Receivership In NZ Supplier Contracts: Key Protections

Supplying a customer who is in receivership can feel unsettling. You want to keep a commercial relationship alive, but you also don't want today's delivery to become tomorrow's unpaid invoice.

This is especially difficult when the receiver asks you to keep supplying so the customer's business can continue trading. The good news is that your supplier contract can do a lot of the heavy lifting if it has the right payment, PPSR, suspension and termination protections.

Let's look at how this works in New Zealand, and what you can build into your supplier terms or terms of trade before a customer gets into financial trouble.

What Does Receivership Mean For Your Supplier Contract?

Receivership usually means a secured creditor has appointed a receiver to take control of some or all of the customer's business assets. In New Zealand, receivership is mainly governed by the Receiverships Act 1993.

A receiver's job is usually to recover money for the secured creditor who appointed them. That can involve selling assets, collecting income, or trading the business for a period if that's likely to produce a better outcome.

For you as a supplier, the key point is this: the customer still owes debts incurred before receivership, but you may be in a much weaker position if you're unsecured.

Receivership isn't the same as liquidation. A company in receivership can continue to exist and trade. It may later go into liquidation, voluntary administration or another insolvency process, but those are separate steps.

Your supplier contract matters because it can help you answer practical questions like:

• Can you stop supplying if invoices are overdue?
• Can you move the customer to cash on delivery or payment upfront?
• Do you still own goods you supplied under a retention of title clause?
• Have you registered your security interest on the Personal Property Securities Register?
• Can you terminate the contract if a receiver is appointed?
• Who is responsible for payment for new orders after the receiver takes control?

Without clear terms, you may be left trying to work these issues out after the customer is already under pressure. That's usually the worst time to negotiate.

Can You Keep Supplying A Customer In Receivership?

Yes, you can keep supplying a customer in receivership, but you should only do so on clear written terms that reduce your credit risk.

A receiver may ask suppliers to continue trading because the business needs stock, services or materials to keep operating. That can be good for you if the receiver is willing to pay promptly for new supply. But it can be risky if you simply continue as normal under old credit terms.

Before you supply anything after receivership starts, ask for written confirmation under your customer contract of:

• who is placing the order
• whether the receiver has authorised the order
• which entity is responsible for payment
• the agreed payment terms for post-appointment supply
• whether any old unpaid invoices will be paid, and when
• whether your usual supplier terms continue to apply

Where possible, use a fresh purchase order, written acceptance, supply agreement or supply confirmation for each new order. If the receiver wants you to keep supplying, you can often ask for payment upfront, cash on delivery, shorter payment terms or a specific written undertaking for new supply.

Under the Receiverships Act 1993, a receiver can have personal liability for certain contracts they enter into while acting as receiver. The exact position depends on the contract and the circumstances, so don't assume you're protected just because a receiver is involved. Get the payment position clear in writing before goods leave your warehouse or services are delivered.

A Practical Example

Say you run a packaging supply business in Hamilton. One of your customers, a cafe group, goes into receivership owing you $18,000 for past invoices. The receiver asks you to keep supplying takeaway cups and food containers for the next two weeks while they try to sell the business.

If you keep supplying on the old 30 day account, your unpaid balance could grow quickly. A safer approach might be to say:

• all new orders must be paid upfront or on delivery
• the receiver must confirm each order in writing
• your standard terms continue to apply
• your retention of title and PPSR rights are reserved
• old debt isn't waived or rolled into the new arrangement

That way, you're not accidentally extending more unsecured credit while the customer's financial position is uncertain.

What Payment Clauses Protect You If A Customer Enters Receivership?

The strongest payment clauses are the ones that let you reduce or stop credit quickly when the customer's risk profile changes.

Your supplier agreement should give you practical tools before and after receivership, not just a right to charge interest after an invoice is late.

