Business looks across Tasman for guidance on new bill

The imminent release of the long awaited draft Bill to reform Australia's property security laws, expected early next week, will prompt Australian businesses to look across the Tasman for guidance according to Nigel Stranaghan, a partner in the Auckland office of the trans Tasman law firm, DLA Phillips Fox.

"NZ underwent this transformation in 2002 and there are many lessons that Australian business can learn from the Kiwi experience," Nigel Stranaghan said.

"A failure to understand and stay on top of the new system will leave many businesses with a red face when they find that what they thought was a secured debt or charge has lost its priority or a customer's bank is able to deal with the property following the customer becoming insolvent".

The reform will revolutionise the current complex system under which credit providers and suppliers protect their security interest in property other than land and create a single national online register.  Currently over 70 separate laws, administered by over 30 agencies, regulate these security interests (personal property securities or PPS) in Australia.

"The central online register in New Zealand has made life easier for lenders and saved borrowers money", Stranaghan said.

The NZ law commenced on 1 May 2002 and while banks and major financiers in New Zealand were well prepared and ready for the new system, many businesses were not.

"Some businesses, financiers, accountants and lawyers found to their regret and embarrassment, that the transition to the new system needed to be proactively managed to avoid losing the protection they previously enjoyed or an inability to enforce an unregistered security interest. This is particularly so with reservations of title and leasing arrangements".

When the NZ Register commenced, around two-thirds of the existing security interests listed on a variety of former systems were not re-registered on the new Register and lost their priority.

"This suggests that many businesses did not actively monitor or review this important part of their business protection or simply did not understand the impact of the new law," Stranaghan said.

"The NZ courts have made it clear in the few cases to date on the new system, that it is a new system that decides the issue and the 'old law' won't help override the priority of a registered security interest. Credit managers need to understand two key concepts – 'registered beats unregistered' and 'first to register wins."

DLA Phillips Fox Banking and Finance Partner in Sydney, David East, strongly endorses Nigel Stranaghan's comments.

"While this reform has been in the pipeline in Australia for nearly 30 years, the release of the draft Bill should now bring this on to the radar of all Australian businesses", East said.

 "Australian businesses have had to cope with a series of major legislative reforms over the past decade and  PPSR will join FSR and AML as headline acronyms that Boards, CEOs and their credit managers will need to be on top of to protect their cashflows and position as secured creditors when their customers or suppliers fail".

For further information please contact:

Nigel Stranaghan, Partner
Auckland
T: +64 9300 3821
nigel.stranaghan@dlaphillipsfox.com

David East, Partner
Sydney
T:  +61 2 9286 8340
M: 0412 401129
david.east@dlaphillipsfox.com
 
Clare Buttner, Media Relations Consultant
T: +61 2 9286 8400
M: 0415 932 936
clare.buttner@dlaphillipsfox.com