Robt. Jones Holdings Ltd v Anthony John Mccullagh and Stephen Mark Lawrence
| Jurisdiction | New Zealand |
| Judge | O'Regan J |
| Judgment Date | 09 August 2019 |
| Neutral Citation | [2019] NZSC 86 |
| Date | 09 August 2019 |
| Court | Supreme Court |
| Docket Number | SC 87/2018 |
Glazebrook, O'Regan, Ellen France, Arnold and Kós JJ
SC 87/2018
IN THE SUPREME COURT OF NEW ZEALAND
I TE KŌTI MANA NUI
Companies, Statutory Interpretation — appeal against Court of Appeal decision which held a payment was an insolvent transaction under s292 Companies Act 1993 — whether a diminution requirement under s309 Companies Act 1995 continued to apply under s292
Liquidation — insolvent transactions — a payment was voidable only if, in addition to the requirements specified in s 292 Companies Act 1993, the payment had the effect of diminishing the pool of assets available to the unsecured creditors of the company in liquidation.
D G Chesterman and R P Nolan for Appellant
B P Keene QC, L M Van and R A Idoine for Respondents
-
A The appeal is dismissed.
-
B The appellant must pay the respondents costs of $25,000 plus usual disbursements.
(Given by O'Regan J)
This appeal raises for consideration the interpretation of s 292 of the Companies Act 1993 (the Act), which provides that an insolvent transaction entered into by a company within a period of two years prior to the liquidation of the company is voidable by the liquidator. 1
In the present case, the transaction in issue was a payment made to the appellant, Robt. Jones Holdings Ltd (RJH) on behalf of Northern Crest Investments Ltd (Northern Crest) 2 by an Australian subsidiary of Northern Crest, MSH No 2 Pty Ltd (MSH2). 3 We will call this the “MSH2 payment”. The MSH2 payment was made within the period of two years prior to the liquidation of Northern Crest.
The liquidators argue that the MSH2 payment was an insolvent transaction for the purposes of s 292(2) and was voidable under s 292(1). They filed a notice to set aside the transaction in the High Court under s 294 seeking an order that RJH pay to the liquidators an amount equal to the amount RJH received from MSH2 on behalf of Northern Crest. 4 They were successful in the Courts below.
Section 292(1) provides that a transaction is voidable by the liquidator if it is an “insolvent transaction” and it “is entered into within the specified period” (the period of two years before the liquidator is appointed). 5 Under s 292(3) a “transaction” includes “paying money” and “anything done or omitted to be done for the purpose of entering into the transaction or giving effect to it”. 6 Section 292(2) defines an “insolvent transaction”:
(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.
It is now accepted by RJH that the MSH2 payment was a transaction entered into by Northern Crest, 7 was made at a time when Northern Crest was unable to pay its due debts, 8 occurred during the specified period 9 and that RJH received more than it would have received in the liquidation of Northern Crest (unsecured creditors received nothing). 10 So the payment was an insolvent transaction and would, if no more were required, be voidable by the liquidators triggering the power of the Court to make an order under s 295 requiring RJH to pay to Northern Crest an amount equal to the amount it received from MSH2 on Northern Crest's behalf. There is no suggestion that RJH could invoke the bona fide exchange for value without notice defence available under s 296(3). 11
However, RJH argues that because of the way in which the MSH2 payment was made, it did not bring about any diminution of the assets of Northern Crest available to the unsecured creditors in Northern Crest and, therefore, the transaction was not voidable under s 292. The essence of RJH's argument is that, in addition to the requirements specified in s 292 itself, it is a requirement (founded in the common law) that a payment that would otherwise be an insolvent transaction must have the effect of diminishing the pool of assets available to the unsecured creditors of the company in liquidation, and that no such diminution occurred in this case.
The liquidators argue that s 292 requires only that the recipient of the payment receives more than it would have received in the liquidation. Alternatively, they argue that if the recipient receives more than it would have received in the liquidation, a diminution of the assets available to creditors in the liquidation is deemed to have occurred. In effect, the liquidators say any payment made by Northern Crest (as the MSH2 payment was deemed to be) must have “come from Northern Crest's coffer”. Thus, any such payment is treated as resulting in a diminution of the assets of Northern Crest.
The essential issue on the appeal is, therefore, whether there is a requirement for such diminution in addition to the statutory requirements in s 292 itself.
