PPSA & Bloodstock

This scenario is based on the facts in New Zealand Bloodstock Limited v Waller and Agnew
(2005) FPPSR ¶700-002; [2005] NZCA 254; [2006] 3 NZLR 629; (2005) 9 NZCLC 263,944

The doctor was a cosmetic surgeon who also had a financial interest in a Farm.

Security Interest Loan
The Farm sought a loan from the Bank so it could do some redevelopment work.  A condition of the loan was for the Farm to grant a security interest to the Bank over all “present and future assets” and undertakings of the Farm.

The Bank registered that security interest on the Personal Property Securities Register (PPSR) and was given a verification statement when it did so. The Bank then gave the Farm notice of that verification statement “in the approved form” (see ss.155-157 of the PPSA).

Horse – Lease – Not Registered
In April 2012, the Farm entered into a three (3) year lease to purchase agreement with the Vendor to acquire a Horse. On 31 April 2012 the Farm took possession of the Horse.
The lease agreement provided that:

• Title to the Horse would at all times remain with the Vendor; and
• in the case of default by the Farm, the Vendor would be entitled to possession of the Horse.

As owner of the Horse, the Vendor did not register the lease under the PPSA.

Termination and Default
On 6 July 2012 the Vendor terminated the lease agreement with the Farm.
On 7 July 2012 the Vendor took possession of the Horse.
On 23 July 2012 the Farm defaulted under its loan to the Bank.

The Bank appointed Receivers to the Farm.

Breast Implants
Whilst that was all going on the doctor also continued in his practice as a cosmetic surgeon.

After much discussion over many months the husband and the wife decided they would pay for breast augmentation surgery for the wife. The arrangement with the doctor was that the husband and wife would secure the fee of $10,000 for the surgery against all real and personal property of the husband and wife. The doctor also registered his security interest on the PPSR and was given a verification statement when he did so. The doctor then gave the husband and wife notice of that verification statement “in the approved form” (see ss.155-157 of the PPSA).

After the surgery was completed, but before the debt to the doctor was repaid, the wife was declared bankrupt.

The doctor was aware of his difficult financial circumstances as a result of his dealings with the Farm.  He was keen to enforce his security interest in the estate of the wife because it would make him a secured creditor and he would get priority over the unsecured creditors.

If the estate of the wife is not able to satisfy the debt owing to the surgeon, the doctor knew he could pursue the husband in respect of his liability under the agreement to pay for the surgery.

That gave him some comfort as he watched matters unfold rather differently with the Farm and the Horse.

The Court

• The loan was a security interest (ss 12 (1) & (2)); and
• The Bank had given value to The Farm by giving the loan (s 10);
• The Bank had perfected its security interest under s 21(1); and
• The security interest of the Bank took priority to the unperfected security interest of The Vendor s.55(3)
• The Farm had rights in the collateral (The Horse) (s 10); and
• The security agreement between The Bank and The Farm was enforceable against The Vendor (s 20(1c)).
• The Receivers and the Bank had priority to The Horse.