Madsen-Ries v Petera - [2016] NZCA 103

IN THE COURT OF APPEAL OF NEW ZEALAND

CA198/2015
[2016] NZCA 103

BETWEEN

VIVIEN JUDITH MADSEN-RIES AND DAVID STUART VANCE AS LIQUIDATORS OF PETRANZ LIMITED (IN LIQUIDATION)
First Appellant

PETRANZ LIMITED (IN LIQUIDATION)
Second Appellant

AND

DARRELL WARREN KARANEIHANA PETERA
First Respondent

DIANA JOY PETERA
Second Respondent

Hearing:	11 November 2015
Court:	Winkelmann, Courtney and Clifford JJ
Counsel:	N H Malarao and K M Wakelin for Appellants No appearance for Respondents
Judgment:	8 April 2016 at 3 pm

JUDGMENT OF THE COURT

The appeal is dismissed.

____________________________________________________________________

REASONS OF THE COURT

(Given by Clifford J)

Introduction

This is an appeal against a decision of Lang J in the High Court that salaries paid to the respondents, Mr and Mrs Petera, by the second appellant, Petranz Limited (in liquidation) (Petranz), were fair to Petranz when paid.[1] The issue on this appeal is whether the Judge, in reaching that conclusion, gave appropriate consideration to the very poor financial situation of Petranz at the time the remuneration was paid.

Background

[1]Madsen-Ries v Petera [2015] NZHC 538.

Petranz was a road transport business. It operated three trucks and specialised in moving containers. Mr Petera drove one of the trucks. Petranz employed drivers to drive the other two trucks. Mrs Petera looked after its administrative needs. Petranz went into liquidation on 30 January 2009. At liquidation, its only debt of real significance was its liability for unpaid taxes. That debt, including penalties, comprised $120,555.33. Other creditors were owed some $12,000.
The appellants, the liquidators of Petranz and Petranz itself, sued Mr and Mrs Petera as Petranz’s directors and shareholders. They claimed various breaches of duty and that the Peteras owed Petranz on current account (as shareholders) and for unfair remuneration (as directors).
The Judge first found that the Peteras owed Petranz a total of $140,134.70 on their current accounts.[2] The Judge declined the appellants’ application for the repayment of directors’ remuneration.[3] The Judge went on to find the Peteras had, as alleged, breached duties they owed Petranz under the Companies Act 1993 (the Act), including the s 135 duty not to trade recklessly.[4] The Judge also found that they had failed to keep proper accounting records as required under s 194.[5]
[2]At [46].
[3]At [48]–[51].
[4]At [56]–[71].
[5]At [72]–[82].
In terms of quantum for the breach of directors’ duties, the liquidators sought recovery from the Peteras of $453,003.33 made up of $132,355.69 for the creditors’ claims together with $280,647.64 for the liquidators’ costs up to the start of trial and $40,000 for the liquidators’ costs in relation to the trial.[6]
[6]At [92]. There appears to be a discrepancy in the calculation of the creditors’ claims between the figure provided here and the figure provided at [4], but this is minor and unimportant given the outcome of the appeal.
Lang J did not accept the liquidators’ approach. He considered that it ignored the language used in ss 300 and 301 and that it would encourage liquidators and their legal advisers to adopt an approach…

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.

Continue reading Madsen-Ries v Petera

Details

AGLC: Madsen-Ries v Petera [2016] NZCA 103
Case: [2016] NZCA 103
Decision Date: 8 April 2016 at 3 pm

CaseChat Overview and Summary

Madsen-Ries v Petera [2016] NZCA 103 involved an appeal against a High Court decision that salaries paid to the respondents, Mr and Mrs Petera, by Petranz Limited (in liquidation), were fair to Petranz when paid. The appeal centred on whether the Judge gave appropriate consideration to the poor financial situation of Petranz at the time the remuneration was paid. The Court of Appeal found that the concept of fairness under s 161 of the Companies Act 1993 does not require directors to consider the interests of creditors when approving their remuneration. While directors owe a duty to creditors to avoid reckless trading under s 135, this duty is not incorporated into the fairness test under s 161. The Court of Appeal held that the Judge correctly assessed the fairness of the remuneration under s 161 and dismissed the appeal. The Court of Appeal concluded that the Act's scheme protects creditors through the solvency test rather than the fairness certification requirement. The appeal was dismissed with no order as to costs.

Orders