Grant v Shears and Mac Limited

[2012] NZHC 1772

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-3866 [2012] NZHC 1772

UNDER  The Companies Act 1993

IN THE MATTER OF     Voidable Transaction

BETWEEN  DAMIEN GRANT AND STEVEN KHOV AS LIQUIDATORS OF BLUNDELL COFFEE CLUB LIMITED (IN LIQUIDATION)

Applicant

ANDSHEARS AND MAC LIMITED Respondent

Hearing:         10 May 2012

Counsel:         D Grant for Applicants

J Lethbridge for Respondents

Judgment:      19 July 2012

RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Application to set aside Voidable Transaction)

This judgment was delivered by me on 19 July 2012 at 4.30 pm pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date ..........................

Solicitors:

Waterstone Insolvency, PO Box 352, Shortland Street, Auckland

Grove Darlow & Partners, PO Box 2882, Auckland

GRANT AND KHOV AS LIQUIDATORS OF BLUNDELL COFFEE CLUB LIMITED (IN LIQUIDATION) V SHEARS AND MAC LIMITED HC AK CIV-2011-404-3866 [19 July 2012]

[1]      This is an application to set aside certain payments made by Blundell Coffee Club Limited (in Liquidation) to Shears and Mac Limited as voidable transactions. The application is brought under ss 292 and 294 of the Companies Act 1993.

[2]      The application is opposed.

Background

[3]      Blundell set out to establish a franchise of Coffee Club Franchising (NZ) Limited in Hastings.  Shears and Mac had an existing relationship with Coffee Club Franchising a franchisor, having fitted out premises for over 30 of its franchisees throughout the country.

[4]      On 10 July 2009 Shears and Mac provided a quotation to Blundell to fit out its coffee shop premises in Hastings for $407,084.00 (plus GST).  The quotation was accepted by Blundell, and the contract finalised, on 4 August 2009.   Blundell’s director gave a personal guarantee for the agreed cost of the fit out. Clause 8.1 of the agreement’s  terms  and  conditions  gave  Shears  and  Mac  a  registerable  security interest in the fit out:

... Shears and Mac4 [sic] holds a security interest in all such materials and improvements for payment of any moneys due.

[5]      Pursuant to the contract, Shears and Mac issued the following invoices:

(a)      10 July 2009 invoice 15915              $ 137,390.85 (including GST) (b)      10 August 2009 invoice 16082          $   22,680.18 (including GST) (c)      10 August 2009 invoice 16081          $ 297,680.15 (including GST)

[6]      Invoice 15915 comprised a 30% deposit and was due for payment on 20

August 2009.  By 5 August 2009, Blundell had paid the invoice in full.

[7]      Invoice  16082  comprised  a  5%  contribution  to  be  paid  by  Coffee  Club

Franchising and not Blundell.  It was due for payment on 12 November 2009. On 14

December 2009, Coffee Club Franchising paid the invoice in full.

[8]      Invoice 16081 comprised the remaining 65% of the contract value.   It was due to be paid by Blundell by 20 September 2009.  Blundell paid the majority of the

$297,680.15 invoice by 12 August 2009, leaving only $47,680.15 to be paid.  That outstanding sum was not paid on time.  Pursuant to invoice 16081, Blundell made the following payments to Shears and Mac, which are the subject of this application:

(a)       20 October 2009  $ 10,000.00 (b)  Between 21 December 2009 and 21 May 2010  $   8,750.001

[9]      After the payment on 20 October 2009 (the $10,000 payment), Blundell and

Shears and Mac agreed to a new regime to make time payments for the outstanding sum, $37,680.15.   The basis of the time payment regime was first drafted on 17

November 2009.   It was amended and finally agreed to on Friday 11 December

2009.    The  regime  required  a  lump  sum  payment  of  $15,000.00  on  Friday  11

December followed by weekly instalments of $1,250.00 from 21 December 2009.  It allowed for interest and outlined that any default on the time payments would result in Shears and Mac issuing a statutory demand.

[10]     Blundell was not immediately prompt with its time payments.  No payment had arrived by Monday 14 December 2009.  On that date, representatives of Shears and Mac sent an email to Blundell.  The email threatened statutory demands if an acceptable solution for the outstanding sum was not reached:

No payments were received on Friday for your Coffee Club accounts.  We have been very accommodating up to this point, but I am now in a position where you leave me with no other alternative but to take legal action to recover these debts.  Please advise by the close of business today (Monday

14 December) of an acceptable status or we will have to proceed with the issue of statutory demands.

1 The liquidators have identified the payments in this period totalling $7,750.00.  It appears that the liquidators miscalculated that amount and I assess the payments at $8,750.00, based on Shears and Mac’s own evidence.

