Reynolds v Lal
[2025] NZHC 2640
•11 September 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2025-404-1168
[2025] NZHC 2640
IN THE MATTER of the liquidation of Rank Properties Limited (in liquidation) UNDER
the Companies Act 1993
BETWEEN
GRANT BRUCE REYNOLDS as liquidator of RANK PROPERTIES LIMITED (in
liquidation) Applicant
AND
KISHAN MAHI LAL
Respondent
Hearing: 1 September 2025 Appearances:
B M K Pamatatau for Applicant A S Nair for Respondent
Judgment:
11 September 2025
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 11 September 2025 at 12.30 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:
REYNOLDS v LAL [2025] NZHC 2640 [11 September 2025]
[1] The applicant (Mr Reynolds) is the liquidator of Rank Properties Ltd (the company). He seeks to recover from Kishan Mahi Lal (Mr Lal), a payment of
$427,562.541 made by the company on 17 May 2023 on the basis it is a voidable
insolvent transaction under s 292 of the Companies Act 1993 (the Act).
[2] Mr Lal opposes the application. As the argument was developed by Mr Nair, the issues arising are whether:
(a)the notice issued by the liquidator under s 294(1) and (2) of the Act to set aside the transaction was deficient and invalid; and
(b)for the purposes of s 292(1A) and (2) of the Act the payment enabled Mr Lal to receive more towards satisfaction of a debt owed to him by the company than he would receive, or would be likely to receive, in the company’s liquidation.
[3] These arguments reflect Mr Lal’s position that the payment identified in the liquidator’s notice was not made to him or for his benefit but to Bass Road Ltd, a creditor of the company of which he is not a director or shareholder and has no other interest.
The facts
[4] The company was incorporated on 22 April 2021. It carried on business purchasing properties for subsequent sale at a profit.
[5] Mr Lal was the sole director and shareholder of the company until 28 November 2023, when he was replaced by Jeremy James Murphy. Mr Lal also transferred his shares to Mr Murphy.
[6] The company was put into liquidation on 21 March 2024 by Mr Murphy as shareholder pursuant to s 241(2)(a) of the Act. Mr Reynolds was appointed liquidator.
1 Throughout the balance of this judgment, I use rounded figures except where they appear in quotations.
[7] In around May 2023, the company purchased 29 Pah Road, Papatoetoe, which comprised six lots each with separate titles. It immediately sold the properties to Housing New Zealand Ltd and incurred a GST liability of $742,232 which has not been paid. From the proceeds of sale, $432,562 was paid on 17 May 2023 by the company’s lawyers into its account with the ANZ Bank.
[8] Also on 17 May 2023 an amount of $427,562 was paid from the ANZ Bank account to Bass Road Ltd. The company’s bank statement narrates the payment as “Bass Road Limited LOAN REPAYMENT KLAL”.
[9] Bass Road Ltd is a company associated with a Joseph Chacko and was a creditor of the company at the time of liquidation. Mr Chacko has made an affidavit in the proceeding and says that over the period April 2021 to May 2023 loans were made by different companies in his control, including Bass Road Ltd, to assist the company with property development and trading activities.
[10] Mr Lal operated a shareholder’s current account with the company and from time to time introduced and withdrew funds from the company. His shareholder’s current account was recorded in two journals headed “Kishan – shareholder advance transactions” and “Kishan – drawings transactions”. As of 17 May 2023, it appears Mr Lal was owed a substantial sum by the company in his shareholder’s current account.
[11] On 20 July 2023 Mr Lal reconciled payments in the company’s Xero management accounts and debited the amount of the payment made to Bass Road Ltd on 17 May 2023 against his shareholder’s current account.
[12] Upon his appointment Mr Reynolds identified the payment to Bass Road Ltd as an insolvent transaction. On 15 October 2024, Mr Reynolds wrote to Mr Lal’s lawyers asserting that the payment was voidable as follows:
1.On or around 16 May 2023 the Company sold the Property to Housing New Zealand Limited for $5,850,000.00.
2.At the time of settlement, the Company incurred a GST liability on the sale of the Property of $742,232.07, as shown in the Company GST return for the period ending May 2023.
3.On or around 17 May 2023, Pabla Law transferred to the Company, the balance of the settlement of $432,562.54 from the sale of the Property to the Company.
