1.

Setting aside a statutory demand - PPSA issues

The recent case of Blue Water Resort Limited v Marac Finance Limited (HC
Christchurch, CIV 2008-409-1184, 20 August 2008, Christiansen AJ) concerned an
application to set aside a statutory demand.

In the case Blue Water Resort Limited ("Blue Water") applied to set aside a
statutory demand issued by Marac Finance Limited ("Marac"). The amount
demanded by Marac was claimed to arise pursuant to a debt that was assigned to
Marac from a third party under a settlement agreement. The third party had lent
funds to a group involved in property development, with these funds secured by
guarantees from several companies, including Blue Water.

Blue Water presented the Court with two lines of argument in its application to set
aside the statutory demand. Firstly, they challenged the legal effect of the
assignment relied upon by Marac on the basis that it was not an absolute assignment
of debt, but instead that it was an assignment by way of charge. In support of this
argument Blue Water referred the Court to the assignment agreement. The wording
used in this agreement stated that the assignor was assigning and transferring by
way of mortgage all of its interests and rights in obligations in a settlement
agreement to Marac. On this basis Blue Water argued that Marac could not demand
payment of the debt from Blue Water and could only require that it receive any
payment by Blue Water to the assignors, pursuant to their security. Secondly, Blue
Water argued that Marac's right to payment arose in connection with an interest in
land (which was then assigned to Marac) and therefore the Personal Property
Securities Act 1999 ("PPSA") should not apply by virtue of the application of s23(e)
(ii) PPSA.

Marac took the view that the statutory demand was issued by virtue of rights it
acquired under the PPSA and that the assignment created a deemed security interest
under s17(1)(b) PPSA.

Associate Judge Christiansen thought it reasonably arguable that the right to

payment assigned to Marac arose in connection with an interest in land, thereby
preventing the PPSA from applying. However his Honour accepted that it if this were
not the case, and if Marac did have a deemed security interest, then it was still
arguable whether Marac could enforce its security interest under the PPSA.

Furthermore, his Honour referred to s105(b)(i) PPSA which provides that Part 9 PPSA
(which deals with the rights and obligations of a secured party when enforcing
security) does not apply to a security interest created, or provided for, by a transfer
of an account receivable or chattel paper. His Honour accepted that this section
meant that prima facie, Marac could not enforce its security interest. However, as
the assignment was expressed to be by way of mortgage rather than an absolute
transfer his Honour considered there to be uncertainty about whether the section
applied to the current case.

Without deciding the issue, his Honour's view was that to interpret s105(b)(i) in a
way that limited its application to absolute transfers only, and to exclude any
application to in substance security interests in the form of non-absolute transfers,
would be contrary to the PPSA's policy of regulating according to substance rather
than the form of the transaction.

In light of this view his Honour concluded that, at best, it can be conceded that
Marac may have had the right to enforce its security interest by virtue of s105(b)(i),
if you took the view that s105(b)(i) did not apply to the current case. However he
still considered it reasonably arguable that Marac might not be able to enforce.

Given that it was reasonably arguable Marac might not have been able to enforce,
and the fact that it was not possible to fully assess the claim given the limited
information before the Court, his Honour found that Blue Water had an arguable
case for a defence to Marac's claim under the PPSA, and accordingly set aside the
statutory demand.