Retention of Title Clauses in NZ: Do They Protect You Without PPSR Registration?
No. A retention of title clause on its own does not protect you well in New Zealand. Under the Personal Property Securities Act 1999 the clause creates a security interest, and that interest only ranks properly if you perfect it, normally by registering it on the PPSR. Without registration you are usually an unsecured creditor.
The Short Answer
A retention of title (ROT) clause says you keep ownership of goods until they are paid for. It is sometimes called a Romalpa clause, after a 1976 English case. Many NZ suppliers print one on their terms or invoices and assume it is enough. It isn't.
Section 17(3) of the Personal Property Securities Act 1999 says the Act applies to an agreement to sell goods subject to retention of title. So in law the clause is a security interest, and like any other security interest it has to be perfected to protect you properly. For most suppliers, that means registering on the PPSR. New to the register? Start with what the PPSR is.
Why a Clause Alone Isn't Enough
Three rules in the Act do the damage to an unregistered clause:
- A perfected interest beats an unperfected one. If another creditor, usually a bank with a registered all-assets security, has perfected and you have not, they rank first (section 66).
- Buyers take free of unperfected interests. If your customer sells the goods on, the buyer takes them free of your unperfected interest (section 52).
- Preferential creditors can come first. In a liquidation, certain claims such as employee wages rank ahead of security interests over a company's stock and receivables, unless the interest is a purchase money security interest perfected at the time section 74 requires (Companies Act 1993, Schedule 7, clause 2).
Illustrative example: a Tauranga hardware wholesaler sells $15,000 of power tools to a retailer on terms of the 20th of the following month. Its terms of trade include a retention of title clause, but it has never registered on the PPSR. The retailer's bank holds a registered security over all the company's assets. The retailer falls behind and goes into liquidation owing the $15,000. With a PMSI registered before delivery, the wholesaler could claim the unsold tools ahead of the bank. Without registration, the bank's registered interest ranks first and the wholesaler joins the queue of unsecured creditors. Real outcomes depend on the facts, so treat this as an illustration.
What Registration Changes
| Situation | Clause only (unregistered) | Clause plus PPSR registration |
|---|---|---|
| Customer has a bank's registered all-assets security | You rank behind it (section 66) | You can rank ahead for the goods you supplied if you perfect in time (sections 73 and 74) |
| Customer sells the goods to someone else | The buyer takes them free of your unperfected interest (section 52) | Your interest is perfected, so that rule does not apply. Rights over resold stock and its proceeds get complicated, so take advice |
| Customer goes into liquidation | You are likely an unsecured creditor for the unpaid debt | You are a secured creditor over the goods covered. A PMSI perfected in time is not pushed behind preferential creditors for inventory |
What Registration Actually Requires
- An agreement that creates the interest. A signed credit application or terms of trade with a retention of title clause that clearly covers the goods you supply (section 40). A clause that appears only on an invoice, after the customer has taken the goods, may not form part of the contract at all.
- A registered financing statement naming the customer's exact legal name from the Companies Register, and describing the goods.
- The right timing. For stock the customer will resell, perfect before the customer takes possession. For other goods, within 10 working days of possession.
- Renewal. A registration runs for the period you choose and lapses if you do not renew it. Diarise the date.
A Simple Checklist for Suppliers
- Put a retention of title and security clause in your credit application and terms of trade, and get the customer's signature.
- Copy the customer's legal name and NZBN from the Companies Register.
- Search the PPSR to see what is already registered against them.
- Register on the PPSR before the first delivery of stock, or within 10 working days for other goods.
- Keep the registration confirmation on the customer file and diarise the end of the registration period.
- List your ten biggest credit customers and check each one is registered. Fix those first.
What If the Goods Are Already Delivered?
Register now rather than never, but know the limits. A late registration ranks from the day you perfect, so it may not beat interests registered earlier. A registration made close to a customer's collapse may also be challenged. Take legal advice on existing accounts, and register before delivery on future orders.
Retention of title is one part of managing credit risk. For the rest, see the Business Credit guide, what trade credit is and the pros and cons of offering it. This article is general information, not legal advice. For your own terms of trade or a specific situation, speak to a New Zealand lawyer.
Frequently Asked Questions
Is a retention of title clause enforceable in NZ?
It can be, but it behaves as a security interest under the Personal Property Securities Act 1999. That means it must sit in an enforceable agreement and be perfected by registration on the PPSR to protect you properly against a bank, other creditors and a buyer of the goods.
What is a Romalpa clause?
It is another name for a retention of title clause, taken from a 1976 English case. It lets a supplier keep ownership of goods until they are paid for. In NZ the Personal Property Securities Act 1999 treats it as a security interest.
Do I have to register every sale on the PPSR?
You register against the customer, not against each sale. One registration can usually cover a continuing supply relationship, but how it is worded matters, so have a lawyer check it. Register before the first delivery.
What if my customer already has a bank loan?
Many do. A bank usually holds a registered general security over all of the company's assets. A purchase money security interest in the goods you supply can rank ahead of it, but only if you perfect it in time: before delivery for stock, or within 10 working days for other goods.
Can I register on the PPSR after delivering the goods?
Yes, but it ranks from the day it is perfected and may not beat interests registered earlier. A late registration made close to a customer's collapse may also be challenged. Register before delivery on future orders and take advice on existing ones.
