Case Notes. A & N Contractors (2009) Ltd (in liq) V Liefting

Transcription

1 Case Notes A & N Contractors (2009) Ltd (in liq) V Liefting [2015] NZHC 3091 Liquidation Director s duties shareholders debt joint account corporate governance Companies Act 1993, ss 131, 135, 136, 194, 298, 300, 301 Financial Reporting Act 1993 s 10 Introduction A&NContractors(2009)Ltd(inliq)(theCompany)its liquidators, Mr Levin Ms Madsen-Ries (Liquidators), claimed against Mr Liefting his wife, Mrs Liefting. The Company claimed the defendants owed amounts under their overdrawn joint current account being a debt owed to the Company, repayable on dem. Alternatively, the Company claimed the amounts taken by the defendants were transactions for inadequate consideration under s 298 of the Companies Act 1993 (the Act). The plaintiffs also sought that Mr Liefting pay compensation under: (a) s 301 of the Act for alleged breaches of directors duties imposed under ss 131, of the Act; (b) s 300 of the Act for alleged breaches of s 194 of the Act; (c) s 10 of the Financial Reporting Act TheCompanywentintoliquidationowingcreditors$258,810.24, including $221, to the Inl Revenue Department (the IRD). The plaintiffs directly attributed the Company s ( its creditors ) loss to Mr Liefting s failure properly to discharge his duties as a director by continuing to trade the Company after it became insolvent continuing to take Company drawings (or allowing Mrs Liefting to take drawings). No statements of defence were filed the proceeding was heard by Thomas J as a formal proof. Background The Company was incorporated on 20 July Mr Liefting was a director at all times the sole director from 21 July 2009; held 300 of the Company s 900 shares from July2009toApril2012alloftheCompany s900shares fromapril2012;wasthehusboftheseconddefendant, Mrs Liefting. MrsLieftingheld300oftheCompany s900sharesfrom July2009toJuly oftheCompany s900shares from April 2010 to April 2012 when she was removed as a shareholder of the Company; was never a director; was the wife of the first defendant, Mr Liefting. The Company stopped trading on 24 January 2013 was put into liquidation on 25 January 2013 on the IRD s application (filed on 15 November 2012). The Liquidators wereappointedreceivedcreditorclaimstotalling$258, The IRD s claim was the largest totaled $221, The Company s only assets at liquidation were two small accounts receivable. One was recovered the Liquidators did not expect recovery of the other. First cause of action: debt owing by Mr Mrs Liefting on their joint current account Judgment was sought against both Mr Mrs Liefting on the basis that the advances made on their current account as shareholders were a debt due repayable on dem. The Company failed to keep proper accounting records from 1 April 2010 onwards. The Liquidators recreated Mr Mrs Liefting s joint current account for the period of 15 November 2009 (3 years before liquidation) to 25 January 2013(liquidation date). The Liquidators identified transactionsthatwerepaymentstomr/ormrslieftingorfor their joint benefit inconsistent with the Company s business expenditure. The Liquidators submitted that between 15 November January 2013, the Company made a multitude of payments to Mr /or Mrs Liefting (or for their joint benefit) received payments from them (Transactions). Transactionsinconsistentwithbusinessexpenditure At the hearing, Mr Levin, an insolvency specialist one of the Liquidators, explained why the plaintiffs considered that the Transactions were inconsistent with the Company s business expenditure. Thomas J agreed that the obvious inference was that the Transactions were for the personal benefitofmrmrslieftingwhowerebothsignatorieson the Company s accounts. Thomas J reasoned that if the Transactions were legitimate Company expenditure they should have been properly documented as such. Mr Liefting was obliged under the Act to keep proper records, as director fiduciary of the Company, to account to the Company for its funds. It was incumbent on him as a director to explain what had become of company property in his hs. Transactions were not additional salary Mr Levin outlined why the Transactions do not comprise salaryorwagepaymentstomrmrsliefting.hereferred to a business profile he completed where Mr Liefting advised the Liquidators that neither he nor Mrs Liefting were paid or credited a salary/wage; the Transactions were not in the nature of wages/salary as they were not regular in amount or frequency; there was no employment contract between the Company Mr /or Mrs Liefting; the IRD confirmed that the defendants were not registered as Company employees; Mr Liefting had no entitlement as a Company director to receive remuneration. There was no evidence that ss 161 or 107 of the Act were met no evidence that signed certificates /or assents existed. company securities law bulletin February

