Madsen-Ries v Twine - [2015] NZHC 227

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2014-404-001317 [2015] NZHC 227

BETWEEN
VIVIEN JUDITH MADSEN-RIES &

ORS Plaintiffs

AND

RENE TWINE & ANOR Defendants

Hearing: 5 February 2015

Appearances:

K Wakelin, M Hammer for the plaintiffs
No appearance for the defendants

Judgment:

20 February 2015

JUDGMENT OF GILBERT J

This judgment is delivered by me on 20 February 2015 at 12 noon pursuant to r 11.5 of the High Court Rules.

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

MADSEN-RIES & ANOR v TWINE & ANOR [2015] NZHC 227 [20 February 2015]

[1] View Road Panelbeaters Ltd was placed in liquidation on 27 July 2012 owing the sum of $236,973.12 to the Commissioner of Inland Revenue and a further sum of
$23,581.93 to trade creditors. The defendants were at all relevant times the directors and shareholders of the company. The first plaintiffs, the liquidators, have investigated the company’s trading history and financial position. They consider that the company was insolvent from March 2006 onwards and that by continuing to trade the defendants breached the duties imposed on them by the Companies Act 1993, in particular under ss 131, 133, 134, 135, 136, and 137. They seek orders pursuant to s 301 of the Act requiring the defendants to pay compensation to the company sufficient to meet the creditors’ claims and the costs of the liquidation.

[2] The proceedings were served on the defendants on 10 July 2014 but they have taken no steps and no statement of defence has been filed. The plaintiffs therefore seek judgment by default pursuant to r 15.9 of the High Court Rules.

[3] Mr Levin, one of the liquidators, has provided an affidavit detailing the creditors’ claims and the trading history and financial performance of the company from 1 April 2005 to 31 March 2012. The company made trading losses in each of these years with the exception of 2009 and 2011 when modest trading surpluses were achieved. Current liabilities exceeded current assets throughout this period, ranging from $14,410 in 2006 to $154,748 in 2012. Taking into account non-current assets and liabilities, the company had negative equity in each of these years, ranging from
$39,611 in 2006 to $136,095 in 2012. Mr Levin considers that the company was insolvent from March 2006.

[4] The company made no payments of Goods and Services Tax after

31 January 2008; no PAYE deductions were accounted for after September 2008; and no KiwiSaver contributions were made after December 2008. The directors must have been aware that the company was in serious default of its tax obligations and was unable to meet creditors’ claims as they fell due.

[5] The company was only able to continue trading by using creditors’ funds and

by relying on related party loans. The directors commenced repayment of the related

party loans during the financial year ended 31 March 2009 and these were fully repaid by 31 March 2010. In Mr Levin’s opinion, the repayment of these loans placed the company’s cash flow under intolerable stress.

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 Twine

Details

AGLC: Madsen-Ries v Twine [2015] NZHC 227
Case: [2015] NZHC 227
Decision Date: 20 February 2015

CaseChat Overview and Summary

The case of Madsen-Ries & Ors v Twine & Anor involved a dispute over the insolvency of View Road Panelbeaters Ltd, a company that was placed in liquidation on 27 July 2012. The company owed $236,973.12 to the Commissioner of Inland Revenue and a further $23,581.93 to trade creditors. The defendants, who were the directors and shareholders of the company, were accused of breaching their duties under the Companies Act 1993 by continuing to trade while the company was insolvent from March 2006 onwards. The plaintiffs, the liquidators, sought orders requiring the defendants to pay compensation to the company to meet the creditors' claims and the costs of the liquidation.

The court had to determine whether the defendants breached their duties under the Companies Act 1993 by continuing to trade while insolvent and, if so, what compensation, if any, should be ordered. The court also had to consider whether the liquidators' costs in carrying out the liquidation were recoverable from the defendants. The liquidators argued that the defendants breached their duties under the Act by continuing to trade while insolvent and that the creditors' losses were a direct result of this breach. The defendants did not file a defence or take any steps in the proceedings, leaving the court to decide the case based on the evidence provided by the liquidators.

The court found that the company was insolvent from March 2006 and that the defendants breached their duties by continuing to trade. The court held that the creditors' losses were a direct and foreseeable result of the directors' decision to continue trading while insolvent. The court ordered the defendants to pay compensation to the company in the amount of $260,555.05 to meet the creditors' claims. The court declined to order the defendants to pay the liquidators' costs, finding that the costs would likely have been similar regardless of when the liquidators were appointed. The court ordered the defendants to pay the plaintiffs' costs of the proceeding in the sum of $15,695.38.

In conclusion, the court held that the defendants breached their duties under the Companies Act 1993 by continuing to trade while insolvent and ordered them to pay compensation to the company to meet the creditors' claims. The court declined to order the defendants to pay the liquidators' costs and ordered the defendants to pay the plaintiffs' costs of the proceeding.

Orders