Liquidator not a third party for the purposes of the PPSA

A liquidator has been held to be an agent of the debtor company and not a third party, meaning that an unsigned retention of title document can be enforceable against a liquidator if it creates a security interest, even though it does not meet the requirements of the Personal Property Securities Act.

In this case1, goods were supplied under terms and conditions of trade set out in the supplier's standard invoices. The invoices incorporated a retention of title in, and a security interest over, the supplied goods. The purchaser didn't sign the invoices indeed there was no signed agreement between the two parties.

The supplier registered a financing statement on the Personal Property Securities Register for the supplied goods and its purported security interest over them.

When the purchaser got into financial difficulty, liquidators were appointed and the supplier asked them to return the goods. The liquidators refused, sold the goods and refused to apportion any of the proceeds in the supplier's favour.

When the supplier applied to the High Court for summary judgment against the liquidators for conversion, the liquidators argued that because the parties did not have a signed agreement, the supplier's purported security interest was not enforceable against it under section 36(1) of the Personal Property Securities Act 1999 (the PPSA). Section 36(1) provides that a security interest must be evidenced in writing if it is to be enforceable against third parties. A security interest is enforceable between the parties whether it is in writing or not.

The court decided that the supplier did have a security interest, and that it was binding on the liquidators.

The decision was reached on the basis that section 36(1) of the PPSA was not relevant because this section relates to the enforceability of the security agreement between the debtor and a third party. On these facts, the liquidators were not a third party of the debtor - they were its agent.

The liquidators were ordered to pay the value of the supplied goods, together with interest.

Notwithstanding the outcome of this case, the best protection for a financier or supplier is always to ensure that a security agreement, incorporating an adequate description of the collateral, is signed by the parties, and that the interest is registered on the PPSR. This applies for all types of security interest, including retention of title arrangements.

1 Sleepyhead Manufacturing Co Limited v Dunphy (2006) 9 NZCLC 264,000 and 20-280

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