2 Transactions were drawings on the Lieftings joint current account ThomasJfoundthattheTransactionswereproperlycharacterised as drawings on Mr Mrs Liefting s joint current account. The Transactions were advances repayable on dem, unless a Company resolution classified them as otherwise. There was no such resolution. ThomasJheldthatthecurrentaccountowingbyMr MrsLieftingwasajointcurrentaccountbecause:(a)inthe only financial statement prepared for the Company in respect of the year ending March 2010, it was classified as a joint current account; (b) the defendants were the Company s sole shareholders throughout the entire period. Mr Liefting was the sole director for the entirity of the Company s life from day-two; (c) Mrs Liefting was a signatory on the Company s bank accounts. Conclusion Therefore Thomas J was satisfied that the total balance of the joint current account owed by Mr Mrs Liefting was $294, Upon dem, the Company was entitled to recover the outsting joint current account from Mr Mrs Liefting who were jointly liable. The second cause of action, alleging transactions for inadequate consideration, was in the alternative to the first,giventhecourt sfindinginrespectofthefirstcauseof action, meant that it did not need to be addressed. Second cause of action: breaches of director s duties claim under s 301 of the Act Section 131(1) of the Act Section 131(1) of the Act provides: (1) Subject to this section, a director of a company, when exercising powers or performing duties, must act in good faith in what the director believes to be the best interests of the company. The s 131(1) duty is subjective. However, where it is inconceivable that a director with any appreciation of fiduciary responsibilities could cause a company to enter into a transaction, a director will generally be regarded as breaching the duty regardless of the subjective belief held. Once a companyhasdoubtfulsolvency,thedutyisalsoowedtoits creditors. The Court noted Fogarty J s observations in Sojourner v Robb [2006] 3 NZLR 808 (HC) at [102]: In this context the stard in s 131 is an amalgam of objective stards as to how people of business might be expected to act, coupled with a subjective criteria as to whether the directors have done what they honestly believe to be right. The stard does not allow a directortodischargethedutybyactingwithabeliefthat whatheisdoingisinthebestinterestofthecompany,if that belief rests on a wholly inappropriate appreciation as to the interests of the company Creditors are persons to whom the company has ongoing obligations. The best interests of the company include the obligation to discharge those obligations before rewarding the shareholders. ThomasJheldthatMrLieftingfailedtoensuretheCompany metitstaxobligationsastheybecamedueallowedthe Company to continue trading incur further tax debts ( other liabilities) for over 2.5 years after it was insolvent. The Company s inability to pay its taxes other liabilities was largely due to the defendants use of Company funds for their personal benefit by drawing on the joint current account. Those funds, which included amounts received by the Company on behalf of the Crown for GST PAYE, ought to have been paid to the IRD shortly after receipt. The failure to account to the IRD for PAYE was a breach of trust under s 167 of the Tax Administration Act While Mr Mrs Liefting continued to take drawings in preference to paying the Company s creditors, it had no prospect of meeting its overdue debts, nor the further debts it would accrue. The Company its creditors suffered increasing losses until it eventually ceased trading. Thomas J found that the loss was a direct result of the Mr Liefting s failure to act in good faith in the best interests of the Company. Section 135 of the Act Section 135 of the Act provides: 135 Reckless trading A director of a company must not (a) agreetothebusinessofthecompanybeing carried on in a manner likely to create a substantial risk of serious loss to the company s creditors; or (b) causeorallowthebusinessofthecompany tobecarriedoninamannerlikelytocreate a substantial risk of serious loss to the company s creditors. ThomasJappliedMasonvLewis[2006]NZCA55;[2006]3 NZLR 225 (CA) (at [51]) where the Court of Appeal set out the essential pillars of a s 135 claim: thedutyimposedbys135isowedbydirectorstothe company (rather than to any particular creditors); the test is objective; itfocusesnotonadirector sbelief,butratheronthe manner in which a company s business is carried on, whether that modus operi creates a substantial risk of serious loss; what is required when the company enters troubled financial waters is a sober assessment by the directors, of an ongoing character, as to the company s likely future income prospects The duty reflects a director s responsibility to protect creditors interests when the company approaches insolvency. The Court of Appeal recognised this in Robb v Sojourner when it cited with approval the judgment of Gummow J in Re New World Alliance Pty Ltd; Sycotex Pty Ltd v Baseler [1994] FCA 1117; (1994) 51 FCR 425 (FCA) (at 445). Thomas J accepted Mr Levin s evidence that the Company was insolvent from at latest, 1 July The only responsible response was to cease trading when the Companyhadoverdueincreasingtaxdebtsithadnorealistic prospect of paying. However, Mr Liefting continued to 22 company securities law bulletin February 2016

