[1] This is an application under s 294 of the Companies Act 1993 to have transactions set aside as voidable under s 292. The transactions said to be voidable are payments by Five Star Finance Ltd to the Bowden No. 14 Trust between
26 September 2006 and 23 August 2007 amounting to $928,937.79. The liquidators served a notice under s 294 on the respondent, a former trustee of the Bowden No. 14 Trust, on 22 February 2011. The respondent served a notice of opposition on
18 March 2011. His main defence is that as trustee he did not authorise any of the

transactions said to give rise to the company‘s indebtedness to the trust.

[2] As the Court of Appeal noted in Anzani Investments Ltd v Official Assignee:1

[6] The purpose of s 292 is to provide a mechanism that enables a liquidator to restore valuable consideration (of various types), with which the company parted prior to liquidation, to the pool of assets available for distribution among all creditors. The object is to prevent one creditor from being given preferential treatment through payment (pre-liquidation) of an amount in excess of that which would have been received had it participated with other creditors of equal rank in the distribution of the proceeds of sale of assets on liquidation. Those general principles are qualified by limited exceptions contained in s 292.

[3] Five Star Finance Ltd is one of the Five Star group of companies. The group was financed primarily by deposits from the public. Another Five Star company, Five Star Debenture Nominee Ltd, received the deposits and in turn advanced them to Five Star Finance Ltd. Five Star Finance Ltd went into receivership on
5 September 2007. An application for Five Star Finance Ltd to be put into liquidation was filed in court on 8 February 2008. An order was made for the company to be put into liquidation on 13 June 2008. On liquidation, Five Star Finance Ltd was found to be grossly insolvent. The liquidators say that creditors‘ claims total $43,834,842.58. Recoveries so far, have come to $551,887.24.

[4] The directors of the company were Anthony Walpole Bowden,…

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] NZHC 11
Case: [2012] NZHC 11
Decision Date: 24 January 2012

CaseChat Overview and Summary

This case involved an application by liquidators under s 294 of the Companies Act 1993 to set aside transactions as voidable under s 292. The transactions in question were payments by Five Star Finance Ltd to the Bowden No. 14 Trust between 26 September 2006 and 23 August 2007, amounting to $928,937.79. The respondent, Ronald Leslie Russell, a former trustee of the trust, opposed the application. The High Court found in favour of the respondent and dismissed the liquidators' application. The court held that the payments were not transactions within s 292 as they were not payments by a debtor to a creditor, but rather the restoration of property unlawfully misappropriated from the trust. As such, they were not voidable transactions under s 292. The court also found that the respondent was not liable for the payments as he had not authorised them and they were not within the mandate he had given to Mr Kirk, a fiduciary agent of the trust. The court ordered that the liquidators pay the respondent's costs on a 2B basis.

Orders