BThe payments made by Five Star Finance Ltd (in liquidation) to Ronald Leslie Russell as trustee of the Bowden No. 14 Trust between 26 September 2006 and 23 August 2007 totalling $928,937.79 are voidable and are set aside.
CMr Russell is to pay to the applicants Messrs Rea and Sargison the sum of $928,937.79.
DThe respondent will pay the costs of the appellants for a standard appeal on a Band A basis together with usual disbursements.

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REASONS OF THE COURT

(Given by Asher J)

Table of Contents

Para No
Introduction  [1]
Background  [4]
The decision  [13]
Were these payments insolvent transactions under s 292 of the Act?
The words of the section  [20]
     The burden of proof  [24]
     A revolving credit facility?  [25]
     Transactions not “real”  [29]
     Payments of a debt or restoration of property?  [32]
     Payments into an account in overdraft  [42]
     The payments following 31 March 2007  [47]
     Conclusion on whether there were insolvent transactions  [51]
Section 292(4B)  [52]
Section 295  [62]
Result  [66]
Costs  [69]

Introduction

Five Star Finance Ltd was one of the many New Zealand finance companies that became or were shown to be insolvent following the onset of the global financial crisis in 2007. It had been financed primarily by deposits from the public. The company went into receivership on 5 September 2007 and was put into liquidation by Court order on 13 June 2008. Following the liquidation, the liquidators found that Five Star Finance Ltd had creditors’ claims of $43,834,842.58. Recoveries so far have come to $551,887.24.
This appeal concerns allegedly voidable transactions made in the two years prior to the liquidation between 26 September 2006 and 23 August 2007. The payments amounted to $928,937.79 and were made to a trust, the Bowden No. 14 Trust. The respondent Ronald Leslie Russell was the sole trustee of that Trust during the period in question.
On 22 February 2011 the liquidators served a notice under s 294 of the Companies Act 1993 (“the Act”) to have these transactions set aside as voidable under s 292 of the Act. The application was heard by Associate Judge Bell. On 24 January 2012 he gave a decision concluding that the payments did not come within s 292 of the Act and that the liquidators were not entitled to an order setting them aside.[1] The liquidators, Gerald Stanley Rea and Paul Graham Sargison, appeal that decision.

Background

[1] Rea v Russell [2012] NZHC 11.

The evidence before the High Court was in four short affidavits, two from the appellant Mr Sargison who is one of the liquidators of Five Star Finance Ltd…

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 Rea v Russell

Details

AGLC: Rea v Russell [2012] NZCA 536
Case: [2012] NZCA 536
Decision Date: 16 November 2012

CaseChat Overview and Summary

Gerald Stanley Rea and Paul Graham Sargison, liquidators of Five Star Finance Ltd, appealed against a decision of the High Court to dismiss their application to set aside payments made by the company to the Bowden No. 14 Trust. Ronald Leslie Russell was the trustee of the trust during the relevant period. The liquidators sought to recover payments made by the company to the trust between 26 September 2006 and 23 August 2007, totalling $928,937.79. The Associate Judge had dismissed the application and the liquidators appealed.

The Court of Appeal considered the legal issues of whether the payments were voidable transactions under s 292 of the Companies Act 1993, and whether the payments fell within the exception in s 292(4B). The Court found that the payments were voidable transactions and that they did not fall within s 292(4B). The Court also considered the orders that should be made under s 295 of the Act.

The appeal was allowed and the payments were set aside. Ronald Leslie Russell, as trustee, was ordered to repay the $928,937.79 to the liquidators. The respondent was ordered to pay the costs of the appeal.

Orders