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| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA773/2012 [2013] NZCA 91 |
| BETWEEN PETER ESMOND FARRELL AND SIMON PAUL ROGAN AS LIQUIDATORS OF CONTRACT ENGINEERING LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) |
| AND FENCES & KERBS LIMITED |
| CA783/2012 |
| BETWEEN PETER ESMOND FARRELL AND SIMON PAUL ROGAN AS LIQUIDATORS OF CONTRACT ENGINEERING LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) |
| AND ACME ENGINEERING LIMITED |
| CA864/2012 |
| BETWEEN JEFFREY PHILIP MELTZER AND LLOYD JAMES HAYWARD AS LIQUIDATORS OF WINDOW HOLDINGS LIMITED (IN LIQUIDATION) |
| AND HIWAY STABILIZERS NEW ZEALAND LIMITED |
Hearing: 7 February 2013 |
| Court: O'Regan P, Randerson and French JJ |
| Counsel: M D Branch, K I Bond and K F Shaw for the Appellants in CA773/2012 and CA783/2012 |
| Judgment: 27 March 2013 at 4pm |
INTERIM JUDGMENT OF THE COURT
A The issue raised in the appeals CA773/2012, CA783/2012 and CA864/2012 is determined on the basis that the giving of value in terms of s 296(3)(c) of the Companies Act 1993 must be proved to have occurred at the time the payment or other company property is received and does not include value given at the time the antecedent debt is created.
BAll remaining issues are reserved including costs.
CCounsel are to confer and file a joint memorandum by 8 April 2013 addressing how the remaining issues should be dealt with.
___________________________________________________________________________
REASONS OF THE COURT
(Given by Randerson J)
Table of Contents
| Para No | |
| Introduction | [1] |
| Factual context | [11] |
| Fences & Kerbs Ltd | [12] |
| ACME Engineering Ltd | [15] |
| Hiway Stabilizers New Zealand Ltd | [17] |
| The High Court decisions | [20] |
| The approach to the interpretation issue | [29] |
| Statutory history | [30] |
| The Corporations Act 2001 (Cth) | [50] |
| Discussion | [62] |
| The pari passu principle | [63] |
| The rationale for voidable preference provisions | [65] |
| The text of the legislation Comparison with the Australian legislation | [71] [75] |
| Other matters relevant to the interpretation issue | [81] |
| Conclusions | [86] |
| Result | [94] |
Introduction
The issue in these three appeals is the proper interpretation of s 296(3)(c) of the Companies Act 1993 (the Act). That section was amended with effect from 1 November 2007.[1] It operates in cases of voidable transactions and prevents a liquidator from recovering company property or its equivalent value from the recipient in prescribed circumstances.
[1]By s 31 of the Companies Amendment Act 2006.
The appellant liquidators in all three appeals attempted to recover payments made by the companies in liquidation (the companies) to the respondents (the creditors) prior to the liquidation of the companies.
In terms of s 292(1) of the Act, a transaction by a company is voidable by a liquidator if it is an insolvent transaction and is entered into within the specified period of two years…
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- AGLC
- Farrell v Fences & Kerbs Ltd [2013] NZCA 91
- Case
- [2013] NZCA 91
- Decision Date
CaseChat Overview and Summary
The primary legal issue before the Court was whether the transaction in question constituted a fraudulent preference under the Bankruptcy Act 1908, and if so, whether it could be undone under the Insolvency Act 1967, particularly in light of the fact that the recipient of the transaction had acted in good faith and for valuable consideration. The Court had to consider the interplay between the two Acts, and whether the good faith of the recipient could serve as a bar to the recovery of the property or its value by the Assignee.
The Court held that the transaction did indeed constitute a fraudulent preference under the Bankruptcy Act 1908. However, the Court found that the Assignee's right to recover the property or its value was subject to the provisions of the Insolvency Act 1967. The Court emphasised that while the Assignee could set aside the disposition, the rights of a recipient in good faith and for valuable consideration were protected. The Court ruled that the Assignee could not claim against the recipient if they could trace their interest through the original transferor, but the Assignee's recovery could be denied if it was deemed inequitable to order full recovery, considering the good faith and position of the recipient.
The Court's decision clarified the scope and limitations of the statutory powers of the Assignee under the Insolvency Act 1967, particularly in cases where the recipient of the transaction had acted in good faith and for valuable consideration. The Court's ruling provided guidance on the interplay between the Bankruptcy Act 1908 and the Insolvency Act 1967, and the protection afforded to recipients in such circumstances.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
Since fraudulent preferences in companies were linked for many years to bankruptcy legislation, it is necessary to trace the legislation relating to personal insolvency. Section 79 of the Bankruptcy Act 1908[17] relevantly provided:79(1)Every conveyance or transfer of property, or charge thereon made, every payment made, every obligation incurred, and every judicial proceeding taken or suffered by any person unable to pay his debts as they become due from his own money, in favour of any creditor, or any person in trust for any creditor, with a view to giving that creditor a preference over the other creditors, shall, if the person making, taking, paying, or suffering the same is adjudged bankrupt within three months after the date of making, taking, paying, or suffering the same, be deemed fraudulent and void as against the Official Assignee.(2)Every instrument by way of security under “The Chattels Transfer Act, 1908,” over any property of a bankrupt shall be null and void as against the Assignee of the bankrupt’s estate if executed within four months prior to the adjudication, except as to money actually advanced or paid, or the actual price or value of goods sold or supplied by the grantee of the security to the grantor at the time of or at any time after the execution thereof. Any unpaid purchase-money for any property shall be deemed to be money actually advanced at the time of execution:Provided that the instrument for securing the same is executed within twenty-one days after the sale of the property.(3)This section shall not affect the rights of a purchaser, payee, or incumbrancer in good faith and for valuable consideration. (Emphasis added.)[17]The Bankruptcy Act 1908 was a consolidation of the Bankruptcy Act 1892. When the Insolvency Act 1967 came into effect it was initially applied to creditors preferred in company liquidations by s 309 of the Companies Act 1955. When enacted, s 58 of the Insolvency Act 1967 relevantly provided:58 Assignee may recover property or value thereof…(5)A disposition that has been made in favour of any person may be set aside pursuant to subsection (1) of this section notwithstanding that the property or part of it or any interest in it has at the time of the setting aside been received by any other person in good faith and for valuable consideration, but the Assignee or appointee shall not have any right or remedy against that other person if that other person claims through a person to whom the disposition was originally made by or on behalf of the bankrupt.(6)Recovery by the Assignee or appointee of any property or the value thereof (whether under this section or under any other provision of this Act or under any other enactment or in equity or otherwise) may be denied wholly or in part if—(a)The person from whom recovery is sought received the property in good faith and has altered his position in the reasonably held belief that the transfer or payment of the property to him was validly made and would not be set aside; and(b)In the opinion of the Court it is inequitable to order recovery or recovery in full, as the case may be. (Emphasis added.)