4.After the transaction described above and on or around 17 May 2023, the Company transferred to Mr Lal the amount of $427,562.54 which represents a repayment to Mr Lal of his current account.
5.The Payment is voidable and required to be returned to the Company.
[13] On 5 December 2024, Mr Reynolds wrote to Mr Lal’s lawyers again, impatient that Mr Lal had not made an offer to settle the matter as promised and noting that he had filed with the Court a notice to set aside the payment.
[14] It appears that also on 5 December 2024 Mr Lal accessed the company’s Xero management accounts and changed the entry relating to the payment to read “debt repayment to Bass Road Limited on 17 May 2023”.
[15] On 17 December 2024, Mr Lal emailed Mr Reynolds indicating that he would make his best possible offer in the new year. No offer was made and on 28 January 2025 Mr Reynolds gave notice of his intention to continue with “the voidable preference claim”.
[16] Mr Reynolds filed with the Court and subsequently served upon Mr Lal a notice under s 294(1) and (2) of the Act. In it he gave notice of his intention to set aside the following transaction:
The payment of $427,562.54 paid by the Company to [Mr Lal] on or around 17 May 2023, (the Insolvent Transaction).
[17] Mr Lal filed a notice of objection under s 294(3) of the Act on 26 March 2025. His notice of objection raised the following grounds:
[Mr Lal] records [his] objection to the Notice as follows:
a.Insolvent transaction was not made between him and the Company
b.Insolvent transaction was made with Bass Road Limited, which is listed as a creditor of the Company in the list of unsecured creditors set out at Appendix B of the Liquidator’s first report
c.[Mr Lal] is not and has never been a shareholder of Bass Road Limited
d.[Mr Lal] did not receive $427,562.54 from the Company
e.The Liquidator has produced Xero statements that code the Insolvent Transaction as being with [Mr Lal]. These statements are incorrectly coded
f.The Liquidator has referred in previous correspondence to the management accounts of the Company, [Mr Lal] has insufficient knowledge and therefore denies any allegations in relation to the management accounts of the Company
[18]On 7 May 2025, Mr Reynolds filed this application. The orders sought are:
(a)That the transaction, pursuant to s 292 of the Companies Act 1993, by Rank Properties Ltd (in liquidation) to [Mr Lal], being a payment of
$427,562.54 made on or around 17 May 2023, be set aside as an insolvent transaction.
(b)That [Mr Lal] pays to the liquidator the sum of $427,562.54 together with interest from the date of the notice.
[19] Mr Lal filed a notice of opposition to the application and, consistent with his earlier notice of objection, says:
(a)the payment of $427,562 was not made to him but Bass Road Ltd;
(b)Mr Reynolds misattributed the transaction to him because of incorrect coding in the company’s financial records; and
(c)he was not a shareholder in, or related to, Bass Road Ltd and had received no benefit from the payment.
The Companies Act 1993 provisions
[20]Sections 292 and 294 of the Act relevantly provide:
292 Insolvent transaction voidable
(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.
(2)An insolvent transaction is 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.
(3)In this section, transaction means any of the following steps by the company:
(a)conveying or transferring the company’s property:
(b)creating a charge over the company’s property:
(c)incurring an obligation:
(d)undergoing an execution process:
(e)paying money (including paying money in accordance with a judgment or an order of a court):
(f)anything done or omitted to be done for the purpose of entering into the transaction or giving effect to it.
…
(5)For the purposes of subsections (1A) and (4B), related party period
means—
(a)the period of 2 years before the date of commencement of the liquidation together with the period commencing on that date and ending at the time at which the liquidator is appointed; and
…
294 Procedure for setting aside transactions and charges
(1)A liquidator who wishes to set aside a transaction or charge that is voidable under section 292 or 293 must—
(a)file a notice with the court that meets the requirements set out in subsection (2); and
(b)serve the notice as soon as practicable on—
(i)the other party to the transaction or the charge holder, as the case may be; and
(ii)any other party from whom the liquidator intends to recover.
