Farmers Get Protection

The Government has provided farmers with a way to avoid being classed as unsecured creditors in a freezing works collapse, Enterprise and Commerce Minister Max Bradford has announced.

The mechanism is contained in the Personal Property Securities Act, which was given its final reading in Parliament last week.

It will provide the farmer with protection in situations such as the collapses of the Weddel and Fortex works.

In those cases, unpaid farmers were classed as unsecured creditors, and did not recover the money they were owed, because secured creditors, such as banks and finance institutions, took priority.

The Personal Property Securities Act creates a "super priority" for "purchase money security interests". These are security interests in personal property that secure money loaned to enable the purchase of goods.

For instance where a bank lends money to enable a company to purchase new machinery, or where a farmer supplies stock to a freezing works and is paid later.

Under the Act, a farmer with a registered purchase money security interest will not only be a secured creditor, but will also have the benefit of the "super priority". This means they rank ahead of other secured creditors, such as banks.

Provided the creditor, (the bank and the farmer in the above examples), registers their purchase money security interest on the new register, they will have priority over other, prior registered security interests in the same goods, such as a bank who might have a debenture over all of a company's property.

This "super priority" will assist farmers to protect themselves against the potential collapse of agricultural processing companies.

To benefit from the "super priority", a farmer supplying stock to a freezing works on credit must negotiate a security interest with the processing company over the stock.

Then the farmer will be able to register the security interest and obtain priority against prior security interests in the assets of the freezing works, such as that of a bank.