[11]     Subsequently, a $15,000 lump sum was paid by Blundell’s director over 14 and 15 December and is not the subject of this application.  Blundell then paid one instalment of $1250.00 on 21 December 2009.   In January 2010 Blundell advised Shears and Mac that it would be better able to keep to the payment arrangement by paying $500.00 per week.  Shears and Mac agreed to this new time payment regime, and Blundell made 15 weekly $500.00 payments between 29 January and 21 May

2010. Between that time period, Blundell failed to meet its weekly payment on two occasions.

[12]     The $1250.00 payment and the 15 payments of $500.00 come to a total of

$8,750 (the $8,750.00 payments).

[13]     The applicants, Damien Grant and Steven Khov, were appointed as Blundell’s liquidators on 10 June 2010 by special resolution of Blundell’s shareholders. The liquidators   issued   notice  under  s   294(1)  setting  aside   transactions   totalling

$56,148.47 as voidable.   Shears and Mac served a notice of objection on the liquidators.   On 12 August 2011, the liquidators decreased the allegedly voidable amount to $18,750.2

[14]     Blundell’s financial statements for 31 March 2010 show that it had net assets of negative $81,431.99.  At the time of Blundell’s liquidation, $185,587.21 had been submitted as owing to Blundell’s creditors, including $41,070.72 of secured debt,

$81,476.68 of preferential debt and $63,037.81 of unsecured debt. In addition, Blundell allegedly owes $63,637.76 to the Inland Revenue Department.

Relevant law

[15]     Sections 292(1), (2) and (4A) of the Companies Act 1993 outline when an insolvent transaction will be voidable:

292     [Insolvent transaction voidable]

(1)      A transaction by a company is voidable by the liquidator if it—

2 Again, whereas the liquidators claimed $17,750, the figure should have been $18,750; comprising the $10,000 and $8,750 payments.

(a)      is an insolvent transaction; and

(b)      is entered into within the specified period.]

(2)      An insolvent transaction is a transaction by a company that—

(a)       is entered into at a time when the company is unable to pay its due debts; and

(b)       enables another person to receive more towards satisfaction of a debt owed by the company than the person would receive, or would be likely to receive, in the company's liquidation.]

...

(4A)    A transaction that is entered into within the restricted period is presumed, unless the contrary is proved, to be entered into at a time when the company is unable to pay its due debts.]

[16]     Section 292(5) defines “specified period” for the purpose of s 292(1)(b):

(5)      For the purposes of [subsections (1) and (4B)], specified period

means—

(a)       The period of 2 years before the date of commencement of the liquidation together with the period commencing on that date and ending at the time at which the liquidator is appointed; and]

[17]     Section 292(6) defines “restricted period” for the purpose of 292(4A):

(6)      For the purposes of [subsection (4A)], restricted period means—

(a)       The period of 6 months before the date of commencement of the liquidation together with the period commencing on that date and ending at the time at which the liquidator is appointed; and]

[18]     Section  296(3) outlines  a defence to  s  292,  whereby the recipient  of an insolvent transaction will nonetheless be allowed to retain the money:

(3)       A court must not order the recovery of property of a company (or its equivalent value) by a liquidator, whether under this Act, any other enactment, or in law or in equity, if the person from whom recovery is sought (A) proves that when A received the property—

(a)      A acted in good faith; and

(b)       a   reasonable   person   in   A's   position   would   not   have suspected,  and  A  did  not  have  reasonable  grounds  for

suspecting,  that  the  company  was,  or  would  become, insolvent; and

(c)       A gave value for the property or altered A's position in the reasonably held belief that the transfer of the property to A was valid and would not be set aside.]

Issues

[19]     The issues I am required to determine are essentially threefold.  The first is whether  the  $10,000  payment  was  a  voidable  transaction.  The  second  issue  is whether the $8,750 payments were voidable transactions. The third issue is whether the circumstances of the $8,750 transactions allow Shears and Mac to invoke the s

296(3) defence.

[20]     For the reasons that follow, I am satisfied and find that:

(a)       The $10,000 payment was not a voidable transaction; and

(b)      The $8,750 payments were voidable transactions and the s 296(3)

defence is not available.

