BROWN v HEARTLAND BANK LIMITED [2019] NZHC 1105

BROWN v HEARTLAND BANK LIMITED [2019] NZHC 1105

Absolute legal assignment of invoices to a factor does not prevent those debts being treated as 'accounts receivable' subject to the PPSA and Schedule 7 preferential regime; preferential creditors are entitled to priority over assigned accounts receivable unless the transferee's perfected security interest arose...

Source-derived case information.

Citation
[2019] NZHC 1105
Parties
Applicant (liquidator): Kenneth Peter Brown; Applicant (co Liquidator): Paul Thomas Manning; Respondent (secured Creditor): Heartland Bank Limited
Court
High Court
Jurisdiction
New Zealand
Judgment Date
21 May 2019
Procedural Posture
Companies Act 1993 — Application for Directions Under S 284 (liquidation) / Interim Judgment (directions Ordered)
Outcome
Interim judgment granting directions; partial findings in favour of liquidators on legal character of assigned receivables and on certain components of the fund; further submissions directed on 'new value' issue and on deductions for liquidators' fees and parties' costs.
Legal Topics
Preferential Claims, Accounts Receivable Factoring, Priority Disputes, New Value, Assignment Vs Security Interest, Set Off
Company Law Insolvency Secured Transactions Personal Property Securities Contract Law Banking Law Preferential Claims Accounts Receivable Factoring +4 more

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Parties

Kenneth Peter Brown

Applicant (liquidator)

Paul Thomas Manning

Applicant (co Liquidator)

Heartland Bank Limited

Respondent (secured Creditor)

Procedural Posture

Companies Act 1993 — Application for Directions Under S 284 (liquidation) / Interim Judgment (directions Ordered)

Legal Issues

  1. 1 Whether absolute assignments of accounts receivable to factor removed those assets from application of s 312 and Schedule 7 preferential regime
  2. 2 Whether items comprising the fund constitute 'accounts receivable' or 'inventory' for Schedule 7
  3. 3 Whether Heartland held perfected PPSA security interests over the accounts receivable at liquidation and whether those interests arose from transfers for which 'new value' was provided

Ratio Decidendi

Absolute legal assignment of invoices to a factor does not prevent those debts being treated as 'accounts receivable' subject to the PPSA and Schedule 7 preferential regime; preferential creditors are entitled to priority over assigned accounts receivable unless the transferee's perfected security interest arose from a transfer for which 'new value' (as defined in the PPSA) was provided by the transferee; on the evidence the shareholder current account ($20,000) is an account receivable and Heartland did not provide new value for it; the work‑in‑progress invoiced post‑liquidation is not an account receivable at liquidation date and preferential creditors do not have priority to it;...

Court Disposition

Interim judgment granting directions; partial findings in favour of liquidators on legal character of assigned receivables and on certain components of the fund; further submissions directed on 'new value' issue and on deductions for liquidators' fees and parties' costs.

Orders

  • Directions that although invoices were absolutely assigned to Heartland they remain 'accounts receivable' subject to PPSA and Schedule 7 for purposes of preferential claims except where cl 2(1)(b)(i)(C) is satisfied
  • Direction that $20,000 shareholder debt and the three invoices issued pre‑liquidation were 'accounts receivable' for Schedule 7 purposes and the post‑liquidation invoice for work‑in‑progress was not