Most Read Contributor in New Zealand, September 2016
An effective security interest relies on a valid financing
statement registered on the Personal Property Securities Register
Defects in the financing statement could result in a secured
party losing out to other creditors. A recent case1 is a
reminder of the need for creditors to take care with financing
Polymers International Limited (Polymers) supplied
product on credit to Interworld Plastics N Z Limited
(Interworld). As security for payment, Interworld granted
a security interest to Polymers, which registered a financing
statement on the PPSR.
There were three difficulties with the financing statement:
the failure to leave a gap between the "N" and the
"Z" in Interworld's name
the omission of Interworld's unique incorporation number,
the failure to classify Interworld as a
Liquidators were appointed to Interworld, which owed Polymers
more than $750,000. The liquidators did not recognise Polymers as a
secured creditor and Polymers applied to the Court for a
declaration that its financing statement was valid.
Financing statement seriously misleading
The Court found that Polymers' financing statement was not
valid. It decided not to use the "reasonable searcher"
concept applied by the Ontario courts in deciding whether the
errors were seriously misleading.
Instead, it asked whether an error would prevent a registration
being disclosed by a properly formatted search in the relevant
Applying this test, it found that the running together of the N
and the Z in Interworld's name did not create a problem because
a search for debtor names in the PPSR automatically excludes all
spaces and abbreviations in "NZ", so the gap would have
been removed anyway in the search process.
But there is an express requirement to register a company's
number on the PPSR so that a search using the number as a reference
(or a search through the Companies Office website) will reveal the
statement against the debtor company.
And, had Interworld been classified as a company, this omission
would not have occurred as the PPSR website would have required the
correct incorporation number to be registered.
If whoever filled out the financing statement had indicated that
the debtor was a company, the PPSR website would have prompted the
person to add the company number. The PPSR does not permit a
creditor to register a company name that is inconsistent with the
Chapman Tripp comment
It is not clear, from the Court's decision, why the issues
with Polymers' financing statement needed to be resolved. The
decision records that the liquidators issued a report in which they
"did not recognise Polymers as a secured creditor", but
the lack of a valid registration does not invalidate the security
itself. An unregistered or unperfected security interest is valid
against a liquidator. Registration affects priority, not
The validity of a financing statement in inventory or accounts
receivable would, however, be relevant to the distributions made by
liquidators to preferential creditors. The proceeds of inventory
(and accounts receivable) must be applied first to preferential
creditors, unless a secured party holds a PMSI perfected in
accordance with section 74 of the PPSA.
This case is a reminder to creditors to check carefully the data
contained in new and existing financing statements. The onus is on
a creditor to make sure its financing statement is correct.
The Hon'ble High Court of Bombay has held that where a Scheme of Amalgamation is executed between two companies registered in two different states [...], then the said two orders are two independent instruments.
Lawyers are pretty good at figuring it out quietly and amicably among themselves, without recourse to a public courtroom.
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