(2)The liquidator’s notice must—
(a)be in writing; and
(b)state the liquidator’s postal, email, and street addresses; and
(c)specify the transaction or charge to be set aside; and
(d)describe the property or state the amount that the liquidator wishes to recover; and
(e)state that the person named in the notice may object to the transaction or charge being set aside by sending to the liquidator a written notice of objection that is received by the liquidator at his or her postal, email, or street address within 20 working days after the liquidator’s notice has been served on that person; and
(f)state that the written notice of objection must contain full particulars of the reasons for objecting and must identify any documents that evidence or substantiate the reasons for objecting; and
(g)state that the transaction or charge will be set aside as against the person named in the notice if that person does not object; and
(h)state that if the person named in the notice does object, the liquidator may apply to the court for the transaction or charge to be set aside.
(3)The transaction or charge is automatically set aside as against the person on whom the liquidator has served the liquidator’s notice, if that person has not objected by sending to the liquidator a written notice of objection that is received by the liquidator at his or her postal, email, or street address within 20 working days after the liquidator’s notice has been served on that person.
(4)The notice of objection must contain full particulars of the reasons for objecting and must identify documents that evidence or substantiate the reasons for objecting.
(5)A transaction or charge that is not automatically set aside may still be set aside by the court on the liquidator’s application.
The liquidator’s position
[21] On the face of Mr Reynolds’ notice under s 294 he seeks to set aside a payment made by the company to Mr Lal on 17 May 2023 for $427,562. However, Mr Reynolds does not dispute that payment was made to Bass Road Ltd. What he
says is that the amount of the payment was subsequently set off against Mr Lal’s shareholder’s current account. It is the setting off of the amount of the payment against Mr Lal shareholder’s current account that is in fact the transaction Mr Reynold’s seeks to set aside.
[22] Mr Pamatatau’s submissions on behalf of Mr Reynolds predominately concerned two issues. First, whether a set-off constitutes a payment for the purposes of s 292(3)(e). Mr Pamatatau took me through the relevant case law relating to that issue and submits that a set-off is a payment.2 He argues that the journal entry made by Mr Lal in the company’s financial records constituted a payment by the company to him, and ensured that he personally received the proceeds from the sale of the six Pah Road lots rather than the company contributing towards its GST liability that had arisen upon the sale of those properties.
[23] Second, in relation to Mr Lal’s evidence that there had been a miscoding of the payment made to Bass Road Ltd, Mr Pamatatau argues this was inconsistent with the company’s financial records and also the steps taken by Mr Lal to make changes to the records without the authority of the liquidator, which he submits also confirms Mr Lal’s proficiency in the use of the company accounting software.
Is the liquidator’s notice deficient?
[24] What is in issue is whether the liquidator’s notice was deficient under s 294 of the Act because it did not specify the transaction to be set aside, but instead some other transaction which did not involve Mr Lal.
[25] The procedure for setting aside insolvent transactions is set out in s 294 of the Act. Section 294(1) requires a liquidator to file the prescribed notice of the intention to set aside a transaction in court and to serve it on the party from whom recovery is sought. The requirements for what the notice is to contain are set out in s 294(2) and include “specify the transaction or charge to be set aside”. Both s 292(1) and (2) are stated in mandatory terms by the use of the imperative verb “must”
2 Charter Reinsurance Co Ltd (in liq) v Fagan [1997] AC 313 (HL); Trans Otway Ltd v Shephard [2005] NZSC 76, [2006] 2 NZLR 289; Rea v Russell [2012] NZCA 536; Reynolds v You & Me Ltd [2024] NZHC 3704; Fisk v Galvanising (H.B.) Ltd [2013] NZHC 3543.
[26] The filing and service of the s 294 notice are important steps with significant consequences for the party upon whom the notice is served, as the specified transaction is automatically set aside as against that person if they do not object in writing to the liquidator within 20 working days.3 Any objection notice must give particulars of the reason(s) for the objection and identify documents that evidence or substantiate the reasons for objecting.4
[27] 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, or an amount that fairly represents some or all of the benefits that a person has received because of the transaction.5
[28] The requirement for a notice under s 294 to adequately identify the transaction that is sought to be set aside has been confirmed in several cases. In Horton v Cowley the liquidator amended his application to include orders setting aside four term loan contracts under which the company in liquidation had agreed to pay Mr Cowley and an associated company for advances, expenses paid and services provided.6 The liquidator’s notices under s 294 did not seek to set aside those term loan contracts, which Associate Judge Bell held could not therefore be set aside in the proceeding. The Associate Judge noted:
[112] The term loan contracts cannot be considered for setting aside, because they are not the subject of a notice under s 294. Mr Horton’s notice to set aside under s 292 specifies the shareholders’ resolution and the agreement to mortgage, but not the term loan contracts. The first originating application did not seek orders setting aside the term loan contracts, but the amended application did. However, it is the notice under s 294 which must identify the transactions to be set aside …
[113] The scheme of the section is that a liquidator must issue a notice under s 294(2); the creditor has the opportunity to object within s 294(3); in the absence of objection, the transaction is set aside; and where there is an objection the liquidator can seek a setting aside order from the court. The application to court comes at the end after the liquidator has first given his notice. Section 294(5) does not give an independent means of challenging a transaction or charge without first giving a setting aside notice. That follows
