The recent PPSA case of Citadel Financial Corporation Pty Limited v Elite Highrise Services Pty Limited (No 3) [2014] NSWSC 1926 (Citadel) brings to light a liability issue arising for receivers under the PPSA.  In that case, a secured creditor, CML Payroll Pty Limited, appointed receivers and managers (Receivers) over a company.  Two other creditors with prior registrations on the PPSR claimed priority over scaffolding in the possession of the company.   Nevertheless, the Receivers entered into an agreement with a purchaser to sell a substantial portion of that scaffolding.   

An injunction was sought restraining the Receivers from removing the scaffolding from site, preserving the proceeds of sale of any scaffolding and preventing any further sales until it could be determined who had priority to the scaffolding.  Although the issue for the Court was whether it was seriously arguable that the other two creditors had security interests in the scaffolding, the Court noted that the Receivers assumed a risk of personal liability for damages for breach of contract with the purchaser by entering into a sale at a time when “higher security interests were notified on the PPSR”.  To avoid personal liability, receivers need to resolve which secured party has priority over property before entering into a sale agreement for that property.  

A similar situation occurred for liquidators in the New Zealand High Court decision in Dunphy v Sleepyhead Manufacturing Company Ltd (2006) 9 NZCLC 264,000.  In that case, the liquidators were of the view that Sleepyhead’s security agreement was unenforceable and proceeded to sell the goods subject to Sleepyhead’s security interest.  The High Court held that Sleepyhead’s security agreement was enforceable and found the liquidators liable in conversion because they had refused to hand over goods subject to Sleepyhead’s security interest and also refused to account to Sleepyhead for the proceeds of sale.  The New Zealand Court of Appeal ([2007] NZCA 241) ultimately held that the liquidators had not converted the goods because they were entitled to sell them in their capacity as agents of the principal lender who also had security over the goods.  Nevertheless, the case illustrates that liability issues arise for liquidators who sell goods without resolving priority disputes.