Most Read Contributor in New Zealand, September 2016
It's now official. Priority between competing security
interests under the Personal Property Securities Act
(PPSA) is assessed at the time those interests come into
conflict. This will usually, but not always, be when receivers are
The PPSA is silent on the issue but the general view, now
confirmed by the High Court, has been that the rule established in
the Canadian Sperry1 case is the correct
The point at which the conflict arises will be a question of
fact in each case, with the central focus being on the security
agreement between creditor and debtor.
High Court confirms Sperry
The Canadian Sperry case concerned a contest between
two unperfected security interests whose registrations had both
expired. The main issue in the case arose when one creditor sought
to register its interest after receivers had been appointed over
The Court held this registration to be ineffectual. Priority was
determined with reference to the status of the security interests
at the time the receivers were appointed. Because at that time both
security interests were unperfected, the first in time to attach
the general rule is that the time for assessing the priority
between competing security interests under the PPSA is when those
interests come into conflict, and
the point at which this is deemed to occur will turn on the
circumstances, and particularly the provisions of the relevant
security agreement. It will often be when a receiver is appointed
(as was the case in Gibbston Downs), but not always.
In Gibbston Downs, both Gibbston and Perpetual Trust
held perfected general security interests over the debtor company.
Perpetual Trust appointed receivers. It was undisputed that, at the
time the receivers were appointed, Perpetual Trust's security
interest had priority. Perpetual Trust had registered second in
time, but Gibbston had agreed to subordinate its interest.
The commencement of the receivership put the debtor in default
of its security agreement with Gibbston. This default gave Gibbston
the immediate right to call up the balance secured under the
security agreement. Because there was insufficient collateral to
satisfy both creditors' claims, the conflict between the
security interests of the two parties arose at this point.
It should be noted that, as the case was ultimately decided on
other grounds, this aspect of the decision is not strictly binding
on the courts in future decisions. However, we expect that the
Court's reasoning with regard to the application of the
Sperry rule will be very persuasive.
Subordination agreement trumps registration on PPSR
The case was decided primarily on whether the subordination
agreement between the parties had expired. The subordination
agreement had been registered on the PPSR by amending
Gibbston's financing statement, which was first in time and
thus being subordinated under the agreement. The register requires
that such a registration show an expiry date, which cannot be later
than the expiry date of the financing statement itself.
In Gibbston Downs, the expiry date on the register had passed.
Gibbston argued that the subordination agreement had therefore
expired, with the result that its security interest took priority,
as it was registered first in time.
The Court held that the governing instrument was the
subordination agreement itself, accepting the submission
"The Act simply provides a notice system which does not
alter what has already been agreed between the
As the agreement in this case had no end date, it remained in
effect notwithstanding the expiry date shown on the register.
Best practice is thus to ensure that the written deed of
subordination avoids any doubt as to its terms and expiry date.
Gibbston has indicated that it will appeal the decision.
1 Sperry Inc v Canadian Imperial Bank of
Commerce and Thorne Riddell Inc (1985) 17 DLR (4th) 236, PPSAC
314. 2 Gibbston Downs Wines Ltd v Perpetual Trust Ltd 
NZHC 1022 at . 3 Gibbston Downs at .
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.
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