Perpetual Trustee Company Ltd v HIH Holdings (NZ) Ltd (in liquidation)

Perpetual Trustee Company Ltd, as trustee for holders of convertible notes issued by HIH Holdings (NZ) Ltd (in liquidation), appealed a decision concerning the right of noteholders to prove in the liquidation for the face value of their notes. The core of the dispute revolved around the terms of the convertible notes, which provided that they would be converted into ordinary shares in HIH NZ unless HIH NZ elected to redeem them in cash. No such election or conversion had occurred. The appeal was heard by Beazley P, Macfarlan JA, and Sackville AJA in the Court of Appeal of New South Wales.

The central legal issue before the Court of Appeal was whether the noteholders were entitled to prove in the liquidation of HIH NZ for the face value of the convertible notes. This required the court to interpret the terms of the convertible notes and determine the nature of the obligation owed by HIH NZ to the noteholders in the absence of a redemption election or conversion. Specifically, the court had to consider whether the notes constituted a debt due and payable by HIH NZ at the time of its liquidation, or whether they represented a contingent liability or a right to shares that had not yet materialized.

The Court of Appeal reasoned that the terms of the convertible notes did not create an unconditional obligation on HIH NZ to repay the face value of the notes. Instead, the notes represented an investment that was to be either converted into shares or redeemed for cash at HIH NZ's election. In the absence of such an election, and with no conversion having taken place, the notes did not represent a debt presently due and payable. Consequently, the noteholders were not entitled to prove in the liquidation for the face value of the notes as a debt. The appeal was dismissed with costs.