New Zealand: Strength of PPSA protection over debtor-initiated payments tested

Last Updated: 23 November 2010
Article by James Burt

The strength of the protection that the Personal Property Securities Act 1999 (PPSA) offers the recipients of monies paid by an insolvent debtor was tested recently in Stiassny and Ors v Commissioner of Inland Revenue – and failed to support the IRD's right to retain funds paid to it.

This Brief Counsel looks at the judgment and examines its implications for the PPSA.

Section 95 of the PPSA

Section 95 of the PPSA provides creditors who receive payments initiated by a debtor with priority over any security interest in:

  • the funds paid
  • the intangible that was the source of the payment (e.g. a bank account), and
  • any negotiable instrument used to effect the payment (e.g. a cheque).

The protection applies whether or not the creditor knows of any such security interest at the time the payment is made.

The intention of section 95 is to "leave money and cheques largely free from security interests to preserve the integrity of the payment system".1 Creditors can receive payments initiated by debtors, safe in the knowledge that no-one has a security interest in those funds.

In Stiassny and Ors v Commissioner of Inland Revenue, the Commissioner unsuccessfully argued that section 95 was a complete answer to any claim, whether by the debtor or by secured creditors, for the reimbursement of GST which the plaintiffs argue was paid under a mistake.

Background to the case

The Central North Island Forest Partnership (CNIFP) – consisting of the Forestry Corporation of New Zealand Limited and CITIC New Zealand Limited (BVI) – defaulted in early 2001 on its loan obligations. In February 2001, Messrs Stiassny and Graham were appointed as the receivers of FCNZ and CITIC. Each of those companies then appointed one of the receivers as its representative on the management board of CNIFP.

CNIFP subsequently agreed to sell its assets for approximately USD $621 million plus GST. As the partners in CNIFP, FCNZ and CITIC were named as the vendors in the sale and purchase agreement.

It was clear that the sale proceeds would be insufficient to repay CNIFP's secured debt in full, let alone the GST on the sale, so the secured lenders wrote to the Commissioner, each claiming a security interest ahead of the Commissioner's unsecured claim for GST on the sale price.

The receivers, however, were concerned that they would be exposed to ruinous interest and penalties should they be found personally liable for the GST. Their legal advice was to the effect that this was (or, at least, might be) a risk. They therefore considered that they had little option but to pay the GST (approximately $123.4 million), which they did in late January 2004.

The receivers, FCNZ, CITIC and the security trustees subsequently commenced proceedings against the Commissioner, seeking to recover the GST amount. The Commissioner responded by applying to strike out the claims on several grounds, including that section 95 of the PPSA conferred on the IRD a priority to the amount of the payment.

What is a debtor-initiated payment?

In order to qualify for the protection of section 95, a payment must be debtor-initiated. The PPSA defines a debtor-initiated payment as being a payment by a debtor through the use of a negotiable instrument (e.g. a cheque), an electronic funds transfer, or another written payment mechanism.

The plaintiffs argued that a payment cannot be "debtor-initiated" if it is made under compulsion or pressure (in this case created by the GST regime and the receivers' exposure to interest and statutory penalties) and under protest.2

The High Court disagreed, concluding that a party's motives for making a payment are irrelevant.

So why does section 95 not apply to the GST payment received by the IRD?

The High Court held that section 95 applies only to proprietary interests in the funds or the mode of payment (such as a claim to a security interest in a particular cheque). This ensures that business can be carried on in situations where a broadly based security interest exists. Section 95 does not apply to any other legal claim that might be made against the recipient of the payment – damages claims, for example.

In the CNIFP case, the plaintiffs are not seeking to recover the particular cheque sent by the receivers to the Commissioner, or the specific funds which were transferred into the Crown account when the cheque was banked. Rather they are seeking damages against the Commissioner for money paid under a mistake (the mistaken belief that the receivers were personally liable for the GST on the sale of CNIFP's assets). On the High Court's analysis, such a claim is not barred by section 95 of the PPSA.


The Court has provided a sensible and pragmatic interpretation of the claims to which section 95 applies. It cannot have been Parliament's intention to remove all recourse against creditors who may otherwise receive a windfall.

Does this mean that the protection provided by section 95 is illusory? Not at all. In the majority of cases, the High Court's judgment is unlikely to affect the ability of creditors to retain payments initiated by their debtors. It is only if a separate, identifiable claim can be maintained against a creditor that section 95 will be inapplicable. Based on the unusual circumstances of this case, the High Court considered that the plaintiffs have arguable claims under the Tax Administration Act and for money paid under a mistake.

This may not be the last word on section 95 - the Commissioner has filed an appeal against the High Court's decision.

For further information, please contact the author.


1. Flexi-Coil Limited v Kindersley District Credit Union Limited (1993) 107 DLR (4th) 148

2. This argument was supported by commentary in Widdup and Mayne, Personal Property Securities Act: A Conceptual Approach (revised edition, LexisNexis Butterworths, Wellington, 2002).

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions