Reynolds v IMC NZ Limited
[2024] NZHC 3935
•19 December 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-1807
[2024] NZHC 3935
BETWEEN GRANT BRUCE REYNOLDS as liquidator of IMC LIMITED (in liquidation)
Applicant
AND
IMC NZ LIMITED
Respondent
Hearing: On the papers Appearances:
B Pamatatau for the Applicant Liquidator No appearance for the Respondent
Judgment:
19 December 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 19 December 2024 at 3.30 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Craig Griffin & Lord, Auckland
REYNOLDS v IMC NZ LTD [2024] NZHC 3935 [19 December 2024]
Introduction
[1] Grant Bruce Reynolds, the liquidator of IMC Ltd (Company), has filed an application for an order that a transaction be set aside as an insolvent transaction pursuant to s 292 of the Companies Act 1993 and for orders either for payment of
$119,718.45 plus interest by the respondent, IMC NZ Ltd (Respondent) or that the Respondent transfer two vehicles to the Applicant within 10 working days of the Court’s order.
[2] The Respondent has taken no steps and did not appear at the first call of the application on 30 August 2024. An affidavit of service has been filed confirming that the Respondent was served on 8 August 2024 at their registered office.
[3] I have now considered the documents filed and make orders setting aside part of the transaction and for transfer of one of the vehicles for the reasons set out below. I begin by setting out the relevant legal provisions and the principles that apply.
Relevant legal principles
[4] Section 292(1) and (1A) set out the circumstances in which a transaction by a company is voidable by a liquidator. These sub-sections provide:
(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 restricted period.
(1A) A transaction by a company is voidable by the liquidator if it—
(a)is an insolvent transaction; and
(b)is entered into with a related party of the company within the related party period.
[5] Section 290(2) defines an “insolvent transaction” as 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.
[6] Section 292(3) defines “transaction” for the purposes of s 292 and includes “conveying or transferring the company’s property”. This term has been given the widest possible meaning by the courts which have been said to have embraced every means by which property may be passed from one person to another.1
[7] Where the relevant company was put into liquidation by the court, the “restricted period” referred to in s 292(1) is the period of six months before the making of the application to the Court.2 A transaction entered into within the restricted period is presumed to have been entered into at a time when the company was unable to pay its debts unless the contrary is proved.3
[8] In addition, in court-ordered liquidations, the “related party period”, as referred to in s 292(1A), is the period of two years before the making of the application to the court, together with the period commencing on the date of the making of that application and ending on the date on which the order was made.
[9] The process for setting aside a voidable transaction is set out in s 294. It requires the liquidator to file the prescribed notice in court and serve it on the party from whom recovery is sought. The transaction is automatically set aside as against the person on whom notice has been served if that person does not object in writing to the liquidator within 20 working days.4 Any objection notice must give particulars of the reason(s) for the objection and identify documents that evidence or substantiate the reasons for objecting.5
[10] If a transaction is set aside under s 294, s 295 provides that the court may make certain orders. These include an order that a person pay to the company an amount equal to some or all of the money that the company has paid under the transaction,6 or
1 Gathercole v Smith (1881) 17 Ch D 1 (EWCA) at 7.
2 Companies Act 1993, s 292(4C)(b).
3 Section 292(4A).
4 Section 294(3).
5 Section 294(4).
6 Section 295(a).
an order that a person pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction.
Transaction in this case
[11] Mr Reynolds, the liquidator of the Company, has sworn an affidavit in support of the application. He records that the Company operated a home renovation business that was incorporated on 29 November 2013 and that, before liquidation, the Company had stopped trading.
[12] The Respondent is a related company incorporated on 20 July 2021. Mr Oleg Rusakov is the sole director for both the Company and the Respondent. The Respondent is the 100 per cent shareholder of the Company. Mr Reynolds annexes true copies of Companies Office searches confirming the structure of the Company and the Respondent to his affidavit.
[13] The Company was placed into liquidation by the Court on 21 September 2023, pursuant to an application by Install Management Ltd dated 22 June 2023.
[14] Mr Reynolds deposes that the transaction in issue is recorded in an invoice numbered 182731 and dated 1 March 2023. Mr Reynolds says that the invoice records the sale of motor vehicles owned by the Company to the Respondent for $119,718.45, with $59,600.00 being attributed to the Toyota Hilux ute and $44,503.00 to an LDV G10 van, both plus GST. Mr Reynolds explains that, according to the invoice, the sales were paid for by allowances purported to be made for certain debts and liabilities that belonged to the Company, that the Respondent either intended to pay or had already paid on behalf of the Company.
[15] After what Mr Reynolds refers to as “the Set-Off”, the balance owed by the Respondent to the Company is recorded on the invoice as $27,545.22.
