Farrell v Fences & Kerbs Ltd

The Court of Appeal of New Zealand has allowed three appeals concerning the interpretation and application of section 296(3) of the Companies Act 1993, focusing on the requirement for value to be given at the time of payments by insolvent companies to their creditors. The appeals involved the liquidators of Contract Engineering Limited, seeking to recover payments made to Fences & Kerbs Limited, ACME Engineering Limited, and Hiway Stabilizers New Zealand Limited, respectively. The central legal issues were whether the mere receipt of payment in satisfaction of an antecedent debt constituted the giving of value and whether forbearance to sue could satisfy the requirement for value to be given.

The court concluded that the mere receipt of payment in satisfaction of an antecedent debt did not constitute the giving of value. Instead, new value that is real and substantial must be given. The court emphasized that the objective of the voidable transaction regime is to achieve fairness among all creditors, and the receipt of payment does not swell the pool of funds available to the company. The court also held that forbearance to sue may constitute the giving of value but only if it is shown to have real and substantial value, which is often difficult to establish.

Regarding the solvency of Contract Engineering, the court found sufficient evidence to support the Associate Judge's conclusion that the company was unable to pay its debts as they fell due. The court further allowed the appeals and awarded the liquidators judgment against the respondents for the amounts of the impugned payments plus interest. Costs were awarded against ACME Engineering Limited for the appeal and cross-appeal in one of the cases. The court set aside the costs orders made in the High Court and left remaining issues as to costs to be determined by that Court.