Useful Payment Protections

Consider including clauses that allow you to:

• require payment upfront for first orders, large orders or special orders
• set and change credit limits at your discretion
• withdraw or reduce credit if you have reasonable concerns about the customer's ability to pay
• require cash on delivery or cleared funds before dispatch
• pause orders if any invoice is overdue
• apply payments to the oldest debt first, unless you agree otherwise
• charge default interest and recovery costs where legally allowed and reasonable
• require a deposit or milestone payments for custom work

For larger customers, you might also ask for a director guarantee, parent company guarantee or other security. These can be useful, but they need to be carefully drafted and properly signed. If a guarantee is rushed or unclear, it may not give you the protection you think it does.

Your contract should also make it clear that accepting a late payment, part payment or new order doesn't mean you've waived your rights. This helps if you've been commercially flexible in the past but later need to enforce stricter terms.

Watch Your Credit Application Process

Payment protection starts before the first invoice is issued. Your credit application terms should collect the right legal details, including the customer's correct company name, NZBN, Companies Office number, trading name and registered office.

If you contract with the wrong entity, your recovery options can become much harder. For example, a trading name isn't always the same as the legal company that owes you money.

It's also sensible to run basic checks through the Companies Office before offering trade credit. You can look for signs such as recent changes in directors, insolvency appointments, or a company status that doesn't match what the customer has told you.

Does A Retention Of Title Clause Protect Your Goods?

Yes, a retention of title clause can help, but in New Zealand it usually needs PPSR registration to work properly against other creditors.

A retention of title clause says that ownership of goods remains with you until the customer pays for them. You might also hear this called a ROT clause or Romalpa clause.

On its own, that wording isn't enough. Under the Personal Property Securities Act 1999, many retention of title arrangements are treated as security interests. To protect that interest against the customer's other creditors, you generally need to register it on the Personal Property Securities Register, often called the PPSR.

If you supply goods on credit and don't register on the PPSR, another secured creditor may rank ahead of you if the customer enters receivership. In practical terms, goods you still think of as yours may be treated as part of the customer's secured asset pool.

How PPSR Protection Works

A PPSR registration is a publicly searchable record of a claimed security interest in certain personal property. It helps perfect and protect your security interest, but it doesn't mean other parties are deemed to have notice or knowledge of it.

For suppliers, this commonly covers:

• goods supplied on credit
• inventory supplied for resale
• equipment supplied under hire or similar arrangements
• proceeds from the sale of your goods, where your terms cover this

For suppliers of inventory, timing is critical. If you want purchase money security interest priority, often called PMSI priority, you usually need to register before the customer obtains possession of the inventory. For non-inventory goods, the timing rules differ, and registration within 10 working days of the customer obtaining possession can be relevant.

The details can be technical, especially if you supply mixed goods, customised products, consignment stock or equipment. This is an area where tailored terms and a correctly set up PPSR registration can make a real difference.

What Your Retention Of Title Clause Should Cover

A stronger retention of title clause will usually deal with:

• when title passes from you to the customer
• whether title is retained until all amounts owing are paid, not just the specific invoice
• how goods must be stored and identified before payment
• whether the customer can resell the goods before paying you
• whether your interest extends to proceeds of resale
• your rights if the customer becomes insolvent or a receiver is appointed

You should still be careful about physically recovering goods. Even if your terms say you can take back unpaid goods, don't enter premises or remove stock without a clear legal basis and proper consent. The receiver may also need to deal with competing secured creditor claims.

Can You Suspend Supply When A Receiver Is Appointed?

Yes, you can suspend supply if your contract gives you that right and you use it carefully.

A suspension clause is one of the most useful protections in a supplier contract. It lets you pause further deliveries, services or account access without terminating the whole relationship immediately.

Your suspension clause should cover more than overdue invoices. It should also deal with insolvency warning signs, including:

• a receiver being appointed
• a liquidator or administrator being appointed
• the customer being unable to pay debts as they fall due
• the customer breaching a credit limit
• material adverse changes in the customer's financial position
• failure to provide updated credit information when requested

Suspension rights need to be clear. If your contract is vague and you stop supplying at the wrong time, the customer or receiver may argue that you've breached the contract. This can be especially sensitive if you're supplying critical goods or services.

A practical clause might allow you to suspend supply immediately if an insolvency event occurs, or after notice if an invoice remains unpaid for a set period. The right notice period depends on your business model, the type of goods or services, and the commercial relationship.

