Grant v BB2 Holdings Limited - [2014] NZHC 2504

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-001661 [2014] NZHC 2504

UNDER The Companies Act 1993

IN THE MATTER

of the liquidation of Doyle By Design
Limited (in Liquidation)

BETWEEN

DAMIEN GRANT and STEVEN KHOV Applicants

AND

BB2 HOLDINGS LIMITED Respondent

Hearing: 6 October 2014

Appearances:

A Ho and A Cherkashina for Applicants
J E M Lethbridge for Respondent

Judgment:

6 October 2014

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors: Waterstone Insolvency, Auckland
Grove Darlow & Partners, Auckland

GRANT & KHOV v BB2 HOLDINGS LIMITED [2014] NZHC 2504 [6 October 2014]

Introduction

[1] This is a voidable transaction case. The liquidators of Doyle By Design

Limited (in liquidation) claim $42,720.78 from the respondent.

[2] The company law reforms in the 1990s abandoned the test for preferences based on intention in favour of an effects-based test.1 Under the Companies Amendment Act 2006, the defence that payments were made in the ordinary course of business was removed.2 These changes have widened the scope of the law relating to voidable transactions. They have allowed liquidators to challenge a far greater range of transactions between insolvent companies and their creditors. Adventurous liquidators continue to probe the outer reaches of the changes made in the law. Quite some time ago I gave up the idea that there were no new questions in voidable transactions.

[3] In this case the liquidators are challenging payments made to a secured creditor. Subject to one matter I will need to discuss further, they do not challenge the security. They accept that it was valid and enforceable and do not apply to set it aside. They say however that in the circumstances of this case they are entitled to disregard the security.

[4] It will be necessary to set out their argument more fully, but the ultimate effect of it is that the payments the company made to the respondent can be treated as payments to an unsecured creditor, and are therefore recoverable because the company was at all material times insolvent, and the respondent has received more than will be available to unsecured creditors in the liquidation.

[5] The applicants are the current liquidators of Doyle By Design Limited. The director of Doyle By Design is a Mr Craig Doyle. The respondent’s name is BB2
Holdings Limited, but at the times relevant to this proceeding it carried on business under a different name, Blackbird Finance Limited.3 I will refer to the respondent as
Blackbird.

1      Companies Amendment Act 1993, s 41; Companies Act 1993, ss 292-296.
2      Companies Amendment Act 2006, s 27.
3      It changed its name when it sold its business to a new company now called Blackbird Finance
Limited. For this proceeding that change of ownership is irrelevant.

Some facts

[6] In February 2008 Blackbird sold computer hardware and software to Doyle By Design. The items are described as Tharsten SQL printer management information system software, a web server, and an SQL server. That was a credit sale agreement under which Blackbird…

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: [2014] NZHC 2504
Decision Date: 6 October 2014

CaseChat Overview and Summary

In the case of Grant v BB2 Holdings Limited, the liquidators of Doyle By Design Limited sought to recover $42,720.78 in payments made to BB2 Holdings Limited (formerly Blackbird Finance Limited) on the grounds that they were voidable transactions under the Companies Act 1993. The central issue was whether BB2 Holdings Limited, as a secured creditor, was entitled to those payments and whether they could be challenged as preferences. The court had to determine if the payments made during the specified period were voidable under section 292 of the Act, and if BB2 Holdings Limited had any defences available to them under section 296(3).

The court found that Doyle By Design Limited was indeed insolvent at the relevant times, as evidenced by its inability to meet its financial obligations and a negative net asset position. Regarding the payments to BB2 Holdings Limited, the court determined that while BB2 Holdings Limited held a perfected purchase money security interest, it did not receive the full value of its security when it allowed the use of the equipment by Doyle By Design Limited. The court held that BB2 Holdings Limited was partly secured, and thus the payments it received during 2010 could be considered as payments to an unsecured creditor, making them recoverable. However, for the payments made before 2010, the court was unable to find that BB2 Holdings Limited was partly unsecured at those times, and thus could not conclude that those payments were voidable.

As for the defences under section 296(3), the court found that BB2 Holdings Limited had acted in good faith and did not have enough information to give rise to suspicion. However, the court rejected the change of position defence, holding that BB2 Holdings Limited's failure to take enforcement action was not a deliberate omission, as they were constrained by contract and general law from doing so during that period.

In conclusion, the court ordered BB2 Holdings Limited to pay the liquidators $6,876.15 for the voidable payments made during 2010. The liquidators were ordered to pay BB2 Holdings Limited costs on the proceeding on a 2B basis, as BB2 Holdings Limited had made a tender of the debt before the proceeding started.

Orders