Hidden priorities - Statutory charges and the PPSA

Wednesday 20 April 2016

Authors: Murray Tingey and Tim Fitzgerald

​​​​When can first-ranking charges und​​er the Personal Property Securities Act 1999 (PPSA) lose priority and come second?

The answer, the High Court held recently in Fisk & McCloy v Attorney-General on behalf of the Comptroller of Customs, includes when there is a charge in respect of unpaid duty under s 97(1) of the Customs and Excise Act 1996 (the C&E Act).

Background

The issue begins with s 23 of the PPSA, which lists the interests to which the PPSA does not apply. The list includes most liens and statutory charges.1 It follows that PPSA will not determine contests between statutory charges and other security interests. Instead, the Court will look to the legislation that created the charge, or otherwise to the common law, to determine which charge prevails.

One such charge arises under s 97(1) of the C&E Act. That section imposes a charge on all goods imported into New Zealand, to the extent of any unpaid duty associated with the import (including GST payable on imports). Section 97 then allows the Chief Executive of the New Zealand Customs Service to enforce the charge by selling the charged property.2

The C&E Act does not itself set out how the statutory charge is to rank in priority with other charges. However, s 286(1)(dd) of the Act provides for regulations to prescribe the manner in which the Customs chief executive can exercise the power of sale, “including as to order of priority”. The regulations made under that section (the Customs and Excise Regulations 1996) provide for how the proceeds are to be applied as between the amounts owed to Customs, before allowing the residue to be applied “to the person, appearing to the chief executive, to be entitled thereto”.

Decision

The High Court acknowledged that a leading academic view was that the charge created by the C&E Act ranks behind pre-existing security interests. However, it reached the opposite conclusion. It held that the C&E Act charge has priority over all other security interests, irrespective of whether they were created before or after the goods were imported.

What this means

The result is that creditors with first-ranking perfected security interests can be displaced by Customs if their collateral is imported into New Zealand and the associated duty is not paid. Neither the existence nor the extent of Customs’ charge will be visible on the PPSR. Lenders to importers, or to any other party whose business may render collateral subject to a statutory charge, would be well advised to take this into account when assessing the strength and value of their registered security.


1 Section 23(b) of the PPSA provides that the Act does not apply to a lien (except as provided in Part 8 of the Act), charge, or other interest in personal property created by any Act (other than s 169 of the Tax Administration Act 1994 and ss 168 and 194 of the Child Support Act 1991) or by operation of any rule of law.

2 The power of sale cannot be exercised against a purchaser of the goods for valuable consideration without knowledge that the duty was owing but not paid:  s 97(3) C&E Act.


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • Tim Fitzgerald

    Partner Auckland
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