Polymers International Ltd v Toon

JurisdictionNew Zealand
CourtHigh Court
JudgeAsher J
Judgment Date30 July 2013
Neutral Citation[2013] NZHC 1897
Docket NumberCIV-2013-404-001437

[2013] NZHC 1897

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-001437

Under the Personal Property Securities Act 1999, and the Companies Act 1993

Between
Polymers International Limited
Applicant
and
Victoria Toon and Dennis Wood
First Respondents
Interworld Plastics N Z Limited (in liquidation)
Second Respondent
Counsel:

P Moodley for Applicant

G Blanchard for Respondents

Application for declaration that registration of the financing statement under the Personal Property Securities Act 1999 (“PPSA”) was valid — financing statement failed to comply with PPSA as it: (1) did not include the debtor company's incorporation number; (2) did not classify the debtor company as a company; and (3) misspelled the debtor name by omitting a gap — the liquidators of the debtor company could not find the statement when searching the register and did not recognise the applicant as a secured creditor — whether the errors were seriously misleading and invalidated the statement — what test should be applied to determine “seriously misleading”.

Held: Of the three errors and omissions the last could be put to one side. While there was undoubtedly a mistake in not putting a space between the letters “NZ” in the name of Interworld, the liquidators accepted that this defect was not seriously misleading. It was common ground that a search for debtor names automatically excluded all spaces and abbreviations in the words “NZ” in the searching process. Even if the space had been included, it automatically would have been removed by the search algorithm. Polymers' error in the way it set out Interworld's name could not therefore mislead a searcher, and was not seriously misleading.

There was a direct requirement in s142(1)(c) PPSA (data required to register financing statement included unique number assigned to company on its incorporation) to the financing statement contain the company's unique incorporation number. The failure to register the company number was not just an error in registration but was an omission of an item that the PPSA provided “must” be in the financing statement. Furthermore, a company's incorporation number was one of the limited s172 search criteria (search criteria) by which searches could be conducted.

Although not determinative of the objective question of whether the statement was seriously misleading (s151 PPSA — Proof that person actually misled not necessary), the evidence established that the consequence of the lack of the company number in the financing statement was that a search where the incorporation number was used as the reference did not reveal the financing statement relating to Interworld. Thus, if the search criterion set out in s172(d) PPSA (search using reference to unique number assigned to the company on its registration) was used by the liquidators, it would not reveal the name of the debtor.

The significance of the company's incorporation number was further indicated by the Companies Office register website. The website recommended search using the incorporation number and provided that it was possible to search a company's interests by the debtor's name or by the company's incorporation number. The PPSA website only returned exact matches.

It was also relevant that a feature of the system was the ability to search the register direct from the Companies Office. This search through the Companies Office website only responded to the entry of incorporation numbers of the company. It was not possible to search the company's interests on the register by name. A name search on the Companies Office website would not reveal a financing statement.

There was a considerable body of Canadian authority that considered whether when there were two search criteria available, both of which could reveal the registration, an error in only one of them was seriously misleading. In Ontario the concept of “reasonable searcher” was applied. That concept should not be adopted in New Zealand, given that the Ontario legislation expressly contained a “reasonable person” test, whereas New Zealand, along with the other Canadian provinces, did not. In those circumstances to apply the concept of “reasonable user” would be to create an unnecessary complexity. It was preferable to ask whether the error would prevent a registration being disclosed by a properly formatted search in the relevant searchable field. Such a question was straightforward and objective.

In this case, the users would be misled if they entered the company number only, or accessed the register through the Companies Office register website. If they did this they would miss the Polymers registration and this was what happened when the liquidators carried out their search.

In respect of the second error, the failure to classify the debtor company as a company, if whoever filled out the financing statement had indicated that the statement being filled out was concerning an incorporated body, the website would have prompted the person to input the company number. Instead, the person who registered for Polymers chose “other”, and no prompt came up.

The two errors were to an extent interlinked to one another. The organisation type error contributed to the company incorporation number error. In this sense the second error, which was of classification, augmented the seriousness of the first error of inserting no number. However it was doubtful whether on its own the second omission could be regarded as “seriously misleading”.

Polymers financial statement was not validly registered. Application for declaration that financing statement was validly registered declined.

JUDGMENT OF Asher J

Introduction
1

This originating application concerns whether the registration of a financing statement under the Personal Property Securities Act 1999 was invalid because of errors and omissions in the statement that was filed.

