Subbies await Supreme Court call on voidable transactions

Subcontractors are calling for the Supreme Court to end a nine-month wait for a decision on the ability of liquidators to claw back payments made by insolvent companies to contractors.

In mid-2013, the Court of Appeal ruled that when companies went bust, liquidators could claw back payments made by an insolvent company up to two years before its collapse, a practice known as voidable transactions.

This could include where a sub-contractor had been paid for work they had completed.

Shocked contractors appealed the decision to the Supreme Court.

The Supreme Court heard the case in March last year, but no decision has been published.

Graham Burke, president of the Specialist Trade Contractors Federation which represents more than 5700 contracting firms, said: “While this decision is pending, thousands of businesses remain in a no-man’s land with regard to voidable transactions.”

“Under the Court of Appeal ruling, any service you supply and are paid for afterwards is a voidable transaction.

“That affects every business in New Zealand which provides goods and services on account. However, the building trade is particularly aware of this because there are more insolvencies in the construction sector than in other sector.”

Voidable transactions are intended to ensure all creditors of insolvent companies are treated equally, but Burke said funds clawed back from subcontractors ended up being paid out to pay liquidators’ fees, employees of the company that went bust, and the Inland Revenue.

Contractors, who are generally unsecured creditors, are at the bottom of the heap when it comes to being paid in a liquidation, Burke said.

“The current ruling means that contractors who complete a contract properly and have paid their suppliers and staff, cannot have certainty that payments they have received will not be recovered,” Burke said.

Until the Court of Appeal decision, it had been thought that providing a contractor was paid for work done, then they were safe from having money clawed back.

No longer being able to rely on that created a great deal of uncertainty, and was upsetting business planning, he said.

“This makes it difficult for small business to plan to invest and grow,” Burke said.

“The contracting market is currently buoyant but there have been some high profile insolvencies in recent years. The issue of voidable transactions needs to be resolved so businesses can make decisions about investing in areas such as new equipment, training staff and expanding their businesses to meet the growing demand.”

If the Supreme Court does not reverse the Court of Appeal’s judgement, the federation would campaign for politicians to draft new laws.

“If we don’t get a favourable decision, we need a political one,” Burke said.

“It’s not only about our industry. The whole economy needs certainty.”

The Court of Appeal judgement “flies in the face of natural justice”, he said.

Taupo-based Mike Field, owner of Fences & Kerbs, was one of the contractor companies involved in the Supreme Court case.

Fences & Kerbs did concreting and steel foundation work on a pipeline being built for Contact Energy at Wairakei by Contract Engineering in 2010, and was paid $58,000 in two instalments between August and September of that year.

Contract Engineering went into liquidation in July 2011 and its liquidators served a notice to set aside the payments to Fences & Kerbs.

Field’s case, grouped together with two others, were the subject of the Supreme Court hearing, and if the Court of Appeal decision is allowed to stand, Fences & Kerbs will have to pay back the $58,000.

“What I have decided is they can all go to hell as far as I am concerned,” Field said.

“The only hope we have got is that the Supreme Court likes sticking it to the Court of Appeal. It’s over-turned that many decisions.”

The Supreme Court is currently closed and unavailable for comment.

Source

Stuff News Businessday. Story by Rob Stock. Thursday January 15, 2015.

http://www.stuff.co.nz/business/better-business/65065594/Subbies-await-Supreme-Court-call-on-voidable-transactions

Prosecution of company directors in breach of s. 261 of Companies Act 193

Under s. 261 of the Companies Act 1993 a liquidator of a company has powers to obtain documents and information from a former director of the failed company. Failure to provide that information to the liquidator can result in the director being prosecuted and if convicted of an offence under s. 261, he or she “liable to a fine not exceeding $50,000 or to imprisonment for a term not exceeding 2 years”.

If the company director has been adjudicated as a bankrupt at the time of sentencing a judge would be compelled to impose a prison sentence rather than impose a fine. If the offending involved long-term and systematic refusal to supply documents to a number of liquidators involving multiple companies of which he/she had been a director, and the non-compliance showed a pattern of flagrant disregard for the law, a judge would no doubt be compelled to impose a maximum sentence. For to do so would be in the public interest because the law has a pedagogical role in addition to a punitive element designed to bring offenders to their senses regarding the rule of law as it prescribes and defines criminal behaviour.

Section 261 of the Companies Act entitled “Power to obtain documents and information” includes: [Read more…]

David Ian Henderson: Bankrupt Christchurch property developer v. the Insolvency and Trustee Services

Introduction

Liquidation is a process where the assets of a company that cannot pay its debts, are distributed by a liquidator or by a Crown authority called the Official Assignee (AO). The AO only deals with liquidations where it has been appointed liquidator by the court or, in certain circumstances, by itself. A company is placed into liquidation when it is unable to pay its debts. This is done voluntarily or by a court order. A liquidator is appointed to investigate the company’s financial affairs, establish the reason why the company failed, investigate possible offences, and identify and sell any assets to help repay creditors. Officers of the company must assist the liquidator by providing information and answering questions. 

