Grant v Citywide Electrical Limited

[2025] NZHC 2641

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-000378

[2025] NZHC 2641

BETWEEN

DAMIEN GRANT and ADAM

BOTTERILL as liquidators of Tempest Air Conditioning Systems Limited (in

liquidation) Applicants

AND

CITYWIDE ELECTRICAL LIMITED

Respondent

Hearing:	25 August 2025
Appearances:	B D Gustafson / B McLeish for the Applicants D G Collecutt for the Respondent
Judgment:	16 September 2025

JUDGMENT OF ASSOCIATE JUDGE COGSWELL

This judgment was delivered by me on 16 September 2025 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.

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

Solicitors:

Olive Law, Auckland Waterstone, Auckland

D G Collecutt, Auckland

GRANT v CITYWIDE ELECTRICAL LTD [2025] NZHC 2641 [16 September 2025]

Introduction

[1]    Tempest Air Conditioning Systems Ltd (in liquidation) (Tempest) was insolvent.  By  April  2022,  Tempest’s  sole  director  and  majority  shareholder,  Mr Coulam, was considering liquidation.

[2]    Although not a director of Citywide Electrical Ltd (Citywide), Mr Coulam was also managing Citywide’s business. Citywide was owed a significant amount from Tempest. The debt was several months old.

[3]    One working day before liquidation, Tempest made a number of payments from its substantially overdrawn bank account in favour of a number of creditors, including Citywide.

[4]    On 29 April 2022, Citywide received the sum of $122,020.76 from Tempest (the Transaction).

[5]    On 2 May 2022, Tempest was placed into liquidation by special resolution of its shareholders. Messrs Grant and Botterill were appointed liquidators.

[6]    On the same day, Tempest’s business was sold to RCR Infrastructure Ltd (RCR).

[7]    The liquidators apply to set the Transaction aside as voidable under ss 292, 294 and 295 of the Companies Act 1993 (the Act), and seek an order for repayment of that sum from Citywide, together with interest and costs.

[8]The application is opposed.

[9]The following is not in dispute:

(a)the Transaction was  made  within  the  restricted  period  defined  by s 292(4C) of the Act;

(b)the Transaction occurred when Tempest was unable to pay its due debts; and

(c)The Transaction enabled Citywide to receive more towards the satisfaction of its debt than it would have been likely to receive in Tempest’s liquidation.

What was Tempest’s financial position in April 2022?

[10]The concession that Tempest was insolvent is appropriate.

[11]   The second liquidators’ report paints the picture of Tempest’s position as follows:

Assets

(a)fixed assets — $295,000;

(b)inventory — $20,000;

Liabilities

(c)preferential creditors:

(i)employee claims — $126,508.88;

(ii)Inland Revenue (preferential) — $219,569.63;

(d)secured creditors:

(i)       GSA Holder (BNZ) — $323,106.06;

(ii)      other secured creditors — unknown, but previously estimated at

$170,108.13;

(e)unsecured creditors — $1,212,023.12.

[12]   The creditors’ ageing summary, calculated as at the end of April 2022 and provided by the liquidators in evidence, shows that Tempest had significant and increasing unpaid debt as follows:

Current	Last month	Two months	Three months	Balance
$231,889.97	$381,613.14	$431,898.06	$384,777.93	$1,430,179.10

[13]   Focusing on Citywide, its position (after receipt of the Transaction) was as follows:

Current	Last month	Two months	Three months	Balance
$27,600.00	$5,978.56	$74,813.25	$117,254.01	$225,645.82

[14]This analysis shows significant aged debt owed to Citywide as at April 2022.

[15]   Tempest was unable to pay its debts as they fell due. The funds available in Tempest’s liquidation were insufficient to pay its preferential creditors in full, with no funds available to pay unsecured creditors. Accordingly, Citywide received more towards the satisfaction of its debt than it would have in Tempest’s liquidation.

[16]   Manheim Auctions carried out a valuation for the liquidators that determined the value of Tempest as follows:

(a)fair market value — $359,060 inclusive of GST;

(b)forced liquidation value — $276,350 inclusive of GST.

[17]   So, even at the upper limit of the valuation provided by Manheim, Tempest was balance sheet insolvent.

[18]The evidence establishes that Tempest was:

(a)unable to pay its debts as they become due in the normal course of business; and

(b)the value of the company’s assets was less than the value of its liabilities, including contingent liabilities.

