New Zealand Credit Law Bulletin - Vol 4, No 10, October 2004
A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe, visit the New Zealand bulletin index and enter your details on the right
Plain language disclaimer:
This bulletin is not legal advice. Do not make decisions on legal matters based on a brief commentary. Instead, get professional legal advice.
In this issue:
- Debtor disappears during bankruptcy proceedings
… but High Court allows CIR to advertise widely and serve notices on his sister-in-law - Even de-registered companies can issue statutory demands!
And they need to be complied with or you can still be place in liquidation - Liquidator fails to claw back payments made to a property investor
Paying back a loan secured by a caveat over property is an ordinary transaction for a property development company - How expensive is it really to sue someone?
Remember, if you lose you might well have to pay the other party’s costs as well as your own! - Insolvent car importer tries to avoid liquidation
Directors appear to change their story on who the debt is owed to - Who’d be a credit manager in the building industry?
Counterclaim raised 4 years later - Basic contract law in action
Only a party to a contract is bound by that contract - Payments from a failing business – the ordinary course of business test and "receipt of the funds in good faith"
A tricky, tricky area for credit managers to deal with
1. Debtor disappears during bankruptcy proceedings
Re: Rewiri; ex parte CIR (2002)16 PRNZ 415
The Commissioner of Inland Revenue had been trying to locate Watson Rewiri in order to serve him with some documents relating to an application to make him bankrupt. Rewiri had been served with the original bankruptcy notice and so was aware of the process. Efforts to find him since then had been unsuccessful although the CIR had tracked down his sister-in-law Rena to an address in Finlayson Park Avenue, Dargaville.
So the CIR applied to the court to get an order for substituted service. This meant that the CIR was seeking an order that would let them serve the documents on the sister-in-law instead. Rule 836(1) of the High Court Rules says that a copy of the creditor's petition and summons to a debtor must be served on the debtor personally. Under Rule 211 substituted service can be ordered only as long as there is proof that reasonable efforts have been made to effect service personally on the debtor as well as proof either that the documents have come to the knowledge of the debtor or that he can't be served personally.
The court explained that applications for substituted service had to be scrutinised with care. This was because an order of adjudication of bankruptcy altered the status of the debtor, who could no longer deal with his financial affairs. An order of adjudication also operated to prevent creditors from enforcing claims personally against a debtor. So it was important that a debtor was not condemned without a chance to defend himself. Also important however, was the fact that the population of New Zealand was now much more mobile or transient.
The court was satisfied that Rewiri was aware of the process and that reasonable efforts had been made to service him. It had become clear that Rewiri was likely to be residing in the Hawke's Bay at an unknown address which meant that prompt personal service also could not be carried out. The court was not convinced however, that delivering the documents to be served on Rewiri to his sister-in-law in Dargaville was likely to draw the documents to Rewiri's attention. So the court ordered that the creditor's petition summons to the debtor had to be advertised once in the public notices column of the Northern Advocate and in the Hawkes Bay Today newspapers as well as personally served on Rena Rewiri in Dargaville. Once that had been done the relevant documents would be deemed to have been served on Rewiri and the process of making him bankrupt could continue.
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2. Even de-registered companies can issue statutory demands!
Best Wholesale Ltd v Coldfield Investments Ltd (M1639-IM02; HC, Akld; 15 May 2003)
Property developers Best Wholesale Ltd and Coldfield Investments Ltd agreed on a property swap in May 2002. Best Wholesale was to sell residential properties in Glenorchy Road, Glen Eden and Wingate Street, Avondale to Coldfield and buy a commercial property in Rotorua from it. It was anticipated that if the three agreements became unconditional then the deposits would cancel each other out. None of the agreements was expressed to be subject to finance.
Settlement didn't take place and the agreements were renegotiated. The date for settlement for all three contracts was extended to 28 June. They were all made conditional on the other agreements settling. The effect of the standard provisions in agreements was that for the Avondale and Glen Eden properties, Coldfield had to pay the deposits when the agreements were executed but because of amended provisions in the agreement for the Rotorua property, Best Wholesale only had to pay that deposit once that agreement became unconditional.
Because of the difficulties in obtaining appropriate valuations the agreements did not settle on 28 June either and after unsuccessfully demanding payment of the deposits, Best Wholesale cancelled the sales of the residential properties. It also cancelled the agreement for the purchase of the Rotorua property.
