Shepherd v Wakefield Plant Limited - [2020] NZHC 439

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2019-485-8

[2020] NZHC 439

UNDER the Companies Act 1993

IN THE MATTER

of the liquidation of Ebert Construction Limited

BETWEEN

IAIN BRUCE SHEPHARD AND JESSICA JANE KELLOW

Applicants

AND

WAKEFIELD PLANT LIMITED

Respondent

Hearing: 12 and 13 February 2020

Appearance:

H L Thompson for Applicants

R J Gordon and A S Kirk for Respondent

Judgment:

9 March 2020

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 9 March 2020 at 4.00pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar 9 March 2020

SHEPHARD & KELLOW v WAKEFIELD PLANT LTD [2020] NZHC 439 [9 March 2020]

[1] The applicants are the liquidators of Ebert Construction Ltd (“ECL”). They allege five payments made by ECL to the respondent, Wakefield Plant Ltd (“WPL”), are voidable under s 292 of the Companies Act 1993 (“the Act”).

Context

[2] ECL and WPL at all material times had the same directors and shareholders. ECL, WPL, with a third company, constituted a group of companies which banked with the Bank of New Zealand (“BNZ”). It was common ground that each of the companies in the group guaranteed to and gave security to the BNZ for the group’s obligations.

[3] WPL had a facility with the BNZ upon which it could draw several million dollars1 (“the facility”). WPL from time to time would draw upon the facility and advance those funds to ECL. The advances allowed ECL to meet its obligations to suppliers and sub-contractors which fell due before ECL received payment from its clients. The advances were to smooth out ECL’s cashflow. The liquidators did not suggest the existence of this arrangement was itself indicative of insolvency issues within ECL.

[4] When ECL was paid by its clients, it repaid the WPL advance which in turn paid the money back to the facility from which the funds were drawn. The inter-company balances between ECL and WPL would return to zero until ECL again needed to call on the facility in WPL’s name. This arrangement operated for an extended period before ECL’s receivership on 31 July 2018. While not a term used by counsel for the respondent, WPL’s position is that it was only a conduit for the funds sourced from the BNZ.

[5] The notice to set aside voidable transactions challenged the following transactions which arose from the operation of the above arrangement:

1 Called a “CreditPlus” facility.

Wakefield Plant Limited - Inter-Company Advances / Repayments

Date
Funds Received
Funds Repaid
Party

Balance

0.00

3/05/2018 650,000.00 Wakefield Plant Limited 650,000.00

4/05/2018 650,000.00 Wakefield Plant Limited 0.00

16/05/2018 540,000.00 Wakefield Plant Limited 540,000.00

16/05/2018 65,000.00 Wakefield Plant Limited 605,000.00

17/05/2018 10,000.00 Wakefield Plant Limited 615,000.00

18/05/2018 590,000.00 Wakefield Plant Limited 1,205,000.00

18/05/2018 1,003,000.00 Wakefield Plant Limited 202,000.00

18/05/2018 202,000.00 Wakefield Plant Limited 0.00

6/06/2018 145,000.00 Wakefield Plant Limited 145,000.00

6/06/2018 89,000.00 Wakefield Plant Limited 56,000.00

7/06/2018 15,000.00 Wakefield Plant Limited 71,000.00

7/06/2018 38,000.00

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.

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Details

Case: [2020] NZHC 439
Decision Date: 9 March 2020

CaseChat Overview and Summary

The applicants, the liquidators of Ebert Construction Ltd (ECL), sought to challenge certain payments made by ECL to Wakefield Plant Ltd (WPL). The applicants sought to set aside the payments as voidable under s 292 of the Companies Act 1993. WPL resisted the application. The central issue was whether the payments made by ECL to WPL were intended to discharge a debt of ECL or were instead a payment to the Bank of New Zealand (BNZ) which was secured over the group’s assets. WPL argued that it was merely a conduit for the funds provided by the BNZ and the payments were intended to discharge the group’s indebtedness to the BNZ. The court found that the payments were intended to discharge the group’s indebtedness to the BNZ. The court further found that the payments were part of a revolving credit facility and therefore fell within the “running account” exception in s 292(4B) of the Act. The court further found that WPL had established the “alteration of position” defence in s 296(3) of the Act. Accordingly, the applicants’ claims were dismissed. The applicants were ordered to pay costs to the respondent on a 2B basis plus disbursements as fixed by the Registrar.

Orders