Section 153 — Property Law Act 2007: Preferential claims

153 Preferential claims (1) This section applies to a mortgagee in possession if— (a) the mortgage created a security interest that— (i) is over all or any part of an individual’s, a company’s, or an overseas company’s accounts receivable and inventory or all or any part of either of them; and (ii) is not a perfected purchase money security interest; and (iii) is not a perfected security interest arising from a transfer of accounts receivable for new value; and (b) at the time when the mortgagee entered into possession,— (i) in the case of a current mortgagor that is an individual, the individual was not a bankrupt; or (ii) in the case of a current mortgagor that is a company, the company was not in liquidation; or (iii) in the case of a current mortgagor that is an overseas company, the overseas company was not being liquidated under section 342 of the Companies Act 1993. (2) A mortgagee in possession who receives income from or sells accounts receivable or inventory that are subject to the mortgage must apply the income, or the proceeds arising from the sale, as follows before applying the income, or the proceeds arising from the sale, in accordance with section 152(1)(b) to (f) or 185(1)(b) to (f) (as the case may be): (a) first, to the payment of all amounts (if any) referred to in section 152(2)(a) to (d) or 185(2) (as the case may be), together with interest on those amounts at the agreed rate (if any) at which interest is payable on the principal amount secured by the mortgage: (b) secondly, to the payment of amounts secured by any perfected purchase money security interest over the accounts receivable or inventory concerned, or any perfected security interest arising from a transfer of accounts receivable for new value over the accounts receivable concerned, to the extent that it has priority over the mortgagee’s mortgage and, in the case of the application of income, so far as payment is then due: (c) thirdly, to the payment of preferential claims to the extent and in the order of priority specified in Schedule 7 (except clauses 1(1) and 2(1)(b) ) of the Companies Act 1993: (d) fourthly, to the payment of all amounts (if any) referred to in section 152(2)(e) , together with interest on those amounts at the agreed rate (if any) at which interest is payable on the principal amount secured by the mortgage. (3) For the purposes of subsection (2)(a), if an amount referred to in section 152(2) or 185(2) — (a) is payable partly in relation to the accounts receivable or inventory concerned and partly in relation to other property,— (i) the amount must be fairly and equitably apportioned between the accounts receivable or inventory and the other property; and (ii) the proportion relating to the accounts receivable or inventory must be taken into account; and (iii) the proportion relating to the other property must be disregarded: (b) is payable only in relation to property other than the accounts receivable or inventory concerned, the amount must be disregarded: (c) is not payable in relation to any particular property, only a fair and equitable proportion of the amount must be taken into account. (4) For the purposes of subsection (2)(c), Schedule 7 (except clauses 1(1) and 2(1)(b) ) of the Companies Act 1993 applies, with all necessary modifications, as if— (a) references to a liquidator were references to a mortgagee to which this section applies; and (b) references to the commencement of the liquidation were references to the date on which the mortgagee became a mortgagee to which this section applies; and (c) references to a company being put into or being in liquidation were references to the mortgagee becoming a mortgagee to which this section applies; and (d) in the case of a mortgagor that is an individual, references to a company were references to an individual; and (e) in the case of a mortgagor that is an overseas company, references to a company were references to an overseas company. (5) In this section,— (a) perfected purchase money security interest means a purchase money security interest that has been perfected at the time specified in section 74 of the Personal Property Securities Act 1999: (b) perfected security interest arising from a transfer of accounts receivable for new value means a security interest that has been perfected under the Personal Property Securities Act 1999 at the time when the mortgagee entered into possession and that arises from the transfer of an account receivable for which new value is provided by the transferee for the acquisition of that account receivable (whether or not the transfer of the account receivable secures payment or performance of an obligation). (6) This section is subject to section 154 . Compare: 1952 No 51 s 104PPA