Cooper v Debut Homes Limited (in liquidation) - [2019] NZCA 39

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IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA175/2018
[2019] NZCA 39

BETWEEN	LEONARD WAYNE COOPER Appellant
AND	DEBUT HOMES LIMITED (IN LIQUIDATION) First Respondent VIVIEN JUDITH MADSEN-RIES AND HENRY DAVID LEVIN AS LIQUIDATORS OF DEBUT HOMES LIMITED (IN LIQUIDATION) Second Respondents LEONARD WAYNE COOPER AND TRACEY COOPER AS TRUSTEES OF THE L & T COOPER FAMILY TRUST Third Respondents

Hearing:	21 November 2018
Court:	Miller, Asher and Gilbert JJ
Counsel:	R B Hucker and R F Selby for Appellant P V Shackleton for First and Second Respondents
Judgment:	8 March 2019 at 10 am

JUDGMENT OF THE COURT

AThe appeal is allowed in part.
BThe High Court order for Mr Cooper to pay compensation under the Companies Act 1993, s 301(1)(b)(ii) is quashed.
CThe High Court order setting aside the General Security Agreement in part under the Companies Act 1993, s 299 is quashed.
DThe High Court order granting leave to the liquidators to re-apply to the court for an increase in compensation if the trustees of the L and T Cooper Trust succeed in proving in the liquidation is quashed.
EThe High Court order setting aside payments as voidable transactions remains in force.
FThe first and second respondents must pay the appellant costs for a complex appeal on a band A basis and usual disbursements. We certify for two counsel.
____________________________________________________________________

REASONS OF THE COURT

(Given by Asher J)

Table of Contents

Para No

Introduction
Background
The High Court decision
The Companies Act

Section 131(1)
Section 135
Did Mr Cooper breach ss 131 and 135?

Overview
The GST obligation
Breach of s 131?
Breach of s 135?

Our conclusion on ss 131 and 135

Section 136
Section 138

The trust advance and the repayment
The voidable transactions
Compensation under s 301 for breach of duty
Conclusion
Result

[1]
[6]
[13]
[21]
[24]
[28]
[34]
[34]
[37]
[46]
[61]
[64]
[66]
[71]
[79]
[87]
[94]
[96]
[98]

Introduction

This case concerns the liability of the appellant Leonard Cooper for alleged breaches of his duties as a director under the Companies Act 1993 to the first respondent Debut Homes Ltd (in liquidation) (Debut Homes). The claim has been brought by the second respondents as the liquidators of Debut Homes.
The case revolves around Mr Cooper’s decision at the start of November 2012 when Debut Homes was in financial difficulties, to complete and sell houses that Debut Homes had been building. The primary creditor who will benefit from the litigation is the Inland Revenue Department (the IRD). It seeks to prove for GST on a number of sales of properties that was not paid from the proceeds of sale at the time they were settled. GST was outstanding and continues to be outstanding. Unsecured creditor claims in the liquidation totalled $499,507, and of that sum $366,011 is GST and $84,088 is interest and penalties.
Debut Homes was a residential property developer, incorporated on 1…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2019] NZCA 39
Decision Date: 8 March 2019 at 10 am

CaseChat Overview and Summary

In this case, the Court of Appeal of New Zealand assessed the liability of Leonard Cooper, a director of Debut Homes Limited, for alleged breaches of his duties under the Companies Act 1993. Debut Homes was a residential property developer that went into liquidation, leaving unsecured creditor claims of nearly half a million dollars, with the Inland Revenue Department (IRD) being the primary beneficiary of the litigation due to unpaid GST. The liquidators of Debut Homes brought the claim against Cooper, asserting that he breached his duties under sections 131, 135, and 136 of the Companies Act. The High Court found Cooper liable and ordered him to contribute $280,000 towards the company's assets, set aside certain payments as voidable transactions, and granted leave for the liquidators to re-apply for an increase in compensation if certain conditions were met.

The Court of Appeal disagreed with the High Court's findings and conclusions, finding that Cooper did not breach his duties under sections 131 and 135 of the Companies Act. The Court held that Cooper acted in good faith and in the best interests of the company when he decided to complete and sell the remaining properties, and that his actions were not reckless. The Court also found that there was no breach of section 136 of the Companies Act, as the incurring of the GST obligation did not lead to any relief for the liquidator and the IRD. The Court quashed the High Court's orders requiring Cooper to make a contribution, setting aside the General Security Agreement, and granting leave for the liquidators to re-apply for an increase in compensation. The Court upheld the order that Cooper repay the voidable payments and set aside the payments as voidable transactions.

The Court of Appeal allowed the appeal in part, setting aside the findings of breach by Cooper of sections 131, 135, and 136 of the Companies Act and the corresponding orders. The order regarding the voidable payments remained in force, and the first and second respondents were ordered to pay the appellant's costs for a complex appeal on a band A basis and usual disbursements.

Orders