Two High Court decisions setting aside creditors' compromises give new guidance on the parameters of Part 14 of the Companies Act 1993.

The regime:

• cannot require the release of the company's guarantors (but that may not be the case under Part 15), and
• requires separate classes of creditors based on a pragmatic, business-oriented approach with regard to both the legal rights and economic interests of creditors.

No release of the company's guarantors

​The Insolvency Working Group's second and final report, released last week, deals with voidable transactions and Ponzi schemes. It proposes a number of changes to the voidable transaction regime, including returning the “gave value" defence to its earlier, more limited, form.

It makes a range of other recommendations across the law of insolvency. Key among them are that the IRD's preferential debt be subject to a limit, and that gift card and voucher holders be treated as preferential creditors.

​A High Court finding this month that a liquidator fabricated a key document and failed to account for receipts of over half a million dollars highlights the need for regulation of the insolvency profession.

The case

The liquidator, Geoff Martin Smith, claimed to have sent a notice under section 305 of the Companies Act to the bank holding security over the company in liquidation. The notice required the bank’s election, in default of which its security would be deemed surrendered. The bank said it never received the notice.

The Court of Appeal has dismissed an appeal by Steel & Tube Holdings Limited (STH) against the legal basis and quantum of a $750,000 judgment based on a “de facto amalgamation” with its subsidiary company.

The ruling reinforces the message from the High Court that directors must be careful to maintain a subsidiary’s independence if they are to protect the parent against liability for the subsidiary’s debts.

The context

The Ministry of Business, Innovation and Employment (MBIE) is seeking submissions by 7 October on recommendations from the Insolvency Working Group.

We canvass the issues. Michael Arthur of Chapman Tripp is a member of the Working Group.