When another demand for the deposits went unanswered, Best Wholesale issued a statutory demand on Coldfield for the combined deposits totalling $40,000. On the same day that the statutory demand was issued Best Wholesale was struck off the Companies Register. Coldfield responded by claiming that it would not need to apply to have the statutory demand set aside as a demand could not be issued by a de-registered company. Two months later Best Wholesale applied to have Coldfield put in to liquidation for failing to comply with a statutory demand. Ten days after that, Best Wholesale was restored to the Register of Companies. Coldfield opposed the liquidation application.
Section 287 of the Companies Act 1993 says that failure to comply with a statutory demand creates a presumption that a company is unable to pay its debts (and so should be liquidated as insolvent). Coldfield continued to argue that as Best Wholesale was not in existence at the time the statutory demand was issued, the demand was null and void. The High Court however, looked at s.330(2) of the Companies Act. That section says “a company that is restored to the New Zealand register shall be deemed to have continued in existence as if it had not been removed from the register”. This meant that actions Best Wholesale had taken during the period it was off the register were validated and so that the issue of the statutory demand and the subsequent issue of the proceedings based on Coldfield’s failure to comply with the statutory demand were also valid.
Normally a debtor that had failed to apply to set aside a statutory demand in time would not be permitted to raise arguments in its defence at the later liquidation proceedings. In rare cases however, the court will allow a debtor to defend itself and it was accepted that this was one of those rare cases. Coldfield argued that there was a substantial dispute as to whether or not the deposits were due. The court however, rejected all Coldfield’s arguments. As a result Coldfield was found liable to pay the deposits and it was presumed to be insolvent (that is, unable to pay its debts) as it had not complied with the statutory demand. Best Wholesale’s application was granted and Coldfield was placed in liquidation.
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3. Liquidator fails to claw back payments made to a property investor
RE Cuba Punjab Ltd (In Liquidation) (alt cit Managh v Mallet) (M15/O1; HC, Wgtn; 25 March 2003)
Alister Mallet had a business relationship with Roland Lamb for property development. Lamb and his lawyer established Cuba Punjab Ltd for that purpose. As part of the arrangements, Mallet agreed to put in an equal share of the monies required for developing properties in Upland Road, Kelburn and Punjab Street, Khandallah.
In January 2000 Mallet advanced $15,000 to the company. In exchange Cuba Punjab executed a mortgage over the Khandallah property to secure repayment of the advances. The agreement included an authority to “to lodge and maintain a caveat against the title to the land for the protection of this agreement”. Later that year Mallet loaned a further $25,000 to Cuba Punjab which he thought was going to be used to pay existing creditors, but would also be repaid on the sale of the property.
On 1 February 2001 Mallet lodged a caveat against the title to the Khandallah property, and soon after, the property was sold. Cuba Punjab paid Mallet $35,843.75 in return for the withdrawal of the caveat over the property so that the sale could settle. Three days later Cuba Punjab was placed in liquidation. Mallet used the payment to settle a number of outstanding bills relating to the Khandallah site, accountants and lawyers fees and kept the rest himself. Sixteen months later, John Managh, the liquidator for Cuba Punjab, sent notice to Mallet that the payment made to him was to be set aside. Mallet applied for an order that the transaction not be set aside.
Mallet argued that the transaction had been made in the ordinary course of business. He said that he had received the money in good faith and had altered his position in the reasonable belief that the payment was valid. He also explained that as much of the money had been paid to creditors anyway and because Managh had taken too long to try to get the payment set aside, it wouldn’t be fair to order him to pay it back. Managh claimed that the payment had been made at a time when Cuba Punjab was unable to pay its due debts (s.292(2) of the Companies Act 1993) and so Mallet had received more towards paying off the debt owing to him than he would have got through the liquidation (that is, he had been preferred). The liquidator also asserted that the payment had not been made in the ordinary course of business.
Managh argued that Mallet was not even a creditor of the company but was in fact an equity participant in Cuba Punjab. The court rejected this. It said that Mallet was not a shareholder in Cuba Punjab and the loan arrangements were separate to any profit-sharing interest. It also said that the mortgage agreement had created a real security interest in the property which allowed the caveat to be put on the title. This meant that Mallet had not been preferred in the liquidation. The court went on to say that that the sale of the Khandallah property was an ordinary transaction for a property development company to undertake, and that the payment to Mallet to obtain a release of his caveat to enable settlement to take place was in its objective commercial setting, an ordinary transaction.
