Colin David Owens and David Stuart Vance v T R Group Ltd

JurisdictionNew Zealand
JudgeSmith
Judgment Date14 March 2016
Neutral Citation[2016] NZHC 427
Docket NumberCIV-2015-485-836
CourtHigh Court
Date14 March 2016

Under the Companies Act 1993

In the Matter of the liquidation of Brothers Haulage Limited (in liquidation)

BETWEEN
Colin David Owens and David Stuart Vance
Applicants
and
T R Group Limited
Respondent

[2016] NZHC 427

CIV-2015-485-836

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

Application by liquidators to set aside payments made to the defendants under s292 Companies Act 1993 (“CA”) (insolvent transactions voidable) on the grounds the transactions were “insolvent transactions” which had been entered into within the “specified period” of two years prior to the commencement of the liquidation — company in liquidation had carried on the business of providing road freight services throughout New Zealand — the defendant operated a business renting trucks and trailers from which the company rented vehicles — whether the defendant had a running account with the company during the relevant period within the meaning of s292(4B) CA (a continuing business relationship) — whether the defendant had received the payments in good faith under s296(3) CA (additional provisions relating to setting aside transactions and charges — acted in good faith).

Counsel:

K C Francis and P J Arnold for the Applicants

C F J Reid for the Respondent

JUDGMENT OF ASSOCIATE JUDGE Smith

Introduction
1

Brothers Haulage Limited (in liquidation) (the company) was put into liquidation by this Court on 9 December 2014 on the application of the Commissioner of Inland Revenue. The company had been incorporated in February 2013, and had carried on the business of providing road freight services throughout New Zealand.

2

The respondent (T R Group) operates a business renting or leasing certain goods, including trucks and trailers. In April 2013 the company opened a trade credit account with T R Group, on T R Group's standard terms and conditions. Payment was to be made on the 20th of the month following invoicing.

3

The company rented vehicles from T R Group until 31 December 2013, under a series of individual rental agreements.

4

The company paid T R Group a total of $59,000 by instalments between 5 February 2014 and 30 September 2014. The following table shows the dates and amounts of the payments:

Date

Amount

5 February 2014

$5,000.00

14 February 2014

$20,000.00

21 March 2014

$8,000.00

30 April 2014

$8,000.00

30 May 2014

$8,000.00

30 June 2014

$8,000.00

15 August 2014

$1,000.00

30 September 2014

$1,000.00

Total

$59,000.00

5

Mr Owens and Mr Vance (the liquidators) are the company's liquidators. In the course of investigating the company's affairs following their appointment, they formed the view that the payments listed in the table at para [4] above were “insolvent transactions” 1 within the meaning of s 292(2) of the Companies Act 1993

(the Act), which had been entered into within the “specified period” of two years prior to the commencement of the liquidation. 2 They concluded that the payments were voidable under's 292(1) of the Act. The liquidators say that T R Group knew, or ought to have known, that the company was insolvent when it made the payments, and that T R Group should not be allowed to retain the payments to the detriment of the general body of creditors. They accordingly served notice to set aside the transactions on T R Group, in accordance with the requirements in that regard which are set in s 294 of the Act
6

When T R Group served a timely objection to the liquidators' notice, 3 the liquidators applied to this Court for orders setting aside the transactions and ordering T R Group to pay the sum of $59,000 plus interest and costs.

7

I now give judgment on that application.

T R Group's opposition to the application
8

In its notice of opposition, T R Group says that it had a continuing business relationship (a running account) with the company during the relevant period in 2014, within the meaning of s 292(4B) of the Act.

9

Section 292, subsections (1), (2) and (4B), provide:

292 Insolvent transaction voidable

  • (1) A transaction by a company is voidable by the liquidator if it—

    • (a) is an insolvent transaction; and

    • (b) is entered into within the specified period.

