Most Read Contributor in New Zealand, September 2016
The Court of Appeal has reversed the High Court's
decision in Healy Holmberg Trading Partnership v Grant on
a PPSA issue it describes as being of "practical
The Court of Appeal is very clear that, as between
competing registered security interests, the Personal Property
Securities Act determines priority according to the order of
registration, not the order of perfection. For a copy of the case,
The High Court had been concerned that injustice would result if
that rule applied. A creditor who registered on the PPSR early, but
without completing its security agreement, could get priority over
a creditor who was first to complete its security agreement, but
who registered second.
The High Court therefore treated section 36 (the requirement for
a security agreement to be in writing etc), as a priority rule that
prevailed over the default priority rule in section 66 (first to
register wins). That analysis has been criticised
The Court of Appeal has now disagreed with the High Court, in
part because of the plain wording of section 36. On its face,
section 36 does not deal with priority. Further, the High
Court's approach would compromise "the predictability and
simplicity of the PPSA regime". The Court of Appeal was,
rightly in our view, concerned that a "first to perfect"
"would mean that a search of the register would not
provide an answer in a priority dispute, and there would then need
to be the obtaining of evidence from the parties as to the exact
time at which the steps necessary to perfect the security interest
A "first to register" rule is much more workable. As
the Court pointed out, it gives clarity to secured creditors by
enabling them to search the register, understand immediately their
relative priority position and make an informed decision before
committing themselves to providing credit.
In our earlier Brief Counsel, we said that any injustice arising
from a security agreement being executed shortly before liquidation
should be dealt with by the voidable transactions regime, rather
than a strained interpretation of the PPSA. In this particular
case, however, the voidable transaction issue was not before the
Court. For a copy of our earlier Brief Counsel,
Secured creditor must prove its security interest
Ultimately, however, the PPSA issue was not the basis for the
Court's decision. The Court resolved the case on the evidence,
but the way in which it did so should be of interest for insolvency
practitioners and creditors engaged in priority disputes.
The Court refused to uphold Healy Holmberg's claim that it
held the first-ranking security interest because it had failed to
provide proof of the date the security agreement was signed.
Healy Holmberg had been put on notice that the date was an issue
in the case. Had the security agreement been signed after the date
of liquidation, it would not have been valid, given the
directors' inability to bind the company after appointment of
Healy Holmberg could have been expected to have produced such
information, but for whatever reason did not do so. It was the
party best placed to explain the date of the documents.
Accordingly, there was a gap in the evidence meaning that Healy
Holmberg failed to prove its case.
A creditor seeking to uphold a security position ought to put
before the Court all the evidence that is relevant to the issues in
dispute. If not, the creditor runs the risk that it will fail to
prove its case, particularly where the evidence is of a nature that
the creditor itself could reasonably be expected to have and
1Professor Gedye "First to Perfect?"
 NZLJ 123. See also our
Brief Counsel on the case.
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 Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The RBI, on March 31, 2016, has notified the Foreign Exchange Management (Establishment of a Branch office or a liaison office or a Project office or any other place of business) Regulations, 2016 in India...
The committee set up to draft a Code on Resolution of Financial Firms, by the Ministry of Finance, Government of India, on September 28, 2016, released a draft bill – The Financial Resolution and Deposit Insurance Bill, 2016...
The distressed assets situation in India has gradually worsened over the past few years. The stressed loans issue in banks has resulted from a combination of factors including :-
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”
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).