals.

Where you supplied plant or equipment that was not supposed to be sold or subleased without your permission, you may have a claim to repossess the original goods as well as claim for payment from the proceeds of the sale (up to the value of your debt claim against them).

Be aware that this claim to retake the actual equipment can sometimes be defeated by the interest of end-purchasers.

If you have a security interest in property that is added to other property, such as tyres installed on trucks, your security interest in the tyres may continue by registration of a financing statement prior to installation of tyres. (This is called an ‘accession’, where one item of personal property is added to another such item).

If you sell goods on retention of title terms, or if you lease goods out for over a year (or on indefinite hire, or where they have had them for over a year), then registration can protect you as a PMSI holder.

Priority rules decide which secured party (or creditor) ranks higher and determines who can be paid out first from the collateral.

The rules are generally, first in time, first in line (i.e. an earlier dated registration beats a later one over the same collateral). An important exception is a PMSI, as explained above under 'Protection when selling or leasing equipment').

If you don’t register within the time limit above, you won’t get the special PMSI priority over earlier registered security interests-that could include a bank so that if they appoint a receiver later, you won’t be able to recover the goods because they will have priority as first in time.

• A lease for over a year, or renewable so that it could last over a year, an indefinite lease or hiring arrangement, or a lease which has now in fact lasted over a year.
• Secures payment of credit that you gave when you sold the particular property (eg. Retention of title, or loan finance for a particular asset to be purchased).
• Commercial consignment -where you are regularly supplying goods on consignment terms for on-sale by a regular consignee that you deal with.
• Secures money you lent specifically to help the grantor acquire particular personal property and the loan was used to acquire that property (e.g. if you lent money specifically for the purchase of construction equipment, which was purchased with that money).

Depending on the terms of the contract, there may be goods left on site in which there are interests that need protection through registration of a financing statement.

This includes:

• Protecting the contractor‘s (or other ownership interest in) temporary works (e.g. scaffolding) to be removed at the end of contract.
• The principal’s (i.e. developer’s) interest in goods paid for fully or partially by the principal but which are in the possession of the contractor.