We have prepared the following tips for businesses to guide them through the current circumstances. Urgent advice should be sought where cash flow problems are arising, or where contractual obligations may not be able to be met. The best protection is preparation.

Talk to the people you deal with

Check in with the people you do business with regularly. This will include:

Finance Minister Grant Robertson yesterday afternoon announced a number of proposed temporary changes to the Companies Act, with the stated purpose to help businesses facing insolvency due to COVID-19 remain viable.

The temporary changes include:

The much anticipated Mainzeal judgment is released

In Robt. Jones Holdings Limited v McCullagh [2019] NZSC 86, the Supreme Court unanimously held that it is unnecessary for a liquidator to prove that any payment actually diminished the assets of a company to claw back that payment under s 292 of the Companies Act (Act). 

Non-party costs are exceptional and are only awarded when it is just to do so and when 'something more' about the non-party's conduct warrants costs.  The involvement of a parent company in litigation and avoiding a realistic settlement is an example of the 'something more' requirement being met.  In Minister of Education v H Construction North Island Ltd (in req and liq) [2019] NZHC 1459, the High Court found that McConnell Ltd's (McConnell) actions in this litigation warranted awarding non-party costs and disbursements of over a million dollars.

In Robt. Jones Holdings Limited v McCullagh [2019] NZSC 86 the Supreme Court confirmed that the requirements outlined in s 294 Companies Act 1993 (“Act“”) are all that is required in order to void an insolvent transaction. In particular, the Supreme Court confirmed there is no additional common law principle that the transaction must have diminished the net pool of assets available to creditors.

Background

Jollands v Gull concerns an application by the liquidators of a company to set aside insolvent transactions. The transactions involved funds from the sale of the company's business being paid, via the company's accountant, to three minority shareholders, which then transferred their shares to the respondent shareholders (or in one case, a respondent shareholder's family trust). The respondents' current accounts were in credit at the time.

The decision of the English High Court in Willmont and Finch v Shlosberg clarifies how insolvency practitioners can use and disclose documents obtained under compulsion or litigation to related insolvency estates.

The case of Hollis & Somerville v Total Debt Solutions (2009) Limited concerned an application by the liquidators of a company for directions that the liquidators could have recourse to all trust monies received by the company to meet their fees and expenses incurred in the liquidation.

ELT Recycling (NZ) Ltd (ELT) is a company in the business of scrap tyre collection and recycling. The shareholders of ELT had ongoing financial disputes with one of ELT's shareholders, Mr Adams, who was responsible for development of the intellectual property. Adams issued an invoice to ELT as remuneration for his services and when the other shareholders (the Zhang interests) refused to pay, Adams took steps to pass a 'resolution' to liquidate ELT and appoint Mr Imran Kamal as liquidator.