Revamp streamlines securities

By IRENE CHAPPLE

Corporate lenders have spent hundreds of thousand of dollars readying themselves for a new law which governs how loans are secured.

The Personal Property Securities Act, based on Canadian legislation, is due to go live on May 1. It has triggered a clean-out of deeds packages throughout the country, and a revamp of security documents.

But although lawyers have touted for business on the back of scare tactics over the new law, most businesses remain relaxed about the upcoming changes.

The act enables most asset securities to be registered online through the Ministry for Economic Development.

It renders obsolete the previous statutory regime, which included the Chattels Transfer Act and the Motor Vehicle Securities Act. However, it does not cover security interests over land.

The act discards some present concepts, including debentures, and replaces them with a security called "All Present and After Acquired Property", which encompasses all of a company's assets at the time of the loan, plus those acquired later.

The act also requires the so-called retention of title - known as ROT, or Romalpa - rights to be registered, causing concern among small and medium business spokespeople over the potential loss of securities.

At present, businesses frequently rely on terms of trade - that can be as simple as a note on companies' invoices - to enable repossession of goods if they are not paid for. Under the new law, the interest will need to be registered, otherwise the priority will be lost.

Priority for interests will further change to a first-registered, first-priority basis, overtaking the present priority based on the date of signing rather than registration.

There is a six-month transitional period for re-registration of securities, during which original priorities will not be affected.

Banks have purged deeds packages, renewing security documents and readied them for on-line registration, while also rewriting loan documents.

National Bank PPSA project leader Richard Boodee said the two-year project, at times employing 15 people, would eventually clock up more than $1 million in costs.

The bank has gone through around 40,000 documents and simplified its securities. Its nine present contract types - not including mortgage contracts, which are unaffected - have been merged into two for the new regime.

Tanya Redmond, contracted to lead the project for the ANZ, estimated that even without legal costs, the project has cost around $200,000 for updating systems and processing details. The bank went through almost 30,000 securities, gathering new details such as birth details and company registration numbers.

Redmond and Boodee both say the process has meant a solid clean-out of deeds packages, and a chance to improve the banks' systems and contracts.

Simon Carlaw, of Business New Zealand, said the act hadn't inflamed great passion, but he believed smaller businesses needed to learn more about it.

Heather Douglas, of Home Business New Zealand, also said small businesses were under-informed. They were also disadvantaged because of the costs associated with legal advice on the new act, she said.

When one is focused on running a business with no or few staff, and frequently, limited resources, the frustration of keeping up with legislative change can be substantial, she said.

The Ministry for Economic Development will be running free seminars and an advertising campaign through this month and next, after one-on-one advice it has already been offering businesses. The legislation replaces inconsistent law.

The Personal Property Securities Register