The court went on to determine the significance of Mallet’s other claims. It explained that Mallet had clearly received the money in good faith as an absentee lender or investor who was unaware of pending liquidation proceedings. He had also altered his position significantly by paying portions of the $35,843.75 to settle some trade creditor accounts of Cuba Punjab. Finally, Managh’s long delay in telling Mallet he would seek repayment of the money made it inequitable to order repayment now. All of this meant that the court would have denied Managh recovery even if Mallet had been a preferred creditor outside the ordinary course of business. As a result, Mallet was allowed to keep the payment.
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4. How expensive is it really to sue someone?
In a defended civil case, after the judge decides who is in the right, he or she usually has to decide on an award of costs - that is, how much should the loser have to pay towards the legal costs of the winner. The District Court Rules has a scale of costs which is generally the basis for the award. Typically, the costs awarded are much less than the actual legal fees billed by the winner's lawyer.
In Fitzroy Engineering Group Ltd v Technix Group Ltd (CIV 2003-443-293; HC, New Plym; 23/01/2004), Justice Chambers noted there has been a trend in recent years to assume that the scale of awards of costs was inadequate for the more complex District Court cases. This has led to a move towards fixing an award for costs based on a reasonable contribution to costs actually incurred by a successful litigant. Justice Chambers however, referred to the inconsistent calculations that resulted from trying to “pluck out of the hat” a percentage of the winner’s costs. He also described such calculations as “unacceptably judge-dependent”. It is also clear that one party has no way of knowing what the other’s legal costs are and more importantly, has no control over them. In any case, the courts are not in a position to be able to assess the reasonableness of a party’s actual legal fees.
The Rules Committee of the Department of the Courts is already considering changes to the method of fixing costs claimed when judgment for payment of a liquidated demand is obtained by default. The means of recovering costs in cases where bankruptcy notices or petitions are resolved by the payment of the amount demanded before the hearing are also under review. The Rules Committee is likely to reform the District Court scale of costs later this year but in the meantime, Justice Chambers reaffirmed that the starting point for awarding costs to the successful litigant is the scale. Only if that led to an unreasonable result should the award be modified to do justice between the parties.
The judge went on to say that where a court did decide to consider actual costs they should be no more than a factor in the overall assessment. To make such an assessment required the presentation of invoices and an explanation from the winning party as to how the costs were calculated. The calculation should be based not on whether the costs were reasonable for the client who had to pay them but rather on what in the particular circumstances, it was reasonable to expect the losing party to contribute towards them. In all cases where the court decided to depart from the listed scale, a comparison with what the likely costs would have been in the High Court if the case had been heard there was appropriate. Justice Chambers said, “[i]t would be a rare case where the winning party should recover a higher award than it would have done in the High Court”.
The High Court scale is based on daily recovery rates according to the type of case being heard. Those rates are set at two-thirds of the actual daily rates considered appropriate for the lawyer conducting a straight-forward case (“category 1”), a case of average complexity (“category 2”), or a very complex or significant case (“category 3”). A set number of days or parts of days is then allocated to all the usual steps involved in the dispute, although that number varies according to whether the court uses Band A, B, or C (which is a schedule fixing how many days or part days are to be allocated for specific tasks).
This means that if costs are fixed on “a 2B basis” (probably the most common) then there will for example, be an allowance for the inspection of documents of 1.5 days at $1450 per day which equals a cost allocation of $2175. The daily recovery rates currently in force under the High Court Rules are:
Category 1 case--------------- $ 970 per day
Category 2 case--------------- $1,450 per day
Category 3 case--------------- $2,150 per day
The intention behind the fixing of rates is to make costs for litigants much more predictable and principled (and the principles are outlined in High Court Rule 47). The amount of costs awarded does however, remain at the discretion of the court (Rule 46). Justice Chambers’ remarks will probably not make much difference to the level of costs awarded to a successful litigant in the District Court. What they may do is cause District Court Judges to be more conscious of the High Court scale. Whatever the outcome, litigants are well advised to take note of the potential costs of litigation before starting the process.
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5. Insolvent car importer tries to avoid liquidation
Titan Wholesale Vehicles Ltd v Lynx Finance Ltd (CIV-2003-454-000185; HC, Palm Nth; 25 Aug 2004)
Titan Wholesale Vehicles Ltd was established in August 1999 to import second hand motor vehicles from Japan to the United Kingdom. Its directors were G Todd and B Rankin. Todd, Rankin and A O’Brien all contributed funds to Titan over the first three years of its operation. Lynx Finance Ltd was a finance company established in April 1993 to provide finance for customers of car dealers in the Manawatu area. Previously the shares in Lynx were held by O’Brien and Rankin equally.
