FAF Holdings Ltd (in liq) v Bethune - [2017] NZHC 2796

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2015-412-080 [2017] NZHC 2796

UNDER the Companies Act 1993

IN THE MATTER

of the liquidation of FAF Holdings
Limited (In Liquidation)

BETWEEN

FAF HOLDINGS LIMITED (IN LIQUIDATION)

First Plaintiff

VIVIEN JUDITH MADSEN-RIES and HENRY DAVID LEVIN as liquidators of FAF HOLDINGS LIMITED (IN LIQUIDATION)

Second Plaintiffs

AND

RICHARD JOHN BETHUNE Defendant

Hearing: 3-6 April 2017

Appearances:

K H Morrison and J OʼConnell for the Plaintiffs
P R Cogswell for the Defendant

Judgment:

15 November 2017

JUDGMENT OF WOODHOUSE J

This judgment was delivered by me on 15 November 2017 at 11:30 a.m. pursuant to r 11.5 of the High Court Rules 1985.

Registrar/Deputy Registrar
……………………………………

Solicitors:
Ms K H Morrison, Meredith Connell, Solicitors, Auckland
Mr P R Cogswell, Cogswell Law, Auckland

FAF HOLDINGS LIMITED (IN LIQ) v BETHUNE [2017] NZHC 2796 [15 November 2017]

INTRODUCTION

[1] This is a claim by FAF Holdings Ltd (in liquidation) (FAF) and its liquidators against Richard Bethune as a director of FAF. The plaintiffs contend that Mr Bethune breached his director’s duties and failed to keep adequate accounting records and, in consequence, FAF suffered losses recoverable from Mr Bethune.

OUTLINE OF CLAIMS AND DEFENCES

[2] There are two causes of action.1

[3] The first involves claims pursuant to s 301 of the Companies Act 1993 (the Act).2 The plaintiffs allege that Mr Bethune breached four of his director’s duties under the Act: (1) the duty to act in good faith and in the best interests of the company (s 131); (2) the duty to avoid reckless trading (s 135); (3) the duty in relation to obligations (s 136); and (4) the duty of care (s 137). Particulars of the alleged breaches are summarised below, after setting out the factual background.

[4] The plaintiffs’ claims under s 301 are for alleged losses under four main headings:

(a) The sole creditor of FAF, apart from the liquidators, is Inland Revenue in respect of unpaid taxes for periods ending 31 March 2013 and 31
October 2014. Inland Revenue’s claim in the liquidation has been admitted in a sum of $538,213.28. In respect of that debt, the plaintiffs seek an order that Mr Bethune contribute such sum to the assets of FAF by way of compensation as the Court considers just. This claim is made pursuant to s 301(1)(b)(ii) of the Act. I will refer
to this as “the tax claim”.

1 There was another cause of action in which the plaintiffs sought to recover the director’s salary
paid to Mr Bethune on the grounds that it was paid in breach of s 161 of the Companies Act
1993. Before the hearing commenced, the plaintiffs advised Mr Bethune that they were not pursuing this claim. It does not require consideration as an independent cause of action, but the fact of receipt of the salary is relevant to the cause of action pursuant to s 301 of the Act.
2 The…

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: [2017] NZHC 2796
Decision Date: 15 November 2017

CaseChat Overview and Summary

The plaintiffs, FAF Holdings Ltd (in liquidation) and its liquidators, sought compensation from Richard Bethune, a former director of FAF, for breaches of his duties as a director. The claims arose from the liquidation of FAF and were brought pursuant to s 301 of the Companies Act 1993. The plaintiffs alleged that Mr Bethune breached his duties to act in good faith and in the best interests of the company, to avoid reckless trading, to ensure that accounting records were kept, and to exercise the requisite duty of care. The plaintiffs also claimed that Mr Bethune failed to keep adequate accounting records, pursuant to s 194 of the Act. The claims were for the tax debts of FAF, salary paid to Mr Bethune, costs of liquidation, and interest. The court found that Mr Bethune breached his duties as a director of FAF, resulting in losses recoverable from him. The court held that Mr Bethune preferred the interests of Town Ball and his own interests over those of FAF. The court found that Mr Bethune was aware of the breaches from March 2013, and that he breached his duties under ss 131, 135, 136, and 137 of the Act. The court found that the related party claim was time barred, and that there was no evidence to support the claims for the salary, costs of liquidation, and interest. The court ordered Mr Bethune to compensate FAF for the total loss of $538,213.28.

Orders