The situation for suppliers of stock has changed significantly since the Personal Property Securities Act came into force in 2001.
Prior to this Act suppliers of goods regularly relied on a Romalpa clause on their invoices to protect their title in goods supplied, until the goods in question had been paid for.
Although The Personal Property Securities Act has not eliminated entirely the right of suppliers to rely on Romalpa clauses, in practice the security granted by them is normally overridden by creditors holding General Security Agreements (GSA’s) or Purchase Money Security Instruments (PMSI’s).
GSA’s are typically held by a bank and generally grant the bank security over all assets on the debtor company’s property, with the exception of goods which are covered by a PMSI. There are a number of requirements to ensure that a PMSI registered by a supplier has been perfected. The space available in this document does not permit the requirements to be covered in here. However, if a supplier has a perfected PMSI for goods supplied, this security will take super priority over any GSA’s registered against the debtor company.
However, the Companies Act 1993 grants priority to certain preferential creditors over inventory held by a debtor company. Such creditors include IRD, and employee claims and liquidation fees.
For this reason, creditors holding a PMSI over stock remaining on the premises of a debtor company should contact the liquidator appointed to a company, to ensure that the security is recognised by the liquidator, and that if the goods are subject to preferential creditors claims they are disposed of for optimum value. If there are no preferential claims the liquidator may allow the supplier to recover the goods in question provided they can be identified.
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