Farrell and Rogan as Liquidators of Contract Engineering Ltd ((in Receivership) and (in Liquidation)) v Fences & Kerbs Ltd

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeRanderson J
Judgment Date25 Jul 2013
Neutral Citation[2013] NZCA 329
Docket NumberCA773/2012 CA864/2012

[2013] NZCA 329

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

O'Regan P, Randerson and French JJ

CA773/2012

CA783/2012

CA864/2012

Between
Peter Esmond Farrell and Simon Paul Rogan as Liquidators of Contract Engineering Limited (In Receivership and In Liquidation)
Appellants
and
Fences & Kerbs Limited
Respondent
Between
Peter Esmond Farrell and Simon Paul Rogan as Liquidators of Contract Engineering Limited (In Receivership and in Liquidation)
Appellants
and
Acme Engineering Limited
Respondent
Between
Jeffrey Philip Meltzer and Lloyd James Hayward as Liquidators of Window Holdings Limited (In Liquidation)
Appellants
and
Hiway Stabilizers New Zealand Limited
Respondent
Counsel:

M D Branch, K I Bond and K F Shaw for Appellants in CA773/2012 and CA783/2012

B P Keene QC and J F Anderson for Appellants in CA864/2012

J P Temm and S A Hickman for Respondent in CA773/2012

S A Barker and E M Ritchie for Respondent in CA783/2012

G M Harrison and C Hunt for Respondent in CA864/2012

Determination of remaining issues reserved following interim judgment which held that the giving of value under s296(3)(c) Companies Act 1993 (additional provisions relating to setting aside transactions and charges) had to be proved to have occurred at the time payment or other company property was received and did not include value given at the time antecedent debt was created — whether requirement for value to be given when payment was made by insolvent company to creditor might be satisfied by creditor receiving the payment in satisfaction of the antecedent debt — whether the requirement for value to be given when the payment was made to the creditor could be satisfied by the creditor forbearing to sue at the time of payment.

Held: The Australian Court of Appeal decision of Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd supported the proposition that valuable consideration under the equivalent Australian legislation might be given by the satisfaction and release of the antecedent debt and it appeared to be accepted in Australia that it would not generally be difficult to establish that valuable consideration had been given.

However, it was not appropriate that the Australian approach be adopted in New Zealand.

This was because:

1) the objective and effect of the voidable transaction regime was not to do justice or achieve fairness between a particular creditor and the debtor company. It was to achieve fairness amongst all creditors inter se.

2) the voidable transaction provisions of the CA attempted to strike a balance between the interests of all creditors in being able to share the assets of the company and the interests of particular creditors who believed that payments made to them had been validly received and that they ought not to be required to pay them back.

3) the objective of the avoidance provisions under the CA was to swell the pool of funds available to the company to be shared rateably amongst all creditors of the same class in accordance with the pari passu principle. The mere receipt of payment in satisfaction of a debt diminished the company's creditors to the extent of the payment while reducing the company's assets by the same amount.

4) the proposition advanced by respondent creditors would seriously undermine the policy rationale for the avoidance provisions and would render s296(3)(c) CA practically redundant.

5) the proposition advanced by the creditors would amount to a significant change in policy direction from the approach adopted prior to the 2006 amendments of the CA in a way that was not signalled by Parliament.

6) the use of the term “value” rather than “valuable consideration” in s296(3)(c) was not purely semantic. Q different concept of “value” had been adopted by the legislature in s296(3)(c) CA in contrast to the words “valuable consideration” used in the preceding parts of the same section.

7) the Australian authorities relied on by the creditors were distinguishable and, in any event, the NZ legislation had not followed the Australian legislation in material respects.

8) the fact that the creditor had to pay back the amount received in satisfaction of the antecedent debt did not by itself establish relevant detriment to the creditor as discussed in previous NZ authorities.

As to whether full value was required for the payment in order to gain protection under s296(3)(c), on its face, s296(3)(c) did not stipulate that full value equivalent to the amount of the antecedent debt need be given at the time the payment or transfer of property by the company occurred. In contrast to its statutory predecessors, the present version of s296(3) did not refer to recovery by the liquidator being denied “wholly or in part” if the conditions of the protective measure were established.

