Francis v Degree Plumbing Limited - [2023] NZHC 2920

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE

CIV-2023-488-000047 [2023] NZHC 2920

IN THE MATTER of the liquidation of Podular Housing Systems Limited (in liquidation)

BETWEEN

BENJAMIN BRIAN FRANCIS and SIMON

DALTON as liquidators of Podular Housing Systems Limited (in Liquidation) Applicants

AND

DEGREE PLUMBING LIMITED

Respondent

Hearing: 28 August 2023

Appearances:

N Coyle for the Applicants

D McGowan (director of Respondent) in Person, with C Wilson as support person

Judgment:

18 October 2023

JUDGMENT OF ASSOCIATE JUDGE GARDINER

This judgment was delivered by me on 18 October 2023 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

WRMK Lawyers, Whangarei

FRANCIS v DEGREE PLUMBING LTD [2023] NZHC 2920 [18 October 2023]

Introduction

[1] The applicants are the liquidators of Podular Housing Systems Limited (in liquidation) (Podular Housing). The liquidators were appointed by the shareholders on 25 November 2022.1 In the final months before the liquidators’ appointment, Podular Housing paid Degree Plumbing Limited (Degree Plumbing) $38,224.13 for plumbing work.2

[2] On 9 March 2023, the liquidators served a notice on Degree Plumbing stating that they considered payments totalling $37,466.57 to be voidable and that they wanted to have them set aside. Degree Plumbing objected, stating that it received the payments in good faith, it was unaware that Podular Housing was or would become insolvent, and it gave good value for the payments. The liquidators did not accept that explanation.

[3] The liquidators now apply for an order setting aside the payments and for an order that Degree Plumbing pay the liquidators $37,466.57, together with interest and costs. Degree Plumbing did not file a notice of opposition but Degree Plumbing’s director, Dean McGowan, appeared at the hearing with his support person, Charlotte Wilson, to oppose the application. I heard from Mr McGowan as to why he considered the transaction should not be set aside.

[4] I reserved my decision. After the hearing, I issued a minute with further questions of the liquidators. The liquidators responded and Degree Plumbing also filed a memorandum, essentially repeating what was said at the hearing. I have taken this memorandum into account. By hearing from Mr McGowan and considering this memorandum, I have granted Degree Plumbing an indulgence. A company requires legal representation in this Court. Furthermore, some of the content is evidence and should correctly be in an affidavit. However, because of the relatively modest sum involved, I have taken a pragmatic approach and not insisted on these procedural requirements.

1 Confirmed by this Court on 12 December 2022.
2 Payments made on 19 September 2022, and 12, 14 and 27 October 2022.

[5] Degree Plumbing gives three reasons for why the transaction should not be set aside. First, that Mr McGowan acted in good faith and was unaware that Podular Housing was insolvent when it paid Degree Plumbing in September/October 2022. Second, that it would be unfair to set aside the payments, as Degree…

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: [2023] NZHC 2920
Decision Date: 18 October 2023

CaseChat Overview and Summary

The applicants, Benjamin Brian Francis and Simon Dalton, as liquidators of Podular Housing Systems Limited (in liquidation), sought to have payments made to Degree Plumbing Limited set aside and for repayment of the funds. The dispute involved payments totaling $37,466.57 made by Podular Housing to Degree Plumbing in the months leading up to its liquidation. The liquidators argued that these payments were voidable as insolvent transactions under the Companies Act 1993. Degree Plumbing contested the claim, asserting that it had acted in good faith, was unaware of Podular Housing's insolvency, and had provided good value for the payments.

The court needed to decide whether the payments were insolvent transactions that could be set aside, and if so, whether there were any defences available to Degree Plumbing under section 296(3) of the Act. The key legal principles involved the definition of an insolvent transaction, the presumption of insolvency within the restricted period, and the defences available to a recipient of such payments. The court had to consider whether Degree Plumbing had acted in good faith, whether a reasonable person in their position would have suspected insolvency, and whether there was any special unfairness that would justify declining to order repayment.

The court found that the payments were indeed insolvent transactions, as Podular Housing was presumed to be unable to pay its debts due to the timing of the payments within six months before liquidation. The court further determined that Degree Plumbing did not meet the defences under section 296(3) because it had reasonable grounds to suspect insolvency, particularly given that it had initiated liquidation proceedings against Podular Housing. The court rejected Degree Plumbing's argument that it would be unfairly prejudiced by having to repay the funds, emphasizing the need for fairness among creditors.

Consequently, the court ordered that the payments of $37,466.57 be set aside and that Degree Plumbing repay this amount to the liquidators, along with interest from the date of the judgment. The court reserved the right to decide on costs based on written submissions from the liquidators.

Orders