New Zealand Case Law: Decisions & Judgments

Topic

Reckless trading

Legal area

Court

31 Aug 2023

KUMAR v SMARTPAY LTD [2023] NZCA 410

Citation

[2023] NZCA 410
Court

Court of Appeal

Appellant breached ss 131, 135 and 136 by causing or allowing OCL (a company with no revenue or meaningful assets) to incur substantial liabilities while prioritising group interests and relying on unenforceable support; objectively trading created substantial risk of serious loss to creditors and appellant could not reasonably have believed OCL could perform its obligations to Smartpay; causation established between breaches and Smartpay's losses and appropriate compensation under s301(1)(b)(ii) is $850,427.43 plus interest as assessed by the High Court, which the Court of Appeal upheld.
31 Mar 2021

YAN v MAINZEAL PROPERTY AND CONSTRUCTION LIMITED (IN LIQUIDATION) [2021] NZCA 99 [31 March 2021]

Citation

[2021] 3 NZLR 598
Court

Court of Appeal

The directors breached s135 by no later than 31 January 2011 by allowing Mainzeal to trade in a manner creating a substantial risk of serious loss to creditors, but on the facts that breach did not cause a net deterioration in the company's financial position so no compensation was recoverable for the s135 breach; the directors also breached s136 in respect of four major construction contracts entered after 31 January 2011 and all obligations incurred from 5 July 2012 onward, and compensation for breaches of s136 is to be assessed by reference to the new debt approach (net unsatisfied obligat…
26 Feb 2021

WATTS & HUGHES CONSTRUCTION LIMITED v BIALA [2021] NZHC 290

Citation

[2021] NZHC 290
Court

High Court

Court awarded 2B costs to the defendant with adjustments: reduced time allocations for specified memoranda to 0.2 days each, rejected recovery for judicial settlement conference preparation but allowed 2.75 days for hearing appearance, found defendant's Calderbank offers justified a 25% uplift (not 50%), and held the claimed disbursements were incurred by and reasonable for the defendant; final orders: 2B costs $44,889.63 and disbursements $18,828.55.
17 Nov 2020

WATTS & HUGHES CONSTRUCTION LIMITED v BIALA [2020] NZHC 3041

Citation

[2020] NZHC 3041
Court

High Court

The director did not breach s135. The decisions to commence the start-up and to continue trading were reasonable given available financing, shareholder support and ordinary start-up risks; the plaintiff's claimed loss was uncertain and, in any event, not 'serious' as required by s135, so no compensation under s301 was ordered.
28 Aug 2020

Alala International Limited (in liquidation) v Chen [2020] NZHC 2212

Citation

Alala International Limited (in liquidation) v Chen [2020] NZHC 2212
Court

High Court

The court found the director breached ss 131, 135 and 137 by dissipating the company's funds (opening balance and net proceeds of property sale) while the company was insolvent or approaching insolvency, failed to keep adequate accounting records contrary to s 194, and that those breaches causally resulted in the company's inability to meet GST and other creditor claims; accordingly the court ordered full compensatory relief under s 301 in the amount of NZD 580,248.24 together with interest and ordered NZD 10,000 under s 300 for additional liquidation costs.
10 Jul 2020

MAINZEAL PROPERTY & CONSTRUCTION LTD (IN LIQ) & ORS v YAN [2020] NZHC 1659

Citation

[2020] NZHC 1659
Court

High Court

The Court exercised its discretion under s42 to halt the adjudication in bankruptcy pending the imminent appeal because the appeal was bona fide, prosecution diligent, and there was a real risk bankruptcy would render the appeal nugatory; the Court declined to order additional security given the timing and that security issues are properly addressed by the appellate process.
12 Sept 2019

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

Citation

[2019] NZHC 2288
Court

High Court

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.
12 Jul 2019

MAINZEAL PROPERTY AND CONSTRUCTION LIMITED (IN LIQ) v YAN AND OTHERS [2019] NZHC 1637

Citation

[2019] NZHC 1637
Court

High Court

Both applications (plaintiffs' claim for interest and defendants' claim for reduction for asset recoveries) raised legitimate points but economically offset one another; starting net deficiency was ~$87m not ~$110m and plaintiffs' failure to seek interest in closing did not preclude court treating time value as a factor within s301 discretion; net result: no alteration to the $36m compensation order. Costs awarded to plaintiffs on scale with specific adjustments and a proportional award to fifth defendant; fixed contribution from Isola ordered.
8 Mar 2019

COOPER v DEBUT HOMES LIMITED (IN LIQUIDATION) [2019] NZCA 39

Citation

[2019] 3 NZLR 57
Court

Court of Appeal

The Court held the appellant did not breach ss131 or 135 because completing and selling the properties was a reasonable commercial decision made in good faith to maximise recovery for creditors; GST liabilities were largely pre-existing and sale agreements were triggers rather than new agreements with the IRD so s136 did not apply; accordingly the High Court orders for a s301 contribution and partial setting aside of the GSA under s299 were quashed. The Court upheld that certain payments to the director were voidable under s292 and required repayment; s138 defence was not made out.
26 Feb 2019

MAINZEAL PROPERTY AND CONSTRUCTION LTD (IN LIQ) v YAN AND OTHERS [2019] NZHC 255 [26 February 2019]

Citation

[2019] NZHC 255
Court

High Court

The Court held the directors breached s135: Mainzeal was trading while balance‑sheet insolvent because intercompany receivables were not genuinely recoverable; directors unreasonably relied on conditional, non‑binding and legally ineffective assurances of group support (complicated by Chinese foreign exchange controls); Mainzeal's trading was vulnerable to one‑off losses. Under s301 the Court ordered a just contribution of NZD 36,000,000 (one‑third of liquidation deficiency) with Apportionment: Yan severally liable for NZD 36,000,000; Shipley, Tilby and Gomm each jointly liable with Yan for N…