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

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

“The peak indebtedness rule is not part of the law in New Zealand”, according to the Court of Appeal, in a decision dismissing two appeals on an issue “significant for both liquidators and creditors generally”.

The Court of Appeal has found that receivers can be personally liable for body corporate levies accrued during a receivership.

The judgment is based on a broader interpretation of the relevant provisions in the Receiverships Act 1993 than applied by the High Court in Body Corporate 162791 v Gilbert, and reverses that decision.¹    

Over the last couple of years, we have developed the habit of periodically pushing up the periscope to try to determine the ‘big five’ insolvency issues on the horizon. 

Below is a retrospective assessment of how we did last time and our best guess as to what will dominate the next 12 months.

The big five for 2015

If asked to provide information to a liquidator, the safest course may be to provide it under oath under section 261 of the Companies Act 1993 because the High Court has found that immunity will apply to such statements.

We look at the decision.

The case