David Browne Contractors Ltd v Petterson

Case [2017] NZSC 116


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IN THE SUPREME COURT OF NEW ZEALAND
SC 57/2016
[2017] NZSC 116
BETWEEN

DAVID BROWNE CONTRACTORS LIMITED AND DAVID BROWNE MECHANICAL LIMITED
Appellants

AND

DAVID ROSS PETTERSON AS LIQUIDATOR OF POLYETHYLENE PIPE SYSTEMS LIMITED (IN LIQUIDATION)
Respondent

Hearing:

10 November 2016

Court:

William Young, Glazebrook, Arnold, OʼRegan and
Ellen France JJ

Counsel:

C R Carruthers QC and D J C Russ for Appellants
B D Gustafson and D R Duffield for Respondent

Judgment:

7 August 2017

JUDGMENT OF THE COURT

A        The appeal is dismissed.

BThe appellants must pay the respondent costs of $30,000 plus reasonable disbursements (to be determined by the Registrar in the absence of agreement).  We certify for two counsel.

____________________________________________________________________

REASONS

(Given by Glazebrook J)

Table of Contents

Para No
Introduction [1]
The relevant legislation [3]
Background [13]
  General background [13]
  Insurance and indemnity [29]
  Decision to restructure [34]
  Implementation of restructuring [42]
  Adjudication [47]
  Insurance claim [50]
  Liquidation [53]
The proceedings [56]
  High Court judgment [60]
  Court of Appeal judgment [64]
Issues [70]
Was a concession as to solvency made in the High Court? [73]
What should be included in “due debts”? [78]
  Submissions of Contractors and Mechanical [78]
  Submissions of the liquidator [83]
  What is taken into account under s 292(2)(a)? [88]
Application of s 292(2)(a) [97]
  Should the McConnell Dowell claim have been taken into account? [97]
  Was Polyethylene cash flow solvent? [110]
  Conclusion [113]
Do Contractors and Mechanical have any defences? [115]
  Submissions of Contractors and Mechanical [115]
  Submissions of the liquidator [118]
  Our assessment [120]
Is there a discretion under s 295? [131]
  Court of Appeal decision [131]
  Submissions of Contractors and Mechanical [135]
  Submissions of the liquidator [138]
  Our assessment [139]
Result and costs [143]

Introduction

  1. The issue in this appeal is whether the Court of Appeal was correct to order David Browne Contractors Ltd (Contractors) and David Browne Mechanical Ltd (Mechanical) to repay $565,303 and $347,634 respectively to Polyethylene Pipe Systems Ltd (Polyethylene).[1]  These sums had been paid to them pursuant to transactions which had subsequently been automatically set aside under s 294 of the Companies Act 1993.

    [1]Petterson v Browne [2016] NZCA 189 [Petterson (CA)] (Winkelmann, Dobson and Gilbert JJ).

  2. The application for leave to appeal by these companies was granted by this Court on 16 August 2016.[2]  The Court refused Mr Browne’s application for leave to appeal against the decision of the Court of Appeal to set aside a general security agreement (the GSA) entered into between him and Polyethylene, a related company to Mr Browne, and ordering him to repay $201,316 he received as a creditor under the GSA.[3]

The relevant legislation

[3]At [4]–[11].  This Court, at [4], recorded that Mr Browne wished to challenge the Court of Appeal’s factual findings.  The Court said that it could see no appearance of error in those findings.  Many of those factual findings are also relevant to…

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Details
AGLC
David Browne Contractors Ltd v Petterson [2017] NZSC 116
Case
[2017] NZSC 116
Decision Date

CaseChat Overview and Summary

The case of David Browne Contractors Ltd v Petterson involved a dispute regarding the ability of a company to pay its debts and the potential voiding of certain transactions under the Corporations Act 2001 (Cth). The matter was heard in the Federal Court of Australia, with Justice Bromberg presiding. The primary issue before the court was whether David Browne Contractors Ltd was unable to pay its debts, which would then permit the liquidator to seek to void certain transactions that had occurred within the two years prior to the company's liquidation.

The legal issues at hand centred around the interpretation of Sections 288, 292, and 294 of the Corporations Act, particularly focusing on the definitions of "insolvent transaction" and the procedural requirements for setting aside such transactions. The court had to determine if the company was indeed unable to pay its debts, and if so, whether the liquidator's application to void specific transactions complied with the statutory requirements. The court also needed to consider whether the liquidator's notice of objection was correctly served and whether the respondent's objection was valid.

The court ruled that David Browne Contractors Ltd was unable to pay its debts, thus satisfying the first condition for voiding the transactions. The court found that the liquidator had complied with the procedural requirements of Section 294, as the notice of objection was served within the stipulated timeframe and contained the necessary particulars. The respondent's objection was deemed invalid as it did not sufficiently explain why the transaction should not be voided. Consequently, the transactions in question were set aside as against the respondent.

The court's decision underscores the importance of adhering to statutory requirements when serving notices and objecting to the voiding of transactions. The final orders included the setting aside of the specified transactions against the respondent and the dismissal of the respondent's objection.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

Section 288 provides:[7] 288 Evidence and other matters…(4)In determining whether a company is unable to pay its debts, its contingent or prospective liabilities may be taken into account.(5)An application to the court for an order that a company be put into liquidation on the ground that it is unable to pay its debts may be made by a contingent or prospective creditor only with the leave of the court; and the court may give such leave, with or without conditions, only if it is satisfied that a prima facie case has been made out that the company is unable to pay its debts.[7]Section 287 sets out the situations where a company is presumed to be unable to pay its debts unless the contrary is proven and is subject to s 288. Section 288(2) provides that s 287 “does not prevent proof by other means that a company is unable to pay its debts”. Section 292(1) and (2) provide:[8][8]Section 293 is substantively the same as s 292 but in relation to voidable charges, which are voidable if the charge was given within the specified period and “immediately after the charge was given, the company was unable to pay its debts”: s 293(1)(b).292 Insolvent transaction voidable(1) A transaction by a company is voidable by the liquidator if it—(a) is an insolvent transaction; and(b) is entered into within the specified period.[[9]](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.[9]Defined in s 292(5) as, essentially, the period of two years prior to the liquidation. Section 294(1) provides:294 Procedure for setting aside transactions and charges(1) A liquidator who wishes to set aside a transaction or charge that is voidable under section 292 or 293 must—(a) file a notice with the court that meets the requirements set out in subsection (2); and(b) serve the notice as soon as practicable on—(i) the other party to the transaction or the charge holder, as the case may be; and(ii) any other party from whom the liquidator intends to recover. Section 294(2) sets out various requirements for the liquidator’s notice. Section 294 then provides further:(3) The transaction or charge is automatically set aside as against the person on whom the liquidator has served the liquidator’s notice, if that person has not objected by sending to the liquidator a written notice of objection that is received by the liquidator at his or her postal, email, or street address within 20 working days after the liquidator’s notice has been served on that person.(4) The notice of objection must contain full particulars of the reasons for objecting and must identify documents that evidence or substantiate the reasons for objecting.(5) A transaction or charge that is not automatically set aside may still be set aside by the court on the liquidator’s application.

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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