3 Companies Act 1993, s 294(3).
4 Section 294(4).
5 Companies Act, s 295(a) and (c).
6 Horton v Cowley [2012] NZHC 3089.
from the words, “A transaction or charge that is not automatically set aside...” which show that the creditor must be first given the opportunity to object to a notice, before facing court proceedings. That is reinforced by the mandatory terms of s 294(1) that a liquidator wishing to set aside must give a notice under subsection (2).
[114] The notice must specify the transaction or charge to be set aside. Again the language is mandatory. A transaction or charge that is not specified in the notice cannot be set aside under the section. Because they were not specified in the liquidator’s notice, the term loan contracts cannot be set aside in this proceeding as voidable under s 292.
[29] In Francis v Qiao, the liquidator’s notice identified the insolvent transaction as:7
The payment/s of the aggregate sum of $692,582 made at some point between 1 April 2022 and 31 March 2023 by the company in part repayment of the shareholders’ current account to Yu Qiao and Jianqiang Ai as shareholders of the company.
[30] The recipient of the notice, Mr Ai, opposed the application to set aside on the ground that the notice failed to comply with the requirements of s 294(2)(c) that the transaction to be set aside must be specified. Associate Judge Sussock agreed with that submission and stated that s 294 needs to “specifically identify individual transactions”.8 In the case before her:9
… no details of the transactions making up the change in the current account were provided at the time of the notice or in the affidavit filed together with the proceeding. It was only at the time submissions were filed that the further affidavit of Mr Francis was filed, annexing the transaction reports obtained from Mr Xu.
[31] Associate Judge Sussock held that the liquidator’s notice did not comply with the s 294(2)(c) requirement, with the consequence “that the ‘transaction’ cannot be set aside because no transaction has been specified”.10 In coming to that conclusion she relied upon the statutory scheme that proceeded on the basis that a transaction will have been specified and would automatically be set aside as against the recipient if no notice of objection was received.
7 Francis v Qiao [2025] NZHC 798 at [14].
8 At [40].
9 At [41].
10 At [52].
[32] Associate Judge Sussock did not accept the submission made for the liquidator that the lack of specificity in the notice was due to the poor record-keeping of the company. She was of the view that to allow liquidators to amend a s 294 notice would be to essentially remove the statutory requirement to specify the transaction in the first place, which is “a key feature of the voidable transactions scheme from which consequences automatically follow if no notice of objection is filed”.11
[33] In Reynolds v IMC NZ Ltd the transaction identified by the liquidator was recorded in an invoice of 1 March 2023 in relation to the sale of motor vehicles owned by the company to the respondent for $119,718, with $59,600 being attributed to a Toyota Hilux utility and $44,503 to an LDV G10 van.12 The liquidator’s case was that according to the invoices the sales were paid for by allowances purporting to be made for certain debts and liabilities that belonged to the company and the respondent either intended to pay or had already paid on behalf of the company. In his evidence the liquidator had referred to a balance of $27,545 owed to the company after the transactions recorded in the invoice and that there was a further and subsequent set- off which resulted in there being no debt due between the parties.
[34] Associate Judge Sussock, again emphasising the importance that a s 294 notice specify the particular transaction to be set aside, noted that the liquidator’s s 294 notice was only in relation to transactions on 1 March 2023 but not in respect to the subsequent set-off and “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”.13
[35] Relevant also is the decision of Levin v Rastkar, where the Court of Appeal emphasised the need for a s 294 notice to adequately identify the transaction sought to be set aside.14 It does not appear the Court was asked to rule that the liquidator’s notice was invalid on this basis.