In early 2001 O’Brien and Rankin sold their shares in Lynx to Senate Finance Ltd for a substantial sum. The sale and purchase agreement of shares in Lynx stated clearly that the debtors of Lynx included Titan for the amount of $169,250.55. Rankin and O’Brien warranted that these details were true and correct in all respects. In fact, the share sale agreement specifically said: “should Titan Wholesale Vehicles Limited and Rankin fail to pay amounts owed by them to the Company of $169,250.55 and $140,673.43 respectively within 6 months of settlement date … then the vendors [Rankin and O’Brien] will pay interest at the default rate to the purchaser upon demand on the unpaid monies.”
When Titan didn’t pay Lynx served a statutory demand on it for the $169,250.55. Titan applied to the court to have the demand set aside. It said that although it was liable for the debt, the money was owed to a third party (O’Brien) and not to Lynx. That is, the money was a shareholder loan advance from O’Brien to the company and there was no agreement to borrow it from Lynx. Titan was, in any case, clearly insolvent with debts exceeding $700,000 and it had not traded for almost three years. The attempt to avoid liquidation was apparently related to accumulated losses which Titan held that would be of some value to a proposed investor. This meant that Rankin and those involved with Titan wanted to have the opportunity for some orderly arrangements to be made to try to take advantage of those tax losses.
The judge said, “Notwithstanding [the] warranties, Mr Rankin, on behalf of the applicant Titan endeavours to argue that the Titan debt was incorrectly characterised in the Lynx share sale agreement as a debt owed to Lynx. He maintains it was a debt owed to Mr O’Brien personally. In my view, this claim is wholly inconsistent with a range of material which is before the Court."
So the demand was not set aside. Titan was given 15 working days to try to negotiate some way to preserve the significant tax losses held by it before the liquidation process began.
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6. Who’d be a credit manager in the building industry?
Level 666 Ltd v Jayel Contracting Ltd (CIV-2003-404-3142; HC, Akld; 2 October 2003)
Level 666 Ltd (previously known as Federal Construction Ltd) was a property developer in Auckland. It engaged Jayel Contracting Ltd, an earthworks company, to complete drainage, site works and excavation works on various projects over a number of years.
Problems began when the companies wrangled over the final balances payable in respect of two projects, the so-called Strand Villa and Metrobatteries jobs. At the same time Jayel was working on another Level 666 project at 632 Great South Road. Eventually Level 666 decided that the Great South Road project would not be fully completed. By the time that decision was made Level 666 estimated that building preparation works were 49 per cent complete and site works were 42 per cent complete, although those assessments were made by Level 666 alone and not endorsed by Jayel. Level 666 later claimed that progress payments already made to Jayel exceeded those percentages. Jayel’s work on the project was complete by mid-1999 and significant payments for the work were made. By mid-2001 however, Jayel was still trying to get money paid on all three projects.
Level 666 responded by sending calculations that had the effect of extinguishing the residual balances payable to Jayel in respect of the Strand Villa and Metrobatteries projects. Level 666 tried to apply the alleged overpayment in respect of the Great South Road project against sums which it accepted were still outstanding for the other two projects. It also tried to re-open some aspects of the Great South Road project by arguing that Jayel had overcharged for the excavation work. Jayel rejected Level 666’s calculations although it did not try and debate the particular issues raised concerning the Great South Road project.
Jayel had also carried out an earthworks project for Level 666 in Cawley Street, Ellerslie during 2001.
When Level 666 didn’t pay for that project either, Jayel eventually, in mid-2003, served a statutory demand on Level 666 for the $20,548.13 still owing. Level 666 applied to the court to have the statutory demand set aside. It did not dispute that there was money owing on the Cawley Street project and that it would normally be required to pay the sum claimed in the statutory demand immediately. It still said, however, that Jayel had been overpaid for work carried out on the Great South Road project. As this “overpayment” exceeded the amount in the statutory demand Level 666 argued that it had a valid counterclaim or cross-demand which would allow the demand to be set aside under s.290(4)(b) of the Companies Act 1993.
The court explained that it was next to impossible to work out from the figures provided how Level 666 had arrived at the conclusion that Jayel had been overpaid for Great South Road. The court was therefore, “left in a state of doubt as to the validity of the basis upon which the claim has been formulated”.
