Gibson v Platt
[2024] NZHC 351
•28 February 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2023-404-3110
[2024] NZHC 351
BETWEEN BRENDON JAMES GIBSON and NEALE JACKSON
First Applicants
JOHN FISK and RICHARD NACEY
Second ApplicantsAND
JASON PLATT, SAM CLARKSON, ROBERT KREBS, ROGER BOYD and PETER BAYNE
First Respondents
CROWN REGIONAL HOLDINGS LIMITED
Second Respondent
Hearing: 8 February 2024 Appearances:
D J Friar for the first applicants
L C Sizer and C Morrison for the second applicants M Tingey and C Jiang for the first respondents
L Fraser and J Marcetic for the second respondentJudgment:
28 February 2024
JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 28 February 2024 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
GIBSON and JACKSON v PLATT and OTHERS [2024] NZHC 351 [28 February 2024]
[1] Ruapehu Alpine Lifts Ltd (RAL) operates the Whakapapa and Tūroa ski fields on Mt Ruapehu. RAL was placed into voluntary administration in October 2022, into liquidation in June 2023 and into receivership in October 2023.
[2] The liquidators decided, soon after their appointment in June 2023, to continue to trade RAL’s business while seeking a purchaser for the ski fields. From then until the appointment of receivers four months later, significant income was earned from that trading. A dispute has arisen as to who is entitled to that income. RAL’s principal secured creditor says the income is subject to its security. RAL’s liquidation committee says the income is not subject to any security and that, accordingly, the committee is entitled to be reimbursed from the income for out-of-pocket expenses it has incurred.
[3]The receivers and the liquidators seek directions in respect of this dispute.
Background
[4] Whakapapa and Tūroa are in Tongariro National Park. RAL owns the assets of the ski fields and holds licences from the Department of Conservation allowing it to operate. During each ski season, RAL employs hundreds of staff. It makes a significant contribution to the central North Island economy.
[5] From 2017, RAL embarked on a development of the ski fields. This included the construction of a $25 million Sky Waka gondola at the Whakapapa ski field. RAL borrowed substantial amounts to fund the development.
[6] After two years of COVID-19 restrictions (including border closures), and unfavourable weather in 2022, RAL became insolvent.1
Administration, liquidation and receivership
[7] The directors of RAL appointed the second applicants, Mr Fisk and Mr Nacey, as administrators on 11 October 2022. At that time, ANZ Bank New Zealand Ltd
1 To be clear, I was not called upon to make any findings as to the causes of RAL’s insolvency, and I do not do so.
(ANZ) and the Ministry of Business, Innovation and Employment (MBIE) were two of RAL’s secured creditors:
(a)ANZ had a General Security Agreement (GSA) dated 12 April 2007 over all of RAL’s present and after-acquired property.
(b)ANZ released its security interest over one of RAL’s assets, the Sky Waka gondola, in a deed and side letter dated 14 September 2018. However, it did not release its security over any income derived from the Sky Waka.
(c)Various bondholders had security interests over the Sky Waka, under security agreements entered into in 2018 and 2019.
(d)MBIE had a Specific Security Deed over certain equipment that MBIE had funded dated 8 December 2020. MBIE subsequently novated this security to Crown Regional Holdings Ltd (CRHL), a unit of MBIE.
[8] When RAL went into voluntary administration, it did not have any funds to continue to trade. However, the administrators were able to obtain a $10.5 million facility from ANZ and CRHL to allow RAL to continue to trade in administration. CRHL agreed to fund $8 million and ANZ agreed to fund $2.5 million. These amounts were secured by their security agreements.
[9] RAL traded until the watershed meeting on 20 June 2023. Two proposals were presented to creditors at the meeting, neither of which passed. As a result, control of RAL returned to the directors. The directors obtained orders the following day putting RAL into liquidation. Mr Fisk and Mr Nacey were appointed as liquidators.
[10] The appointment of liquidators to RAL roughly coincided with the start of the 2023 ski season. RAL did not have funds to trade through that season. On 30 June 2023, CRHL agreed to provide a further $5 million loan facility to enable RAL to continue trading while a purchaser for the ski fields was sought.
[11] ANZ, CRHL and the bondholders took no steps (at that time) to take possession of the assets over which they held security. RAL traded through the 2023 ski season. This included operating the Sky Waka, which yielded at least $2.4 million in revenue from sightseeing lift passes alone.
[12] After offers to purchase the ski fields were made, it became apparent to CRHL that RAL may need to continue trading for an extended period of time before a sale could be completed. As a result, Cabinet approved an additional support package for RAL in which: (i) CRHL would provide a further $4.3 million in funding; (ii) CRHL would acquire ANZ’s debt and GSA; and (iii) CRHL would place RAL into receivership.
[13] In accordance with this approval, CRHL acquired ANZ’s debt and GSA on 27 October 2023. ANZ’s debt at the time was approximately $16.1 million. CRHL purchased the debt and GSA for an initial purchase price of $1 and deferred consideration of 50 per cent of any recovery (up to a cap of $638,476.55). Using its powers in the GSA, CRHL then appointed the first applicants, Mr Gibson and Mr Jackson, as receivers of RAL on 27 October 2023. CRHL also provided RAL with a $4.3 million facility for the receivership (which has not yet been drawn down).
[14] On their appointment, the receivers entered into a Transition Agreement with the liquidators dated 27 October 2023, so that the concurrent receivership and liquidation could proceed efficiently and effectively. The receivers assumed responsibility for the sales process and for the maintenance and management of the ski fields. The liquidators also granted the receivers the right to operate the Sky Waka (as it was not subject to the GSA under which the receivers had been appointed). The liquidators agreed to draw down the balance of the $5 million loan facility provided by CRHL to RAL while in liquidation, and to pay those funds to the receivers. Those funds totalled $2 million and have been paid to the receivers.
[15] In addition, it was agreed that the liquidators would pay the remaining funds in the liquidation to the receivers, with (i) $2.5 million payable on 30 October 2023,
(ii) $500,000 payable on 28 December 2023, and (iii) the balance payable on 26 April 2024. The liquidators have paid the first two amounts to the receivers. The balance
is approximately $1 million and is due to be paid to the receivers on 26 April 2024. Entitlement to that balance is in dispute in this proceeding.
The liquidation committee
[16] In the meantime, a liquidation committee was appointed on 3 August 2023. Under s 315 of the Companies Act 1993, a liquidation committee can call for reports from the liquidators, can apply to the court for directions, can apply to the court for orders to enforce the duties of the liquidators and can assist the liquidators as appropriate in the conduct of the liquidation.
[17] The committee is comprised of creditors of RAL. There are currently four committee members, being the first respondents. They are not paid for their role on the committee but do enjoy a preferential claim on the assets of RAL for “actual out- of-pocket expenses necessarily incurred”.2
A dispute emerges
[18] The committee considers that the best outcome for RAL and its creditors is through a scheme of arrangement. The committee also considers that the receivers were not validly appointed. The committee says it requires legal advice and representation on these matters to advance the interests of RAL’s creditors.
[19] From September 2023, the committee asked the liquidators to confirm that the committee’s legal costs would be paid from RAL’s funds as a preferential claim, as out-of-pocket expenses necessarily incurred. The liquidators declined to do so. They took the view that ANZ (and subsequently CRHL) had security over RAL’s funds and that neither ANZ nor CRHL had approved the use of RAL’s funds to pay the committee’s legal costs in priority to their secured claim over those funds.
Two proceedings are commenced
[20] On 12 December 2023, the committee commenced a proceeding against the liquidators, under CIV-2023-404-2986. By originating application, the committee
2 Companies Act 1993, s 312 and cl 1(1)(d) of sch 7.
sought various directions, including a direction that the out-of-pocket expenses necessarily incurred by the committee for legal advice be recognised as a preferential payment and a direction that the liquidators pay the committee’s reasonable legal expenses out of funds held by the liquidators.
[21] At that point, the liquidators had not yet made the second payment of $500,000 to the receivers under the Transition Agreement. The committee told the liquidators they would breach their duties by making that payment, and that at the very least the liquidators should seek directions from the court before making payment.
[22] The receivers and liquidators then commenced this proceeding, on 21 December 2023. By originating application, they sought directions that the committee does not have a claim in respect of the funds held by the liquidators and that the liquidators are entitled to pay the funds to the direction of CRHL.
[23] The receivers and liquidators also asked that their proceeding be accorded urgency. This was on the ground that to effect any sale of the ski fields, the receivers needed to continue to maintain and manage the ski fields so that they would be in a position to open for the 2024 ski season. To fund that maintenance and management, the receivers say they need access to the funds held by the liquidators. The receivers say the certainty of that funding is of critical importance. They say that by the end of February 2024 they need certainty that they will receive the funds as agreed under the Transition Agreement. Without that certainty, and in the absence of any new funding for the receivership, the receivers will not be in a position from the end of February 2024 to incur obligations that will fall due in April 2024. That will have serious consequences for the ability to open the ski fields for the 2024 ski season or in future ski seasons.
[24] On 25 January 2024, O’Gorman J directed that urgency be accorded to this proceeding and allocated an early hearing date. Her Honour declined the committee’s request that urgency be accorded to its proceeding. The committee’s proceeding is to be heard at a later date.
The central issue and the parties’ positions
[25] The dispute is about whether the committee enjoys a claim to the funds held by the liquidators in priority to the claim of CRHL.
[26] There is no dispute that the committee has, under cl 1(1)(d) of sch 7 of the Companies Act, a preferential claim in the liquidation for its actual out-of-pocket expenses necessarily incurred. However, that preferential claim is governed by s 312, which provides:
312 Preferential claims
(1)The liquidator must pay out of the assets of the company the expenses, fees, and claims set out in Schedule 7 to the extent and in the order of priority specified in that schedule and that schedule applies to the payment of those expenses, fees, and claims according to its tenor.
(2)Without limiting clause 2(1)(b) of Schedule 7, the term assets in subsection (1) does not include assets subject to a charge unless the charge is surrendered or taken to be surrendered or redeemed under section 305.
[27] Section 312(1) provides that the preferential claims in sch 7 apply only to “assets of the company”. There is no dispute that the funds held by the liquidators are assets of RAL.3 But the effect of s 312(2) is that the committee’s preferential claim does not reach assets that are subject to a charge, unless that charge has been surrendered or redeemed. There is no dispute that CRHL’s security under the GSA is a charge, and that the security has not been surrendered or redeemed. The central issue is whether the funds held by the liquidators are subject to CRHL’s security.
The position of the receivers, liquidators and CRHL
[28] The receivers, liquidators and CRHL say that the GSA granted to ANZ (and now CRHL) security over all of RAL’s present and after-acquired property. The funds presently held by the liquidators are a result of trading while RAL was in liquidation. That trading was by the liquidators as agents for RAL. Any funds generated from the
3 The committee initially, in its notice of opposition and submissions filed in advance of the hearing, took the position that the income received from trading RAL’s business was not RAL’s income but rather was “an asset of the liquidators payable to unsecured creditors”. The committee did not pursue this line of argument at the hearing. Mr Tingey, counsel for the committee, instead submitted that the funds from the trading income were assets of RAL and fell under s 312.
trading therefore belong to RAL and are RAL’s after-acquired property. They say those funds are therefore subject to CRHL’s security, so the committee’s preferential claim does not apply to the funds.
The committee’s position
[29] The committee says the funds held by the liquidators are not subject to CRHL’s security. The committee advances two arguments.
[30] First, the committee says that although the liquidators had power to carry on the business of RAL, sch 6 of the Companies Act expressly provides that that power may be exercised only to “the extent necessary for the liquidation”. The liquidators could exercise the power to trade only in the interests of unsecured creditors receiving payment of their debts. They could not exercise that power to enhance the value of the assets that would be paid to secured creditors. The committee says that it follows that any funds from the trading are held for the benefit of unsecured creditors and are not subject to CRHL’s security. The committee says the position is analogous to that which applies where a liquidator recovers funds by challenging a voidable preference
– those funds are held for unsecured creditors rather than secured creditors, and the same applies here.
[31] Secondly, the committee says that this priority dispute is subject to the Personal Property Securities Act 1999 (the PPSA). The committee says that priority disputes under the PPSA in relation to a company in liquidation are determined at the date of commencement of liquidation. At that date no funds had been earned by the liquidators from trading and so there was no asset that CRHL, as secured creditor, could claim.
[32] The committee appeared to advance a third argument in its notice of opposition. This was that, even if the funds held by the liquidators are subject to CRHL’s security, the committee enjoyed a priority over those funds (in respect of its out-of-pocket expenses) through a combination of cls 1(1) and 2(1)(b) of sch 7 of the Companies Act. The committee did not advance this argument in its written submissions. Counsel for the committee, Mr Tingey, confirmed at the hearing that the argument was not pursued.
The evidence
[33] The receivers and liquidators filed affidavits in support of the directions they sought in this proceeding. These included affidavits by Mr Jackson (one of the receivers) and Mr Nacey (one of the liquidators).
[34] The committee had filed affidavits in support of the orders it sought in its proceeding. In a minute dated 25 January 2024, O’Gorman J granted leave to the committee to rely on that evidence in this proceeding. The committee did so, and did not file any further affidavits in this proceeding.
[35] On 2 February 2024, the committee served notices under rr 9.74 and 19.14 of the High Court Rules 2016 requiring Mr Jackson and Mr Nacey to appear for cross- examination at the hearing. The receivers and liquidators applied to set aside those notices. CRHL supported their application.
[36] On 7 February 2024, after hearing from counsel at a telephone conference, I set aside both notices on the grounds that the proposed cross-examination would not be relevant. The committee wished to cross-examine Mr Jackson on matters that were said to be relevant to the validity of the receivers’ appointment. Mr Tingey submitted that because there was a challenge to the validity of appointment, there was an issue of the receivers’ (but not the liquidators’) standing to seek directions. I considered that such cross-examination would not be relevant to this proceeding. The proceeding does not raise any issue as to the validity of the receivers’ appointment. This judgment was not going to (and does not) determine whether the receivers were validly appointed. Pending any determination of the validity of their appointment, the receivers have standing to seek directions.
[37] Mr Tingey identified by memorandum the matters on which he proposed to cross-examine Mr Nacey. I considered there were no factual disputes raised by the parties’ written submissions that made those matters relevant.
[38] Also on 7 February 2024, the receivers and liquidators filed a third affidavit from Mr Nacey. The purpose of this was to correct one matter in his earlier affidavit.
The committee initially objected to this affidavit being admitted. At the start of the hearing Mr Tingey withdrew the objection.
Are the funds held by the liquidators subject to CRHL’s security?
According to the terms of the GSA, are the funds subject to CRHL’s security?
[39] In determining whether the funds held by the liquidators are subject to CRHL’s security, the starting point is the agreement that created that security, namely the GSA. Under s 35 of the PPSA, a security agreement has effect according to its terms, except as otherwise provided by the PPSA or any other Act or rule of law or equity.
[40] In the GSA, RAL granted to ANZ a security interest “in and over all of the Collateral which [RAL] has a right or interest in of any type, and all of [RAL’s] present and future rights in any Collateral”. The Collateral is identified as “All Present And After Acquired Personal Property”. The PPSA permits a security agreement to provide for security interests in after-acquired property.4
[41] In September 2018, ANZ released some property from the GSA. The deed of release defined the “Property Released” as (relevantly) RAL’s interests in the assets “acquired, constructed or installed under or solely in connection with” the agreements entered into in connection with the Sky Waka project. The Property Released therefore included the Sky Waka itself. But the Property Released expressly excluded “all of [RAL’s] income derived from or associated with the Project”. That exclusion was reinforced by the following clause in the deed:
For the avoidance of doubt, the Property Released in paragraphs 1–3 above does not include any of [RAL’s] income derived from or associated with the Gondola or Project.
[42] On 27 October 2023, ANZ assigned the GSA and the deed of release to CRHL. There is no challenge to the validity of that assignment. Nor is there any challenge to the validity of the GSA or the deed of release.
4 Personal Property Securities Act 1999 (PPSA), s 43.
[43] The charging clause of the GSA is in broad terms. RAL granted a security interest over, among other things, all after-acquired property which RAL “has a right or interest in of any type”. The funds held by the liquidators are after-acquired property. Liquidators act as agents for the company in liquidation, including when they carry on the business of the company in liquidation.5 It follows that, subject to the committee’s arguments that I address below, the liquidators hold those funds as agents for RAL. The funds therefore fall within the charging clause of the GSA.
[44] The funds are not part of the Property Released by the deed of release. First, the funds were not “acquired, constructed or installed under or solely in connection with” the agreements entered into in connection with the Sky Waka project, and so do not fall within the inclusory words of the Property Released definition. Secondly, the deed of release makes it clear, twice,6 that the Property Released does not include RAL’s income derived from or associated with the Sky Waka or the Sky Waka project. Income derived from the Sky Waka in the course of the liquidators carrying on RAL’s business is RAL’s income (because the liquidators were acting as agents for RAL).
[45] This means that the funds held by the liquidators are, according to the terms of the GSA and deed of release, subject to CRHL’s security. The effect of s 35 of the PPSA is that the GSA and the deed of release are effective in those terms, except as otherwise provided by the PPSA, any other Act, or any or rule of law or equity. The committee’s arguments can succeed only if the PPSA, the Companies Act and rules of law or equity do otherwise provide. As noted, the committee argued (in summary):
(a)Funds generated from the liquidators trading RAL’s business are held for the benefit of unsecured creditors and not subject to CRHL’s security.
5 Mana Property Trustee Ltd v James Developments Ltd (No 2) [2010] NZSC 124, [2011] 2 NZLR 25 at [9]; Dunphy v Sleepyhead Manufacturing Co Ltd [2207] NZCA 241, [2007] 3 NZLR 602 at
[22] and [24]. Liquidators can, as the Court of Appeal contemplated in Dunphy at [46], sometimes agree to act as agents for a secured creditor in enforcing the creditor’s security rights. At least by the time of the hearing, it was common ground that the liquidators had not acted as agents for ANZ, CRHL or any of the other secured creditors.
6 First in the exclusion in the definition of Secured Property and then in the “for the avoidance of doubt” clause in the definition of Property Released.
(b)Under the PPSA, priority disputes in relation to a company in liquidation are determined at the date of commencement of liquidation. At that date no funds had been earned by the liquidators from trading and so there was no asset that CRHL, as secured creditor, could claim.
[46]I now turn to those arguments.
Are funds generated from the liquidators trading RAL’s business held for the benefit of unsecured creditors and not subject to CRHL’s security?
[47] Paragraph (b) of sch 6 of the Companies Act provides that liquidators have the power to carry on the business of the company to “the extent necessary for the liquidation”. In Re New Vogue (in liq); Hope Gibbons Ltd v Collins, the Court of Appeal said of a predecessor provision (s 195(b) of the Companies Act 1908) that:7
… it is plain, on the provisions of the Companies Act and upon authority, that [the liquidator] cannot carry on the business of the company indefinitely and for the purpose of making a profit. [The liquidator’s] power is limited to carrying on the business only so far as is necessary for the beneficial winding- up thereof …
[48] The principal authority referred to by the Court of Appeal was a decision of the English Court of Appeal, Re Wreck Recovery and Salvage Co.8 That Court was dealing with s 95 of the Companies Act 1862 (UK), to which paragraph (b) of sch 6 can be traced. The Court said that the liquidator could exercise the power to carry on the company’s business “with a view to the winding-up of the company, not with a view to its continuance”.9
[49] Mr Tingey acknowledged that there were differences in wording between, on the one hand, s 95 of the Companies Act 1862 (UK) and s 195(b) of the Companies Act 1908, and, on the other, paragraph (b) of sch 6. But he submitted that these differences in wording were immaterial, and that it remained the case under the Companies Act 1993 that a liquidator can exercise the power to carry on the company’s business only where the trading is necessary for the liquidation. I consider that
7 Re New Vogue (in liq); Hope Gibbons Ltd v Collins [1932] NZLR 1633 (CA) at 1641.
8 Re Wreck Recovery and Salvage Co (1880) 15 Ch D 353 (CA).
9 At 360.
Mr Tingey is likely correct, though it is not necessary for me to make a final determination, as Mr Tingey’s proposition was just an initial step in his argument.
[50] Next, Mr Tingey submitted that a liquidator’s power to carry on business could only be exercised in the interests of unsecured creditors receiving payment of their debts and not to enhance the value of the assets that would be paid to others, including secured creditors. He relied on ss 253 and 254 of the Companies Act and the Court of Appeal’s decision on those provisions in Gibbston Downs Wines Ltd v Property Ventures Ltd.10 Relevantly, ss 253 and 254 provide:
253Principal duty of liquidator
Subject to section 254, the principal duty of a liquidator of a company is—
(a)to take possession of, protect, realise, and distribute the assets, or the proceeds of the realisation of the assets, of the company to its creditors in accordance with this Act; and
(b)if there are surplus assets remaining, to distribute them, or the proceeds of the realisation of the surplus assets, in accordance with section 313(4)—
in a reasonable and efficient manner.
