Reform of Bills of Sale & Agricultural Goods Mortgages By Paul Anderson | February 2006
The Security Interests in Goods Act 2005 comes into force on 1 March 2006. The Act repeals the Bills of Sale Act 1898 and the Liens on Crops and Wool and Stock Mortgages Act 1898. Effectively, the subject matter of both of the former Acts will now be dealt with in the new statute.
Overview The Bills of Sale Act 1898 dealt with mortgages of personal chattels (as distinct from real estate) granted by individuals. An exception was “special goods”, i.e. motor vehicles and boats, which were (and continue to be) dealt with under the Registration of Interests in Goods Act 1986. A mortgage in respect of special goods is registered with REVS rather than the Registrar General’s department. A mortgage over personal chattels granted by a corporation (as distinct from an individual) was (and continues to be) registered under Chapter 2K of the Corporations Act 2001 dealing with Company Charges.
Bill of Sale Changes As you would expect with legislation originally passed in 1898, the Act was long overdue for review. The important changes are as follows...
Concepts The concept of a bill of sale no longer exists. Instead, the new Act refers to a “security instrument” and a “security interest”. This in itself is a good thing because “bill of sale” was always a confusing misnomer in that there was never any element of “sale” involved. A “security instrument” means any instrument (including an agricultural goods mortgage) under which a security interest is created in respect of goods, existing or future. A “security interest” means an interest or power by way of security for the payment of a debt or the performance of any other obligation but does not include: (a)
A letting of goods with an option to purchase;
An agreement for purchase of goods by instalments; or
Any other contract for the hiring of goods.
The deﬁnition of “goods” is substantially the same as the deﬁnition of “personal chattels” under the prior Act. “Goods” are deﬁned as any chattels personal, ﬁxtures or other things capable of complete transfer by delivery” but does not include title deeds, negotiable instruments, choses in action, chattel interests in real estate, shares or access licences under the Water Management Act 2000. Real estate continues to be excluded as are motor vehicles and boats.
Formalities Formalities for registration have been simpliﬁed, although security instruments are still registered with the Registrar General’s department. A registrable instrument must contain the name and address of the grantor, the name of the holder of the security, a description of the goods and be “duly executed”. There are further formal requirements for an agricultural goods mortgage which are dealt with below. “Duly executed” means the instrument must be signed and the signature witnessed. A person is not excluded from being a witness because the person is an employee of a party to the instrument acting in the ordinary course of business.
Traders v Ordinary Bills of Sale The distinction between a trader’s bill of sale and an ordinary bill of sale no longer exists. A trader’s bill of sale was a bill of sale granted by a trader who was deﬁned as a person engaged in the business of selling by retail any goods, wares or merchandise. All other bills of sale, e.g. those granted by a householder, were ordinary bills of sale.
Time Periods for Registration There are no longer any time periods speciﬁed for the registration of a standard goods mortgage. This should be contrasted with agricultural goods mortgages which still have time limits in certain cases. These are dealt with in greater detail below. Under the prior legislation, an ordinary bill of sale had to be registered within 30 days. Otherwise it was void as against the sheriff seizing property in execution of any legal process and/or against any trustee under an assignment for the beneﬁt of creditors. A trader’s bill of sale had to be registered within 15 days, otherwise it did not operate or have any validity at law or equity. These time limits have been abolished and the new Act now only seeks to regulate priorities between security instruments. Further details are set out below.
Renewals The previous Act required the registration of a bill of sale to be renewed every 5 years. This created administrative problems, was easily overlooked and was unnecessary. This requirement no longer exists.
Priorities Section 31 of the new Act deals with priorities and also applies to agricultural goods mortgages. A registered security interest generally ranks in priority over an unregistered security interest in the same goods. Registered security interests rank in priority in the order in which they are registered. However, an unregistered security interest ranks in priority over a registered security interest if the holder of the unregistered security interest takes possession of the goods before the registered security interest is registered. The order of priority of security interests is subject to any agreement between the holders of the security interests concerned. Section 5 of the Act expressly provides that any principle or rule of the common law or equity in relation to security interests in goods is not affected except to the extent to which the Act provides otherwise. These principles are likely to have application in determining priorities between unregistered security interests.
Consumer Credit Code The Code has not been affected and will continue to apply to credit contracts and mortgages under which credit is provided to a natural person (as distinct from a corporation) for “personal, domestic or household purposes” (as distinct from business or investment purposes).
Agricultural Goods Mortgages An “agricultural goods mortgage” includes an aquaculture ﬁsh mortgage, a crop mortgage and a stock mortgage (including a wool mortgage). A wool mortgage is a stock mortgage that relates only to wool. “Crop” is extensively deﬁned but includes grapes. “Stock” includes any sheep, goats, cattle, horses, swine, poultry, alpacas, Ilamas, ostriches or other animals (except ﬁsh). “Fish” is deﬁned to mean marine, estuarine or freshwater ﬁsh or other aquatic animal life at any stage of their life history (whether alive or dead), including oysters and other aquatic molluscs, crustaceans, echinoderms, beachworms and other aquatic polychaetes. The formalities for creation of agricultural goods mortgages are in some instances more stringent. For example, a stock mortgage and a crop mortgage must be in a prescribed form (different for each class of mortgage), its duration cannot exceed 5 years and the mortgage must be registered within 45 days. In the case of an aquaculture ﬁsh mortgage, there is a different prescribed form and the mortgage must be registered within 45 days. The mortgage must specify its duration, although there is no rule limiting the duration to 5 years. Curiously, the Act does not specify the consequence if an agricultural goods mortgage of the various types is not registered within 45 days. Priorities are dealt with under Section 31 in the same manner as non agricultural goods mortgages as set out above.
Conclusion The new Act introduces signiďŹ cant changes both in form and substance. Any company using a goods mortgage as security for ďŹ nance will need to be aware of the changes and to adapt its systems before 1 March 2006.
For more information please contact: Paul Anderson Partner T: 02 8257 5742 email@example.com
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