The devil’s in the details: validity of financing statements

POSTED BY Rachael Cederwall

11 December 2013

posted in Caselaw | Consumer Law | Company Law | securities law | Litigation | PPSR

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In a recent decision, Polymers International Ltd v Toon [2013] NZHC 1897, the High Court held that, when registering a financing statement against a debtor company on the Personal Property Securities Register, the omission of the company number from the financing statement was seriously misleading. As a result the financing statement was invalid.

Polymers International Ltd registered a financing statement against Interworld Plastics N Z Ltd under the Personal Property Securities Act 1999 (PPSA), but did not include Interworld Plastics’ company number in the registration. Interworld Plastics went into liquidation and Polymers made a claim in the liquidation as a secured creditor for $750,000. The liquidator conducted a search of the securities register through the Companies Office website, and failed to discover Polymers’ financing statement, because of the absence of Interworld Plastics’ company number. As a result the liquidator considered Polymers to be an unsecured creditor. Polymers applied to the court for a declaration as to the validity of its financing statement.

Section 148 of the PPSA provides that financing statements are only invalid if they are seriously misleading. Polymers contended that the omission of Interworld Plastics’ company number did not make its financing statement seriously misleading.

The High Court considered it significant that a feature of the PPSA register is that a person can search by way of a link from the Companies Office website. However, such a search is only a search against a company’s unique incorporation number, not the company’s name. Therefore financing statements that have omitted the company’s number will not appear in such searches. As a result, searchers of the PPSR would be misled if they entered the company number only, or accessed the register via the Company Office, as the liquidators did in this case. The omission was therefore seriously misleading, and Polymers’ financing statement was invalid. Polymers could only claim the $750,000 debt in the liquidation as an unsecured creditor.

This case is a useful reminder of the need to ensure financing statements are correct and complete to protect a party’s position as a secured creditor.

POSTED BY Rachael Cederwall

11 December 2013

posted in CaselawConsumer LawCompany Lawsecurities lawLitigationPPSR

VIEWED 8328 TIMES

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