Preferential creditors

Given priority by the Companies Act and the Receiverships Act, preferential creditors rank ahead of the holder of a general security agreement over inventory and debtors.

The ranking of preferential creditors among themselves, is set out in the 7th schedule to the Companies Act.  As a general guide only, priorities in receiverships and liquidations are in the following order:

§         Receiver’s and Liquidator’s expenses and remuneration;

§         employees’ wages including holiday pay entitlements, deductions and redundancy subject to a limitation of NZ$16,420 for any one employee;

§         goods and services tax and PAYE tax deductions due to the Inland Revenue Department.

Secured creditors

Secured creditors are creditors holding a security agreement, mortgage, charge or lien over the property of the debtor as security for the debt and who are in a position either at law or in equity to recover amounts due wholly or partly from the assets secured, in priority to unsecured creditors.  In respect of personal property their security interest should be registered on the Personal Property Security Register (PPSR).

The most common form of security under which a receiver is appointed is a General Security Agreement (GSA) although this is often supported by a mortgage over real property.  Invariably there will be other secured creditors who will have valid claims over specific assets in priority to a GSA.  These are known as Purchase Money Security Interests (PMSI);

A partly secured creditor may value their security and claim in a liquidation for the unsecured portion of the debt.

Unsecured creditors

These are all creditors not secured or ranking as preferential.

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