Is your step-in clause a Personal Property Securities Act interest?

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The recent High Court of New Zealand decision in McCloy v Manukau Institute of Technology [2013] NZHC 936 has held that step-in rights in a construction contract allowing a principal to ‘step in’, use and then sell the contractor’s materials and equipment may constitute a security interest under the New Zealand personal property securities legislation. In light of the similarities between the New Zealand and Australian personal property securities legislation, companies should review their step-in and termination clauses to ascertain if those rights should be registered on the Personal Property Securities Register.

Mainzeal Property and Construction was engaged to perform construction work for Hobson Gardens under a construction contract. That contract was not registered on the New Zealand Personal Property Securities Register and contained a step-in clause allowing Hobson Gardens to step in, use and then sell Mainzeal’s materials and equipment if Mainzeal went into receivership and the receivers failed to take over the construction work. Subsequently, the Bank of New Zealand (BNZ) appointed receivers to Mainzeal pursuant to security, which included a registered general security agreement. Following their appointment, the receivers gave notice to Hobson Gardens that they would not continue with the construction work. Hobson Gardens asserted possession over Mainzeal’s materials and equipment pursuant to the step-in clause contained in the construction contract…

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