Strategic Finance Ltd ((in Receivership) & (in Liquidation)) and Strategic Nominees Ltd ((in Receivership)) v Bridgman and Sanson

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeWhite J
Judgment Date09 August 2013
Neutral Citation[2013] NZCA 357
Date09 August 2013
Docket NumberCA553/2011

[2013] NZCA 357



Arnold, Stevens and White JJ


Strategic Finance Limited (In Receivership & in Liquidation) and Strategic Nominees Limited (In Receivership)
David John Bridgman and Craig Alexander Sanson
First Respondents


Commissioner of Inland Revenue
Second Respondent

M J Tingey and T B Fitzgerald for Appellants

No appearance for First Respondents

P W O'Regan and N M H Whittington for Second Respondent

Appeal from High Court decision rejecting appellants’ claims and ordering that funds be paid to the Commissioner of Inland Revenue – appellants were the only remaining secured creditors in the liquidation of Takapuna Procurement Ltd (“Takapuna”) – Commissioner was the only remaining preferential creditor – appellant claimed their general security agreement (“GSA”) over Takapuna's personal property entitled them to all funds held by the liquidators because under the Companies Act 1993, the Commissioner's claim as a preferential creditor was limited to “book debts” and therefore did not include most of the categories of funds at issue – assets of Takapuna were insufficient to meet Commissioner's preferential claim without recourse to personal property subject to appellants’ GSA – what was meaning of term “accounts receivable” for the purposes of the Personal Property Securities Act 1999 – what was the nature and scope of the preferential creditor regime and Commissioner's claims in respect of the GST refund – whether appellants entitlement as the remaining secured creditor was defeated.

The issues were: what was the meaning of the term “accounts receivable” for the purposes of the regime established under the PPSA; what was the nature and scope of the preferential creditor regime and the Commissioner's claims in respect of the GST refund; and whether the appellants entitlement as the remaining secured creditor was defeated.

Held: The Supreme Court in Stiassny v Commissioner of Inland Revenue made it clear that principles and concepts developed prior to the PPSA now had limited relevance. It was the “long-troubling” distinction between fixed and floating charges, particularly in the context of disputes between secured and preferential creditors, that led to the enactment of the PPSA and the accompanying amendment of the CA.

The crucial date for determining whether the funds at issue in fact constituted accounts receivable or inventory was the date of the appointment of the receiver or liquidator. Parliament had expressly adopted the PPSA definitions of “accounts receivable, inventory, new value, proceeds, purchase money security interest and security interest” for the purposes of Schedule 7 cl 2(2) CA (conditions to priority of payments to preferential creditors) and they were to have “the same meaning” in both statutes by way of utilising the interpretation principle of “incorporation by reference”.

The referential definition however referred not simply to the definitions in s16 PPSA (interpretation), but to the meanings of the terms in the PPSA itself, which meant the meanings were to be ascertained from the PPSA read as a whole. The meaning of the term “accounts receivable” based on its text and purpose was supported by its legislative history, with the legislative history of the PPSA rather than the CA being primarily relevant.

The term “accounts receivable” therefore meant “a monetary obligation that was not evidenced by chattel paper, an investment security, or by a negotiable instrument, whether or not that obligation had been earned by performance” (s16 PPSA).

Under this definition any “monetary obligation” that was not expressly excluded was included. In this context a “monetary obligation” was an existing legal obligation on another party to pay an identifiable monetary sum to the company on an ascertainable date. The obligation had to be legally enforceable by the company (at the date of receivership or liquidation) on the basis that the other party had an existing liability to make the payment. The definition included, but was not limited to, debts or “book debts”.

Also included were other legally enforceable rights under deeds, statutes and court judgments whether or not earned by performance. Money held in a bank account would be an “account receivable” because the bank would be under a legally enforceable obligation to pay the money to the account holder. A mere right to claim would not be included within the definition until it was converted into a legally enforceable obligation by a judgment of a court.