3 trade until January 2013, the day before liquidators were appointed. By continuing to trade whilst insolvent, Mr Liefting created a substantial risk of serious loss to the Company s creditors exacerbated that risk by allowing further drawings on the joint current account. Financial statements were not prepared after the year ending March Nor were any management accounts or forecasts after this period. Thomas J accepted the submission that a sober assessment of the Company s prospectsatanytimeduringthisperiodwouldhaveleftnoroom for doubt that the Company should cease trading. Section 136 of the Act Section 136 of the Act provides: 136 Duty in relation to obligations A director of a company must not agree to the company incurring an obligation unless the director believes at that time on reasonable grounds that the company will be able to perform the obligation when it is required to do so. The Court of Appeal in Peace Glory Society Ltd (in liq) v Samsa [2009] NZCA 396, [2010] 2 NZLR 57 (at [45]) set out the s 136 requirements: (a) the defendant was a director of the company; (b) an obligation was incurred by the company; (c) at the time of incurring the obligation, the defendant did not honestly believe on reasonable grounds that the company would be able to perform the obligation when it was required to do so. In Fatupaito v Bates [2001] NZHC 401; [2001] 3 NZLR 386 (HC)(at801),O ReganJheldthattoestablishabreachofs 136, a plaintiff must show that the defendant agreed to the company incurring an obligation at a time when he/she did not believe (a subjective test), on reasonable grounds (an objective test), that the company would be able to perform that obligation when required to do so. In Jordan v O Sullivan HC Wellington CIV , 13 May 2008 at [69], Clifford J explained the application of ss : [69]Takenoverall,perhapswhatcannowbesaidisthat, particularly in terms of the statutory expression of directors dutiesfoundinss135136,directorsoweduties to a company, that would appear to be designed, in the overall scheme of the Companies Act, to protect, at least to a certain extent, the position of the creditors of the company at all times. Whether or not, at a particular point in time, the directors are likely to breach those duties will, fairly obviously, depend on the financial positionofthecompany.whereacompanyisinastrong financial position, adequately capitalised making sustainable profits, it is most unlikely the directors will be engaging in a course of action (s 135), or incurring specific obligations (s 136), that involve the taking of illegitimate risks. They will, therefore, in all likelihood be meeting the duties they owe to the company which are designed to protect the interests of its creditors. If, however, the financial position of the company deteriorates significantly so that the position of the creditors becomes significantly more risky, the directors may, againbyreasonofthedutiestheactprovidestheyowe to the company, need to pay more attention to the position of the creditors. That need becomes most pressing where a company is insolvent, or near to insolvency, the directors have the difficult decision to make as to whether to cease trading or, on a rational reasoned basis having appropriate regard to the interests of creditors, continue trading with a view to returning the company to a sound financial position. In allowing the Company to continue to trade, Mr Liefting caused it to continue incurring obligations to creditors, including the IRD. The Company began defaulting on its KSR obligations from 30 April 2010 on its GST obligations from 31 May The Company then began defaulting on payments of PAYE, KSE, SSCWT, incurring some minor income tax penalties. The Company s debt to the IRD continued to grow was compounded by the interest penalties. The scale of the IRD s claim at the date of liquidation($221,844.57, including petitioning creditor court awarded costs) showed the extent to which Mr Liefting allowed the Company to incur obligations that it was unable to perform. The Court found that there were no reasonable grounds formrlieftingtobelievethatthecompanywouldbeableto