The grounds of opposition to the liquidators’ application

[19]   In opposition, Citywide raises two grounds of defence to the liquidators’ application:

(a)the Transaction should not be set aside as it formed part of a continuing business relationship between Tempest and Citywide; and

(b)the liquidators agreed prior to Tempest’s liquidation not to attempt to claw back the payments made by Tempest in April 2022.

Ground 1 — continuing business relationship

[20]   The key issue for Citywide is whether it can retain the Transaction on the ground that it was an integral part of a continuing business relationship. If so, then s 292(4B) of the Act protects the otherwise insolvent transaction.

[21]Section 292(4B) of the Act provides:

(a)     transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including a relationship to which other persons are parties); and

(b)       in the course of the relationship, the level of the company’s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;

then—

(c)      subsections (1) and (1A) (as relevant) apply in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and

(d)       the transaction referred to in paragraph (a) may only be taken to be an insolvent transaction voidable by the liquidator if the effect of applying subsection (1) or (1A) in accordance with paragraph (c) is that the single transaction referred to in paragraph (c) is taken to be an insolvent transaction voidable by the liquidator.

[22]   Citywide argues that the running account defence applies to the Transaction because maintaining the relationship between Citywide and Tempest was critical to maximising the sale price of Tempest’s business to RCR.

[23]   Some discussion of the background facts is required to put that submission in context.

[24]   By April 2022, Tempest was insolvent. Simultaneously with the decision to liquidate the company, negotiations were occurring with RCR for it to acquire Tempest’s business.

[25]   At a date which is in dispute, but at least by 18 April 2022, Mr Grant was introduced to Mr Coulam for the purpose of discussing the proposed liquidation of Tempest and the sale of its business to RCR.

[26]   RCR was interested in Tempest and negotiations had centred around a price that would enable the secured creditor, BNZ, to be fully repaid. Mr Coulam had a guarantee exposure to BNZ and so was keen to have that amount fully repaid on any sale.

[27]   A draft agreement for the sale of the business was prepared, and negotiations continued with RCR, Mr Grant and Mr Coulam being involved. Mr Grant described what was occurring as a “pre-pack”, which is the preparation of the business for sale immediately following liquidation.

[28]   According to Citywide, it was critical that its relationship with Tempest was maintained, as Citywide was a subcontractor to Tempest and involved in various projects, including some that were intended to continue following the sale of the business. It was anticipated that RCR would continue those projects using, inter alia, Citywide.

[29]   Citywide argues that the price of the Tempest business relied on maintenance of Tempest’s relationships with its subcontractor creditors and, hence, payments made to those parties just prior to liquidation were made as an integral part of a continuing business relationship.

[30]   Tempest was placed into liquidation on 2 May 2022. Tempest’s business was sold to RCR the same day.

[31]   There are two clauses of the sale and purchase agreement relevant to Citywide’s argument under s 292(4B). They are:

(a)Clause 1.15, which provides that “Target Contracts” means all contracts to which Tempest is a party for the purposes of the business, including supplier, customer, client …, and including those contracts listed in Schedule 1 which includes fixed assets, inventory, and intangibles/goodwill and work in progress; and

(b)Clause 6.2, which provides for vendor assistance under the agreement; in particular, cl 6.2(b) which provided that:

The Vendor must use its best endeavours to assist the Purchaser in discussion with parties to the Property Leases, Target Contracts, and the Target Employees.

[32]   Citywide argues that it was in the best interests of the maximisation of the sale price that relationships with “target contracts” (which included Citywide) were maintained. This was in order to preserve Tempest’s business as a going concern. Hence, Citywide says, payments to it were paid as part of a continuing business relationship.

[33]   Counsel for Citywide acknowledged that there was no authority to support the proposition being advanced by it.

[34]   Counsel for the liquidators argue that the Transaction must have been made with a view to securing Citywide’s ongoing supply to it (ie, Tempest), not a new purchaser entity.

[35]   The liquidators rely on the Court of Appeal’s requirements for determining the existence of a “continuing business relationship” as set out in Timberworld Ltd v Levin.1 There, the Court of Appeal set out the requirements for a finding of a continuing business relationship as follows:

[34]     The key features of a running account, drawn from the Australian case law, may be summarised as follows:

1      Timberworld Ltd v Levin [2015] NZCA 111, [2015] 3 NZLR 365 at [34].

(a)A payment is part of a running account where there is a business purpose common to both parties which so connects a payment to subsequent debits as to make it impossible, in a business sense, to pause at any payment and treat it as independent of what follows.

