News & Thinking
Navigating the minefield of Repossession
Repossession. It feels like one of those things that no one likes to talk about, but it inevitably happens often here in New Zealand. You find yourself in the situation, as a creditor, with a debtor who owes you money, is failing to meet their obligations, and you need to exercise your secured rights to repossess secured goods to satisfy amounts owing to you. What do you do?
It’s important that you ensure that you have the correct processes and forms in place in order to protect yourself from any claim that you have not acted properly in a repossession. A creditor always needs to be mindful of the duty of care to get the best price reasonably obtainable. It’s important that your processes are robust and thorough and will ensure that you can rebut any claim that you have not acted properly.
Repossession can be a minefield, that needs to be carefully navigated. This is due to there being 3 separate pieces of legislation that may apply in your situation. These are the:
- Credit Contracts and Consumer Finance Act 2003 (CCCFA);
- Property Law Act 2007 (PLA);
- Personal Property Securities Act 1999 (PPSA).
Which Act/Acts applies, and therefore prescribe what you need to do, is going to depend on the type of security that you have, and the type of goods that you have security over. Generally:
The CCCFA is going to apply in the case of consumer goods – these are goods that you have security over which are used primarily for a domestic/personal purpose i.e. a personal car loan.
Repossession under the CCCFA focuses on ensuring the protection of the consumers rights. The process involves notices pre-repossession and post-repossession, before the creditor can exercise sale rights.
The Act is very prescriptive in terms of notices to be given, timeframes to be met, who can serve notices and when repossession can take place. It’s incredibly important to ensure that your process is correct given the consumer protection focus. There are another couple of things to be aware of:
- The contract has to give the right to repossess and to enter property for this purpose;
- It’s hard to rely on the goods being ‘at risk’ as a ground for repossession;
- Once you’ve repossessed, the debtor gets a further chance to reinstate or settle the contract, or even introduce a buyer; and
- Once the goods are sold, your debt is now ‘frozen’ – you can no longer charge interest and other costs.
These Acts are going to apply, more often than not together, where repossession occurs over non-consumer goods. This is due to the wide applicability of the Property Law Act which applies to ‘mortgages over goods’. Generally, ‘goods’ is anything tangible, and a ‘mortgage’ is a ‘charge over property for securing payment’.
The PPSA will apply separately in the case of charges over intangibles, such as shares, and in retention of title situations.
Some of the important features of the PLA/PPSA are:
- You don’t have to give any kind of notice pre-repossession (although you need a default or the goods being at risk);
- Once you effect repossession (and if the PLA applies), you are considered to be a “mortgagee in possession” under the PLA and there are strict reporting and notice requirements that need to be adhered to;
- Notice has to be given in accordance with the Acts, and a prescribed timeframe worked through, before you can sell and can call up all amounts as being owing under the applicable loan.
We can offer training and assistance throughout the repossession process, so please do not hesitate to get in touch with us if you have any questions.