An issue of Priority

Toll Logistics (NZ) Ltd and ASB had an interesting court battle last year (MCKAY AND ORS V TOLL LOGISTICS (NZ) LIMITED HC AK CIV-2009-404-7389 22 June 2010) over the strength of the priority of a Personal Property Securities Act (PPSA) listing over a contractual lein.

Toll provided warehousing services for DVDs imported by Scene 1 Entertainment Limited. When receivers of Scene 1 were appointed by ASB Bank Limited, Scene 1 owed Toll $287,000. Toll claimed it had priority over the secured debt of ASB by virtue of a contractual or common law lien over the DVDs in its possession at the date of receivership.

From what I gather (and the discussion went on for 17 pages of legal gobbly gook using case law from the 1840's) the parties agreed in the end that Toll did in fact have a contractual lein over the DVDs in question but that as ASB had a perfected security interest under the PPSA. This meant that the judge made the following conclusion: 

"I make a direction that the respondent [Toll] does not have a security interest or other right in respect of the property of Scene 1 Entertainment Limited (In Receivership) which ranks in priority to the security interest held by ASB Bank Limited over the property of Scene 1."

Why is this important?

Looking at this issue from Toll's point of view leins are an old way of maintaining an interest in items (normally goods of some sort) you are looking after for someone else. For example a vehicle left with a mechanic. This is all well and good, but if there is a prior interest in the items registered on the PPSA the goods you are looking after belong to whoever made the registration and you loose your priority rights you used to have with your lein.

So if you were a mechanic with a workers lein over a motor vehicle which had money owing to a finance company and you sold the vehicle under your lein then you would have to pay out the finance company first.

Looking at this issue from ASB's point of view they did the right thing by registering thier interest in the DVDs and saved themselves $287,000 because they could get thier hands on the money first.

I cannot say it often enough but the PPSA is such an underused piece of legislation which is of such great benefit to creditors. Use it our loose your rights.  Contact us to find out more.