Household Appliances

1. ZeZe Limited has entered into a supply agreement with Beta Appliances Limited (BAL) a retailer of household appliances. ZeZe allows BAL to purchase on credit. It has registered a financing statement on the Personal Property Securities Register in respect of its general security agreement which secures all amounts owing or which in the future many become owing by BAL to ZeZe over all the assets of BAL present and in the future. The financing statement was registered on 1 July 2017 and ZeZe has supplied BAL with a large volume of household appliances for sale in BAL’s shops since that time.

On 4 October 2017, Raisa purchased from BAL a computer at $1800. Six weeks later, she receives a letter from ZeZe stating that BAL has failed to make payments to ZeZe and that as a result, ZeZe was exercising its rights under its security agreement to seize all of BAL’s assets including its trading stock. ZeZe also state that on 23 September 2017 it had written to BAL in terms of powers in its security agreement forbidding BAL to trade. As a result, ZeZe claims that BAL breached its security agreement in selling the computer to Raisa and that Raisa must return the computer to ZeZe immediately.

a) Advise Raisa whether she has grounds under the Personal Property Securities Act 1999 (PPSA) for refusing to hand back the computer. Refer to a relevant section in the Act to support your answer. (4 marks)

b) BAL later resolves its financial difficulties and ZeZe has now restored to BAL the right to trade.

Barry, the manager of BAL, asks you to outline a procedure whereby he can sell goods from BAL’s shops on hire purchase terms. This will include a provision that BAL will continue to remain the owner of the goods until the purchaser has paid for them in full, and has met all other payments required under the terms of the hire purchase agreement.

Referring to relevant provisions of the PPSA, outline the procedure BAL should follow when selling the goods, in order to get the best protection available under the PPSA. (7 marks)

2. In relation to security interests given by the same debtor over the same collateral, rank in order of their priority the following.

• A general security agreement to Smart Finance Limited registered on 14 July 2017 (SFL).

• A lender’s purchase money security interest (PMSI) with Go-To Loan Limited (GTLL) registered on 27 August 2017, which was more than 10 working days of the debtor taking possession of the collateral for which the advance has been made.

• A lender’s PMSI with ANZ Bank Limited (ASB) on 10 August 2017, which was within 10 working days of the debtor taking possession of the collateral for which the advance has been made.

•A seller’s PMSI registered on 12 August 2017 which was within 10 working days of the debtor taking possession of the collateral (Seller).

Note: Write your answer by listing the abbreviations – SFL, GTLL, ASB and Seller in the sequence in which you think they take priority. No explanation is required. (4 marks)

3. Creative Computing Ltd buys $32,000 of silicon chips from Chekhov Components Ltd and $8,000 of screens from Baxter Production Limited to be used in assembling computers. Both firms sell their products subject to romalpa clauses and register their interests on the PPSR. Due to a glut of cheap imports, the market for computers is oversupplied, and Creative fails to pay both Chekhov and Baxter. The computers for which the silicon chips and screens were used now only have a market value of $24,000.

What can be recovered by Chekhov and Baxter? Explain your reasoning referring to relevant provisions in the PPSA.

(7 marks)

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