On the other hand, real and substantial value was required to be given by the creditor. A nominal or trivial value such as might provide consideration for a contract was not sufficient to bring the creditor within the protection of the legislation.

In conclusion, the mere receipt of a payment by a creditor in satisfaction of an antecedent debt did not constitute the giving of value for the purposes of s296(3)(c) CA. New value which was real and substantial had to be given. Whether and, if so, to what extent, new value was given at the time of receipt of the payment would be a question of fact in each case.

Once a creditor had established that real and substantial value was given, the creditor was entitled to protection under s296(3)(c) CA, assuming the other elements of s296(3) were also established. If the creditor did not establish an entitlement to protection under s296(3), a discretion remained under s295 CA (other orders) as to the extent to which the creditor had to repay the payment or other property or benefits received.

Forbearance to sue might constitute the giving of value for the purposes of s296(3)(c) CA, but that acceptance had to be heavily qualified. While acknowledging the different contexts of voidable charges under s293 CA (voidable charges), it was appropriate to adopt a similar approach to the giving of value under s296(3)(c). The deliberate choice by the legislature to adopt a requirement for the giving of value rather than valuable consideration meant that something more than the consideration necessary to support a contract was required under s296(3).

For the reasons given in Re Seafresh New Zealand, it would often be difficult to establish that the giving of time for payment or a forbearance to sue had any quantifiable value and it might be difficult to establish the agreement to forbear to sue had any real and substantial value. In order to establish a forbearance to sue, the creditor had to show more than the absence of steps taken to enforce the debt. There had to be evidence of an implied promise to forbear or a forbearance to sue at the express or implied request of the opposite party.

Appeals allowed.

FINAL JUDGMENT OF THE COURT
  • A All three appeals are allowed.

  • B The appellants in CA773/2012 are entitled to judgment against the respondent for $57,944.16 together with interest thereon pursuant to the Judicature Act 1908 from the date on which the appellants' notice to set aside was served on the respondent in CA773/2012 until the date of payment.

  • C The appellants in CA783/2012 are entitled to judgment against the respondent in the sum of $105,484.50 together with interest pursuant to the Judicature Act from the date on which the appellants' notice to set aside was served on the respondent in CA783/2012 until the date of payment.

  • D The appellants in CA864/2012 are entitled to judgment against the respondent for $13,021.55 together with interest pursuant to the Judicature Act from the date on which the appellants' notice to set aside was served on the respondent in CA864/2012 until the date of payment.

  • E No awards of costs are made in CA773/2012 and CA864/2012.

  • F The appellants in CA783/2012 are entitled to costs against the respondent in this Court for a standard appeal and cross-appeal on a Band A basis together with usual disbursements.

  • G The costs orders made in the High Court in all three appeals are set aside. Any remaining issues as to costs in the High Court are to be determined by that Court.

REASONS OF THE COURT

(Given by Randerson J)

Introduction
1

In our interim judgment delivered on 27 March 2013, 1 we determined that the giving of value under s 296(3)(c) of the Companies Act 1993 (the Act) must be proved to have occurred at the time the payment or other company property is received and does not include value given at the time the antecedent debt is created.

2

We reserved all remaining issues including issues raised on the cross-appeal by ACME in CA783/2012. The remaining issues are:

  • (a) Whether the requirement for value to be given when the payment is made by the insolvent company to the creditor may be satisfied by the creditor receiving the payment in satisfaction of the antecedent debt.

  • (b) Whether the requirement for value to be given when the payment is made to the creditor can be satisfied by the creditor forbearing to sue at the time of payment.

  • (c) Whether the High Court was wrong to find that Contract Engineering Ltd was unable to pay its debts as they fell due at the time the relevant payments were made to ACME.

  • (d) Whether the High Court was wrong not to award indemnity costs in favour of ACME.

First issue: Whether the requirement for value to be given when the payment is made by the insolvent company to the creditor may be satisfied by the creditor receiving the payment in satisfaction of the antecedent debt
3

The respondents in all three appeals submitted on the basis of Australian authorities that value may be given at the time the creditor receives payment from the insolvent company by its receipt in satisfaction of the antecedent debt. Particular reliance was placed on the decision...

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