These doubts extended to the genuineness of Level 666’s claim. A cross-claim or counterclaim cannot be fairly arguable unless it is genuine. The court considered it significant that Level 666 had not challenged any of Jayel’s invoices until four years after the Great South Road project had been terminated. The timing of the overpayment claim was also suspect. It had only been raised for the first time as part of an attempt by Level 666 to extinguish its liability in relation to the other projects. The judge said that this gave “rise to the suspicion that the [overpayment claim] was effectively a “try-on” designed to assist Level 666’s cause on other fronts”. In fact, Level 666’s lack of action after Jayel had rejected the claim indicated to the judge that it was “stalling for time”. This led the court to determine that there were real doubts as to the genuineness of Level 666’s counter-claim.
The court ordered Level 666 to pay Jayel all the retention monies owing and if it still disputed those amounts then it would need to sue Jayel separately for recovery. The statutory demand was not set aside and Level 666 had to comply within 14 days or face liquidation proceedings.
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7. Basic contract law in action
Dalmarine Ltd v Wilson Investment Management Ltd (CIV-2003-485-1758; HC, Wgtn; 22 September 2003)
Wilson Investment Management Ltd wanted to sell a fishing trawler, “Komtek II”. In June 2001, Wilson Investment signed a marine brokerage agreement Management Ltd contracting Dalmarine Ltd to arrange the sale of the trawler. The agreement was signed by David Wilson under the words “signed on behalf of Wilson Investment Management Limited”, with the words “and Due South Trawlers Limited” added in handwriting. Ross Seal, director of Dalmarine signed on behalf of Dalmarine. The brokerage commission amounted to $28,562.50 and became due on the sale of the fishing vessel.
Eventually, the vessel was sold. The March 2002 sale and purchase agreement transferred the shares in the vessel to AMBA Investments Co. Pty Ltd and Due South Trawlers Ltd as the nominated purchaser. Under the sale and purchase agreement the buyer, (ie. Due South) agreed to pay the brokerage fee. The broker, Dalmarine, set up much of the agreement but wasn’t a party to the contract.
After the sale Dalmarine invoiced Wilson Investment for the brokerage commission. When it didn’t pay Dalmarine issued a statutory demand in July 2003. Wilson Investment didn’t comply with the demand which, under s.287 of the Companies Act 1993, raised the presumption that it was unable to pay its debts. Dalmarine applied to the court for an order placing Wilson Investment in liquidation.
Wilson Investment applied under Rule 700K (High Court Rules) seeking orders to stay the winding up proceedings and to prevent Dalmarine from advertising the application for the winding up. Wilson Investment said that the debt was disputed and in any case, Wilson Investment was demonstrably solvent with net assets in excess of $3 million.
Wilson Investment’s main argument was that it was not liable for the commission – Due South was. The judge rejected this. Wilson Investment had signed the brokerage contract. The judge said, "The addition of the words “and Due South Trawlers Limited” in handwriting as part of the signing or attestation clause of the marine brokerage agreement in my view does not eliminate the liability of Wilson for commission..."
Wilson Investment claimed that Dalmarine had chosen to sue it rather than Due South because Due South had raised a complaint about misrepresentation by Dalmarine in the contract negotiations. That meant that Dalmarine would have a fight on its hands in extracting its commission from Due South.
The court however, rejected this. “[T]he clear terms of the brokerage agreement … comprise the foundation for Dalmarine’s entitlement to commission. This contract… is with Wilson [Investment]. Whoever else may share any liability for such commission, in my view does so simply in a capacity ancillary to the principal contracting party here, which is Wilson [Investment]."
The sale and purchase agreement was supplementary to the brokerage agreement and had in any case, been agreed between Wilson Investment and Due South. Dalmarine wasn’t a party to this. Any complaint Wilson Investment had therefore, over liability for the commission was between it and Due South. As the judge explained, “to allow [the sale agreement] to bind Dalmarine by obligations entered into by other parties nine months after the original marine brokerage agreement was signed is, in my view, inappropriate”.
A second argument was that Wilson Investment was “grossly solvent”. The evidence showed that Wilson Investment had net assets totalling $4.85 million. This could, in theory, disprove the assumption that it was insolvent. Wilson Investment was suggesting that the company was solvent and could pay but that it simply refused to pay the commission amount because it was disputed.
