In our October update, we reported on the Court of Appeal decision in Grant v Commissioner of Inland Revenue (see here).  The Supreme Court has now declined leave to appeal from that decision.

Recent decisions from the courts have raised the legal risk for directors and underlined the exposure to third party liability of auditors, trustees and promoters. 

As a result, we can probably expect this year to have more claims made by receivers, liquidators and out-of-pocket investors against those involved in:

Resource consents and environmental risks can affect the value of an insolvent company's assets, and can give rise to civil or criminal liability.

This Brief Counsel examines:

• when resource consents require transfer to a new owner, and
• potential liabilities that insolvency practitioners may face.

Types of consents

Five types of consent are available under the Resource Management Act 1991 (RMA):

A lien is the right to hold on to goods, and in some cases sell them, in order to ensure payment.  Often the debt will be connected with services related to the goods.

A lien can be obtained by contract, or in certain specific situations the law creates it automatically.  The difference can be significant.

Under the Personal Property Securities Act (PPSA), the holder of a common law or statutory lien may in some cases have special priority over a company’s secured creditors.

Types of lien

Just what is an account receivable has been the subject of much debate, because it determines what assets are used to satisfy preferential claims, i.e. who gets paid first in a receivership or liquidation.  In 2008, the High Court judgment in Commissioner of Inland Revenue v Northshore Taverns (in liq) confined “accounts receivable” to “book debts”.  Although since criticised, that judgment was the only judicial authority on the point.

The Court of Appeal has affirmed the High Court’s ruling that a voluntary administrator may only use a casting vote where the number of creditors voting for and against the resolution is equal. 

The second limb of the test, that the 50% represent at least 75% in value, cannot be the subject of the casting vote.  Nor can the casting vote be used to choose between the number and the value.

In the High Court decision of Herbert v Allied Nationwide Finance Limited & Others, the Court declined to approve a creditor's proposal under the Insolvency Act 2006 on the grounds that the terms were not reasonable and not calculated to benefit the general body of creditors.

InThe Commissioner of Inland Revenue v Blackmore Trust Ltd, Blackmore tried to stave off liquidation for the sum of $1.4 million owed to the IRD.  After six or seven adjournments, Blackmore finally put evidence before the Court (albeit through its lawyer, rather than by affidavit) claiming that its liabilities totalled $15.6 million, and its sole asset, the James Smith building in the Wellington CBD, was valued at $21.5 million as a going concern, or $11 million - $13 million in a "fire sale".

In our October 2010 insolvency legal update, we reviewed the case of South Canterbury Finance Ltd v Nielsen, where the Court found in favour of second mortgagee, SCF, on the interpretation of a deed of priority.  That case was appealed successfully to the Court of Appeal by the first mortgagee, ASB.  This update provides a brief review of the Court of Appeal's reasoning.

In Official Assignee v Spencer, Mr Spencer's bankruptcy period was extended from three to six years due to his conduct and failure to comply with his obligations under the Insolvency Act 1967 (Act). 

Mr Spencer was adjudicated bankrupt for the second time in August 2007 and was due to be discharged from bankruptcy in 2010.  However, the Official Assignee objected to Mr Spencer's discharge and asked the Court to exercise its discretion and decline to order the discharge.