Madsen-Ries v Bryant [2015] NZHC 2267 (17 September 2015)

	Home \| Databases \| WorldLII \| Search \| Feedback High Court of New Zealand Decisions

UNDER	the Companies Act 1993
IN THE MATTER OF	the liquidation of AG47 COMPANY LIMITED (In Liquidation)
BETWEEN	VIVIEN JUDITH MADSEN-RIES AND HENRY DAVID LEVIN Applicants
AND	BRUCE SILVER BRYANT Respondent

Hearing:	17 September 2015
Appearances:	N H Malarao with E E Meade for the Applicants No appearance for the Respondent
_Judgment:	_{17 September 2015}

[1] This matter was set down today to hear the liquidators’ application to set aside voidable transactions. The respondent’s lawyers had filed a notice of objection under s 294 of the Companies Act 1993, and had filed documents in opposition to the liquidators’ application. Those lawyers applied for leave to withdraw from the proceeding because they no longer had ongoing instructions. In my minute of

14 September 2015, I granted them leave to withdraw. Mr Malarao advises that those lawyers had told him that Mr Bryant did not intend to appear today. When Mr Bryant was called, he did not appear.

7 March 2014 on the application of the Commissioner of Inland Revenue. The Commissioner’s liquidation application was filed on 16 December 2013. Accordingly, for the specified period under s 292 of the Companies Act, time started to run from 17 December 2011. That is two years before the liquidation application was filed.

[4] The Commissioner of Inland Revenue is the only creditor in the liquidation. The Commissioner has claimed for $37,157.18, of which $26,123.67 is preferential. At all material times, Mr Bryant was the sole director and shareholder of the company. He had a current account with the company. The liquidators seek to set aside drawings which Mr Bryant made from the company on the current account. The liquidators have primarily gone by financial statements. Normally, payments by a company in liquidation are proved by reference to the company’s bank statements, but in this case it turns out that the company did not have a bank account itself. It used the account of another company.

[5] While the liquidators have gone primarily by the financial statements of the company, they have also referred to the bank statements of the other entity, and have satisfied themselves that the transactions they rely on did take place. The financial statements for the company for the year ending 31 March 2012 show that at the start

of that financial year the company owed Mr Bryant approximately $150,000. At the end of that year the company owed him $82,297. At the end of March 2013 the financial statements show that the amount owing to Mr Bryant under his current account was $35,267. That meant that there were net drawings during 2012/2013 of

$47,030. It is those payments of $47,030 which the liquidators want to have set aside.

[6] I am satisfied on the evidence of the liquidators that during the specified period AG47 Company Ltd was unable to pay its debts as they fell due. In particular, throughout that period the company was in default in its obligations to the Commissioner of Inland Revenue. It is significant that the Commissioner is a preferential creditor. Ongoing failure to pay a preferential creditor is a good indication of insolvency. Mr Bryant had indicated that he would contest insolvency, relying on future royalties which were to be paid to the company. It is apparent that those royalties never were forthcoming. The expectation of funds to come in the future does not by itself show an ability to pay debts as they fall due.

[7] The effect of the payments to Mr Bryant was to pay him more than the Commissioner of Inland Revenue has received. The Commissioner of Inland Revenue is preferential to the extent of $26,123.67. To the extent that Mr Bryant has been paid ahead of the Commissioner, Mr Bryant has received a preference. He has received more than he would in the liquidation.

[8] Accordingly, the liquidators have proved that the payments to Mr Bryant between March 2012 and March 2013 are voidable under s 292.

[9] The liquidators served on Mr Bryant a notice under s 294 to set aside the transactions. Lawyers instructed by Mr Bryant served a response within the

20 working days required. In submissions for the hearing, the liquidators sought a finding that the matters set out in Mr Bryant’s notice of objection were irrelevant, and accordingly Mr Bryant should be treated as having defaulted in giving a notice of objection.

[10] I decline to follow that submission. A safer course is to recognise that the respondent has filed a notice setting out contentions which the court should take into account in deciding whether to set aside the transaction. Reasons of fairness suggest that the court ought not to take a pedantic approach to the quality of objections of the creditors. It is safer to give creditor the opportunity to be heard by treating their notices as having satisfied the requirements of s 294 even if those notices do not give all the details and information required.

[11] As an example, in this case Mr Bryant’s notice contested the validity of the liquidation. He contended that the company ought never to have been put into liquidation.

[12] While there is no merit in that contention, it is conceivable that that might in some cases provide a ground which would require serious consideration. The creditor might point out that because the liquidation ought not to have taken place, the liquidation should be properly terminated under s 250 of the Companies Act. On that being done it would be unnecessary for liquidators to set aside transactions that would otherwise be voidable under s 292. I mention that simply to caution against taking too tough an approach on notices of objection by creditors.

[13] Mr Malarao advised that he had not found any authority to say that the court should ignore a notice of objection because of defects in drafting. I do not intend to set such a precedent now. Instead, I deal with the matter on the basis that while an objection has been filed, I cannot see any merit in it. The liquidators have shown that the transactions are voidable under s 292. The appropriate course is to set the transactions aside by order under s 294 and consider what relief to order under s 295.

[14] The way to remedy the preference is to require Mr Bryant to repay the sum of

$47,030 to the company. I note that the creditor’s claim in the liquidation is for the sum of $37,157.18. The question therefore arises as to why I should not simply order Mr Bryant only to pay back the amount of the Inland Revenue’s claim. That, however, would short change the Commissioner because the expenses of the liquidation have been incurred in the meantime. The liquidators will be required to pay their own remuneration as well as meeting the Commissioner’s claim.

[15] The payments that Mr Bryant received did not clear the company’s indebtedness to him entirely. He will also be entitled to claim in the liquidation and will be able to take into account the payment he has made back to the liquidators. While the Commissioner will rank ahead of him in the preferential claims, on the non-preferential claim Mr Bryant would appear to rank pari passu with the Commissioner.

[16] In his submissions, Mr Malarao addressed whether Mr Bryant had a defence under s 296(3). I am satisfied that Mr Bryant does not have any such defence. As the sole director and shareholder of the company he must have been aware of the financial position of the company and it is inconceivable that he could claim that no one would suspect that the company was insolvent at the time.

[b] I order Mr Bryant to pay to the liquidators $47,030. He will also pay interest on that sum at 5 per cent per annum from 7 March 2014 to

_{[18] I record that this case required a hearing of no more than a
quarter of a day.}

High Court of New Zealand Decisions

Madsen-Ries v Bryant [2015] NZHC 2267 (17 September 2015)