The PPSA (Personal Property Securities Act) will celebrate its first birthday on 30 January 2013.

The PPSA introduced fundamental changes for business structuring arrangements. Assets that are subject to non-arms’ length lease or hire arrangements can be at risk if the entity that has possession of the property under the lease or hire agreement is placed in liquidation or receivership.

What is a PPS lease?

A ‘PPS lease’ is the lease or hire of property for a period (including options):

Just what is an account receivable has been the subject of much debate, because it determines what assets are used to satisfy preferential claims, i.e. who gets paid first in a receivership or liquidation.  In 2008, the High Court judgment in Commissioner of Inland Revenue v Northshore Taverns (in liq) confined “accounts receivable” to “book debts”.  Although since criticised, that judgment was the only judicial authority on the point.

Burns & Agnew v Commissioner of the Inland Revenue and Strategic Finance Limited (in rec) concerned a dispute between a secured creditor and the IRD (as a preferential creditor) in respect of certain funds received by the liquidators of Takapuna Procurement Limited (TPL).  The liquidators applied to the High Court for directions as to the application of those funds and this required the Court to undertake an analysis of the concept of an "account receivable" for the purposes of determining whether such funds could be applied to satisfy preferential claims under the Seventh

A lien is the right to hold on to goods, and in some cases sell them, in order to ensure payment.  Often the debt will be connected with services related to the goods.

A lien can be obtained by contract, or in certain specific situations the law creates it automatically.  The difference can be significant.

Under the Personal Property Securities Act (PPSA), the holder of a common law or statutory lien may in some cases have special priority over a company’s secured creditors.

Types of lien

The Gibson & Stiassny v StockCo & Ors litigation in relation to the Crafar receivership has clarified important aspects of the Personal Property Securities Act 1999 (PPSA).

The procedures seem obvious in the abstract but, as the case demonstrates, can be less obvious on the ground:

It is not uncommon for a receiver, liquidator or competing creditor to be presented with a security agreement, the ink on which appears scarcely to be dry.

If that secured creditor registered on the Personal Property Securities Register (PPSR) months or years earlier, does that registration date determine priority between competing security interests?  Or is that unfair to other creditors?

In re Caribbean Medical Testing Center, Inc. (Bankr. D. Puerto Rico) Case no. 11-06124

In re Hotel Airport Inc. (Bankr. D. Puerto Rico) Case no. 11-06620

Section 133 of the Companies Act, No 71 of 2008 places a general moratorium on legal proceedings, while the company is under business rescue. This provides a company with time and resources to be rehabilitated through the implementation of a business rescue plan. As a result, there is some debate as to whether creditors are precluded from perfecting their security, such as a notarial bond, under business rescue.

As parties to litigation, creditors often find themselves in a predicament where the individual they have a claim against has assets of insignificant value. The same individual may, however, be a trustee of a discretionary trust owning substantial assets. Faced with this difficulty, creditors are left with little choice but to ask a court to 'go behind the trust' in an attempt to find assets to execute judgment against.