News
How suppliers can retain ownership under receivership
First published in WineGrower New Zealand magazine, August-September 2009 issue.
As the recession continues to bite, several wineries have recently been placed into receivership. Suppliers of goods often find themselves in a difficult position on receivership. Even where ownership of goods supplied is retained, unless suppliers are careful to protect their interests, a receiver may be able to "trump" their interests and take the goods supplied.
This may come as a surprise to some, particularly those who supply goods on the basis that the winery is required to return them. An example of this is where barrels are supplied. Even where the winery agrees to return the barrels and claims no more than a temporary right to possess them, depending on the length of time the barrels are held by the winery, under the Personal Property Securities Act 1999 (the PPSA), a receiver may have a better claim to the barrels than the supplier.
The PPSA sets out priority rules for resolving competing security interests. There are several specified categories of transaction which are said to result in security interests. One of these categories includes transactions where goods are "bailed" for a term of more than one year. A bailment arises whenever one person (the bailee) is voluntarily in possession of goods belonging to another (the bailor). The above example relating to barrels is a situation where a bailment arises. If the barrels in question have been held by the winery for more than a year, a security interest will arise.
If a security interest arises, in order to protect its position, the supplier of barrels needs to ensure that it registers its interest in the barrels on the personal property securities register (the PPSR). Registration is a simple online process, costing just $5 to complete. Failure to take this step may result in the supplier losing priority to the barrels to a receiver. This is because, without realising it, the winery may have given an interest in those barrels to its secured creditors.
The mere fact of possession is sufficient to enable to enable a winery to grant a security interest in barrels held to its creditors. For example, a winery which has entered into a general security agreement with its bank will be able to provide its bank with a security interest in relation to barrels in its possession. If the bank has registered that security interest on the PPSR, and the supplier has not, then provided the barrels have been held for more than year, the bank has a better claim to the barrels than the supplier. This is because under the PPSA, the general rule is that the "first to register wins".
The position is different where barrels supplied are not held for a term of more than one year. In that case a security interest under the PPSA does not arise. The competition between the supplier and a receiver in that instance is not between competing "security interests". In that case the common law, not the PPSA, resolves the dispute between the competing interests in the barrels. The supplier's rights will take priority.
Given the potential risks to suppliers, if there is any prospect at all that a winery may remain in possession of goods such as barrels for a period longer than 12 months, suppliers should register an interest on the PPSR as soon as possible.
