Several issues of far-reaching significance in the world of restructuring and insolvency will be decided by the courts, and by Parliament, this year. 

Some have yet to surface but others are already in the pipeline.

We look at what we consider to be the “top five”.

Litigation funding

​The Supreme Court has ruled that some family trust structures will be ineffective in protecting assets from claims by former partners and, potentially, other creditors.

The decision in Clayton v Clayton has implications for everyone who establishes trusts to manage relationship property, estate planning and insolvency risk.

The facts

A director is not absolutely liable for all losses suffered by a company on his or her watch.

So the Court of Appeal has ruled in a recent liquidation dispute.

The context

Rowan Johnston, a former investor and director in NZNet, pumped funds into the company when it ran into difficulties, but found that NZNet’s managing director Stephen Andrews had misled him about the company’s financial position.

On 15 September 2011, he resigned his directorship and a couple of months later, NZNet went into liquidation.

​Direct deeds provide limited protection for contractors.

This is the effect of the judgment arising from what is believed to be the first use of the voidable transactions regime to challenge a payment made under a direct deed.

What are direct deeds?

The majority expressly noted that, had they not felt bound by the Supreme Court’s interpretation, they would have agreed with the minority and required the investor to pay back not just the fictional profits, but also the profits of his capital investment.

We look at the reverberations last year from Fences & Kerbs and speculate on their continuing effect this year.

Case volume

Two court judgments which could significantly affect New Zealand’s insolvent transactions regime are due out soon.  When they are released, we will provide a Hothouse seminar on their potential implications for creditors and liquidators (sign up here). 

We discuss the cases briefly here and provide an overview of the current liquidation “market” based on information supplied by the Companies Office.

Directors beware – unless you are careful to maintain a subsidiary’s independence, the parent company may be liable for the debts of its subsidiary.

That is the effect of a recent High Court decision invoking a rarely used provision in the Companies Act.

We analyse the judgment and draw some practical advice from it.

Section 271

Section 271(1)(a) of the Companies Act 1993 (the Act) has been used only rarely and is unique to New Zealand law, although Ireland has a similar provision.

The Supreme Court has today considerably expanded the “good faith” defence for voidable transactions. 

Where a creditor “gave value” through the original transaction, that creditor can now defeat a voidable transaction claim by proving only that it acted in good faith, with no suspicion of insolvency. 

The Court of Appeal has confirmed that if a secured creditor votes its secured debt in a liquidation meeting, the vote is invalid – and the security remains. 

Liquidation meetings are for unsecured creditors.  A secured creditor has no vote, except in respect of debt that is unsecured.

The case

A bankrupt’s KiwiSaver account balance is off limits to the Official Assignee.  Even if it were not, the Official Assignee could not use the bankruptcy to invoke the hardship-based early withdrawal provisions in the KiwiSaver Act 2006.

This is the effect of a Court of Appeal judgment, delivered on Friday.  Although justifiable in policy terms, the decision raises issues about the appropriate balance between promoting retirement savings and protecting creditor rights. 

Significance