Reasons

The $10,000 payment

[21]     Blundell was put into liquidation on 10 June 2010.  Following section 292(5), the “specified period” started on 10 June 2008, some two years prior to the date of liquidation. Blundell paid Shears and Mac $10,000 on 20 October 2009, which falls within the specified period.

[22]     The liquidators therefore bear the onus of proving that the $10,000 payment is an insolvent transaction.  In order to so prove, the liquidators must first show that on 20 October 2009, when the $10,000 payment occurred, Blundell was unable to pay its due debts.3

[23]     If that first step is met, the liquidators must then establish that the $10,000 payment enabled Shears and Mac to receive more towards satisfaction of the debt owed by Blundell than Shears and Mac would receive, or would be likely to receive, in Blundell's liquidation.4

[24]     The  liquidators  have  produced  financial  statements  demonstrating  that  in March 2010, Blundell was unable to pay its due debts.   Based on these financial statements, the liquidators suggest that the only intelligible inference is that Blundell was also unable to pay its debts as of 20 October 2009.

[25]     However,  Shears  and  Mac  points  out  that  the  March  2010  financial statements do not prove that Blundell was unable to pay its due debts as of 20

October 2009.   Shears and Mac points out that there is no evidence that Blundell owed any amount to its creditors or the IRD on 20 October 2009.

[26]     At the hearing, the liquidators conceded that there was insufficient evidence to say with certainty that Blundell was unable to pay its debts as of 20 October 2009. This concession, in my mind, was properly made.  It clearly demonstrates that the liquidators have failed to establish that the $10,000 payment was an insolvent transaction.

[27]     The liquidators have not established the first step.  I do not, therefore, see that it is necessary to consider whether the $10,000 payment enabled Shears and Mac to receive more towards satisfaction of the debt than it would receive, or would be likely to receive, in Blundell's liquidation.

[28]     I conclude that the $10,000 payment was not a voidable transaction.

The $8,750 payments

[29]     Between 21 December 2009 and 21 May 2010, Blundell paid Shears and Mac the sum of $8,750.  Following section 292(6), the “restricted period” started on 10

December 2009, some six months prior to 10 June 2010, the date that Blundell went

into  liquidation.    As  such,  it  is  presumed  that  these  payment  transactions  are insolvent transactions.  Shears and Mac bears the onus of proving the contrary.

Whether $8,750 payments were insolvent transactions

[30]     In order to prove that the $8,750 payments were not insolvent transactions, Shears and Mac must demonstrate that at least one of the two elements of s 292(2) is not met.

[31]     The first element is not in dispute.  Shears and Mac accepts it is unable to demonstrate that between 21 December 2009 and 21 May 2010, when the $8,750 payments occurred, Blundell was able to pay its debts.5    It accepts that the March

2010 financial statements show that Blundell was insolvent at that time.

[32]     The second element, however, is in dispute.  Shears and Mac has the onus of proving that the $8,750 payments did not enable it to receive more towards satisfaction of the debt Blundell owed than it would receive, or would be likely to receive, in Blundell's liquidation.6

[33]     Shears and Mac submits that the liquidators have not proved that the $8,750 payments allowed it to receive more towards the satisfaction of its debt than it would receive in Blundell’s liquidation.

[34]     However, as noted by the liquidators, the March 2010 financial statements clarify that, at that time, Blundell had insufficient assets to clear all of its debts and faced a net loss of $81,431.99.  At the time of Blundell’s liquidation, $185,587.21 had been submitted as owing to Blundell’s creditors and $60,637.76 to the IRD.

[35]     In the context of that financial situation, I believe it is clear that Blundell did not have the ability to pay the IRD and each of its creditors in full.  It is unlikely that Shears and Mac would receive the full $8,750 in Blundell’s liquidation. Therefore,

the  $8,750  payments  did  enable  Shears  and  Mac  to  receive  more  towards  the

5 Companies Act 1993, s 292(2)(a).

satisfaction of the debt owed by Blundell than it would be likely to receive in

Blundell's liquidation.  I believe the $8,750 payments were insolvent transactions.

Section 296(3) defence

[36]     Concluding that the $8,750 payments were insolvent transactions is not the end of the matter. Shears and Mac also claims that the $8,750 payments are not voidable because it can prove the three elements of the s 296(3) defence.  Shears and Mac asserts that when it received the payments totalling $8,750:

(a)       it acted in good faith; and

(b)it  could  not  reasonably  be  expected  that  Blundell  was  or  would become insolvent; and

(c)       it altered its position in the reasonably held belief that the $8,750 transactions were valid and would not be set aside.