2

Polymers International Ltd (Polymers) supplied polymer products to Interworld Plastics N Z Ltd (in liquidation). On 30 July 2002, Polymers and Interworld Plastics N Z Ltd (Interworld) entered into a credit arrangement on the basis that Polymers would supply material to Interworld, and as security for payment for that material under each contract for sale and purchase of goods, Interworld granted Polymers a security interest.

3

Polymers registered a financing statement under the Personal Property Securities Act 1999 (PPSA) against Interworld as debtor on 14 September 2007. It is accepted that the financing statement failed to comply with the requirements of the PPSA and the Personal Properties Securities Regulations 2001 (the Regulations) in three respects.

  • (a) It did not include the debtor company's unique incorporation number.

  • (b) It did not correctly classify the debtor company as a “Company”.

  • (c) It misspelled the debtor name of Interworld Plastics N Z Limited without a gap so it read “Interworld Plastics NZ Limited”, with no gap between the “N” and the “Z”, rather than “Interworld Plastics N Z Limited”.

4

On 30 August 2012, Interworld went into liquidation. The first respondents Victoria Toon and Dennis Wood were appointed liquidators.

5

Between March and May 2012, Polymers had supplied goods and services to the value of $751,925.04 to Interworld. Following the liquidation, Polymers lodged a proof of debt claim form with supporting documentation with the liquidators for $751,925.05. The liquidators in their first report did not recognise Polymers as secured creditor, listing it with the unsecured creditors. The liquidators, having conducted a search of the securities register, did not discover any security interest in favour of Polymers. Following Polymers' notification of its claim and assertion of priority, the liquidators identified the three registration errors referred to and continued to refuse to recognise that Polymers had a validly registered security.

6

Of the three errors and omissions the last can be put to one side. While there is undoubtedly a mistake in not putting a space between the letters “NZ” in the name of Interworld, the liquidators accept that this defect was not seriously misleading. Indeed, it is common ground that a search for debtor names automatically excludes all spaces and abbreviations in the words “NZ” in the searching process. Thus, even if the space had been included, it automatically would have been removed by the search algorithm. Polymers' error in the way it set out Interworld's name could not therefore mislead a searcher, and was not seriously misleading.

7

However, it is submitted by Mr Blanchard on behalf of the liquidators that the other two omissions or errors were seriously misleading. Mr Moodley for Polymers accepts that these two omissions or errors were made, but submits they were not seriously misleading in terms of the PPSA.

The statutory framework
8

The three key provisions in the PPSA that relate to errors in financial statements are ss 149–151. They provide:

149 Registration of financing statement invalid only if seriously misleading

The validity of the registration of a financing statement is not affected by any defect, irregularity, omission, or error in the financing statement unless the defect, irregularity, omission, or error is seriously misleading.

150 When financing statement seriously misleading

Without limiting the circumstances in which a registration is invalid, a registration is invalid if there is a seriously misleading defect, irregularity, omission, or error in-

  • (a) The name of any of the debtors required by section 142 to be included in the financing statement other than a debtor who does not own or have rights in the collateral; or

  • (b) The serial number of the collateral if the collateral is consumer goods, or equipment, of a...

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3 firm's commentaries
  • Care needed in registering financing statements on the PPSR
    • New Zealand
    • Mondaq New Zealand
    • 10 Agosto 2013
    ...The onus is on a creditor to make sure its financing statement is correct. Footnote 1Polymers International Limited v Toon & Ors [2013] NZHC 1897. The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp f......
  • A PPSA decision on distributing value in accordance with the law
    • Australia
    • Mondaq Australia
    • 16 Febrero 2017
    ...PPSR although none of the companies involved in that case were subject to insolvency appointments. 3 Polymers International Ltd v Toon [2013] NZHC 1897 4 White v Spiers Earthworks Pty Ltd [2014] WASC 139 The content of this article is intended to provide a general guide to the subject matte......
  • ABN or ACN - A valuable lesson on registering under the Personal Property Securities Act
    • Australia
    • Mondaq Australia
    • 1 Marzo 2017
    ...registration, leading a searcher to think that it did exist. His Honour cited the New Zealand case of Polymers International Ltd v Toon [2013] NZHC 1897 with approval on this point. In addition, Section 165 of the PPSA refers to particular defects in registration. Section 165(b) covers coll......

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