Like any 1st XI, there is room for debate about which cases make the cut and which don’t, but it will come as no surprise that four of the cases relate to two of New Zealand’s most high profile recent insolvencies: Solid Energy and Ross Asset Management.
Like any good team, our 1st XI has all round strength, with cases covering a variety of topics, including Part 15A, the voidable transaction regime, the PPSA and the personal liability of receivers. We look forward to further developments in some of these cases in 2017. We are also looking forward to the Insolvency Working Group’s second report, due soon, which will cover voidable transactions, Ponzi schemes and other corporate insolvency issues.
1. Cargill v Solid Energy
The High Court’s most significant decision so far on the operation of the administration regime. Cargill claimed that, among other things, Solid Energy’s deed of company arrangement was oppressive, unfairly prejudicial or discriminatory. The High Court rejected Cargill’s challenge and, in doing so, underscored the value of Part 15A of the Companies Act as a corporate reorganisation tool. We understand that Cargill is no longer appealing the High Court’s decision. Click here to read the case.
2. Steel & Tube v Lewis Holdings
In late 2014, in a case which attracted the attention of company directors, the High Court found that Steel & Tube was liable for the debts of one of its subsidiaries, on the basis that the subsidiary was “devoid of any capacity to conduct its own affairs.” The Court ordered Steel & Tube to pay $750,000 to the liquidators of the subsidiary. In 2016, the Court of Appeal dismissed Steel & Tube’s appeal, underlining the need for a subsidiary’s affairs to be kept separate from those of its parent. Click here to read the case and click here for our earlier commentary on the High Court’s decision.
3. McIntosh v Fisk
In 2015, the High Court found that investors in a Ponzi scheme may be able to employ the gave value defence in section 296(3) of the Companies Act for their original investment because that value was given to the scheme. Liquidators can clawback, however, payments that are the return on investment for which no value (as such) was given. In March last year, the Court of Appeal confirmed the High Court’s judgment. Click here to read the Court of Appeal’s decision. The Supreme Court granted leave to Mr McIntosh to appeal. The appeal was heard on 27 July 2016 and the decision is pending.
4. McKay v Smith
This was a case, if ever there was, to highlight the need for regulation of insolvency practitioners. The liquidator, Mr Smith, made-up a key document and failed to account for more than $500,000 of receipts. The Court found against Mr Smith, who appeared to raise at least one pseudo-law argument in his defence (that he was “a living natural man subject to common law”). Click here to read the case. We understand that litigation continues between Mr Smith and the company’s receivers.
5. Priest v Ross Asset Management (in liq)
In a complex case, the Priests sought declarations that various shares held by Ross Asset Management and associated companies were held on bare trust for them (and were therefore not assets available to other creditors in the liquidation of RAM). The Priests asked for the shares to be transferred back to them. The High Court agreed and granted the relief sought by the Priests. The Court accepted that the Priests had not given Mr Ross discretionary powers to manage their investments. As such, the Priests remained the equitable owners of the shares, which the Court directed be transferred to them. Click here to read the case. The liquidators appealed the High Court’s decision and the parties subsequently settled.
6. Gilbert v Body Corporate 162791
The Supreme Court was asked to determine whether receivers are personally liable under the Receiverships Act for body corporate levies. The Supreme Court was split – two judges held that the receiver was personally liable and two said he wasn’t. As a result, the Court of Appeal’s decision that the receiver, Mr Gilbert, was personally liable was upheld. As a result of the case, secured parties have to consider whether they are prepared to pay body corporate levies before taking enforcement action. For their part, receivers will want to be covered by their appointing creditor for any levies they are required to pay. Click here to read the Supreme Court’s judgment.
7. Fisk and McCloy v Attorney-General
The High Court had to decide whether a customs charge on goods outranked a GSA held by a bank. The Court found in favour of Customs and the key take-outs are that the PPSR is not a complete register of all interests in personal property and that, in some circumstances, statutory charges will trump prior-registered GSAs. Click here to read the case.
8. Advicewise People v Trends Publishing International
Four creditors successfully challenged a Part 14 compromise by Trends that had been approved by the majority of the company’s creditors. The Court had to decide whether the Part 14 process was correctly followed and whether the compromise was unfairly prejudicial. Justice Heath set aside the compromise because the challenging creditors had been unfairly prejudiced by the decision to hold only one meeting of creditors to vote on the compromise, which allowed related creditors to control the vote. The related creditors should have been in a different class of creditors for voting purposes, because they had different interests to other creditors. This was, in the Court’s view, a “deliberate manipulation” of the voting system. Click here to read the case.
9. Grant and Khov v Johnston
In this decision, the Court of Appeal ruled that, just because a director had failed to exercise reasonable skill and care, he was not liable for the losses suffered by the company. The Court took into account causation, culpability and fairness when deciding not to order any compensation for the liquidators. The case is also notable for the Court’s criticism of the IRD’s failure to act and mitigate its loss. Click here to read the case.
10. Gibson v Solid Energy
The Solid Energy deed administrators sought directions from the High Court about whether former creditors whose debts had been fully paid had any voting rights under the Solid Energy DoCA. The directions were not opposed and the Court held that only creditors who have current ongoing claims should be able to vote on a proposed variation of the DoCA. Click here to read the case.
11. Re Pumpkin Patch
The High Court was asked to extend the period for convening the watershed meetings for the companies in the Pumpkin Patch group, as well as vary the notice requirements for documents that must be provided to creditors for those meetings. The Court decided that the convening period for the meetings should be extended. As to the service of documents, in a helpful decision for administrators, the Court departed from the previous approach in Re Gourmet Food Holdings New Zealand Ltd and pragmatically allowed for lengthy documents to be published on the administrators’ website, rather than posted to creditors. Click here to read the case.
For more information about these cases, or for any insolvency queries that you might have, please contact James McMillan, Nicole Xanthopol or Mark Broad.