Court activity around voidable transactions in 2016

The volume of voidable transaction traffic in the courts last year was similar to 2015 but – unlike 2015 – there were no significant developments in the law. 

That will not be the case this year, as we are expecting the Supreme Court's decision in McIntosh v Fisk and the final report from the working group on insolvency.

Cases in 2016

Eleven judgments from nine proceedings dealing substantively with voidable transactions under s 292 of the Companies Act 1993 were issued last year, including two at appellate level.1 Two were applications for discovery. In the other seven, liquidators:

  • obtained a recovery in five cases, three of which constituted partial recovery, and
  • were denied recovery in two cases, one because the other party was not a creditor.

Key principles

Case law in this area in 2016 largely constituted direct application of the law to the facts. However, key concepts affirmed by some of the cases are worth noting.

Debtor/Creditor Relationship

Section 292 requires a debtor/creditor relationship. Without this relationship, there is no voidable transaction as there is no preference between creditors. The onus is on the liquidator to establish that the other party is a creditor. (See the Court of Appeal decision in Time3 Global Limited v Norrie).

Liquidator's Personal Liability

Where the proceeding is in the liquidator's own name, the liquidator will be personally liable for adverse costs. It makes no difference that there may be insufficient funds in the liquidation to reimburse the liquidator. (See the High Court decision in Norrie v Time3 Global Limited).

Where a liquidator causes the company to sue in its own right, the usual policy adopted by the courts is that the liquidator can be regarded as acting in the interests of the company's creditors rather than in his or her own interests.  

Courts do not want to discourage liquidators from litigating where that may be beneficial for creditors. It is difficult to see how a voidable transaction claim is any different, save only that the liquidator is required to sue in his or her own name.

Repossession

Repossession does not constitute a transaction by a company. However, transactions which create a charge over property, incurring a repossession obligation, can be avoided under s 292.

Running Accounts

Where the purpose of various payments is merely to repay debts, there is no running account. The s 292(4B) continuing business relationship defence cannot apply.

Coming up this year

McIntosh v Fisk

The Supreme Court heard this Ponzi case in July 2016. Its judgment, due this year, will be an opportunity for the Court to comment on the exact reach of its earlier decision in Fences & Kerbs

Insolvency working group

The law on voidable transactions will be covered in the working group's second and final report, the release of which may create an opportunity for public consultation on whether the law, after the Fences & Kerbs decision, is working.

Chapman Tripp will continue to track and report on the treatment of voidable transaction claims by the courts.

1Time3 Global Limited v Norrie [2016] NZCA 400, Madsen-Ries v Donovan Drainage and Earthmoving Limited [2016] NZCA 301, McIntosh v Fisk [2016] NZCA 74 (See Chapman Tripp's March 2016 commentary on this), Norrie v Time 3 Global Limited [2016] NZHC 2712, Robert Jones Holdings Limited v McCullagh [2016] NZHC 2529, Bay Metal Fabricators Limited (in liq) v Steenson [2016] NZHC 1634, Madsen-Ries v Fonterra Brands Limited [2016] NZHC 1305, Vance v Musgrave [2016] NZHC 1012, Kemp v T A MacAlister Limited [2016] NZHC 1018, Owens v T R Group Limited [2016] NZHC 427, McCullagh v Robt. Jones Holdings Limited [2015] NZHC 263. Various other interlocutory matters and costs decisions relating to the voidable transactions regime are not included in this total.

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