Installer Services (Hutt Valley) Limited v Colson - [2019] NZHC 210

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2017-485-748

[2019] NZHC 210

BETWEEN
INSTALLER SERVICES (HUTT VALLEY) LIMITED

Plaintiff

AND

ANDREW LESLIE COLSON AND SUE JENNIFER COLSON

Defendants

Hearing: 20-23 August 2018

Appearances:

D M Lester for Plaintiff S J Iorns for Defendants

Judgment:

20 February 2019

JUDGMENT OF GRICE J

Contents

Introduction [1]

Background [2]

The present claim [16]

Recovery of distributions [20]
Was a distribution made? [24]

Mr Colson’s salary [26]
Other drawings [32]

Solvency [36]

Franchise fees  [52]
Goodwill  [71]
Conclusion  [78]

Directors duties to the company [84]

Duty of care [84]
Good faith [97]

Reparation [111]

Summary of the law  [111]
Measure of the loss  [115]
Contribution by the director for the loss  [122]

INSTALLER SERVICES (HUTT VALLEY) LIMITED v COLSON [2019] NZHC 210 [20 February 2019]

(a) Causation [124]

(b) Culpability [128]

Conclusion [130]

Conclusion [134]

Costs

Introduction
[137]

[1] Mr and Mrs Colson became the directors of Installer Services (Hutt Valley) Ltd in June 2000. They were also shareholders, holding 50 shares each. Installer Services (Hutt Valley) Ltd went into liquidation on 18 December 2013. It now seeks amounts from Mr and Mrs Colson, as shareholders and directors of the company, for the repayment of various shareholder drawings and alleged breaches of directors’ duties. Specifically, it claims:

(a)the company made distributions to Mr Colson, in his capacity as a shareholder, while failing to follow the required statutory processes when the company was insolvent. Repayment of the amount distributed is sought pursuant to s 56 of the Companies Act 1993 (the Act);

(b)Mr and Mrs Colson breached their duty as directors to act with reasonable care and skill pursuant to s 137 of the Act; and

(c)Mr and Mrs Colson breached their duty as directors to act in good faith and in the best interests of the company pursuant to s 131 of the Act.

Background

[2] Installer Services (Hutt Valley) Ltd was incorporated on 14 September 1999 and began trading later that year. Mr and Mrs Colson had been the directors of Installer Services (Hutt Valley) Ltd since 30 June 2000. Mrs Colson retired from her position on 27 February 2013, but Mr Colson remained a director until the company went into voluntary liquidation on 18 December 2013.

[3] Installer Services (Hutt Valley) Ltd was a franchisee of Installer Services (Group) Ltd (the franchiser). The franchise was related to sales of mobile electronic

goods and services such as car stereos, band expanders and mobile phones. Installer Services (Hutt Valley) Ltd paid $80,000 to the franchiser for the license rights. Annual licence fee payments of five per cent of the franchisee’s turnover were also payable. As will become clear, the franchiser and Mr Colson disagreed about when this fee was payable.

[4] Mr Corry was the representative of the franchiser that Mr Colson dealt with on the matters relevant to these proceedings. The relationship between Installer Services (Hutt Valley) Ltd and the franchiser became strained…

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.

Keep reading for free

Create a free CaseChat account to read Installer Services (Hutt Valley) Limited v Colson and more:

Read every judgment in full
Ask AI and get answers linked to paragraphs
See how each paragraph was cited in later cases
Download judgments as PDF or Word

Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details

Case: [2019] NZHC 210
Decision Date: 20 February 2019

CaseChat Overview and Summary

The High Court of New Zealand was asked to decide whether directors of Installer Services (Hutt Valley) Ltd breached their duties to the company. The company went into liquidation and the liquidators sought to recover payments made to shareholders and claim compensation for breaches of directors' duties. The court found that the directors breached their duty of care by making shareholder distributions without following the statutory process. The court found that the payments made to Mr Colson were not distributions and were not repayable. However, the payments made to Mr Colson as "additional drawings" were repayable. The court found that the directors did not breach their duty of good faith. The court ordered that Mr Colson repay $19,943 to the company in his capacity as a shareholder. The court also ordered Mr and Mrs Colson to pay the same amount as compensation in their capacity as directors. The order for compensation is not payable if Mr Colson pays the $19,943 due in his capacity as a shareholder.

Orders