Pitfalls in Selling Goods on Credit or Deferred Terms – Business Lawyer – Contract Lawyer - Dukesons Business Law

July 2018

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

Some traders are still losing out big time due to their ignorance or disregard of the PPSA. Despite the fact that the Personal Property Securities Act (PPSA) 1999 is close to being 20 years old, there seem to be more than just a few traders out there who are unaware of the PPSA or who choose to disregard it.

If a trader sells goods on credit, whether through terms of trade or a supply agreement or any other type of contract, or sells goods by way of conditional purchase agreements, the seller has what is called a “purchase money security interest” under the PPSA. The fact that the seller may own the goods until final payment is made will be irrelevant if the customer defaults under other contracts where the creditors have security over all of the assets owned by the customer and the creditors have taken or want to take steps to protect their security interests over the assets. In those circumstances, ownership counts for nothing.

Where a trader sells goods on credit or deferred payment terms, the trader should register a financing statement under the PPSA to protect their purchase money security interest. If the sale is of goods that will be inventory to the customer, the financing statement must be registered before the customer takes possession of the goods for the trader to have priority over virtually all comers (including creditors who have already registered financing statements over all present and future assets of the customer). If the goods are plant or equipment for the customer, then the financing statement should be registered no later than 10 working days after the date on which the customer has taken possession of the goods. Some knowledge is required to be able to register an appropriately worded financing statement.

The comments above assume that the contract terms have been agreed in writing (email will suffice) between the trader and the customer. This is an essential ingredient in being able to enforce the terms where third parties have security interests in relation to the customer’s assets.

Where a customer doesn’t pay, especially if they are insolvent and other creditors are in the chase, a trader who hasn’t taken the necessary steps to protect their purchase money security interest and obtain the “super priority” outlined above, may lose the goods and be an unsecured creditor for the debt owed.

Lesson – a trader should:-

  • make sure that their contract is in writing, whether it be terms of trade or a supply agreement or supply agreement or conditional purchase agreement and that the customer has agreed in writing to it (email will suffice);
  • ensure that they know how to file a financing statement and how to word it;
  • ensure that they register the financing statement within the time required by the PPSA to get the best possible priority.


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