Levin v Z Energy Limited - [2014] NZHC 688

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-419-760 [2014] NZHC 688

BETWEEN HENRY DAVID LEVIN and VIVIEN JUDITH MADSEN-RIES
Applicants

ANDZ ENERGY LIMITED Defendant

Hearing: 21 March 2014

Appearances: Ms C Murphy for Applicants
Mr R Gordon for Respondent

Judgment: 7 April 2014

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on
07.04.14 at 4 pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

LEVIN & Anor v Z ENERGY LIMITED [2014] NZHC 688 [7 April 2014]

[1] This is an application by liquidators of a company, Tarsealing 2000 Limited (“the Company”) for orders under ss 292, 294 and 295 of the Companies Act 1993. The company was liquidated by order of the Court on 4 May 2012. The applicant for liquidation order was the Commissioner of Inland Revenue. However the Commissioner was not the original creditor who took proceedings for liquidation and the initial application was made 21 November 2011 by another party. The Commissioner was substituted as creditor when the original creditor did not wish to proceed.

[2] The liquidators claim from the respondent the sum of $293,555.86 plus costs and interest. The background to the claim is that the company began trading with the respondent from approximately February 2010. The last transaction which occurred took place in October 2011 when there was a refund made to the company of $5,107.73 which it had paid in the previous month. The continuing business relationship between the parties, which both sides accepted had been in existence, ended in substance on 21 July 2011 with a payment from the company of
$78,601.93.

[3] The liquidator claims that there has been a voidable transaction within the meaning of s 292 of the Companies Act 2003 which provides as follows:

292 Insolvent transaction voidable

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

(3) In this section, transaction means any of the following steps by the company:

(a) conveying or transferring the company's property: (b) creating a charge over the company's property:
(c) incurring an obligation:

(d) undergoing an execution process:

(e) paying money (including paying money in accordance with a judgment or an order of a court):

(f) anything done or omitted to be done for the purpose of entering into the transaction or giving effect to it.

…

(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…

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 688
Decision Date: 7 April 2014

CaseChat Overview and Summary

Levin v Z Energy Limited is a case concerning the liquidators of Tarsealing 2000 Limited, who are seeking orders under sections 292, 294, and 295 of the Companies Act 1993. The liquidators claim that a voidable transaction occurred between the company and Z Energy Limited, amounting to $293,555.86 plus costs and interest. The dispute focuses on determining the commencement date of the specified period and whether a voidable transaction took place within that period. The High Court of New Zealand was tasked with resolving these issues.

The court considered whether the substitution of a creditor in the liquidation proceedings affects the commencement of the specified period. The court held that such substitution does not result in a new application to the court, and thus, the specified period begins two years prior to the date the substituted creditor initiated the proceedings, which in this case was 21 November 2009. The court further examined whether the so-called "peak indebtedness" principle could be applied to determine the voidable transaction. The court rejected this principle, aligning with the decision in Shephard v Steel Building Products (Central) Limited, and instead adopted the running account approach, which considers the overall effect of the transactions between the parties. The court concluded that the business relationship between the company and Z Energy Limited amounted to a running account, and that the transactions had a neutral effect, resulting in no voidable transaction. Consequently, the application was dismissed, and the parties were instructed to confer on the issue of costs.

This decision highlights the importance of considering the overall effect of transactions within a continuing business relationship when determining whether a voidable transaction has occurred under the Companies Act 1993. The court's rejection of the peak indebtedness principle and adoption of the running account approach aligns with the policy behind the legislation, which aims to strike down payments that deplete assets available to the general body of creditors while allowing for payments made to acquire goods or services of equal or greater value.

Orders