[37]     The liquidators dispute each of the assertions.

Whether Shears and Mac acted in good faith

[38]     Shears and Mac must demonstrate that it honestly believed that the $8,750 payments would not involve any element of undue preference to itself.7    If Shears and Mac knew that it had been treated preferentially to other creditors, it cannot claim to have received the transactions in good faith.8

[39]     The liquidators submit that Shears and Mac cannot prove it honestly believed the transactions would not involve undue preference.  The liquidators point out that Shears and Mac had a number of conversations trying to induce payment from Blundell.  They point especially to the email sent on behalf of Shears and Mac to

Blundell on 14 December 2009.  The email was sent because Blundell failed to make

7 Re Orbit Electronics Auckland Ltd (in liq); W H Jones & Co (London) Ltd v Rea (1989) 4 NZCLC

65,170 (CA).

8  Pharmacy Wholesalers (Wellington) Ltd v Graham HC Auckland CIV-2003-404-3312, 5 February

2004.

a payment on 11 December 2009 and threatened a statutory demand if payment was not made.   These factors, the liquidators claim, demonstrate that Shears and Mac knew it was receiving preferential treatment.  I also note that the facts that Blundell required a time payment regime, and then needed to amend that regime, are also relevant when analysing whether Shears and Mac knew it was receiving preferential treatment.

[40]     Shears and Mac on the other hand submits that it did not know that it had been treated preferentially.   It points to its longstanding relationship with Coffee Club Franchising during which no prior franchisee had gone into liquidation. Shears and Mac also notes that Blundell made most payments on time and that the outstanding amount was relatively low.  Blundell regularly paid amounts toward the outstanding sum and agreed to pay interest on missed payments.

[41]     With respect to the email of 14 December 2009, Shears and Mac points out that it agreed to the time payment regime only three days earlier, on Friday 11

December 2009.   The agreement clearly stated that any default would result in a statutory demand.  It also claims that threatening statutory demand is a standard debt recovery tool, particularly in the construction industry. It submits that referring to a statutory demand cannot be taken as an indication that it knew that it was receiving preferential treatment.

[42]     I believe Shears and Mac has demonstrated, on the balance of probability that it acted in good faith.  It had a right to refer to a statutory demand and I do not accept that it knew it had received preferential treatment.

Whether  it  could  not  reasonably  be  expected  that  Blundell  was  or  would  become insolvent

[43]     Heath and Whale on Insolvency outlines that the essential question on the suspicion of insolvency limb is:9

9  Paul Heath and Michael Whale (eds) Heath and Whale on Insolvency (LexisNexis, Wellington,

2011) at [24.133].

Whether the creditor can prove that he or she had no reasonable grounds for suspecting insolvency, which required an objective consideration of the circumstances.

[44]     Heath   and  Whale  on   Insolvency   also   emphasises   the  importance   of commercial reality in assessing the reasonable suspicion of insolvency: 10

In approaching the question of suspicion of a company’s state of solvency it is necessary to apply commercial reality derived from the particular industry to the facts and with regard to the commercial reality of the situation.

[45]     The liquidators submit that by any objective standard, Shears and Mac could reasonably expect that Blundell would become insolvent.  They maintain that Shears and Mac has failed to prove that it did not have reasonable grounds for suspecting that Blundell would become insolvent.

[46]     In  support  of  their  claim  that  Shears  and  Mac  suspected  Blundell’s insolvency, the liquidators again place particular emphasis on the 14 December 2009 email, which threatened a statutory demand if payment was not made. I also note that earlier, on November 13 2009, a representative of Shears and Mac sent an email to Blundell’s franchisor.   The email expresses concerns about the initial stages of establishing Blundell’s time payment regime:

2 invoices... are now overdue.

...

I spoke with Mike Blundell regarding Invoice 16081 which has been explained/reconciled with him.   Despite requests for a repayment proposal he has not been forthcoming.   I spoke to him again on the phone on Wednesday and he advised you had details of a repayment proposal. I left you messages after trying to contact you which you have not returned.

Please  provide  details  of  exactly  when  we  can  expect  to  receive  the payments to avoid further proceedings.

[47]     Despite their submissions, however, at the hearing the liquidators accepted

that there is “no smoking gun” to prove that Shears and Mac could reasonably expect

that Blundell was or would become insolvent.