Your contract should also say what happens during suspension, such as:

• you don't have to accept new orders
• you can withhold undelivered goods
• payment obligations continue
• lead times may change once supply restarts
• you aren't liable for delays caused by a valid suspension

This gives you room to manage risk without making a rushed decision to end the contract entirely.

Can You Terminate A Supplier Contract Because Of Receivership?

Often yes, but it depends on your contract terms and the insolvency process involved.

Many supplier contracts include an insolvency termination clause. This allows you to terminate if the customer enters receivership, liquidation, voluntary administration, statutory management or a similar process.

In New Zealand, carefully drafted insolvency termination rights are commonly used in commercial contracts. There isn't a broad rule that automatically stops every supplier from terminating because a receiver has been appointed. However, the answer can change depending on the exact contract, the nature of the supply, the customer's insolvency process and any statutory restrictions that apply.

Your termination clause should spell out:

• which insolvency events trigger termination
• whether termination is immediate or requires notice
• what happens to unpaid invoices
• whether orders already accepted can be cancelled
• whether deposits are refundable or non-refundable
• what happens to confidential information, materials and intellectual property
• how final payments are calculated

Try not to rely only on a general breach clause. A receiver's appointment may not neatly fit a basic breach wording, especially if the customer hasn't yet missed a post-appointment payment.

You should also be careful not to accidentally waive your termination rights. If you keep accepting orders, extending credit and acting as if nothing has changed, it may become harder to rely on the receivership as a reason to terminate later. If you want to reserve your rights, say so clearly in writing.

What Should You Do As Soon As You Hear A Customer Is In Receivership?

You should pause, gather information and tighten your position before supplying anything further.

Receivership moves quickly. A calm checklist can help you avoid emotional or inconsistent decisions.

Immediate Steps To Take

1. Check your contract. Look for payment, PPSR, retention of title, suspension, termination and set-off clauses.
2. Confirm the appointment. Check the Companies Office and any notice from the receiver so you know who has been appointed and over which assets.
3. Work out what is owed. Separate pre-receivership debt from any proposed new supply.
4. Identify unpaid goods. Check what stock the customer holds, what has been resold, and whether your goods can be identified.
5. Check your PPSR registration. Confirm whether you registered, what collateral is covered, and whether the customer details are correct.
6. Stop automatic supply if your terms allow it. Pause recurring orders, account access or dispatch until payment terms are agreed.
7. Get new orders in writing. Ask the receiver to confirm authority, payment terms and who is liable for payment.
8. Keep records tidy. Save purchase orders, delivery dockets, invoices, account statements and correspondence.

If you're unsure whether you can suspend or terminate, get advice before acting. The wrong move can create a fresh breach when you're already trying to limit your exposure.

Common Contract Gaps To Fix Early

Supplier contracts often look fine while everyone is paying on time. The gaps only show up when cash gets tight.

Watch out for terms that:

• give long credit periods without any right to reduce them
• don't define receivership or insolvency events clearly
• allow the customer to keep ordering despite overdue invoices
• don't include retention of title wording
• include retention of title wording but no PPSR process
• don't let you suspend supply for credit risk
• make termination slow or unclear
• don't say which terms apply when purchase orders conflict with your standard terms

Templates can be a helpful starting point, but insolvency risk is one area where generic wording often misses the practical detail. Your terms should match how your business actually supplies, invoices, delivers and gets paid.

Key Takeaways

• Supplying a customer in receivership can be possible, but don't keep supplying on old credit terms without written confirmation.
• Payment clauses should let you reduce credit, require upfront payment, pause orders and protect your position when invoices are overdue.
• Retention of title clauses are stronger when supported by a correct PPSR registration under the Personal Property Securities Act 1999.
• Suspension clauses help you pause supply quickly without necessarily ending the whole contract.
• Termination rights should clearly cover receivership and explain what happens to orders, unpaid invoices and final payments.
• Before supplying after a receiver is appointed, confirm who authorised the order and who is responsible for paying for it.

If you'd like help with your supplier terms, PPSR and retention of title clauses, payment protections, or suspension and termination wording, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.