11 At [53] (footnote omitted).
12 Reynolds v IMC NZ Ltd [2024] NZHC 3935.
13 At [21].
14 Levin v Rastkar [2011] NZCA 210.
[36] Applying these authorities, I consider that the liquidator’s notice was invalid in failing to comply with s 294(1) and (2)(c). It identifies a payment made by the company on 17 May 2023 to Mr Lal. That payment was not made to Mr Lal but to Bass Road Ltd. The same incorrect assertion is made in the liquidator’s application and his first affidavit. In his reply affidavit, Mr Reynolds acknowledges the payment was made to Bass Road Ltd but says that Mr Lal received the benefit of it by the subsequent reduction in his current account and because the payment reduced “the debt owed to Mr Chacko and his entities”.
[37] There is no mention in Mr Reynolds’ s 294 notice that the payment was made by the company in satisfaction of a debt owed by Mr Lal to Bass Road Ltd. If that is the case then standing alone the payment was not an insolvent transaction, it being an essential characteristic of an insolvent transaction that a payment must be in satisfaction of a debt owed by the company to the recipient.15
[38] Mr Reynolds’ s 294 notice also does not identify that the impugned transaction is the setting off of the amount of that payment against what was then owing by the company to Mr Lal in his current account. It does not identify either when it said that the setting off occurred or how it was effected.
[39] In this respect it is instructive to look at how the liquidator’s notice was worded in Trans Otway Ltd v Shephard, which involved a payment by set off as follows:16
… the payment of $94,996.73 including GST by Newman Carrying Limited (in liquidation) to Trans Otway Limited, payment made by set-off against a debt in that amount due to Trans Otway Limited by Newman Carrying Limited (in liquidation), and as recorded in an agreement dated 2 April 2003.
[40] While in an email of 15 October 2024 from Mr Reynolds to Mr Lal’s then lawyer there was a reference to the repayment to Mr Lal of his current account, that was not the transaction specified in the s 294 notice. Mr Lal was required to respond to the s 294 notice, not to the contents of earlier correspondence.
15 Rea v Russell, above n 2, at [23].
16 Trans Otway Ltd v Shephard [2005] 3 NZLR 678 at [17].
[41] The consequences of failing to comply with a s 294 notice may be severe and, in my view, the requirements of the section as to the contents of the notice must be closely observed. I agree with the view of the authors of Heath and Whale on Insolvency that a substantive error in a notice will be fatal.17 I consider that the liquidator’s notice in this case did not specify a transaction between the company and Mr Lal and nor did it specify the transaction to be set aside. It was therefore substantively deficient and invalid.
[42] I also consider that Mr Reynolds’ failure to specify the transaction may well have prejudiced Mr Lal’s approach to this application. Mr Lal’s position in response to the s 294 notice was that the specified transaction was between the company and Bass Road Ltd. It would have been a simple thing for Mr Reynolds to have served a further notice identifying the impugned transaction accurately. Mr Nair submits that had the notice accurately specified the transaction further evidence could have been presented as to the relationship between Bass Road Ltd and the company and the reason for the payment. It appears to me there was scope for further evidence to be given concerning the manner in which the financial and management records of the company were maintained. Mr Nair also said that Mr Lal would have advanced a defence under s 292(4B) of the Act. While Mr Pamatatau says that defence is not available to Mr Lal, that is not an issue I should attempt to resolve given my finding that Mr Reynolds’ s 294 notice is invalid. It follows that it is also not necessary for me to deal with the second issue raised for Mr Lal (at [2(b)] above).
[43] Accordingly, I find that Mr Reynolds’ application must fail due to the deficiency in the s 294 notice in that it did not specify the transaction he seeks to set aside.
Result
[44] The liquidator’s application is dismissed. The liquidator is, of course, at liberty to issue a further notice specifying the transaction that he seeks to set aside if it is considered appropriate.
17 Paul Heath and Michael Whale (eds) Heath and Whale on Insolvency (online ed, LexisNexis) at [24.111].
[45] Mr Lal is entitled to costs, which I award him on a 2B basis plus reasonable disbursements as fixed by the Registrar.
O G Paulsen Associate Judge
Solicitors:
Craig Griffin & Lord, Auckland Nair & Associates, Auckland
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