New Zealand Credit Law Bulletin - Vol 4, No 4, Special PPSA report - April 2004
A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe send a blank email to: nz-bulletin-join@hattaways.com
Plain language disclaimer:
This bulletin is not legal advice. Do not make decisions on legal matters based on a brief commentary. Instead, get professional legal advice.
In this issue:
1. The first PPSA case!
<> Graham and Gibson and Ors v Portacom New Zealand Ltd HC AK Civ2003-4-4-5577 (17 March 2004)
Portacom leased portable buildings to NDG Pine Ltd. The buildings were delivered between 1998 and September 2002. NDG also granted a debenture over all its assets to Hong Kong & Shanghai Banking Corporation (HSBC) in 2000. The Personal Property Securities Act (PPSA) came into force on 1 May 2002. HSBC registered the debenture under the new Act on 26 June 2002. Portacom didn’t register its interest. On 26 June 2003, NDG was placed in receivership by HSBC. The receivers, Messrs Graham and Gibson, believed that they had the right to sell the buildings to reduce HSBC’s debt. Portacom disagreed, so the receivers went to court to seek directions. The parties involved believed this was the first PPSA case to reach the courts in New Zealand.
Under s. 17(1)(b) of the PPSA, a lease of more than one year is a “security interest” which requires registration in order to protect the priority of the lessor. It was accepted that Portacom’s leases were for more than a year.
A security interest “obtains the optimal level of protection offered by the Act” as the judge put it, by being “perfected”. The obvious and common way to perfect is by registration. In general, “a perfected security interest has priority over an unperfected security interest.” (S66).
Portacom argued that because NDG didn’t have the right to sell the buildings, it couldn’t give HSBC this right through a debenture. The judge quoted a British Columbia case (New Zealand’s Act is based on Canadian law) which said, “[s]imply put, the property rights of persons subject to … legislation are whatever the legislature determines them to be.” The New Zealand Parliament has passed the PPSA which says that a lease of more than a year creates a security interest and that the debtor in possession of goods under such a lease has property rights in those goods. And that’s all there is to it!
There were a couple of other arguments raised for Portacom but they could be categorised as “clutching at straws”. This was a relatively simple case. As the judge concluded, “[t]he debenture created a security interest in the buildings which was perfected on registration. It has priority over Portacom’s security interest. The receivers therefore have the power to sell the buildings…” He also awarded costs to the receivers.
The simple lesson to creditors – if you want to get paid in an insolvency ahead of the banks, register a charge over the assets you provide to your customers.