(b)The amount owing to a creditor is likely to fluctuate over time, increasing and decreasing depending on the payment made and the goods or services provided.

(c)The effect of a payment depends on whether it is paid (i) simply to discharge a debt then owing to the creditor (including the permanent reduction of the balance of an account that is then owing) or (ii) as part of a wider transaction which, if carried out to its intended conclusion, would include further dealings giving rise to further amounts owing at the time of payment.

(d)A payment is part of a transaction that includes subsequent dealings even though it may reduce the amount of debt owing at the time of the payment, where it can be shown it is inextricably linked to further credits, and has the predominant purpose of inducing the provision of further supply and it is impossible to treat the immediate effect of the payment as the only effect.

(e)The manner or form of keeping account of credits and debits does not determine the effect of the payments. Rather, whether the payments are in fact part of a transaction with an effect distinct from the mere reduction of debt owing to the creditor by the debtor company, drives whether the series of transactions constitute a running account. The courts are concerned with the “business purpose”, the “business character” and the “ultimate effect” of the payments, in an objective sense.

(footnotes omitted)

[36]   The liquidators say that the Transaction fails to satisfy the features of a running account.

[37]   Counsel says that, in terms of the Court’s analysis in Owens v TR Group Ltd,2 the Transaction did not form part of any continuing business relationship; it was payment of old debt only, rather than payment to secure the provision of continuing services.3 They emphasise that the payment must be inextricably linked to future supply.4

2      Owens v TR Group Ltd [2016] NZHC 427 at [60].

3      The Transaction paid invoices from November 2021

4      Timberworld Ltd v Levin [2015] NZCA 111, [2015] 3 NZLR 365 at [34(d)].

[38]   The liquidators say that it is incorrect to interpret s 292(4B) of the Act as permitting payments to be made to maximise the sale price of a business that was about to cease, as that cannot be a transaction within s 292(4B). The sale price is a matter unrelated to maintenance of an ongoing relationship with a creditor.

[39]   The liquidators say that the Transaction is not a payment required to ensure the continuing business relationship with Citywide. Tempest’s business was about to be sold and would cease. Mr Coulam had arranged for the liquidation to commence. Tempest would cease all of its business relationships the following day.

[40]   Therefore, the Transaction cannot have been part of a continuing business relationship, as it was not made for the purpose of further supply, but rather to prefer Citywide over other creditors.5 The payment was “looking backwards rather than forwards; looking to the partial payment of old debt rather than the provision of continuing services.”6

[41]   When considering the wording of s 292(4B) it is clear that the legislative intent was that transactions would be protected from the voidable transaction regime where they formed an integral part of a continuing business relationship “between a company and a creditor of [that] company”.

[42]   In the present case, it cannot be the case that Tempest and Citywide had any reasonable expectation that a continuing business relationship would continue between them. Both companies knew, through the knowledge of Mr Coulam imputed to both of them, that Tempest’s business was about to stop. The Transaction was never made to secure ongoing supply of Citywide’s services to Tempest.

[43]   Whilst Tempest had an obligation under the sale agreement to use its “best endeavours” to “assist” RCR in discussions with target contracts (which includes Citywide); the obligation went no further than that. Citywide was free to engage with the new business or not.

5      Shephard v Steel Building Products (Central) Ltd [2013] NZHC 189 at [40].

6      Owens v TR Group Ltd [2016] NZHC 427 at [60], Shephard v Steel Building Products (Central) Ltd [2013] NZHC 189 at [37] - [40].

[44]   It is a matter of pure speculation to find that the sale price was maximised because the payments were made to various suppliers to secure their ongoing support of the business being sold. There was no evidence from RCR as to how significant it considered the ongoing need for Citywide to support the business.

[45]   Citywide also submits that Tempest needed to continue its relationships with its creditors, including itself, and the payments were made to continue those relationships. However, other than the obligation to “assist” with “discussions”, as set out in cl 6.2 of the agreement, it is difficult to see where any other further obligation arose, and even more difficult to see why or how, in the period between 29 April 2022 and 2 May 2022, there could be any impact on the sale price from a perceived lack of support from suppliers as a result of a failure to make a payment to them.

[46]    The obligation to “ensure the business relationship continued and could be passed on to a purchaser”, as contended by Citywide, was a matter dealt with through the best endeavours clause in the agreement for sale and purchase. This relationship with a non-party is not covered by the running account provision of s 292(4B).

