Written by Anne Wardell, Editorial Content Manager.
The New Zealand High Court recently considered an interesting case which involved debt factoring and the Personal Property Securities Act 1999 (NZ) (PPSA).
In Commercial Factors Ltd v Wave Transport Ltd  NZHC 3325 the plaintiff was a debt factor. It entered into a factoring agreement with Prestige International Ltd (Prestige) which performed a number of mechanical services for the defendant, although invoices were issued to the director, and shareholder of the defendant Mr Taylor. Because the plaintiff was buying all the debts of Prestige, it decided to obtain security for these particular debts, from both the defendant and Mr Taylor. A general security agreement was entered by the parties and a financing statement was registered. Both the defendant and Mr Taylor also provided guarantees.
On 4 November 2013, the defendant was placed in to liquidation. The plaintiff alleges that the amount owing to it on that date was $73,681.84, and that the defendant and Mr Taylor are liable pursuant to the guarantee. The liquidator of the defendant alleges that all debts have been paid, and therefore, nothing was secured by the registered financing statement. He unsuccessfully requested the plaintiff to remove it from the PPS Register. As a consequence, the liquidator lodged a change demand with the Registrar and notice was given to the plaintiff in accordance with the PPSA. The plaintiff applied to the court for an order to maintain registration of the financing statement.
The key provisions of the agreement are set out in the judgment at  and are as follows:
“2.1 The Vendor hereby assigns absolutely to the Purchaser all Debts incurred or to be incurred by any Customer which shall be in existence as at the date of this agreement or which shall come into existence at any subsequent time before termination of this agreement. The ownership of every such Debt in existence as at the date of this agreement shall vest in the Purchaser as at the date of this Agreement. The ownership of every such Debt coming into existence at any time after the date of this agreement shall vest in the Purchaser immediately upon such Debt coming into existence.
2.2 The Purchaser shall pay the Purchase Price (calculated in accordance with the first schedule) to the Vendor for the Debt in the manner following:
(a) The Purchase Price for Category A Debts shall be paid within 4 Business Days of receipt by the Purchaser from the Vendor of original copies of the relevant Invoices but reduced by the amount of any deductions therefore made pursuant to clause 4.2.
(b) Subject to clause 2.3 the Purchase Price for Category B Debts shall be paid:
(i) By the fifteenth day of the month following the month during which payment of such Category B Debts from the Customer in cleared funds is made; or
(ii) If payment is not received from the Customer in cleared funds by the Repurchase Age in respect of any particular Category B Debt, contemporaneously with payment of the repurchase price in cleared funds by the Vendor for that category B Debt in accordance with Section 7 of the Agreement.
7.1 The Vendor will repurchase from the Purchaser any Category A which remains unpaid at the expiration of the relevant Repurchase Age. Such repurchase will be effected immediately after the expiration of the relevant Repurchase Age. For the avoidance of doubt, the Purchaser’s right of set-off pursuant to clause 16.1 applies in respect of any amounts payable by the Vendor pursuant to this clause 7.1.
7.5 Any Category A Debt which is repurchased by the Vendor shall immediately following the moment of repurchase be assigned to the Purchaser pursuant to clause 2.1 as a Category B Debt.”
The issue to be determined by Brewer J was:
“Does the repurchase of a Category A debt pursuant to clause 7.1 and 7.5 of the agreement remove the debt from the security evidenced by the registered financing statement? (at )”
After examining the agreement the judge held that the repurchase of a Category A debt pursuant to cl 7.1 and 7.5 of the agreement did not remove the debt from the security evidenced by the registered financing statement. An order was therefore made to maintain registration of the financing statement.