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Trans Otway Ltd v Shephard

Trans Otway Ltd v Shephard

Case [2005] NZSC 76 1 December 2005

Voidable Transactions

Preferential Payments

Set-off

Statutory Interpretation

Insolvency Law

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IN THE SUPREME COURT OF NEW ZEALAND

SC 39/2005 [2005[ NZSC 76

BETWEENTRANS OTWAY LIMITED Appellant

ANDIAN BRUCE SHEPHARD AND CHRISTINE MARGARET DUNPHY Respondents

Hearing: 11 November 2005
Court: Elias CJ, Blanchard, Tipping, McGrath and Eichelbaum JJ Appearances: P D McKenzie QC and D M Law for Appellant
H L Thompson for Respondents

Judgment: 1 December 2005

JUDGMENT OF THE COURT

A. The appeal is dismissed.

B.The respondents are awarded costs of $15,000 together with disbursements to be fixed.

REASONS

(Given by Blanchard J)

[1] At the end of March 2003, at a time when it was insolvent, Newman Carrying Ltd entered into a written agreement to sell certain of its assets to the appellant, Trans Otway Ltd, for $371,000 plus GST. That sum was payable in cash. By the same agreement, Newman agreed to sell its client list to Trans Otway. The agreement required Newman to provide Trans Otway with a written list of its clients,

TRANS OTWAY LIMITED V SHEPHARD AND DUNPHY SC 39/2005 [1 December 2005]

together with contact names, addresses and phone numbers and details of activity of the client accounts for the previous twelve months.

[2] The agreement provided as follows in relation to the client list:

(e)The purchaser [Trans Otway] will pay to the vendor [Newman] the sum of $94,996.73 including GST for such client details, such payment to be made by the purchaser acknowledging that the vendor has made full payment of all sums due and owing to the purchaser.

At the time of the agreement Newman had an overdue debt of $94,996.73 owing to

Trans Otway.

[3] Within a few days settlement occurred between the two companies. Trans Otway paid the $371,000 plus GST and received title to the assets. It was provided with the client list. It appears Newman then ceased trading. On 16 May
2003, and therefore well within the specified period in s 292 of the Companies Act

1993, Newman was put into liquidation by resolution of its shareholders.

[4] In relevant part s 292 provides:

292 Transactions having preferential effect

(1)In this section, transaction, in relation to a company, means— (a) A conveyance or transfer of property by the company:
(b)The giving of a security or charge over the property of the company:

(c) The incurring of an obligation by the company:
(d)The acceptance by the company of execution under a judicial proceeding:
(e)The payment of money by the company, including the payment of money under a judgment or order of a court.

(2) A transaction by a company is voidable on the application of the liquidator if the transaction—

(a)     Was made—
(i)     At a time when the company was unable to pay its due debts; and
(ii)     Within the specified period; and
(b)Enabled another person to receive more towards satisfaction of a debt than the person would otherwise have received or be likely to have received in the liquidation—

unless the transaction took place in…

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 Trans Otway Ltd v Shephard

Details

AGLC: Trans Otway Ltd v Shephard [2005] NZSC 76
Case: [2005] NZSC 76
Decision Date: 1 December 2005

CaseChat Overview and Summary

Trans Otway Limited appealed against a decision of the Court of Appeal which had dismissed an appeal by Trans Otway from a decision of the High Court. The High Court had dismissed an application by Trans Otway to set aside a transaction which had occurred between it and Newman Carrying Limited, which had gone into liquidation. The Court of Appeal had concluded that the transaction was a voidable preference under s 292 of the Companies Act 1993. Trans Otway had entered into an agreement with Newman Carrying to purchase some of its assets for $371,000 plus GST and to purchase the client list for $94,996.73 plus GST. The agreement provided that the payment for the client list would be made by Newman Carrying setting off the debt it owed Trans Otway against Trans Otway's debt to Newman Carrying. Newman Carrying went into liquidation within the period specified in s 292 of the Companies Act. The liquidators sought to set aside the transaction on the basis that it was a voidable preference. The legal issues in the case were whether there had been a payment of money by the debtor company within the meaning of s 292(1)(e) of the Companies Act and, if so, whether that payment had enabled Trans Otway to receive more towards satisfaction of its debt than it would otherwise have received or be likely to have received in the liquidation within the meaning of s 292(2)(b). The Court concluded that there had been a payment of money by Newman Carrying. The Court rejected the argument that the whole agreement should be considered in determining whether there had been a payment. The Court held that it was necessary to look at the commercial realities of the transaction and to consider whether the parties had intended the payment to be made. The Court found that the parties had intended the payment to be made and that the agreement clearly provided for the payment of the debt by Newman Carrying by means of set-off. The Court also concluded that Trans Otway had received more towards satisfaction of its debt than it would otherwise have received or be likely to have received in the liquidation. The Court found that Trans Otway had not discharged the burden of proving that it had no reason to suspect that Newman Carrying was insolvent at the time the agreement was entered into. The Court dismissed the appeal and awarded costs to the liquidators.

Orders