[47]   The Transaction was at best part of a continuing business relationship between Citywide and a proposed purchaser of Tempest’s business through the payment to a creditor of a transaction that was clearly voidable. The Transaction was made, on Citywide’s view, to preserve a business relationship, not with Tempest, but potentially to create one with RCR. Post-sale, Tempest was never going to have an ongoing business relationship with Citywide; it would be in liquidation.

[48]   Section 292(4B)(a) provides that the transaction must be between “a company and a creditor of the company”. The provision does not apply between a “business” (no matter who owns it) and a creditor of that company.

[49]   The Transaction did not actually result in Tempest’s financial position being improved by the alleged maintenance of relations with creditors post-sale. The Manheim valuation concluded that the difference between a fair market value sale price and a forced liquidation sale price was only $82,710 including GST.

[50]   On 29 April 2022, Tempest made payments totalling $254,759.61 from its overdrawn bank account. That amount far exceeds the difference between the Manheim valuation analysis of fair market value sale price versus forced liquidation sale price. So, the Transaction did not cause the price to be maximised at all.

[51]   The Transaction was not part of an ongoing business relationship, as Tempest had no business relationship to maintain. Nor did it improve the sale price of Tempest, since, as mentioned, the forced liquidation sale price was only $82,710 including GST less than the fair market value sale price. The making of the last-ditch payments did not increase the sale price significantly beyond the forced liquidation sale price.

[52]   Finally, Citywide emphasised that the Court should stand back and consider the commercial reality of the situation. It says that when that is done and the matter is looked at solely looking forward from the end of April, the Transaction was made to continue the relationship with Citywide and others, which resulted in a beneficial sale price being available to the liquidators.

[53]   I consider that the commercial reality is quite different. I consider that, properly considered, the Transaction can be seen as nothing more than a preferential payment to a creditor associated with Tempest, made when Tempest was insolvent in circumstances where Tempest knew its business was about to cease. Looking at the commercial reality of the situation, there was never going to be an ongoing commercial relationship between the company and a creditor of the company as required by s 292(4B).

[54]   For the reasons set out above, I dismiss this ground of opposition to the application.

Ground 2 — agreement with liquidators

[55]   The second ground on which Citywide resists recovery of the transaction by the liquidators is that the liquidator is prevented from attempting to recover the transaction as voidable due to an agreement reached with Mr Coulam prior to liquidation.

[56]   Mr Coulam  says  that  in  the  period  leading  up  to  the  engagement  of  Mr Grant as liquidator, discussions occurred under which it was agreed that, should he be appointed liquidator, Mr Grant would not seek to overturn the payment made to Citywide.

[57]   I consider that this ground of opposition to the liquidator’s application is unsuccessful, for two reasons:

(a)it is not proven;

(b)even if it was proven, the liquidator was not permitted to enter into an agreement that sought to avoid his duties under the Act.

[58]   Both Mr Grant and Mr Coulam gave evidence at the hearing and were cross-examined.

[59]   Mr Grant denied the existence of the agreement in his affidavits, and his position was not seriously challenged in cross-examination.

[60]Mr Grant’s evidence on the issue is clear when he states:

8.4Mr Coulam asked me for advice regarding payments to creditors prior to liquidation, I advised him that making a payment to a firm that he was the manager of (Citywide) was possible within his powers, but was not ideal, and could later be clawed back under the liquidation. I do recall advising him that I could not provide an undertaking not to do this.

[61]   As for Mr Coulam, he says that such an agreement existed. However, he bears the onus of proving it on the balance of probabilities, and I find that he has not done so.

[62]   Mr Coulam also says that he would not have appointed Mr Grant in the absence of that undertaking. He says that he would have continued to trade the company to maintain the ongoing business relationship with the creditors by continuing to pay them.

[63]   Mr Coulam sought to maintain his position that such an agreement was reached, but his evidence was unreliable in some areas, including as to when contact was first made with Mr Grant, whether the agreement to pay the balance of the amount due to Citywide was an agreement reached with RCR or the liquidators and why there was no record of the alleged agreement reached with the liquidators, not even by way of exchange of text messages with the liquidator. Mr Coulam suggested that Mr Grant told him not to record such an agreement in writing, but I do not accept that he said that.

