Care needed in registering financing statements on the PPSR

An effective security interest relies on a valid financing statement registered on the Personal Property Securities Register (PPSR).

Defects in the financing statement could result in a secured party losing out to other creditors. A recent case1 is a reminder of the need for creditors to take care with financing statements.

Background

Polymers International Limited (Polymers) supplied product on credit to Interworld Plastics N Z Limited (Interworld). As security for payment, Interworld granted a security interest to Polymers, which registered a financing statement on the PPSR.

There were three difficulties with the financing statement:

the failure to leave a gap between the "N" and the "Z" in Interworld's name the omission of Interworld's unique incorporation number, and the failure to classify Interworld as a "company". Liquidators were appointed to Interworld, which owed Polymers more than $750,000. The liquidators did not recognise Polymers as a secured creditor and Polymers applied to the Court for a declaration that its financing statement was valid.

Financing statement seriously misleading

The Court found that Polymers' financing statement was not valid. It decided not to use the "reasonable searcher" concept applied by the Ontario courts in deciding whether the errors were seriously misleading.

Instead, it asked whether an error would prevent a registration being disclosed by a properly formatted search in the relevant searchable field.

Applying this test, it found that the running together of the N and the Z in Interworld's name did not create a problem because a search for debtor names in the PPSR automatically excludes all spaces and abbreviations in "NZ", so the gap would have been removed anyway in the search process.

But there is an express requirement to register a company's number on the PPSR so that a search using the number as a reference (or a search through the Companies Office website) will reveal the statement against the debtor company.

And, had Interworld been classified as a company, this omission would not have occurred as the PPSR website would have required the correct incorporation number to be registered.

If whoever filled out the financing...