Failure to assist the Official Assignee is a serious offence and may lead to prosecution. It is an offence for a director to conceal or remove property with the intention of preventing or delaying the Official Assignee from taking custody of it, or to destroy, conceal or remove records or other documents. Penalties can include fines and imprisonment.

Bankruptcies are managed by the AO and normally last for three years. Bankrupts are unable to direct a company and are not allowed to manage a business without the OA’s consent. [Source: http://www.insolvency.govt.nz/]

The Society for Promotion of Community Standards Inc. is concerned that the ability of liquidators serious about fulfilling their statutory duties to investigate and report possible offences by company officials against the Companies Act 1993, the Financial Reporting Act, the Securities Act and the Insolvency Act 2006; are being undermined and thwarted by a number factors including: [Read more…]

David Ian Henderson – a two-time bankrupt accuses Liquidator of conduct breaches

David (Dave) Ian Henderson, twice-bankrupt high-profile Christchurch property developer, and his business associate Ian Bruce Hyndman, appear to have been behind a Notice in the National Business Review (NBR) and one in the NZ Herald (22/05/13) that ran last year, apparently seeking “information” on chartered accountant Robert Bruce Walker, liquidator of Property Ventures Ltd (in receivership and liquidation), the parent company of interconnected companies owned or controlled by Henderson. Henderson was behind the failed $2 billion Five Mile town development at State Highway 6, Queenstown, near the Queenstown Events Centre, colloquially known as “Hendo’s Hole.

As sailors know, it is important at sea to avoid peeing to windward. The blow back can be very unpleasant. So can the result of trying to gather ‘dirt’ and throw it at a person and make it stick, when a very strong gale is opposing the thrower.

Dave Henderson who was bankrupted in 1996 and discharged in 1999, was then bankrupted again on November 29, 2010, the latter one of the largest bankruptcies in New Zealand’s history. By his own account he had gross personal debts of about $165m and $86m after the sale of secured assets. The debts come mainly from personal guarantees he had given on loans to his companies.

Bankruptcies are managed by a Crown authority called the Official Assignee (OA) and normally last for three years. Henderson remains an undischarged bankrupt because the OA filed a notice of objection to Mr Henderson’s discharge, pursuant to s 292 of the Insolvency Act 2006, on 28 November 2013. The OA “strongly suspects that Mr Henderson had entered into, carried on, or taken part in the management or control of businesses during his bankruptcy, contrary to s 149 of the Act. Mr Henderson strongly refutes the Assignee’s suspicions…” (quoted from High Court judgment dated 18 March 2014 – CIV-2010-409-000559 [2014] NZHC 499). [Read more…]

Fraud charges follow liquidation of company

A Company director has been arrested at his home and bailed to appear in Court on Tuesday facing four charges of causing loss by deception (fraud), following the liquidation of his company which has debts of more than $2 million.

The Dominion Post (Friday, June 22, p. A5) has named the man the company in its report:

See: http://www.stuff.co.nz/business/7149604/Piano-shop-director-to-face-fraud-charges

A PLIMMERTON piano salesman, Cameron Crawford, is facing fraud charges after claims millions owed to those who sold instruments through his company are gone.

Cameron Crawford, director of Pianoshop Ltd for more than a decade, was arrested at his home in Raumati South yesterday and bailed to appear in Porirua District Court on Tuesday.

He will face four charges of causing loss by deception. However it was likely that more charges would be laid as other victims came forward to police, Detective Jocelyn Bell said.

Police will request a lengthy remand period, in order to give time to gather statements from victims, in particular those who had bought or sold pianos through Crawford, Ms Bell said.

Pianoshop, in Plimmerton, was placed in liquidation on May 21, with debts of more than $2 million

A list of creditors included more than 200 customers who bought or sold pianos through the store, but had not received the money they were owed or the instrument they purchased.

Two creditors have told The Dominion Post they have already begun legal action to try to collect debts they claimed were more than a year old.

Contacted at his home earlier this week about allegations of fraud, Crawford refused to make any comment.

Shortly after the company was placed into liquidation, Crawford said he was “gutted” the company had been liquidated.

Ms Bell said police had received complaints from several creditors who had given Crawford pianos to sell, but had never received their money. Some were told up until February that their instruments were unsold, but were then contacted as creditors in March by a company trying to strike a deal to receive Pianoshop’s debt.

“From there they’ve been able to uncover the fact that the piano has been sold a year earlier.”

Ms Bell understood that another complaint had been made in Rotorua in relation to the case, and that police had received a file from liquidator Murray Allott which also alleged fraud.

The first liquidator’s report on Pianoshop showed it had run up debts of almost $2.4 million, however selling its assets was likely to raise less than $100,000.

Secured creditor Lock Finance is owed more than $340,000, while employees and the Inland Revenue are owed another $236,000, making it unlikely unsecured creditors will receive any payment from the liquidation.