On the basis of the principle of law established in Woolwich Equitable Building Society v Inland Revenue Commissioners (House of Lords), the funds received by Takapuna from the Council which were refunds of development contributions paid by Takapuna prior to liquidation, were refundable by the Council to Takapuna as of right. This was because in 2008 the HC had decided that the Council had made errors of law in adopting its 2004 development contributions policy under which Takapuna had paid the development contributions. There was no doubt that the errors of law identified meant that the contributions had been wrongly paid and were refundable to Takapuna. The refunds of the development contributions therefore constituted monetary obligations within the definition of “accounts receivable” and should be paid to the Commissioner as the remaining preferential creditor.

Unlike the development contributions, the engineering and construction bonds of $3,000 were not paid by Takapuna to the Council on the basis of a policy subsequently held to be unlawful. Those bonds were lawfully received by the Council to secure performance of resource consents and were not refundable to Takapuna unless and until the Council was satisfied that the development complied with Council standards. As the Council was not so satisfied until after the liquidation of Takapuna, the bonds were not repaid until then. Prior to that time the bonds were not refundable.

As at the date of the liquidation the bonds were therefore not an existing monetary obligation of the Council. The fact that Takapuna might have treated the bonds as an asset in its balance sheet did not in law impose an existing enforceable obligation on the Council to repay the bonds prior to being satisfied that its conditions were met. Accordingly, the bonds were not existing monetary obligations within the definition of “accounts receivable” and when they were paid the preferential creditor priority did not extend to them and they remained subject to the appellants’ GSA.

At the date of liquidation the funds held in the trust account of Takapuna's solicitors were no different in concept to funds held by a bank in a bank account or a deposit account for a company (s110(1) Lawyers and Conveyancers Act 2006 (obligation to pay money received into trust account at bank)) so that money was an “account receivable” because the solicitors were under a legally enforceable obligation to pay the money to the company ( Fletcher v Eden Refuge Trust). The fact the funds might have been beneficially owned by Takapuna did not alter the legal state of affairs (otherwise solicitors’ trust accounts could become a haven for funds which an insolvent company sought to keep from preferential creditors).

The existence of GST arrears and the right of set-off meant that the Commissioner was not under a legally enforceable obligation to make the GST refund payment and Takapuna had no right to recover that refund. Accordingly, the GST refund was not an existing monetary obligation within the definition of “accounts receivable”, but this did not mean that the GST refund paid in error was irrecoverable by the Commissioner on other grounds.

The liquidators were in fact obliged by the rule in Re Condon to pay the mistaken GST refund to the Commissioner as:

(1) the existence of the appellants’ security interest did not prevent the rule from applying – the rule applied to the liquidators as officers of the Court and impacted on their duty to distribute funds collected;

(2) the fact the Commissioner had proved for the entirety of her debt in the liquidation of Takapuna did not constitute an election preventing the Commissioner from relying on Re Condon; and

(3) there was no evidence of any reckless conduct in making the refund that should disentitle the Commissioner from relief.

Applying the Re Condon rule it would have been unfair for the creditor to obtain a benefit just because the Commissioner's mistake was the result of a “mere clerical error” ( Re Thomas Horton).

Appeal allowed in respect of the engineering and construction bonds which were payable to appellants, but in all other respects appeal dismissed.

  • A The application by the appellants for leave to adduce further evidence is declined.

  • B The appeal is allowed in respect of the engineering and construction bonds of $3,000 which are payable to the appellants, but in all other respects the appeal is dismissed.

  • C The appellants are to pay the second respondent's costs for a standard appeal on a band A basis and usual disbursements. We certify for two counsel.


(Given by White J)

Table of Contents

Para No





Development contribution refunds ($451,176.94)


Engineering and construction bonds ($3,000)


GST refund ($169,349.86)


Carter Atmore funds ($158,581.38)


Strategic's GSA


The preferential creditor regime


The meaning of “accounts receivable”


High Court decision


Submissions for Strategic


Our approach






Scheme of PPSA


Legislative history


Unintended adverse consequences?


Academic commentary


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