This week’s TGIF considers the most recent case involving Gunns Limited where the Full Federal Court confirmed that the ‘peak indebtedness’ rule has been abolished in a partial win for Gunns creditor.

Key takeaways

In Meltzer and Lamacraft v Amstar New Zealand Ltd the High Court highlighted the interplay between insolvency and construction adjudication issues.

The High Court in Meltzer and Lamacraft v Amstar New Zealand Ltd [2020] NZHC 3510 has confirmed that a payee cannot enforce an adjudication determination and may not be able to maintain charging orders if the payer goes into administration.

The Court of Appeal has delivered the highly anticipated Mainzeal judgment after hearings in July 2020. The Court held that the directors breached both of the two core duties which protect creditors from the risks of insolvent trading, but overturned the controversial measure of damages for reckless trading adopted by the High Court. The High Court is now required to reconsider the quantum of loss but on a "new debt" measure.

This update deals with the significant appeal judgment released yesterday by the Court of Appeal in the proceedings brought by the liquidators of Mainzeal Property and Construction Ltd (in Liq) (Mainzeal) against its directors. Our previous legal updates on the High Court decisions can be found here and here.

The Court of Appeal has delivered its eagerly anticipated judgment in proceedings brought by the liquidators of Mainzeal Property and Construction Ltd against its former directors, including Richard Yan and Dame Jenny Shipley. In those proceedings, the liquidators sought compensation for breach of certain statutory duties of directors engaged on a company’s insolvency: sections 135 (reckless trading) and 136 (incurring obligations) of the Companies Act 1993.

2020 was a Jekyll and Hyde year for insolvency, both for New Zealand and our closest neighbour, Australia.

In our 2019 Litigation Forecast, we said 2020 would see two significant senior court decisions on directors’ duties engaged on insolvency.

The real lesson from Debut Homes – don't stiff the tax (wo)man

The Supreme Court has overturned the 2019 Court of Appeal decision Cooper v Debut Homes Limited (in liquidation) [2019] NZCA 39 and restored the orders made by the earlier High Court decision, reminding directors that the broad duties under the Companies Act require consideration of the interests of all creditors, and not just a select group. This is the first time New Zealand’s highest court has considered sections 131, 135 and 136 of the Companies Act, making this a significant decision.

The COVID - 19 pandemic has had a tremendous and unprecedented impact on the global economy.To mitigate this, many governments have introduced temporary relief measures to help local businesses.

The Government has published the COVID-19 Response (Further Management Measures) Legislation Bill (the Bill), an omnibus bill containing amendments (both temporary and permanent) to several acts. These amendments aim to both assist organisations in effectively managing the “immediate impacts of the response to COVID-19”, as well as mitigating some of the pandemic’s “unnecessary and potentially longer-term impacts on society”.

In Short

The Situation: The economic impact of the COVID-19 pandemic has required governments around the world to provide temporary relief to companies and directors experiencing distress as a consequence of the pandemic.