If the equipment or stock that is subject to a registered security forms part of the sale, the security needs to be released prior to the sale to ensure the purchaser is getting clear title of the business.
Having assisted various clients in the sale of their business, we have come across a number of issues in relation to securities registered on the Personal Property Security Register (PPSR). If you are not aware of the securities that are registered with your company and are not active in ensuring they be released prior to the date of sale, unnecessary delays and increased legal fees can be incurred.
What is the PPSR?
The PPSR is an online system where securities over personal property may be registered and searched. It is a register for all the security interests including claims against personal property, other than land, that lenders or businesses need to record. The securities are registered in the form of a Financing Statement. The Financing Statement will record the debtor, the creditor and the property over which the security covers. While some securities cover only the property the creditor has provided the debtor, other securities will cover all present and after acquired property of the debtor. The PPSR is a helpful source in assessing the level of risk that a debtor may represent to a creditor and can assist creditors in recovering any debt and obligations owing to them by a defaulting debtor.
Why is this important when selling your business?
Most companies will have securities registered over equipment or stock that form part of the daily running of their business. If the equipment or stock that is subject to a registered security forms part of the sale, the security needs to be released prior to the sale to ensure the purchaser is getting clear title of the business. The purchaser, and their lawyer, need to be satisfied that none of the equipment or stock they are purchasing is the property of a creditor or is subject to a registered security. It is the vendor’s obligation to have all relevant registered securities released prior to or upon the date of sale. If the registered securities are not released at this time, clear title to the business cannot be given. This may cause delays in completing the sale, with the vendor potentially being required to pay interest to the purchaser or accounting for any losses or damages suffered by the purchaser as a result.
How you can check the securities registered with your company:
- You are able to carry out searches on the PPSR website www.ppsr.govt.co.nz.
- You need to be a registered user of the PPSR. You are able to register on the website under the ‘Get User ID’ tab.
- We recommend you carry out a search under your company name as well as your company number.
- Each search costs $3.00. Payment can be made by Credit Card of by direct debit.
What you should do once you are aware of the registered securities
Once you have become aware of any securities registered with your company for property that will form part of the sale it is important to make contact with the creditor to advise them of your upcoming sale. If there is any current account owing to the creditor, this will need to be paid prior to or on the date of sale from the sale proceeds. Once the account has been repaid the creditor will arrange for a discharge of the Financing Statement. A copy of the discharge of Financing Statement should be held on your company records.
We are here to help
We are able to assist you in searching the PPSR and advising you of the securities registered with your company. We are happy to contact the creditors on your behalf and arrange for the discharge of the relevant Financing Statements and ensure you are released from any further legal obligations to the creditor. If an account remains outstanding with a creditor, we can attend to payment of these on your behalf from the sale proceeds. Registered securities are just one of a number of matters that need to be addressed when selling your business but it is important to understand who your creditors are, what property they hold a security over and what is required to release that security.
Should you require assistance with the PPSR or have any questions in relation to the sale of your business, please do not hesitate to contact us.