A case recently heard in the UK suggests that, in certain circumstances, a claim for conversion of assets may be brought against administrators and liquidators of a company. While the claim did not succeed on the facts inEuromex Ventures Ltd & Anor v BNP Paribas Real Estate Advisory & Ors [2013] EWHC 3007 (Ch), the case illustrates that claimants may bring a proceeding on the basis of alleged acts of conversion by a company's liquidators and administrators.
In our December 2012 insolvency update we reported on CP Asset Management Ltd v Grant, in which the High Court upheld a creditors' resolution to appoint new liquidators. The High Court found that a resolution should only be set aside when it was found that the prejudice to creditors was unreasonable. In the High Court, the minority of creditors who voted against the resolution were unable to e
Rowmata Holdings Limited (in liquidation) (RHL) & Anor v Hildred & Ors [2013] NZHC 2435 involved a sale and purchase agreement whereby land was sold to two trusts, subject to finance. RHL (a company incorporated by the purchasing trusts) claimed and received a GST refund for the purchase. However, on settlement date, RHL defaulted on the purchase, went into liquidation, and the GST refund became repayable to the Inland Revenue Department (IRD).
Voidable Transactions
Can be a significant risk for businesses
When an insolvent company goes into liquidation it’s accepted that not all creditors will get paid 100 cents in the dollar.However it often comes as a shock to creditors when the liquidator requires them to refund payments that had been made up to two years before the company was liquidated.
The High Court has found that a bankrupt member’s interest in a KiwiSaver scheme is available for distribution by the Official Assignee to creditors – but only after the bankrupt qualifies for a withdrawal (which will usually be at age 65) unless early partial release would alleviate the bankrupt’s significant financial hardship.
Three times in the last 12 months, liquidators have been told by the High Court that they cannot choose the “point of peak indebtedness” as the start of the “continuing business relationship” in an insolvent transaction claim.
Of course, the three decisions are all from the High Court, and will not be binding in future cases. The law will not be settled until the appellate courts hear the issue, and they may yet come to a different conclusion.
The Court of Appeal last week extended the armoury available to liquidators seeking to unwind a voidable transaction. Although the Companies Act sets out a procedure for liquidators to follow, the Court held that this is not exclusive, and that liquidators can also serve a statutory demand seeking payment of a voidable debt. Is this a shortcut likely to save costs, or is it a false economy?
The voidable claim
More than two years after the Commerce Committee reported back on the Insolvency Practitioners Bill, Parliament took up the second reading of the Bill late last week – the next step in what has been a long and protracted process.
The original Bill proposed a negative licensing regime, under which the Registrar of Companies would have the power to prohibit individuals from acting as insolvency practitioners.
In Strategic Finance Limited (in receivership & in liquidation) and Strategic Nominees Limited (in receivership) v Bridgman and Sanson CA 553/2011 [2013] NZCA 357 the Court of Appeal has, for the moment, settled what constitutes an "account receivable", and this provides certainty regarding the scope of the assets available to meet preferential creditor claims ahead of secured creditors with general security agreements.
Inland Revenue is now ahead of liquidators and receivers in the queue for payment where cash is available in liquidation and PAYE is owed.
Industry practice has been that PAYE is paid to the Commissioner of IRD only after the insolvency practitioners’ fees and employees’ wages have been paid but the Court of Appeal has accepted the IRD's argument that the Commissioner has first claim.1