FARRELL and ROGAN v MAX BIRT SAWMILLS LIMITED [2014] NZHC 3391

FARRELL and ROGAN v MAX BIRT SAWMILLS LIMITED [2014] NZHC 3391

In a continuing business relationship under s 292(4B) the correct approach is to measure any preference from the month of peak net indebtedness (absent commercially contemporaneous supplies/payments that negate indebtedness), calculating the preference by reference to the economic disparity in values of supplies/payments rather than the face value recorded in accounts; accordingly the liquidators' challenged transactions reducing indebtedness from the peak are voidable and must be set aside to the extent they conferred a preference, and the respondent failed to establish the mandatory s 296(3) defence (reasonable grounds to suspect insolvency and alteration of position not proved).

Citation
[2014] NZHC 3391
Parties
Applicant (liquidator): Peter Esmond Farrell; Applicant (liquidator): Simon Paul Rogan; Respondent (creditor): Max Birt Sawmills Limited
Court
High Court
Jurisdiction
New Zealand
Judgment Date
22 December 2014
Procedural Posture
Application Under Companies Act 1993 Ss 292 and 294(5) (voidable Transactions) / High Court Judgment (associate Judge R M Bell)
Outcome
Liquidators' specified transactions set aside; respondent ordered to repay the measured preference and interest and to pay liquidators' costs
Legal Topics
Voidable Transactions, Preference, Running Account/continuing Business Relationship, Peak Indebtedness, Insolvency Set Off, S 296(3) Defences (good Faith, Suspicion, Alteration of Position)
Insolvency Law Companies Law Commercial Law Contract Law Voidable Transactions Preference Running Account/continuing Business Relationship Peak Indebtedness +2 more

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Parties

Peter Esmond Farrell

Applicant (liquidator)

Simon Paul Rogan

Applicant (liquidator)

Max Birt Sawmills Limited

Respondent (creditor)

Procedural Posture

Application Under Companies Act 1993 Ss 292 and 294(5) (voidable Transactions) / High Court Judgment (associate Judge R M Bell)

Legal Issues

  1. 1 Whether transactions in a running account under s 292(4B) are to be measured from peak indebtedness or from the start of the specified period
  2. 2 How to measure the preference — by economic disparity in values of supplies/payments or by face value of recorded indebtedness
  3. 3 Whether accounting entries recorded by the creditor constitute transactions under s 292(3)

Ratio Decidendi

In a continuing business relationship under s 292(4B) the correct approach is to measure any preference from the month of peak net indebtedness (absent commercially contemporaneous supplies/payments that negate indebtedness), calculating the preference by reference to the economic disparity in values of supplies/payments rather than the face value recorded in accounts; accordingly the liquidators' challenged transactions reducing indebtedness from the peak are voidable and must be set aside to the extent they conferred a preference, and the respondent failed to establish the mandatory s 296(3) defence (reasonable grounds to suspect insolvency and alteration of position not proved).

Court Disposition

Liquidators' specified transactions set aside; respondent ordered to repay the measured preference and interest and to pay liquidators' costs

Orders

  • The transactions specified in the liquidators' notice of 20 September 2013 are set aside
  • Max Birt Sawmills Limited shall pay the liquidators $262,487.38