The court said that if Wilson Investment had genuinely disputed liability for the brokerage debt from the outset, it had had a number of opportunities to take appropriate steps (such as applying to set aside the statutory demand and seeking reimbursement from Due South), but it had taken none of those steps. So the court decided not to stay the liquidation proceedings and the advertising of those proceedings. As Wilson Investment was solvent however, the order was not to be handled for 28 days to give Wilson Investment time to pay Dalmarine in full. Once that had happened the liquidation proceedings would be cancelled.
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8. Payments from a failing business – the ordinary course of business test and "receipt of the funds in good faith"
Bond Cargo Ltd v Chilcott alt cit Re WSA (NZ) Ltd (In Receivership and Liquidation) (M548sd99; HC, Akld; 4 July 2002)
Michael Graves was the sole director and shareholder of WSA (NZ) Ltd which was established to operate a national and international freight forwarder business. It was affiliated with a number of independent international freight forwarding companies which used the letters WSA. In December 1997 WSA moved to premises at 14 Penrose Road, Penrose. Bond Cargo was situated next door. Bond Cargo operated as WSA’s primary bond store.
In May 1998 other members of the WSA Group changed their terms of trade with WSA (NZ) which led to the link between WSA (NZ) and the WSA Group being broken.
The WSA Group said it had accounts outstanding for almost a year. However, neither WSA Group nor any other of WSA (NZ)’s creditors issued a statutory demand, none of WSA (NZ)’s cheques bounced and its bank account was always in credit.
From May 1998 onwards, WSA (NZ) found it harder and harder to meet its commitments and payments were prioritised. WSA (NZ) was typically making about three payments a month to Bond Cargo but it was making payments without identification to an applicable invoice and a single invoice could even be the subject of several payments. Payments were rarely made as they regularly fell due. By September WSA (NZ) still owed Bond Cargo $40,096 even though payments totalling $60,970.88 had been made since the beginning of June.
In October 1998 WSA (NZ) Ltd executed a debenture over its assets in favour of PanTam Holdings Ltd to secure an advance of $30,000. PanTam Holdings was controlled by Mr Ruijne, a director of Bond Cargo. Graves had told Ruijne that he intended to wind WSA (NZ) down as he was facing an extreme cash flow problem. The advance was made on the understanding that it would be used to pay Bond Cargo’s debt in full and that all subsequent business between WSA (NZ) and Bond Cargo would be conducted on a 7-day account basis. During October WSA (NZ) made three further payments to Bond Cargo totalling $51,374.17.
Under the terms of the debenture PanTam demanded repayment of the loan in mid-November and then appointed David Bevan as receiver and manager of WSA (NZ). In early December WSA (NZ) was placed in liquidation by way of a shareholders’ special resolution and Laurence Chilcott and Peter Chatfield were appointed liquidators. In April 1999 the liquidators served notice on Bond Cargo that all the payments made by WSA (NZ) between June and October 1998 (which added up to $112,345.05) were voidable and would be set aside. In general, in insolvency law the liquidator can claw back payments on overdue debts made to a creditor shortly before the company went bust. It’s not fair that that one creditor should be paid when others miss out.
Bond Cargo applied to the court under ss.292(2) and 296(3) of the Companies Act 1993 for orders that the payments not be set aside.
The first issue the court considered was whether, at the time each payment had been made, WSA (NZ) was able to pay its debts. The history of the payments showed that the answer was no.
But even if a company is unable to pay its debts, a challenged payment may still not be voidable if it was made in the ordinary course of business. To determine this, the court broke the payments down in to two groups – those made before the debenture was executed and the three payments made after execution.
Concerning the earlier payments the judge said:
“Whilst I do not have specific evidence of how other companies in the freight forwarding area traded, I do have a trading pattern from which to make an assessment on… I am satisfied that, looking at it from an objective commercial setting, the particular payments to the plaintiff were not abnormal, were not out of line with the treatment of many other creditors and were not as a response to any specific demands.” This meant that the earlier payments were not voidable.
However, the other three payments were very different. Those payments had been made following the special arrangements discussed between Graves and Ruijne. Clearly these arrangements weren’t “the ordinary course of business.” That made the payments voidable unless Bond Cargo had received them in good faith.
The judge said, “I am satisfied that the arrangement discussed on 2 October was designed to see that the plaintiff received preferential payment. The plaintiff simply cannot satisfy me [that it received the funds in good faith.] Good faith requires the recipient to have honestly believed that the transaction would not involve any element of undue preference.”
The last three payments (which amounted to 46% of the amount in question) were set aside as voidable transactions.
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