NEW ZEALAND Law and Practice Contributed by: David Weavers, Jesse Fairley and Matt Consedine, Russell McVeagh
and the other financing creditors. The right of enforcement can generally be undertaken with- out application to the court. In addition to what is agreed contractually, the lender will also be enti- tled to certain enforcement rights (and subject to certain obligations) under the PPSA (in respect of personal property) and the PLA (in respect of real property). The loan documentation will typically provide that upon the occurrence of an event of default, the lender will have the right to accelerate the debt owing to it, cancel any undrawn commit- ments and exercise its rights to enforce its secu- rity under the security documents. The security documentation will then govern the process for enforcement and to the extent provisions of the PPSA and/or the PLA apply these will supple- ment the process for enforcement. The general principles of enforcement within the security documentation are as follows. • Power of possession and/or sale: the secu- rity documentation should contain a right for the secured party to take possession of the collateral and/or sell it to recover debts owed. This right also exists as a matter of law under the PPSA (in respect of personal property) and the PLA (in respect of real property). The secured party has a duty to obtain the best price reasonably obtainable (and it is not pos- sible to contract out of this duty). • Appointment of a receiver: security documen- tation will usually include provisions for the lender to appoint a receiver upon an enforce- ment event. A security agreement will typi- cally include contractual rights which permit an appointed receiver to take charge of the grantor’s assets and business to the extent covered by the security agreement, to run the business and/or to sell off secured assets and
to repay the creditor from the earnings or sale proceeds. A receiver is appointed in respect of property and not the company itself, which differs from the liquidation process. The key benefits of appointing a receiver (rather than the secured party enforcing directly) include that the secured party will not be “mortgagee in possession” and accordingly will not be subject to associated duties or related risks (including in connection with a sale of the secured property). • Voluntary administration: a secured creditor who has a security interest over substantially the whole of a company’s property (as may be the case if a secured creditor takes all- asset security over a company) can place a company into voluntary administration, during which an administrator takes control of the company’s business and property (except for property in respect of which a secured credi- tor has appointed a receiver). Upon doing so, a moratorium on enforcement applies so that creditors of the company cannot take steps to enforce any debts or security against the company without the consent of the admin- istrator or leave of the court. Notwithstanding this, a secured creditor who has a security interest over the whole or substantially the whole of a company’s property can elect to enforce its security within ten working days of the commencement of the administration. • PPSA: the enforcement section of the PPSA contains certain debtor rights and secured party obligations that can be contracted out of. It is expected that a well-drafted security document would contract out of these provi- sions to the extent it benefits the lender. For example, the parties will typically contract out of the lender’s obligation to give notice to the debtor that it intends to sell the collateral and the debtor’s right to reinstate the secu- rity agreement prior to sale of the collateral
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