meet its further tax liabilities as they were incurred from the continuation of the Company s trading. Mr Liefting s did not prepare any forecasts or properly assess the Company s prospects. The Company had no prospect of returning to a solvent financial position while Mr Liefting continued to use /or allowed Mrs Liefting to use its available cash funds fortheirpersonalbenefitbythepaymentofdrawingstothe Joint Current Account. Mr Liefting ought to have taken into account the existing overdue debts to the IRD, that were clearly a significant obstacle to paying new debts. Thomas J held that regardless of any subjective belief that Mr Liefting may have held, there weas no objective reasonable basis to consider that the Company would be able to perform its obligations when required to do so. Third cause of action continued: quantum of relief under s 301 of the Act The Plaintiffs argued that there was no proper corporate governance Mr Liefting fell well short of compliance with the Act. Section 301 of the Act provides: 301 Power of court to require persons to repay money or return property (1) If,inthecourseoftheliquidationofacompany,it appears to the court that a person who has taken part in the formation or promotion of the company, or a past or present director, manager, administrator, liquidator, or receiver of the company, has misapplied, or retained, or become liable or accountable for, money or property of the company, or been guilty of negligence, default, or breach of duty or trust in relation to the company, the court may, on the application of the liquidator or a creditor or shareholder, company securities law bulletin February

4 (a) inquire into the conduct of the promoter, director, manager, administrator, liquidator, or receiver; (b) order that person (i) to repay or restore the money or property or any part of it with interest at a rate the court thinks just; or (ii) to contribute such sum to the assets of the company by way of compensation as the court thinks just; or (c) wheretheapplicationismadebyacreditor, order that person to pay or transfer the money or property or any part of it with interestataratethecourtthinksjusttothe creditor. (2) This section has effect even though the conduct may constitute an offence. (3) An order for payment of money under this section is deemed to be a final judgment within the meaning of section 17(1)(a) of the Insolvency Act (4) In making an order under subsection (1) against a past or present director, the court must, where relevant, take into account any action that person took for the appointment of an administrator to the company under Part 15A. Extent of Mr Liefting s contribution to the losses of the company Thomas J followed the Court of Appeal s three-factor approach to relief under s 301 as outlined in Mason v Lewis [2006] NZCA 55; [2006] 3 NZLR 225 (CA): The purpose of s 301 is to compensate those who have suffered loss resulting from illegitimate trading. Section 301 is analogous to a derivative type of action is a procedural short cut by which a liquidator, creditor or shareholder may pursue the claims which a company in liquidation may have against its directors. It is a means of enforcement against directors who have been guilty of negligence, default, or breach of duty or trust in relation to the company. [109]Thestardapproachhasbeentobeginbylooking to the deterioration in the company s financial position between the date inadequate corporate governance became evident(really the breach date), the date of liquidation. [110] Once that figure has been ascertained, New Zeal Courts have seen three factors causation, culpability the duration of the trading as being distinctly relevant to the exercise of the Court s discretion... [118] Finally, claims of this character necessarily have to be approached in a relatively broad-brush way. The jurisdiction to order recompense is of an equitable character. TheCourtalsonotedthatinLöwervTraveller[2005]NZCA 187;[2005]3NZLR479(CA)thethreefactorsweredescribed as: (a) Causation is concerned with the link between the carrying on of the company s business recklessly, to the knowledge of the impugned director, the indebtednessofthecompanyforwhichitissoughtto impose personal liability. (b) Culpability is linked to the deterrent purpose of the provision. This factor calls for an assessment of the blameworthiness of the director s conduct, bearing in mind that at one end of the range the nature of a director s involvement will be blind faith or muddleheadedness, while at the other end there will be actions or instances of inaction which are plainly dishonest. The deterrent purpose of the section is served in cases involving a high degree of culpability by orders which are punitive as well as compensatory. (c) Durationofthewrongfultradingwasinthatcasetwo