The Court of Appeal has dismissed an appeal by Steel & Tube Holdings Limited (STH) against the legal basis and quantum of a $750,000 judgment based on a “de facto amalgamation” with its subsidiary company.
The ruling reinforces the message from the High Court that directors must be careful to maintain a subsidiary’s independence if they are to protect the parent against liability for the subsidiary’s debts.
The context
In our June 2016 update, we discussed the Court of Appeal's decisions in Madsen-Ries v Petera[2016] NZCA 103, Calvert v Reynolds [2016] NZCA 151, and Petterson v Browne [2016] NZCA 189. In all three cases leave was sought to appeal to the Supreme Court. Leave was granted to the applicant companies in Petterson v Browne, but declined in all other cases. 
In the recent High Court case of McKay v Johnson & Smith [2016] NZHC 1691, a liquidator, Geoff Martin Smith, allegedly sent a notice under s 305 of the Companies Act 1993 to the bank that had security over a company in liquidation. The bank did not respond to the notice and Mr Smith alleged that the bank had lost its security. The bank maintained it never received the notice.
The Court was satisfied that the notice had been fabricated because:
In Advicewise People Ltd v Trends Publishing International Ltd, four creditors of Trends Publishing International Ltd (Trends) successfully challenged a compromise approved under Part 14 of the Companies Act 1993.
The High Court's ruling in Priest v Ross Asset Management Ltd (In Liq) [2016] NZHC 1803 arose out of the devastation of the Ponzi scheme effected by David Ross of Ross Asset Management Limited (In Liquidation) (RAM) and Dagger Nominees Limited (Dagger). For many years RAM and Dagger reported spectacular returns for investors before their illusion was revealed, the Financial Markets Authority became involved and liquidators were appointed.
In Petterson v Browne [2016] NZCA 189 a liquidator successfully appealed to the Court of Appeal and obtained orders under sections 295 and 299 of the Companies Act 1993 (Act) for certain payments and security to be set aside.
In our June 2015 update we reported on the Court of Appeal decision in which Mr Gilbert was held personally liable for body corporate levies, as a receiver of QSM Trustees Limited (QSMTL). QSMTL owned units in a unit title complex. The Body Corporate sought to exercise its statutory power and impose levies on Mr Gilbert personally, as receiver of QSMTL.
Directors do not need to consider creditors’ interests when determining the fairness of their own remuneration, even after the company has become insolvent, the Court of Appeal has found.
The facts
The Companies Act 1993 requires that directors who vote to authorise director remuneration must sign a certificate stating that, in their opinion, the payment is fair to the company and setting out the grounds for that opinion.
Mr and Ms Moncur were the sole directors and effective owners of Monocrane NZ (Monocrane). Following their separation, they entered into a relationship property agreement under which Mr Moncur assumed full ownership and control of Monocrane, including agreeing to assume sole responsibility for the overdrawn shareholders' current account. In return, Ms Moncur agreed to resign her directorship, transfer her shares to Mr Moncur and pay various joint debts.
Mr Kamal was appointed as liquidator of two companies of which the Commissioner of Inland Revenue (CIR) was a creditor. The CIR applied to the High Court for orders under section 286(5) of the Companies Act 1993 prohibiting Mr Kamal from acting as a company liquidator for a period of up to five years.
In CIR v Kamal [2016] NZHC 1053 the CIR sought the orders on the basis that Mr Kamal was guilty of a continuing breach of his duties as a liquidator that made him unfit to act as a liquidator because: