Graham v Arena Capital Ltd (in liq)

The liquidators of Arena Capital Ltd (in liq) sought directions under the Companies Act 1993 in relation to the distribution of assets in the liquidation. The liquidators sought directions that Arena’s assets be treated as forming one common pool of assets for distribution available to both Arena’s general unsecured creditors and its investors. Further, that the common pool of assets be distributed on a pro rata, pari passu basis according to a particular distribution methodology. The liquidators submitted that this was the most cost effective, pragmatic and fair way of distributing to creditors and investors Arena’s available assets. The liquidators’ submission was that the directions they sought were consistent with the discharge of their principal duty as a liquidator to realise and distribute assets to Arena’s creditors and distribute any surplus assets in a reasonable and efficient manner. The court found that it was in the investors’ financial interests that there be only one common pool of assets, and that such an approach was the most cost-efficient and pragmatic model to adopt. The court also found that a pro rata, pari passu distribution would provide the most cost-effective, timely and efficient method of distribution, and was one which would result in the fairest outcome. The court found that the distribution methodology proposed by the liquidators on a “net contribution” basis provided the fairest means of distribution consistent with current New Zealand law. Finally, the court found that in the circumstances the order sought by the liquidators was appropriate and made orders confirming that the liquidators were entitled to deduct the costs and expenses incurred in relation to the recovery and distribution of assets, including in relation to this application, from the common pool of assets.