Case example

Note | This case example is based on a true story however the identity of the parties involved has been concealed to protect their privacy.

XYZ Limited supplies security equipment to the home, commercial and the retail markets.  XYZ Limited delivered and installed security equipment to the value of NZ$50,000 in a retail store in Auckland.  The equipment was supplied under XYZ Limited’s standard terms of trade – that is, the customer would receive an invoice and payment was due by the 20th of the month.  Such arrangements are also known as Romalpa or Retention of Title clauses.

Two days after the equipment was installed, the retail store company was placed into liquidation.  Upon learning this information, XYZ Limited sought legal advice in an attempt to recover the goods.

As XYZ Limited had not registered a financing statement on the Personal Property Securities Register (PPSR) in respect of their security interest they became an unsecured creditor.  Secured creditors (that is, those that had registered their security interests on the PPSR) were given a higher priority over unsecured creditors in the liquidation.

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

Moving forward

As a result of XYZ Limited’s experience, it will now ensure that all sales over a certain dollar value will include the registration of a financing statement on the PPSR before the goods are handed over.

XYZ Limited utilised the free in-house training offered by the Companies Office to help get started and will maintain their financing statements on www.ppsr.govt.nz.

You may also be interested in learning about exceptions to the priority rules – read more about Purchase Money Security Interests.