NEW ZEALAND Law and Practice Contributed by: David Weavers, Alex MacDuff, Matt Consedine and Verniel Virtucio, Russell McVeagh
However, there are specific priority rules within the PPSA which override these general rules. An example is purchase money security inter - ests (PMSIs). A PMSI generally arises where the secured party gives value for the purpose of enabling the debtor to acquire the collateral (eg, a security interest taken in collateral by a seller to secure the obligation to pay the collat - eral’s purchase price, such as retention of title arrangements). A PMSI is given “super priority” status provided that the secured party perfects its security interest within the relevant time peri - od specified in the PPSA. The PPSA also provides for rules of priority of interests (other than security interests) in col - lateral. For example, a third-party purchaser of shares has priority over a perfected security interest in those shares if the purchaser gave value, acquired the shares without knowledge of the security interest, and took possession of the shares. For this reason, financiers typically take possession of any shares forming part of the collateral package. The PPSA expressly recognises that a secured party may subordinate its security interest to any other interest and the New Zealand courts will also uphold contractual subordination provi - sions. 5.8 Priming Liens and/or Claims See 5.7 Rules Governing the Priority of Com- peting Security Interests and/or Claims in rela- tion to competing interests under the PPSA, such as PMSIs. Lenders will typically permit these arrangements to arise in an uncapped amount (as they generally arise under the nec - essary supply arrangements to the borrower), so long as they are entered into in the ordinary course of business. Liens arising by operation of law are also excluded from the application
of the PPSA and will therefore trump a lender’s security. 5.9 Cash Pooling and Hedging/Cash Management Obligations Private credit lenders will typically permit a bor - rower to maintain bank accounts with a local bank and to enter into transactional banking facilities, such as overdrafts, hedging and let - ters of credit. A lender typically acknowledges that a transactional bank may be able to pool cash and set off that cash against overdrafts and other indebtedness owing to them. Rather than have the transactional bank agree otherwise, lenders will instead tightly control the amount any of indebtedness that can be entered into with transactional banks. Where a transactional/hedge bank requires security, they will typically rank super senior to the senior private credit lender (sharing the same security pool). 5.10 Bank Licensing See 2.1 Licensing and Regulatory Approval New Zealand law recognises and permits a security trustee to hold security interests on behalf of a group of creditors. Under this struc - ture, new creditors can become beneficiaries of the security without needing to re-take security. Security trustee structures are commonly used on New Zealand financing transactions where there are multiple lenders and/or other creditors.
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