254Liquidator not required to act in certain cases
Notwithstanding any other provisions of this Part,—
(a)except where the charge is surrendered or taken to be surrendered or redeemed under section 305, a liquidator may, but is not required to, carry out any duty or exercise any power in relation to property that is subject to a charge…
[51] Gibbston Downs was concerned with whether a liquidator may issue a statutory demand for a debt owed to a company in liquidation at a time when a receiver has been appointed by a secured creditor, the debt forms part of the assets secured to that creditor, and the creditor has not surrendered its security.11 The Court of Appeal said that the general scheme of the Companies Act is that charged assets are not included
10 Gibbston Downs Wines Ltd v Property Ventures Ltd [2013] NZCA 546.
11 At [1].
“within those assets in respect of which the liquidator owes a duty to unsecured creditors under s 253”.12 The Court then said:
[21] However, s 254 is expressed to have effect notwithstanding “any other provisions of this part” (emphasis added). It expressly confers upon the liquidator a discretion to “carry out any duty or exercise any power in relation to property that is subject to a charge”. We consider that, given the overall scheme of the legislation and the history of this provision, s 254 should be understood as conferring a residual discretion upon the liquidator to take steps to realise assets subject to a charge in certain circumstances. The liquidator certainly is not, as the provision makes clear, always obliged to exercise a power in respect of charged property. There would be no sense in the liquidator doing so in the usual course since most of the benefits of the liquidator acting would flow to the secured creditors. Moreover, for the liquidator to officiously intervene in a proposed realisation without good reason could only reduce the available assets for creditors by increasing the liquidator’s costs (a preferential claim in both the receivership and liquidation). Circumstances will arise however in which a liquidator will need to exercise this power even though the secured creditor has not surrendered its security – for example, where the secured creditor has indicated that it will take no steps to realise the asset, but does not use the s 305 mechanism to surrender the charge (the situation arising in Sintel).
[22] On the other hand intervention by a liquidator in a secured creditor’s realisation of assets subject to charge, for no such good reason, may well entail the exercise of the discretion by the liquidator for an improper purpose – namely generating fees for the liquidator.
[52] The principal duty of a liquidator, found in s 253, is to realise the assets of the company and distribute the proceeds to its creditors, and if there is a surplus to distribute the surplus to its shareholders. In s 253, “creditors” do not include secured creditors.13 Liquidators should, therefore, exercise their powers, including the power to carry on the company’s business, for the principal purpose of benefiting unsecured creditors (and shareholders in the event of a surplus). As Gibbston Downs makes clear, there will be limited circumstances in which liquidators can exercise a power in respect of secured property for that purpose. Where liquidators do so, of course, the exercise of that power may incidentally benefit the secured creditor. Mr Tingey is, therefore, largely correct in saying that liquidators can only exercise their powers, including the power to carry on business, in the interests of unsecured creditors.14
12 At [20].
13 Companies Act 1993, s 240(1).
14 Obviously, this is not a complete account of the scope of and limits on liquidators’ powers. It is not necessary to provide a complete account for the purpose of this judgment.
[53] The final step in Mr Tingey’s argument is that, because a liquidator can only exercise the power to carry on business in the interests of unsecured creditors, any funds obtained from carrying on the business are held for the benefit of the unsecured creditors only and are therefore free of any security to which they might otherwise have been subject. With respect, the latter proposition does not follow from the former. The former proposition merely identifies a constraint on the exercise of a liquidator’s powers. It says nothing about rights to the funds generated from the exercise of such powers. Rights to those funds are determined by general rules of contract and property law, the PPSA and the rules in the Companies Act that determine priorities in liquidation.
[54] Mr Tingey submitted that Gibbston Downs supported his argument. I disagree. Nothing in that judgment supports the proposition that funds generated from the exercise of a liquidator’s power are held for the benefit of unsecured creditors. The Court was not concerned at all with that matter.
[55] Mr Tingey drew an analogy with the principle that funds that are recovered when a liquidator challenges a voidable preference are held for unsecured creditors and are free of any charges granted to secured creditors.15 He submitted that this principle should apply to funds earned from a liquidator carrying on trading. In support of that submission, he said that the Supreme Court had recently, in the Debut Homes and Mainzeal cases,16 raised the possibility of extending the principle to recoveries obtained by a liquidator by bringing proceedings under the wrongful trading provisions of the Companies Act (ss 135 and 136).