  • (2) An insolvent transaction is a transaction by a company that—

    • (a) is entered into at a time when the company is unable to pay its due debts; and

    • (b) enables another person to receive more towards satisfaction of a debt owed by the company than the person would

      receive, or would be likely to receive, in the company's liquidation.
  • (4B) Where—

    • (a) a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including a relationship to which other persons are parties); and

    • (b) in the course of the relationship, the level of the company's net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;

    • then—

    • (c) subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and

    • (d) the transaction referred to in paragraph (a) may only be taken to be an insolvent transaction voidable by the liquidator if the effect of applying subsection (1) in accordance with paragraph (c) is that the single transaction referred to in paragraph (c) is taken to be an insolvent transaction voidable by the liquidator.

10

T R Group says that at the commencement of the liquidation, the running account showed that the level of the company's net indebtedness was $23,588.29. It contends that the effect of s 292(4B) is that the various payments made by the company to T R Group from 5 February 2014 are to be treated as a single transaction for the purposes of the definition of “insolvent transaction”, and that, looking at the relationship as a whole, there is no “insolvent transaction” voidable by the liquidator under's 292.

11

In the alternative, T R Group relies on s 296(3) of the Act. Section 296(3) provides:

296 Additional provisions relating to setting aside transactions and charges

  • (3) A court must not order the recovery of property of a company (or its equivalent value) by a liquidator, whether under this Act, any other enactment, or in law or in equity, if the person from whom recovery is sought ( A) proves that when A received the property—

    • (a) A acted in good faith; and

    • (b) a reasonable person in A's position would not have suspected, and A did not have reasonable grounds for suspecting, that the company was, or would become, insolvent; and

    • (c) A gave value for the property or altered A's position in the reasonably held belief that the transfer of the property to A was valid and would not be set aside.

12

T R Group says that during the specified period referred to in s 292(5) of the Act 4 it acted in good faith, and a reasonable person in its position would not have suspected (and it did not have reasonable grounds to suspect) that the company was or would become insolvent. T R Group also contends that it gave value for the payments it received, or altered its position by continuing to accept payments from the company and by keeping the company's account open in the reasonably held belief that the transfer of the property to it was valid, and would not be set aside.

The evidence
13

The following summary of the facts is taken from the affidavits of the applicant Mr Vance, and from that of Mr Robson, a finance manager employed by T R Group.

Mr Robson's evidence
14

The company opened its account with T R Group by signing T R Group's customer information form and terms of conditions in early April 2013. A personal guarantee was provided by Ms Isla Laing, a director and shareholder of the company, on 9 April 2013.

15

The company's account was for the supply of short-term rental trucks and related equipment. According to Mr Robson, the nature of the rental agreements was that the vehicles could be returned or recalled by either party at short notice.

16

In addition to the rental trucks, T R Group provided the company with telematics equipment, for which the company was billed $204.70 each month.

17

Mr Robson produced a table showing the monthly amounts invoiced by T R Group to the company, and the payments received by T R Group on those invoices, for the period April 2013-December 2014. The table is reproduced below:

2013

Month Invoiced

Invoices

Received

Balance

April

$2,263.65

-$4,784.00

-$2,520.35

May

$3,647.16

-$1,968.39

-$841.58

June

$8,236.99

$

$7,395.41

July

$8,047.84

-$7,600.11

$7,843.14

August

$4,914.50

-$204.70

$12,552.94

September

$11,361.97

-$13,248.23

$10,666.68

October

$20,176.87

-$10,871.38

$19,972.17

November

$27,671.61

$

$47,643.78

December

$42,452.63

-$10,000.00

$80,096.41

2014

January

$240.18

$

$80,336.59

February

$204.70

-$25,000.00

$55,541.29

March

$204.70

-$8,000.00

$47,745.99

April

$204.70

-$8,000.00

$39,950.69

May

$204.70

-$8,000.00

$32,155.39

June

$204.70

-$8,000.00

$24,360.09

July

$204.70

$

$24,564.79

August

$204.70

-$1,000.00

$23,769.49

September

$204.70

-$1,000.00

$22,974.19

October

$204.70

$

$23,178.89

November

$204.70

$

$23,383.59

December

$204.70

$

$23,588.29

2015

January

$204.70

-$23,000.00

$1,407.09

18

Several payments made by the company to T R Group in the period April- December 2013 were dishonoured: a payment of $5,166.59 was dishonoured in July 2013, and two payments totalling $20,176.87 were dishonoured in November 2013. By 31 December 2013, the company owed T R Group...

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