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Two months ago, the decision of Maginness v Tiny Town Projects Ltd (Tiny Town) caused a ripple throughout the insolvency industry. It found that: 

  • intending purchasers who had paid money to purchase the goods have an equitable lien over those goods (to the extent of the amount paid); and
  • such an equitable lien will take priority over a secured creditor’s interest in the goods. 

Last month, a second decision confirmed Tiny Town as good law: Francis v Gross [2]. These cases provide:

  • a warning to secured creditors – your security may not hold the value that it did six months ago; and
  • an opportunity for savvy unsecured purchasers of goods to leapfrog the PPSA and significantly increase their prospects of recovery.

The Tiny Town case

Tiny Town Projects Ltd manufactured tiny homes. When it went into liquidation, six tiny homes (at various stages of construction) were the company’s primary asset.  

Section 53 of the Personal Property Securities Act 1999 (PPSA) provides that (subject to certain exceptions) when a purchaser has become the buyer of the property they may take it free of prior security interests granted by the seller. However, this is contingent on title passing. In Tiny Town, Venning J held that because the homes were not yet complete, title to the homes remained with the company. As a result, the purchasers were unable to seek refuge under s 53.  

As an alternative, the purchasers argued that they had an equitable lien over the goods [3]. The Court agreed, finding that the purchasers had an equitable lien over the homes as:

  • the prospective purchasers had paid for the homes in part or in full; 
  • they were readily identifiable to each particular purchaser; and 
  • the homes were sufficiently bespoke such that (in the Court’s view) they could not have been on-sold to anyone else. 

This was the first time New Zealand Courts have recognised a purchaser’s equitable lien over goods. The Court of Appeal in Toll Logistics v MacKay had previously restricted liens to “customary common law liens” and counselled a “cautious approach” to any liens that may be inconsistent with the intentions of Parliament in enacting the PPSA [4].

However, having established there was an equitable lien, there remained the question of priority. Venning J held that:

  1. section 23(b) of the PPSA applies to equitable liens. Section 23(b) provides that the PPSA does not apply to liens arising by operation of law; and
  2. as the PPSA did not apply, the equitable liens had priority over the security interests held by Tiny Town’s creditors. The Court’s reasoning was that “such priority is consistent with or analogous to the priority provided [to] the other types of non-consensual lien by s 93” of the PPSA. Section 93 provides that a common law lien arising from the provision of materials or services in respect of goods can rank ahead of security interests in the same property. This is discussed in further detail below. 

Francis v Gross

There was much discussion in the insolvency industry as to whether Tiny Towns would be appealed or if another case would confirm the decision. It did not need to wait long. 

Francis v Gross, decided two months later, had remarkably similar facts. This case involved the liquidation of a company that manufactured architecturally designed modular homes, or “pods”, for residential occupation.  

There were 16 pods under construction at the time of liquidation for which the purchasers had partially paid the purchase price. A further 20 prospective purchasers had paid deposits, but the construction of their pods had not yet commenced. As title to the pods had not yet passed, the purchasers asserted an equitable lien over their pods. 

The Liquidator argued that Tiny Town was wrongly decided noting that it “determinately elevates unsecured creditors’ interests above the security interests protected by PPSA priorities and accordingly renders those security interests less certain (and therefore of less utility in obtaining and maintaining security over a borrower’s assets).”


Jagose J disagreed. He acknowledged that even if equitable liens were “something of a themeless rag-bag” they were, nonetheless, a “dynamic legal concept” capable of further development if justified.  

The purchasers of the 16 pods under construction were found to have an equitable lien. However, in this case, fortune did not always favour the brave. There were 20 prospective purchasers who had paid deposits but were unable to assert an equitable lien, as there was no identifiable pod on which a lien could attach.

Jagose J then went on to describe in more detail the circumstances in which an equitable lien would arise: 

"Deposit alone does not suffice, which addresses the liquidators’ other concern for unfairness in an equitable lien’s attachment to incomplete pods (although no construction commenced for those 20 deposit-payers). Key is the degree to which the specific (and not unascertained or future) good, whether complete or incomplete, may be thought excluded from any ‘commercially sensible’ sale to another customer. Where payments in the ordinary course of business directly obtain the company’s developed manufacture of goods custom-made for the customer, without the customer’s knowledge of an existing competing interest (of which no knowledge here is evidenced), equity can and should fasten on the goods in manufacture themselves to the extent of the customer’s payments."

The Court did not tackle head on the policy question of why equitable lienholders should have priority over other secured creditors. Jagose J simply said that he was “drawn to the coherence of Venning J’s characterisation of the lien as the obverse of s 93’s exception.”  

The question of priority

These decisions in relation to priority of equitable liens over secured creditors has been widely questioned.  

Section 93 of the PPSA provides that a common law lien arising from the provision of materials or services in respect of goods can rank ahead of security interests in the same property. This would cover, for example, a repairer’s lien over goods (such as a vehicle) being repaired until payment for those services has been received. 

In these cases, the purchasers did not supply materials or services. They simply paid (or paid in part) the purchase price for the goods. The finding that s 93 would also cover a purchaser’s equitable lien over such goods is a considerable extension to the s 93. 

In addition, unlike s 93, s 23 (which notes that PPSA does not apply to liens arising by operation by law) does not provide that such liens should have priority. Arguably, if Parliament had intended that they should have priority it would have provided for such in s 23. The fact that it did not, indicates that Parliament did not intend for such a lien to have priority. 

It is also unclear why the Court considered that the priority regime for personal property should differ from that for real property. It is not unusual for equitable rights to arise. For example, a prospective purchaser of land will have an equitable interest in that land pending completion of the sale. However, a registered mortgage will always take priority over an equitable one. The Courts in these cases did not address why they diverged from this well-established position in the context of goods. 


For now, these decisions represent the law. Regardless of one’s view in relation to this significant legal development, two things are certain:

  1. A secured creditor no longer has the clarity and certainty of priority that the PPSA regime had previously provided.  
  2. An opportunity has arisen for savvy unsecured purchasers of goods to leapfrog the PPSA and significantly increase their prospects of recovery.

Previously, if a company then went into liquidation, the goods would be sold and the proceeds distributed in accordance with the rules of priority under the PPSA. Usually, this would mean secured creditors would be paid first and, in most circumstances, there would be little left for the unsecured purchasers of the goods. Now, in a priority contest, the purchasers of the goods may be paid out ahead of any secured creditors. 

The implications will be particularly pronounced for the construction industry. It is common in construction for payments to be made in advance for the manufacture of goods as part of the contract works. Those with PMSIs (Purchase Money Security Interests) or some other form of security may find those previously valuable securities now without the meaningful value that they once held. 

We are already seeing practical issues arising for liquidators who are tasked with applying this rule – how far will it extend? What makes goods identifiable and to what extent must the goods be bespoke? As the financial pressure on businesses insolvencies increase, counsel for any creditor will need to be prepared for a complex tussle. 


[1] [2023] NZHC 494.

[2] [2023] NZHC 1107.

[3] The purchasers also argued that the company held the goods on constructive trust for the benefit of its creditors. However, this argument was rejected by the Courts.

[4] Toll Logistics (NZ) Ltd v McKay & Anor [2011] NZCA 188.