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Green Cabs Limited v Naidu

Green Cabs Limited v Naidu

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IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2013-488-485 [2014] NZHC 3391

UNDER the Companies Act 1993

IN THE MATTER OF

an application under ss 292 and 294(5) o the Companies Act 1993

BETWEEN

PETER ESMOND FARRELL and SIMON PAUL ROGAN Applicants

AND

MAX BIRT SAWMILLS LIMITED Respondent

Hearing: 10 June 2014

Appearances:

J A MacGillivray and S Jass for Applicants
L Turner for Respondent

Judgment:

22 December 2014

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on 22 December 2014 at 11:30am
Pursuant to Rule 11.5 of the High Court Rules

………………………………………….
Registrar/Deputy Registrar

Solicitors:
Tompkins Wake, Hamilton, for Applicants
Whaley Garnett, Auckland, for Respondent

Counsel:
Lewis Turner, Auckland, for Respondent

FARRELL and ROGAN v MAX BIRT SAWMILLS LIMITED [2014] NZHC 3391 [22 December 2014]

CONTENTS

Paragraph

Background [9] The liquidators’ claim [19] How Max Birt and Bay Lumber recorded their transactions [25]
How to measure the preference – by values
of supplies or amount of debt? [32]

Peak indebtedness [45] The text of section 292(4B) [58] Farrell v Fences & Kerbs Ltd [64] Airservices Australia v Ferrier [68] Debt spike [71] Summary on peak indebtedness [77]

Calculating the preference [78]

Max Birt’s challenge to the liquidators’ second and
third transactions [82]

Setting aside the transactions [87]

Max Birt’s defence under s 296(3) [88] Good faith [92] Reasonable suspicion of insolvency [97] Alteration of position [107]

Outcome [113]

[1] This is a voidable transaction case under ss 292-296 of the Companies Act

1993. It arises out of the way that Bay Lumber Ltd, now in liquidation, reduced its indebtedness to Max Birt Sawmills Ltd while it was insolvent during the two years before a liquidation application was made.

[2] Max Birt supplied logs to Bay Lumber for processing. Bay Lumber supplied milled timber to Max Birt. While they intended that Max Birt’s supply of logs to Bay Lumber should roughly equal the value of timber supplied by Bay Lumber to Max Birt, an imbalance developed over time. At the end of June 2011 the value of logs Max Birt had supplied to Bay Lumber exceeded the value of timber delivered and payments made by Bay Lumber by $262,487.38. June 2011 is the month of peak indebtedness. The disparity did not get any higher. By November 2011 Bay Lumber had closed the gap.

[3] An order for Bay Lumber to be put into liquidation was made on 26 March

2012 on an application filed on 23 February 2012. For the two years before

23 February 2012 (the start of the specified period under s 292(5)(b) of the Companies Act), Bay Lumber was insolvent. In closing the gap between the values of logs received and timber supplied, Bay Lumber cleared its indebtedness to Max Birt. As a result, Max Birt received more than it would in the liquidation. The amount of the preference is $262,487.38. Under s 295 of the Companies Act there will be an order that Max Birt is to pay the…

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 3391
Decision Date: 22 December 2014

CaseChat Overview and Summary

This case concerns an application by liquidators to set aside transactions as voidable under the Companies Act 1993. The applicants, Farrell and Rogan, liquidators of Bay Lumber Ltd, sought to set aside transactions between Bay Lumber and Max Birt Sawmills Ltd, claiming that Max Birt received more than it would have in the liquidation while Bay Lumber was insolvent. Max Birt challenged the liquidators' claim, arguing that the transactions did not constitute voidable transactions and that it had a defence under s 296(3) of the Companies Act. The court considered the arguments of both parties and examined the relevant legal principles. The court found that the transactions did constitute voidable transactions and that Max Birt had not established a defence under s 296(3). The court ordered that the transactions be set aside and that Max Birt pay the liquidators the amount of the preference plus interest and costs.

Orders