Farrell v Fences & Kerbs Ltd - [2012] NZHC 2865

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV 2012-463-000514 [2012] NZHC 2865

UNDER the Companies Act 1993

IN THE MATTER OF the liquidation of Contract Engineering
Limited

BETWEEN PETER ESMOND FARRELL AND SIMON PAUL ROGAN AS LIQUIDATORS OF CONTRACT ENGINEERING LIMITED (IN LIQUIDATION)
Applicants

ANDFENCES & KERBS LIMITED Respondent

Hearing: 24 October 2012

Appearances: K F Shaw for the Applicants
J Temm for the Respondent

Judgment: 1 November 2012

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on
01.11.12 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar
Date……………

Solicitors/Counsel:
K Shaw, Harkness Henry, Hamilton – Karen.shaw@harkness.co.nz
J Temm, Barrister, Auckland – jonathan@phoenixchambers.co.nz

PETER ESMOND FARRELL AND SIMON PAUL ROGAN AS LIQUIDATORS OF CONTRACT ENGINEERING LIMITED (IN LIQUIDATION) V FENCES & KERBS LIMITED HC ROT CIV 2012-463-
000514 [1 November 2012]

[1] The applicants are the liquidators of Contract Engineering Limited (the

Company). The Company was put in liquidation by its shareholders on 5 July 2011.

[2] On 26 March 2012 the applicants served a Notice to Set Aside Voidable

Transactions on the respondent. Opposition to it was filed on 29 June 2012.

The transaction

[3] Section 292 of the Companies Act 1993 (the Act) provides that a payment (a transaction) made by a company is voidable by the liquidator of that company if it occurs within the specified period i.e. within two years before the date of the liquidation.

[4] It is an “insolvent transaction” if it was entered into at a time when the Company was unable to pay its debts; and if it enabled another person (here, the respondent) to receive more towards satisfaction of a debt than it would have received or would have been likely to receive in the Company’s liquidation.

[5] In this case the respondent completed certain concrete and steel foundation construction work for the Company between 4 June and 21 June 2010, albeit without its principal Mr Field who had been off work from 2 June 2010 for three months due to surgery on his shoulder. The respondent’s services were provided as part of the Company’s contract with Contact Energy Ltd in terms of which milestone payments were made monthly and those were calculated by reference to works completed to that time. It appears agreed that in respect of the works undertaken by the respondent, the Company would receive payment from Contact Energy Ltd when its pipeline had been fixed in place over the foundation construction work completed by the respondent.

[6] The works were completed by six employees using the respondent’s vehicles,

machinery and tools.

[7] Aspects of the work were subcontracted to others at a cost of $30,445.

[8] Subsequently on about 26 July 2010 the Company contracted the respondent again to complete some foundation platform changes at a cost of $1,500 plus GST.

[9] On 21 June 2010 the respondent issued an invoice for $50,005.92 (plus GST). Its invoice for the additional works was issued on 28 September 2010.

[10]…

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: [2012] NZHC 2865
Decision Date: 1 November 2012

CaseChat Overview and Summary

The case of Farrell v Fences & Kerbs Ltd involved the liquidators of Contract Engineering Limited, a company that had been placed in liquidation, seeking to recover payments made to Fences & Kerbs Limited from the latter. The liquidators argued that the payments made to Fences & Kerbs within two years before the liquidation were voidable as they were made while the company was insolvent. The key legal issue was whether Fences & Kerbs could defend the claim by demonstrating that it had acted in good faith, had no reasonable grounds for suspecting the insolvency of Contract Engineering, and had provided value for the payments received. The Court found that Fences & Kerbs had acted in good faith, did not suspect insolvency, and had provided value for the payments, albeit not necessarily after the payments were made. The Court concluded that the defence under the Companies Act 1993 should be interpreted broadly to protect creditors who acted in good faith and provided value, aligning with the equitable principles underlying the statute. The application by the liquidators was dismissed, and Fences & Kerbs was not required to repay the amounts received. The liquidators were ordered to pay Fences & Kerbs' costs.

This decision underscores the importance of acting in good faith and providing value in commercial transactions, even when dealing with an insolvent company, and highlights the equitable considerations that courts apply in voidable transaction cases.

Orders