The reason that RJH says there was no diminution in the assets available to the unsecured creditors of Northern Crest is that, on RJH's view of the case, the effect of the MSH2 payment was that:
-
(a) MSH2 was deemed to have advanced the sum paid to RJH to Northern Crest;
-
(b) MSH2 was deemed to have then paid on Northern Crest's behalf that sum to RJH; and
-
(c) that meant that the sum owing to RJH ceased to be a debt owed by Northern Crest to RJH, but Northern Crest immediately incurred a debt for exactly the same amount to MSH2 and the assets available to the creditors of Northern Crest remained the same. 12
The Court of Appeal observed that the nature of the deemed payment by MSH2 to Northern Crest was either a loan by MSH2 to Northern Crest or a payment of licence fees owed by MSH2 to Northern Crest. 13 If the latter alternative is the correct position, then the “no diminution” argument advanced by RJH would fail, since the payment of the licence fee by MSH2 to RJH would diminish the assets of Northern Crest because the payment would involve the use of an asset of Northern Crest (the receivable relating to the licence fee) to fund the payment to RJH.
So, if RJH is successful in relation to the diminution issue, it will be necessary to determine which of the alternative characterisations of the MSH2 payment is correct. This Court indicated in its leave judgment that it did not propose to address that issue unless it became necessary to do so, in which case further submissions would be sought and, possibly, a further hearing would be convened. 14
In the rest of this judgment, we assume, without deciding, that the MSH2 payment was a loan by MSH2 to Northern Crest.
Northern Crest was the lessee of a property owned by RJH but fell into arrears in its payment of rent. Northern Crest and RJH entered into various settlement agreements under which they agreed on the amount necessary to satisfy Northern Crest's liability to RJH under the lease. Between January 2010 and November 2010, payments totalling $751,941.12 were made to RJH to discharge Northern Crest's obligations under the settlement agreements. $489,183.07 was paid on behalf of Northern Crest by Columbus Property Marketing Pty Ltd (Columbus). The remaining $262,758.05 was paid by MSH2. 15
Both the High Court and the Court of Appeal found that the payments by Columbus and MSH2 were insolvent transactions and ordered RJH to pay an amount equal to the sum of those payments to the liquidators.
RJH no longer contests its obligation to pay to the liquidators a sum equal to the amount paid to it by Columbus, and we say no more about that aspect of the case. 16 The question we need to determine is whether RJH must pay to the liquidators an amount equal to the $262,758.05 paid to it by MSH2 on behalf of Northern Crest.
We will begin by giving a short account of the history of voidable transactions provisions. This will assist comprehension of the argument advanced by RJH, which draws on that history.
The early voidable preference provisions were focused on the intention of the debtor. The origins of this approach lie in the decisions of Lord Mansfield. In Alderson v Temple, his Lordship stated that the purpose of the rule against fraudulent preferences was to prevent the bankrupt from defeating the equality introduced by the statutory scheme. 17 The bankrupt could not be permitted to impose his own scheme of distribution. Under this approach, it was the debtor's act of giving the preference that was viewed as wrongful, not the preference itself. 18
The first comprehensive statutory preference provision in New Zealand was s 75 of the Debtors and Creditors Act 1875. 19 This provided:
Every conveyance or transfer of property, or charge thereon made, every payment made, every obligation incurred, and every judicial proceeding taken or suffered by any person unable to pay his debts as they become due from his own moneys, in favour of any creditor, or any person in trust for any creditor, with a view of giving such a creditor a preference over the other creditors, shall, if the estate of the person making taking paying or suffering the same be placed in liquidation within three months after the date of making taking paying or suffering the same, be deemed fraudulent and void as against the trustee of the debtor appointed under this Act; but this section shall not affect the rights of a purchaser payee or encumbrancer in good faith and for valuable consideration.
This provision was largely restated in s 64 of the Debtors and Creditors Act 1876, although the proviso to the section protecting good faith purchasers was omitted.
Section 64 of the Debtors and Creditors Act 1876 was replaced...
To continue reading
Request your trial
-
Matrix Homes Ltd ((in Liquidation)) v Tawa Ltd Partnership
...Concrete Limited v Meltzer [2015] NZSC 7, [2016] 1 NZLR 141. 26 At [18]. 27 At [185]–[187]. 28 Robt Jones Holdings Limited v McCullagh [2019] NZSC 86, [2019] 1 NZLR 641. 29 The respondent objected to Mr Scutter's further evidence, in response to Mr Murrie, being admitted. I have received ......