FORDYCE ROAD DEVELOPMENT LTD (IN LIQ) v KHAN [2019] NZHC 2288

FORDYCE ROAD DEVELOPMENT LTD (IN LIQ) v KHAN [2019] NZHC 2288

Mr Khan, as sole director, allowed Fordyce to incur substantial obligations without realistic funding or objectively reasonable grounds to believe the company could meet them, and failed to exercise requisite care, thereby breaching ss135,136 and137; he also dishonestly misapplied and concealed settlement funds, breaching s131 and fiduciary duties; Mrs Khan received company funds with actual knowledge making retention unconscionable; accordingly compensation, restoration and equitable remedies were ordered.

Citation
[2019] NZHC 2288
Parties
First Applicant: Fordyce Road Development Limited (In Liquidation); Second Applicant (liquidator): Bryan Edward Williams; First Respondent (director): Feroz Khan; Second Respondent: Carol Leon Khan
Court
High Court
Jurisdiction
New Zealand
Judgment Date
12 September 2019
Procedural Posture
Companies Act Proceedings Liquidator Claims Against Director / Judgment (uncontested/formal Proof)
Outcome
Judgment for applicants. Mr Feroz Khan found liable for breaches of ss135,136,137 and s131 and fiduciary duties; Mrs Carol Khan found liable for knowing receipt; court ordered monetary compensation, restoration, interest and costs as detailed below.
Legal Topics
Director Duties, Reckless Trading, Fiduciary Duty, Knowing Receipt, Restitution, Compensation Under S301/s303, Interest and Costs
Company Law Insolvency Equity Civil Procedure Director Duties Reckless Trading Fiduciary Duty Knowing Receipt +3 more

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Parties

Fordyce Road Development Limited (In Liquidation)

First Applicant

Bryan Edward Williams

Second Applicant (liquidator)

Feroz Khan

First Respondent (director)

Carol Leon Khan

Second Respondent

Procedural Posture

Companies Act Proceedings Liquidator Claims Against Director / Judgment (uncontested/formal Proof)

Legal Issues

  1. 1 Whether Mr Khan breached ss 135, 136 and 137 of the Companies Act by allowing illegitimate trading and creating substantial risk of serious loss to creditors
  2. 2 Whether Mr Khan breached s 131 and his fiduciary duties by misapplying settlement funds and concealing the transaction
  3. 3 Whether Mrs Khan is liable for knowing receipt of company funds

Ratio Decidendi

Mr Khan, as sole director, allowed Fordyce to incur substantial obligations without realistic funding or objectively reasonable grounds to believe the company could meet them, and failed to exercise requisite care, thereby breaching ss135,136 and137; he also dishonestly misapplied and concealed settlement funds, breaching s131 and fiduciary duties; Mrs Khan received company funds with actual knowledge making retention unconscionable; accordingly compensation, restoration and equitable remedies were ordered.

Court Disposition

Judgment for applicants. Mr Feroz Khan found liable for breaches of ss135,136,137 and s131 and fiduciary duties; Mrs Carol Khan found liable for knowing receipt; court ordered monetary compensation, restoration, interest and costs as detailed below.

Orders

  • Order under Companies Act s301(1)(b)(ii): Mr Feroz Khan to contribute NZD 339778.03 to company assets (compensation)
  • Order under Companies Act s303(1)(b)(i): Mr Feroz Khan to restore NZD 62274.50 to the first applicant; equitable damages NZD 62274.50 awarded against Mr Khan (may be satisfied by single payment of NZD 62274.50)