[64]   There is also the issue of the failure to call Andrew Hill, a partner at BDO Takapuna, who was allegedly at a meeting when the agreement not to challenge the Citywide payment was discussed and reached with the liquidators. Mr Hill was not called as a witness. I draw an adverse inference against Mr Coulam as a result of his failure to call that evidence, which may have proven the agreement he alleges.

[65]   To support my conclusions that Mr Coulam has failed to prove the agreement he asserts, I also refer to the complaint made by Mr Coulam to the New Zealand Institute of Chartered Accountants (NZICA). That decision, having considered submissions filed by both parties, specifically reviewed Mr Coulam’s complaint that there was an agreement reached not to challenge payments made to, inter alia, Citywide.

[66]   The NZICA committee considered that there was insufficient evidence to support a conclusion that Mr Grant had made or endorsed any of the pre-appointment promises alleged by Mr Coulam in his complaint.

[67]   Having considered the affidavit evidence and having the benefit of cross-examination of the two key witnesses, I find on the balance of probabilities that Mr Coulam has not proven the alleged agreement that he asserts exists.

[68]   Even if I am wrong that such an agreement was reached, I consider it to be of no effect, as the liquidators could not contract out of the obligations imposed on them

under the Act.7 Those obligations include those set out at ss 253 and 260 of the Act as follows:

253     Principal 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.

…

260     Powers of liquidator

(1)A liquidator has the powers—

(a)   necessary to carry out the functions and duties of a liquidator under this Act; and

(b)   conferred on a liquidator by this Act.

(2)Without limiting subsection (1), a liquidator has the powers set out in Schedule 6.

[69]   Given the existence of those clear duties to exercise the liquidator’s powers necessary to protect, realise and distribute assets for the proceeds of the realisation of assets of a company to its creditors, any agreement not to do so would be an illegal and unenforceable contract.

[70]   It follows that if the agreement was reached, then it would be of no effect in as much as it was intended to protect an otherwise voidable transaction made by Tempest in favour of Citywide.

7      It is trite that a director cannot contract out of their statutory duties (see Peter Watts “Directors’ duties after Debut Homes — a return to the scene” (2021) CSLB 55 at 55). It follows that a liquidator is also unable to contract out.

[71]   For those reasons, I dismiss any argument by Citywide that the liquidators are prevented by agreement from seeking to set aside the transaction. Such an agreement would be an illegal and unenforceable one.

[72]   Citywide also argued that the liquidators were estopped from claiming the Transaction as voidable. Citywide is unable to demonstrate that it relied on a representation (not made to it) that Tempest’s liquidators would not seek to overturn a payment made to Citywide by Tempest. As counsel for the liquidators say, Citywide did nothing. It simply received a payment in reduction of a long-outstanding debt. There is no evidence of any change of position by Citywide. Its sole director did not even know about this alleged agreement.

[73]It follows that there is no claim in estoppel available to Citywide.

[74]   The Court would not permit the parties by private treaty to effectively up-end the pari passu rule by agreeing that an otherwise voidable transaction was not recoverable because the liquidator agreed not to look to that payment for the benefit of the creditors of the company in liquidation. To do so would be to permit a departure from the important pari passu principle.8

Conclusion

[75]   The hearing proceeded on the basis that it was accepted that Tempest was insolvent at all relevant times. It follows from this that the requirements of s 292 of the Act are met when considering the voidable nature of the payment made to Citywide. No argument was made, nor could be made, against the proposition that the transaction was otherwise a voidable transaction.

[76]The two grounds of defence to the application advanced by Citywide were:

(a)the running account defence; and

8      The pari passu principles cannot be departed from or contracted out of, except where a creditor agrees to accept a less than equal share; see Attorney-General v McMillan and Lockwood Ltd [1991] 1 NZLR 53 at 61; and Stotter v Ararimu Holdings Ltd [1994] 2 NZLR 655 at 662.

(b)an alleged agreement with the liquidators not to pursue the payment to Citywide on liquidation.

[77]   For the reasons set out above, I dismiss both grounds of opposition to the liquidators’ application.

Result

[78]I order:

(a)that the amount of $122,020.76 received by Citywide from Tempest is void;

(b)Citywide is to pay the sum of $122,020.76 to the liquidators;

(c)Citywide is to pay interest on $122,020.76 pursuant to Part 1 of the Interest on Money Claims Act 2016;

(d)the plaintiffs are entitled to costs and disbursements at Scale 2B, as fixed by the Registrar.

Associate Judge Cogswell