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Businesses still unaware of the PPSA at their peril

November 28, 2017

I was interviewed by Radio NZ about a car hire company which, unfortunately, lost out on one of its vehicles because it didn’t understand that Personal Property Securities Act (PPSA), despite the fact that the PPSA is nearly 20 years old. Different types of business could suffer considerable loss if they don’t comply with the PPSA (more on this later).

Green Cars Ltd leased a vehicle to an alleged fraudster, Mr Lopez. Mr Lopez change the registration of the vehicle into his name and then used the vehicle as security for a loan from Pioneer Finance. I haven’t read the case but somehow, after Mr Lopez defaulted on the Pioneer loan and disappeared, the vehicle was put back into the name of Green Cars. Pioneer claimed entitlement to the vehicle. The court agreed. Green Cars lost out.

These seems to have been something of a hue and cry about the decision, including some comments that the decision can’t possibly be right, and the owner of Green Cars said that the decision shows that there's nothing that a business can do to protect itself in these circumstances. Unfortunately, the comments that have been made simply demonstrate an ignorance of the PPSA and how it works. As I mentioned, the PPSA has been in force for nearly 20 years.

What Green Cars should have done to protect its interest in the vehicle was to have registered a financing statement against Mr Lopez’s name, within the time prescribed by the PPSA, including all relevant details of the motor vehicle. Had it done so, then regardless of the fact that Mr Lopez had changed the vehicle registration into his name, Pioneer would have searched the PPSA register and would have seen that there was a financing statement registered by Green Cars against Mr Lopez’s name in relation to the vehicle. Pioneer would therefore have made enquiries and almost certainly, wouldn’t have made the loan (or at least, wouldn’t have taken security over the vehicle).

Pioneer did exactly what Green Cars should have done to protect its interest i.e. registered a financing statement.

I don’t know whether Green Cars ever sought legal advice as to whether the lease documentation that it was using was appropriate. If it did, I would expect that the lawyers would have advised Green Cars about the PPSA and how it works. I also think that it’s surprising that someone would go into a business of this kind without doing some research or making some enquiries. Had the company made some enquiries, it would have found a considerable amount of freely accessible information on the internet about the PPSA. (No substitute for legal advice but anyone finding the information might then be motivated to seek legal advice.)

A lot of fuss has been made about the Judge’s comment to the effect that Mr Lopez had rights in the vehicle despite the fraud. What the Judge was probably referring to was that Mr Lopez had rights of possession pursuant to the lease. By giving position of its vehicle to Mr Lopez, Green Cars was enabling Mr Lopez to try to deal with the car, including dishonestly. That’s one of the reasons why the PPSA exists. Parties who want to deal with any item of personal property e.g. a car, can search the PPSA register and ascertain whether any other party has registered a financing statement in relation to that property. If no financing statement has been registered, then subject to only a few qualifications, a party searching the register can assume that no third parties are interested in the property.

As I mentioned at the outset, it is not just businesses who hire or lease property that need to be aware of the PPSA. (Note that short term leases of less than one year, which involve pure rental and not, for example, a finance lease, aren’t caught by the PPSA.) Other businesses at risk include businesses that provide consignment stock, sell goods or equipment under hire purchase, and sellers who reserve title to goods or equipment until payment. In addition, obvious candidates include lenders who take security over any form of personal property.

This article isn’t intended to be a tutorial on the PPSA. The intention is to highlight the misfortune of a trader who unfortunately, could have taken steps to protect itself but didn’t because of ignorance of the PPSA. It’s almost impossible to explain to non lawyers why ownership may not be enough to protect a trader under the PPSA but once understood, the PPSA provides a largely logical protection system for interests in personal property. The Green Cars case seems to be a straightforward application of the PPSA.

This Article isn't legal advice – if you need legal advice on any business law or commercial law issue, please contact me. I'm an employment lawyer in Auckland who provides advice on a wide range of business law or commercial law issues.

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