[16] Mr Reynold’s affidavit records that there was then a subsequent set-off which resulted in the further balance owing being set off against additional payments to the Company’s creditors and so, as a result, there is no debt due between the parties.
[17] Mr Reynolds annexes a copy of the notice dated 5 July 2024 served pursuant to s 294(1) of the Companies Act to his affidavit (Notice). An affidavit of service of the Notice on 8 August 2024 has been filed.
[18] The transaction relied on is recorded on the invoice as occurring on 1 March 2023 so it is within the restricted period of six months prior to the date that the liquidation application was made to the Court of 22 June 2023. The presumption in s 292(4A) that the Company was unable to pay its debts at the time it entered into the transaction therefore applies.
[19] I consider that there is sufficient evidence of the transfer of the Toyota Hilux ute from the Company to the Respondent but not of the LDV G10 van. This is because although the invoice records the transfer of the van at item number two, at the end of the invoice it then records “12.10.2023 credit note for Item 2. LDV G10 Van (owned by BFS)” and with the amount of $44,503 as a credit set out on the invoice.
[20] I accept that in Scutter (as liquidator of Matrix Homes Ltd (in liq)) v Tawa Ltd Partnership, the Court held that the issue of credit notes by a company was to be treated as a transaction but that was when it was an attempt to recharacterise shareholder loans/advances to the insolvent company, with a view to preferring a related party creditor’s interests over those of other unsecured creditors.7 Here, the credit note is in respect of a transaction earlier in the invoice apparently cancelling the earlier transfer. In addition, the reference to it being “owned by BFS” suggests it may not have been an asset that the Company could transfer to the Respondent.
[21] For completeness, I record that the Notice is only in relation to the transaction on 1 March 2023 which records the original set-off and not the subsequent set-off in relation to the remaining $27,545.22. Orders cannot therefore be made in respect of the subsequent set-off as no s 294(1) notice has been served in respect of that transaction.
7 Scutter (as liquidator of Matrix Homes Ltd (in liq)) v Tawa Ltd Partnership [2022] NZHC 848, [2022] NZCCLR 15.
[22] Section 294(3) of the Companies Act provides that if no written notice of objection to a s 294(1) Notice is received within 20 working days, the transaction is automatically set aside. There was no objection received in this case so the transaction in respect of the Toyota Hilux is automatically set aside. However the part of the transaction relating to the LDV G10 van is not automatically set aside because it is not a transaction for the purposes of s 292 as there has been no transfer of the van because of the credit note recorded on the same invoice.
Should an order for transfer of the vehicle or for payment be made?
[23] For the reasons discussed above, orders can only be made in respect of the Toyota Hilux as it is the only transaction for which there is sufficient evidence and for which a s 294(1) notice has been issued.
[24] As set out by Associate Judge Bell in GB Reynolds as liquidator of Southern HSE Holdings Ltd (in liquidation) v HSE Holdings Limited:8
Section 295 provides for a range of orders that may be made on a transaction or charge being set aside. When a transaction under s 292 is set aside, the relief should be directed at eliminating any preferential benefit a creditor has received. More extensive relief is not required. While the creditor benefiting from an insolvent transaction should not be allowed to retain a preferential advantage, nor should he be punished for having received such a benefit. There is nothing in the legislation that calls for a punitive approach. The various remedies in s 295 allow for the exercise of a discretion to mould an outcome appropriate for the case.
[25] Associate Judge Bell then held that it was not appropriate to require HSE Ltd to make a payment to Southern because it did not receive a payment, but instead received a transfer of medical equipment. I consider that a similar approach needs to be taken in this case.
[26] The Respondent did not receive a payment but instead received a transfer of the Toyota Hilux. I therefore make orders below setting aside the transaction and directing transfer of the Toyota Hilux to the Applicant with delivery to the address as set out in the application.
8 Reynolds (as liquidator of Southern HSE Holdings Ltd (in liq)) v HSE Holdings Ltd
HC Whangarei CIV-2009-488-738, 17 September 2010 at [28].
Result
[27]I order:
(a)the transaction transferring the Toyota Hilux LTT 305 ute from the Company to the Respondent on 1 March 2023 as set out on invoice 182731, where the settlement was made by setting off amounts the Company owed to the Respondent, be set aside as an insolvent transaction pursuant to s 292 of the Companies Act; and
(b)that the Respondent transfer to the Applicant, the Toyota Hilux LTT 305 ute by delivering the vehicle to All About Auctions, 82 Leonard Road, Mount Wellington by 31 January 2025.
[28] I decline to make orders in respect of the remainder of the application but reserve leave to reapply if a further notice pursuant to s 294(1) is served and further evidence filed.
Associate Judge Sussock