Being able to recover debt in the case of default is one of the major issues that face businesses in New Zealand and across the globe. Debt, being an integral part of everyday business transactions, cannot be avoided in any economy or market. The best anyone can do is to reduce the risks that come as a result of dealing in credit.
PPSR — what is it?
PPSR stands for ‘Personal Property Securities Register.’ The PPSR was established in accordance with the New Zealand Personal Property Securities Act 1999. The registry was operationalised in 2002 and is maintained by the New Zealand Companies Office — a branch of the Ministry of Business, Innovation and Employment.
The PPSR is an amalgamation of the Register of Company Charges, Motor Vehicle Securities Register and Chattels Register that preceded it.
So what is it, this PPSR? The PPSR is a public-accessible database that keeps record of legal claims on personal property that has been used as collateral for loans and credit in New Zealand. Basically, if a business or individual uses a particular property as collateral for a loan or credit, the debt obligation to this property is recorded in the PPSR.
This ensures that property that has already been used as collateral is not used again as collateral to gain new credit or on-sold before the debt is repaid.
Almost all types of property that has value can be used as collateral and hence be put in the registry. This includes motor vehicles, machinery, intellectual property and the likes. But it excludes buildings, land and ships that are greater than 24 metres in length.
How does the PPSR work?
The PPSR works in a pretty straightforward way. Once a person or an organisation uses a property as collateral for a loan or credit, the creditor or lender goes ahead and records their underlying interest on the property in the PPSR.
This record will remain at the PPSR until the debt is cleared and the lender can then go ahead and remove the property. This prevents other lenders and creditors from accepting the same property for collateral in subsequent borrowing and thus preventing conflicting interests in case the borrower fails to pay back their debt and the collateral has to be recovered.
Because the registry is open and searchable by the public, lenders and creditors can search through it to determine whether a property presented as collateral has already been borrowed against. It also indicates if ownership of a property presented for sale legally belongs to the person or entity that seeks to sell it.
The benefits of PPSR to New Zealand businesses
Being able to keep records of property that has been used as collateral and retrieve such information on demand gives businesses a bunch of advantages that make the lending scene a whole lot safer. These are the benefits of PPSR:
1. Insight on potential clients and customers. Regardless of the industry you’re in, you’ll often be necessitated to sell your products or services on credit with the expectation of later payment. It’s therefore in your best interest that your customer poses the ability to pay you back when the debt is due.
Because things are not always as they seem, you’ll need to dig around to find information that indicates the debtor can pay their debt. For gathering this kind of information, the PPSR is indispensable for Kiwi businesses.
From a single database, you can find out all the property a prospect customer has put up as collateral to secure their debts. With this data, you can determine whether a business or individual is having liquidity issues or is about to go into bankruptcy. If you find that the prospect is overleveraged, then you have the opportunity to reconsider the credit facility you’re offering.
2. Establish the validity of collateral. Quite often collateral is required to secure a loan or a line of credit. Collateral provides a guarantee to the lender in that they can take possession of the collateral property to recover their dues in case the debtor defaults. If the property has already been used as collateral for previous debts, reusing it could result in conflict of interest between the different lenders who claim its ownership.
From the PPSR, businesses can search a centralised database to determine if a property presented as collateral has already been used to secure other debts. This prevents a scenario where a single piece of property is used to borrow multiple times from different lenders.
3. Protection when buying pre-owned property. When buying property such as second-hand vehicles and machinery, or even intellectual property; it’s important to find out whether there are any debt responsibilities associated with it before you complete the transaction.
It’s possible to buy property and then later discover that the previous owner had not paid for it in full or had taken credit with the property as collateral. In this case, the responsibility of clearing the debt might fall on your hands as the holder of the collateral, even if you weren’t aware of the circumstances during the purchase.
Before buying a pre-owned property, businesses can search the PPSR to find out the credit and financing history of the property.
4. Ensuring your credit liabilities are cleared. The PPSR relies on data provided by creditors and lenders. Debtors cannot edit the information on the registry — otherwise they’d just delist their listed properties. If a lender fails to remove your property from the registry after you have cleared your debt, it could have a negative impact on your credit rating.
As such, businesses that have cleared previous debts can search the database to find out if the collateral property has been delisted accordingly. If the property is still listed as debt security, then appropriate channels can be followed to ensure the information is updated to free the property from debt claims.
For any situation where collateral is required to access credit, the PPSR can be relied upon to determine whether the property in question qualifies to secure debt. This plays a huge role in protecting New Zealand businesses from fraudulent transactions involving property listed as collateral.