10 At [24.135].

[48]     Shears and  Mac responds by acknowledging that referring to a statutory demand  is  a  “robust  approach  to  payment”.    However,  it  submits  that  merely referring to a statutory demand does not mean that it ought to have suspected that Blundell was insolvent.  Shears and Mac submits that the 14 December 2009 email is the only real fact supporting the liquidator’s assertion that it could reasonably expect that Blundell would become insolvent. However, it points to commentary which states that “no single factor will be decisive of whether a person should have held the requisite suspicion of insolvency.”11   I also note that the only reason Shears and Mac sent the 14 December 2009 email was Blundell’s failure to make a payment on 11

December 2009.  Blundell subsequently advised Shears and Mac, on 14 December, that the only reason the payment did not occur was because Blundell’s director had not accessed the relevant email in time.

[49]     Shears and Mac also submits that the email cannot be assessed in isolation.  It claims that the context within which it was written demonstrates that Shears and Mac could not reasonably have expected that Blundell was insolvent.   Shears and Mac outlines the following contextual factors within which the email was written:

(a)      The issue of a statutory demand to recover amounts outstanding is a standard debt recovery tool that Shears and Mac used to recover payment even against a clearly solvent company;

(b)The 14 December 2009 email was sent the first working day after the new time payment regime was finalised;

(c)      The email was sent after Blundell had already agreed that any default could potentially result in a statutory demand being issued;

(d)The time payment regime cannot be inferred as an attempt by Shears and Mac to improve its situation because it already had a signed

agreement with Blundell which entitled it to full payment; and

11  Paul Heath and Michael Whale (eds) Heath and Whale on Insolvency (LexisNexis, Wellington,

2011) at [24.135].

(e)      The  personal  guarantee  given  by  Blundell’s  director  cannot  be inferred as an attempt by Shears and Mac to improve its situation because it is standard practice and was part of the original agreement of July 2009.

[50]     When considering the circumstances objectively, I accept that Shears and Mac has demonstrated that it did not, on the balance of probability, have reasonable grounds for suspecting Blundell’s insolvency. I accept that its robust approach to recovering  payment  is  insufficient  to  establish  that  it  ought  to  have  suspected Blundell was insolvent. That leaves the issue of whether or not Shears and Mac altered its position.

Whether Shears and Mac altered its position in the reasonably held belief that payments were valid and would not be set aside

[51]     In Re Bee Jay Builders Ltd, Tipping J explained that the “essence of an alteration of position” is a: 12

a deliberate course of conduct, be it act or omission, following receipt of the impugned payment which course of conduct the recipient would not have undertaken but for receipt of the payment and belief in its validity.

[52]     In Baker Timber Supplies, Fisher J described the purpose of the defence is: 13

... to assist a creditor if he has deliberately gone down one path in the reasonable expectation that he has received a valid payment, only to find that he is not only required to repay the money but that in the meantime he has also lost a valuable alternative opportunity. In other words, he must have acted to his detriment on the strength of the insolvent company’s payment.

[53]     Shears and Mac must therefore demonstrate that it altered its position by taking a deliberate course of conduct following receipt of the impugned $8,750 payments in the belief that they would not be set aside. Shears and Mac claims to have done so.  It claims that, relying on the belief that the payments would not be set

aside, it deliberately decided not to perfect a security it had on the property.

12 Re Bee Jay Builders Ltd (in liquidation) [1991] 3 NZLR 560 at 566. I note that this case referred to the same statutory provision of the previous legislation, Companies Act 1955.

13 Baker Timber Supplies v Apollo Building Associates (Tauranga) Society Ltd (in liquidation) (1990)
5 NZCLC 66,791 at 3. This case also referred to the previous legislation.

[54]     Shears and Mac’s security arose from clause 8.1 of the Terms and Conditions of its agreement with Blundell.   Relevantly, clause 8.1 gives Shears and Mac a registerable security interest in the fit out:

... Shears and Mac4 [sic] holds a security interest in all such materials and improvements for payment of any moneys due.

[55]     Shears and Mac claims that if it had suspected Blundell was likely to be insolvent, it would have taken further steps and earlier steps to perfect its security by registration on the Personal Property Securities Register.  Shears and Mac submits that it did not register the interest because it was receiving regular payments which it believed to be valid.