[56] I do not accept that submission. The principle to which Mr Tingey refers has always been regarded as confined to particular statutory provisions, reflecting a perceived legislative policy choice. There would be no need to contemplate extending the principle to every instance of a liquidator exercising a power if it was already of universal application.
15 Re Yagerphone Ltd [1935] Ch 392; Re M C Bacon Ltd (No 2) [1991] Ch 127.
16 Madsen-Ries (as liquidators of Debut Homes Ltd (in liq) v Cooper [2020] NZSC 100, [2021] 1 NZLR 43 at [142], n 159; Yan v Mainzeal Property and Construction Ltd (in liq) [2023] NZSC 113, [2023] 1 NZLR 296 at [141].
[57] If the final step in Mr Tingey’s argument were correct, it would apply equally to every exercise of a liquidator’s powers. In Gibbston Downs, for example, it would mean that funds obtained from enforcement of the debt would be free of the security. It would mean that whenever a liquidator chose to carry on business (such as a brief “liquidation sale”) in the expectation that the company might thereby clear the debt owing to a creditor with a GSA and have a surplus for unsecured creditors, all the funds obtained from carrying on the business would be held for the unsecured creditors (even if it turned out that the secured debt was not cleared). Mr Tingey did not explore these consequences or explain how they could be right.
[58]Accordingly, I reject the committee’s first argument.
Under the PPSA, are priority disputes in relation to a company in liquidation determined at the date of commencement of liquidation? If so, does that mean that funds earned after liquidation are not subject to CRHL’s security?
[59] Mr Tingey submitted that priority disputes in relation to a company in liquidation are determined at the date the liquidation commences. Because the funds were earned only after commencement of the liquidation, he submitted that meant the funds are not subject to CRHL’s security.
[60] In support of the first submission, Mr Tingey relied on the following passage in the Court of Appeal’s decision in Strategic Finance: 17
[86] This definition [of “accounts receivable”] may be applied to the funds at issue on the undisputed basis that the crucial date for determining whether the funds constituted “accounts receivable” is the date on which Takapuna was placed into liquidation, namely 21 November 2008. While the PPSA does not explicitly specify the date, the date on which a receiver or liquidator is appointed is generally adopted as the relevant date in relevant legislation, and has been accepted in other cases, and by the authors of the New Zealand text on receivership. We agree with that approach.
[61] I do not accept that this passage supports Mr Tingey’s submission. The issue in Strategic Finance was whether various funds that had been paid to the company post-liquidation, and which were held by liquidators, should be characterised as “accounts receivable” such that they were available for preferential creditors in
17 Strategic Finance Ltd (in rec and in liq) v Bridgman [2013] NZCA 357, [2013] 3 NZLR 650 (CA).
priority to the holder of a GSA. The Court held that that issue had to be resolved by looking at the character, at the date of liquidation, of the antecedent obligation that had generated the funds. The Court was not saying that all priority disputes had to be determined at the date of liquidation. Nor was the Court addressing the priority issue that has arisen in this case, where the funds held by the liquidators do not represent antecedent obligations that were in existence at the date of liquidation.
[62] Even if Mr Tingey’s first submission were correct, it would not follow that the funds held by the liquidators are not subject to CRHL’s security. Because those funds were not in existence at the date of liquidation, there would be no relevant or applicable priority rule in the PPSA. Mr Tingey submitted that, instead, priority would be determined by the regime in sch 7 of the Companies Act. But that priority regime is subject to s 312, the effect of which is that the committee’s preferential claim does not reach assets that are subject to a charge. One is thus taken back to the question whether the funds are subject to a charge. That question must, for reasons I set out earlier, be answered in the affirmative.
[63]I therefore reject the committee’s second argument.
Result
[64] I conclude that the funds held by the liquidators are subject to CRHL’s security. This means the committee does not enjoy a claim to those funds in priority to the claim of CRHL. Accordingly, I make the directions sought by the receivers and liquidators at 1(a) and (b) of their application dated 21 December 2023.
[65] If costs are sought by any party, and such costs cannot be agreed, the parties may file memoranda.
Campbell J
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