In Madsen-Ries and Vance v Petera the High Court found that the directors of Petranz Limited (in liquidation) had breached certain directors' duties under the Companies Act and, as a consequence, were liable to pay compensation to the Company.  In particular, the directors failed to keep proper financial records and produce financial statements.

The decision of Graham & Jackson v Arena Capital Limited (In Liquidation) concerned an application under the Companies Act 1993 by liquidators seeking direction on the application of liquidation funds.

​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?

Castlereagh Properties Limited (Castlereagh) and Gibbston Water Holdings Limited (Water Holdings) were both companies in David Henderson's Property Venture group. Castlereagh and Water Holdings entered into a sale and purchase agreement (SPA), under which Water Holdings sold all of its shares in Gibbston Water Services Limited (Water Services) to Castlereagh for $1.  Water Holdings was subsequently put into liquidation.

Torchlight Fund No 1 (Torchlight) contracted with Wilaci Pty Ltd (Wilaci) for a $37m loan. The terms included the payment of a 'late fee' of $500,000 per week.  Following default, Torchlight applied for a declaration that the fee was a penalty, and therefore unenforceable.  Torchlight also applied for directions as to the payment of the costs of the receivers appointed by Wilaci, arguing that a clause indemnifying Wilaci in respect of a default did not apply to such costs.  

Mr Pala and Mr Luthera were directors of Shanton, a large retailer of women's clothing in New Zealand.  BTC Group Limited (BTC) was in the business of supplying clothing to Shanton in accordance with Shanton's stock orders.  BTC had obtained guarantees from Shanton's directors, pursuant to which each director guaranteed the obligations of Shanton to BTC.  Earlier this year, Shanton was unable to pay its debts as they fell due and was placed into voluntary administration owing creditors over $7m.

The Supreme Court, in a judgment released last Friday,¹ has overruled the Court of Appeal by deciding that the IRD stands behind liquidators and employees when cash is available in liquidation and PAYE is owed.

This decision, which upholds the payment waterfall in Schedule 7 of the Companies Act, will be welcomed by insolvency practitioners after the Court of Appeal had upset previous industry practice.

Context

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.