[56]     I emphasise that, as Tipping J explained, the deliberate course of conduct in question must occur following receipt of the impugned payments.14  Fisher J also explained that the creditor must have deliberately gone down a path in the reasonable expectation that he has  received  a valid payment15, as opposed to  a reasonable expectation that he will receive a valid payment.

[57]     I believe the first flaw in Shears and Mac’s argument is that it does not actually claim to have altered its position following receipt of the $8,750 payments. Shears and Mac had the opportunity to register its interest from 15 August 2009 to

25 August 2009; the 10 day period after it completed the fit out.  By not registering the interest during this period, it claims to have altered its position. However, the

$8,750 payments occurred between 21 December 2009 and 21 May 2010, clearly after 25 August 2009. Shears and Mac’s claim is therefore in reality that it altered its position prior to receipt of the $8,750 payments.

[58]     The liquidators also argue that Shears and Mac did not actually alter its position.   In doing so, they point to the Personal Property Securities Act 1999. Section 66(a) of the PPSA outlines that a “perfected security interest has priority

over an unperfected security interest in the same collateral”.  Section 66(b) outlines

14  Re Bee Jay Builders Ltd [1991] 3 NZLR 560 at 566. I noted that this case referred to the same statutory provision of the previous legislation, Companies Act 1955.

15 Baker Timber Supplies v Apollo Building Associates (Tauranga) Society Ltd (in liquidation) (1990)

5 NZCLC 66,791 at 3.

that   priority  between   perfected   security   interests   in   the   same   collateral   is “determined by the order of whichever of the following first occurs in relation to a particular security interest”.

[59]     The   liquidators   point   out   that   BNZ   registered   its   General   Security Arrangement with Blundell on 26 June 2009, well before Shears and Mac had the opportunity to register its security interest from 15 August 2009 to 25 August 2009. They argue that, had Shears and Mac perfected its security interest, it would nonetheless have been subject to BNZ’s security, which would have had priority.

[60]     In my mind, in assessing whether or not Shears and Mac altered its position, the crucial question is whether the following positions are actually different:

(a)       Shears and Mac having a perfected security interest when BNZ has a perfected security interest that was registered first; and

(b)      Shears and Mac having an unperfected security interest when BNZ

has a perfected security interest.

[61]     The statute indicates that the outcome in both situations will be the same; BNZ will have priority over Shears and Mac. I accept that if Shears and Mac had registered its security, it would have had a perfected security interest.  However I do not believe that its position would have been altered.  It would have ultimately been in the same position that it was already in, with BNZ having priority over its interest.

[62]     At the hearing, counsel for Shears and Mac acknowledged that its interest would have been secondary to that of BNZ. She nonetheless argued that if it had a perfected security interest, it would have been able to remove the property fixtures in accordance with clause 8.1 and then enter into negotiations with BNZ about who owned the fixtures.

[63]     That argument does not go beyond bare assertion.   It assumes that BNZ would be willing to enter into such negotiations when clearly it would have priority to the fixtures. That is a significant and, I believe, unrealistic assumption because it

clearly goes against the order of priorities in the statute.   Viewed objectively, I believe that registering its security interest would not have given any advantage to Shears and Mac. Therefore, its failure to register the interest did not give it any disadvantage.

[64]     Further, Shears and Mac have a difficult task in persuading me that its failure to register the security interest was a deliberate decision based on its belief that the payments would not be set aside.  There is a strong possibility that Shears and Mac decided not to register the security interest because it knew that the security interest would fall secondary to that of BNZ.

Conclusion

[65]     In conclusion, I accept that Shears and Mac acted in good faith and could not reasonably expect that Blundell was insolvent.   However, I do not accept that it altered its position in the reasonably held belief that the $8,750 payments were valid and would not be set aside.  The defence under s 296(3) is not available to Shears and Mac and the $8,750 payments are voidable transactions.

Result

[66]     The application is allowed in part, to the extent that:

(a)      There is an order that the payments made by Blundell Coffee Club Limited prior to its liquidation of $8,750.00 are set aside as voidable transactions.

(b)I give judgment to the liquidators of Blundell Coffee Club Limited against the respondent, Shears and Mac Limited, in the sum of $8,750.

(c)       The application is otherwise dismissed.

[67]     That leaves the issue of costs.  Each side has made brief oral submissions on the issue.  I see no need to traverse the arguments as each assumed its own success.

It is appropriate that costs lie where they fall, each side having enjoyed partial

success. Accordingly, there will be no costs awards.

Associate Judge Sargisson