The recent High Court of New Zealand decision in McCollum v Thompson  NZHC 915, supported one of its conclusions with a reference to the fourth edition of my book Personal Property Securities Act: Concepts in Practice.
In that case, the Court was required to consider whether judgment creditors (Creditors) breached their obligations under the enforcement provisions of the Personal Property Securities Act 1999 (PPSA).
The Creditors had acquired a judgment for a debt owing by the judgment debtors (Debtors) in an amount of $105,752.76. At issue was whether the Creditors established an act of bankruptcy under New Zealand’s Insolvency Act 2006 which required the existence of an unsecured debt and whether it was just and equitable to adjudicate the Debtors bankrupt. The debt was secured by a security interest in Debtors’ dairy herd, including 47 heifers. A couple of years prior, the Creditors had seized and retained the heifers for use in their own dairy operations. The Debtors alleged that the Creditors breached their obligations under the PPSA by failing to account to them for the income received from the heifers (including from both milk and progeny) or, alternatively, that the taking and retention of the heifers discharged the debt in full.
The corresponding provisions in Australia’s PPSA are found in Division 3 – Disposing of collateral, sections 128 to 133 and Division 4 – Retaining collateral, sections 134 to 136.
The Court McCollum v Thompson concluded that the Debtors had a triable claim that the Creditors were in breach of their PPSA duties. The Court found that there was a “clearly arguable” case that the Creditors breached their duties in exercising the power of sale of the heifers. Alternatively, if there was no such sale, but the taking and retaining of the heifers constituted a full discharge of the debt, then this was also a triable claim. In reaching this latter conclusion, the Court referred to the following passage from my book Personal Property Securities Act: Concepts in Practice (4th ed, 2016) at [31.22.]:
Given that these provisions [ss 120 and 123] relate to foreclosure as an alternative to applying or selling collateral pursuant to the other enforcement provisions, the reference to ‘in satisfaction of the obligations secured’ likely refers to the entire obligation owing from the debtor to the secured party, rather than the portion of the obligation representing the value of the collateral being sold, although the likelihood is not definitive. If that is correct, then a secured party can either take the collateral in satisfaction of the entire debt, or go through the enforcement process outlined in ss 108-119 and, subject to any other law that may restrict actions for deficiency, sue for any deficiency that remains after the sale of the collateral.
The decision emphasises that when seizing collateral under PPSA regimes, it is important to pay attention to the enforcement provisions and the processes stipulated by the legislation.