May 2009 Issue
By Wal Britton

Claiming What's Rightfully Yours

Inadequate advice regarding the Personal Property Securities Register could be putting many small businesses at risk.


An Auckland debt collection specialist believes many small businesses will go broke in the current economic downturn through ignorance of their rights.


And in most cases, says Wal Britton, of Accounts Enforcement, the blame for that rests with their professional advisers.


According to Britton, the vast majority of small businesses are not taking advantage of the security provided by the seven-year-old Personal Property Securities Act (PPSA).


"I think it's absolutely bizarre in this environment, that accountants, economic commentators and even the Government are not strongly advising small businesses to use the PPSA to protect their rights," he says. "It's an essential part of prudent business practice."


Britton's concerns are shared by John Price, of insolvency specialists Horton Price, who reaffirms that the vast majority of small businesses are not utilising the protection of the Personal Property Securities Register (PPSR), which was established under the Act.


He says his practice had recently completed the liquidation of a retailer in which "no more than 15 percent of suppliers" had a valid registration on the PPSR.


"Not having registration meant those suppliers lost stock that they could otherwise recover and put back into inventory."


In the current environment, Price warns, suppliers face a very real threat of multiple liquidations amongst their customers.


"What's worse, if they do not have valid registration on the PPSR they risk a 'double whammy' – not only do they lose the customer who has gone into liquidation but they also lose the stock which they had supplied and hadn't been paid for."


In today's marketplace, Price advises, all small businesses should be ensuring they are registered to give themselves the best chance of at least getting something back when a client goes into liquidation.


The PPSA, which came into force in 2002, implemented a number of changes to the law relating to security interests over personal property including:


  • A common set of rules to establish priority of security interests in personal property;
  • A procedure for the creation and registration of security interests in such property; and
  • A centralised, electronic Personal Property Securities Register (PPSR).

"In simple terms, all companies who trade with a person or company, providing goods on credit – even leasehold or hired items – should register the transaction on the PPSR," explains Britton.


"This ensures the ownership of the goods doesn't pass to the purchaser until they have been paid for in full. In the event of the purchaser going into liquidation, registration means the seller is able to minimise their loss."


Without registration however, such goods can be sold by the liquidator and the funds raised used to pay priority creditors.

"Examples of companies who have been caught out in this way include a manufacturing jeweller with items on display in a company that went into liquidation, a company leasing EFTPOS machines, and another firm which supplied coffee machines to restaurants and cafes," says Britton.


"Probably the most famous case of all was the firm which hired portaloos to a construction company. When the construction company went broke the liquidator sold the portable toilets and gave the money to the bank.


"The owner of the toilets sued the liquidator but, because the portaloos weren't registered on the PPSR the court ruled that the liquidator had the right to sell them – even though the company in liquidation didn't own them.


"Our advice to all companies who offer credit to their customers is to have a PPSA policy in place. It's not a difficult process. The appropriate wording on your contractual documents provides protection on all goods and services supplied, which will then enable businesses to register a security.


"However, you can't place a PPSR retrospectively if you hear that a firm that you've sold or leased goods to is in trouble. The registration must be completed prior to supply."


Convinced that every accountant in New Zealand should have told their clients of the ramifications of not registering transactions on the PPSR, Britton also says a huge number of companies are exposed at the moment, but just don't realise it.


"Especially in the current environment, it's crucial that all companies selling goods on credit have a PPSA policy in place."

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Registering on the PPSR is only $3. If you would like to learn more about the PPSA or you would like the Accountancy + Business Advice Centre to help you with registration or establishing a PPSA policy, just contact Nick on 0800 ASK NICK or email