Reynolds v James - [2014] NZCA 578

IN THE COURT OF APPEAL OF NEW ZEALAND

CA608/2012
[2014] NZCA 578

BETWEEN	GRANT BRUCE REYNOLDS AS THE LIQUIDATOR OF JAMES DEVELOPMENTS LTD (IN LIQUIDATION) Appellant
AND	CHRIS JAMES Respondent

Hearing:	21 October 2014
Court:	Miller, Heath and Dobson JJ
Counsel:	A C Sorrell for Appellant M R Sherwood King for Respondent
Judgment:	28 November 2014 at 3.30 pm

JUDGMENT OF THE COURT

AThe application to strike out the appeal is dismissed.
BThe appeal is dismissed.
CThe appellant is to pay the respondent costs in this Court on his application for extension of time and on the appeal, as for a standard appeal on a band A basis, plus usual disbursements.

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REASONS OF THE COURT

(Given by Dobson J)

The context of the appeal

This is an appeal from a decision of Associate Judge Bell delivered in the High Court at Auckland in August 2012.[1] The judgment declared payments to the respondent (Mr James) of $60,904 to be a voidable preference under s 292 of the Companies Act 1993 (the Act), but dismissed a liquidator’s claim for orders for payment of that amount plus interest. The payments had been made to Mr James in the period shortly before the relevant company, James Developments Ltd (JDL), passed into voluntary liquidation. Mr James was the sole director, and linked to those who held the beneficial interest in the shares in JDL.
[1]Reynolds v James [2012] NZHC 2132.
The decision also determined the enforceability of a general security agreement (GSA), which Mr James had procured JDL to execute, again in the period shortly before JDL passed into voluntary liquidation. The finding that the security intended to be provided by the GSA was not relevantly enforceable is not challenged by way of cross-appeal, and does not need to be reviewed.
The appeal is brought by the current liquidator of JDL, Mr Reynolds, who is the second to occupy that position.[2] The liquidator’s stance reflects the interests of the major unsecured creditor of JDL, Mana Property Trustee Ltd (Mana), which has funded the present liquidator’s initiatives in this litigation.
[2]The circumstances of appointment of successive liquidators is addressed in [9] to [12] below.
Although the present appeal was filed in a timely way, thereafter no steps were taken to obtain a hearing date or file the case on appeal for more than six months. That delay required an application for an extension of time in which to take further steps in the appeal, given the effect of r 43 of the Court of Appeal (Civil) Rules 2005 (the Civil Rules), which deemed the appeal to be abandoned when the appellant had not taken those steps within the six month period. The application was opposed, and the Court granted the required r 29A extension of time in a judgment on 2 September 2013.[3]
[3]Reynolds v James [2013] NZCA 413.
Once the present hearing date was allocated, the appellant was required to file and serve submissions in support of the appeal…

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 Reynolds v James

Details

AGLC: Reynolds v James [2014] NZCA 578
Case: [2014] NZCA 578
Decision Date: 28 November 2014 at 3.30 pm

CaseChat Overview and Summary

In Reynolds v James, the Court of Appeal dismissed an appeal brought by the liquidator of James Developments Ltd, seeking to recover payments made to the company's former director, Mr. James, before the company's liquidation. The appeal contested a High Court decision that upheld the voidability of the preferential payments under s 292 of the Companies Act 1993 but dismissed the liquidator's claim for repayment of the payments plus interest. The appeal raised issues concerning whether the payments were made by or on behalf of Mr. James, whether they were for the company's purposes, and whether the payments ranked after preferential creditors. The Court found that the Associate Judge was justified in inferring that Mr. James procured the payments made by Otago Real Estate Ltd on his behalf, and that the payments were for the company's purposes. The Court held that the payments ranked as a first priority under cl 1(a) of sch 7 to the Act, thereby justifying Mr. James offsetting them against his liability to reimburse the preferential payment of $60,904 received. The Court concluded that it would be inequitable to require Mr. James to repay the amount represented by the transactions that were set aside, and exercised the residual discretion under s 295 to deny a remedy to the liquidators. The Court ordered the appellant to pay the respondent costs on his application for extension of time and on the appeal, as for a standard appeal on a band A basis, plus usual disbursements.

The Court of Appeal dismissed the appeal and ordered the appellant to pay the respondent costs in this Court on a band A basis, plus usual disbursements. The Court held that the liquidator's arguments were not well-founded, and that the Associate Judge's findings were consistent with the statutory provisions and the common law principles applicable to insolvent transactions. The Court emphasised the importance of recognising the offsetting effect of other transactions where a company in liquidation has been advantaged by payments to it, or on its behalf, by a party that would otherwise be vulnerable to repay preferential amounts they had received. The Court also noted the role of the liquidator as an independent officeholder, who is obliged to have regard to the circumstances in which payments are made to or on behalf of a company in liquidation. The Court's decision provides guidance on the resolution of claims over insolvent transactions, and the scope of the Court's powers in responding to such initiatives.

Orders