years 10 months was described as lengthy. The Court of Appeal upheld the trial judge s finding of 100 per cent liability for loss during the relevant period. The director was found to have been unreasonably optimistic put his own interests ahead of other unsecured creditors over an extended period. Insolvency of the Company Section 4 of the Act sets out the solvency test for companies as follows: 4 Meaning of solvency test (1) For the purposes of this Act, a company satisfies the solvency test if (a) thecompanyisabletopayitsdebtsasthey become due in the normal course of business; (b) thevalueofthecompany sassetsisgreater than the value of its liabilities, including contingent liabilities. (2 Without limiting sections 52 55(3), in determining for the purposes of this Act (other than sections which relate to amalgamations) whether the value of a company s assets is greater than the value of its liabilities, including contingent liabilities, the directors (a) must have regard to (i) the most recent financial statements of the company that are prepared under this Act or any other enactment (if any); (ia) the accounting records of the company; (ii) all other circumstances that the directorsknoworoughttoknowaffect,or may affect, the value of the company sassetsthevalueofthecompany s liabilities, including its contingent liabilities: 24 company securities law bulletin February 2016

5 (b) may rely on valuations of assets or estimates of liabilities that are reasonable in the circumstances. (4) In determining, for the purposes of this section, the value of a contingent liability, account may be taken of (a) the likelihood of the contingency occurring; (b) any claim the company is entitled to make can reasonably expect to be met to reduce or extinguish the contingent liability. The Plaintiffs contended that the Company failed the cash flowsolvencytestfromatleast1july2010.mrlevin sgave evidence that the Company had insufficient available assets to pay its debts as they became due in the ordinary course of business from 1 July 2010 thereafter to the date of liquidation. The Company began defaulting on its KSR obligations from30april2010onitsgstobligationsfrom31may2010. The Company then began defaulting on payments of PAYE, KSE, SSCWT, as well as incurring some minor Income Taxpenalties.AstheCompanycontinuedtofailtomeetits tax obligations, its debt to the IRD grew was compounded by interest penalties. The plaintiffs claimed that the Company s failure to meet its tax debts was because the defendants continued regularly to draw on their joint current account. Mr Levin said that a failure to pay PAYE GST on a regular basis is a sure sign of a company in trouble. Businesses with cash flow problems are often tempted to defer their tax obligations as the IRD, unlike trade creditors or its employees, cannot withhold the services materials requiredtocontinueintradeifitremainsunpaid.thomasj noted that this is obviously not a prudent or sustainable commercial practice, particularly given the speed at which interest penalties accrue on the outsting core tax debt. The only financial statements prepared for the Company were for the financial year ended 31 March They recorded that the Company generated a deficit from trading of$2,547fromsalesof$380,376.theyrecordthatasat31 March2010theCompanyhadanetassetdeficitof$1,647. In late October 2010, the Company entered into a repayment arrangement with the IRD pursuant to which it agreed to repay its then outsting tax arrears by four monthly payments of $1,800 per month commencing on 22 November The Company was unable to make the first payment due under that arrangement, in late November 2010, the Company the IRD agreed to vary the repayment arrangements. However, the Company failed to make the payments due under the arrangement continued to default on its ongoing tax obligations. The plaintiffs therefore argued that the Company failed the solvency test under s 4 of the Act, was insolvent from at latest 1 July 2010 which was the breach date for s 301. The majority of the outsting debts in the liquidation were incurred following this period. The Liquidators claim that the Company s financial positionwassuchthatmrlieftingoughttohaveundertakenan objective sober assessment of the position of the Company. Instead the Company continued to trade resulting in its eventual liquidation with outsting debts to creditors. The Liquidators submitted that the loss suffered as a result of the breach was represented by the total amount of creditor claims filed in the liquidation being $258, Causation Thomas J held that if Mr Liefting had ceased to trade the Company shortly after it became insolvent, the outsting debts to creditors would not exist or have been substantially reduced. The debts were exacerbated by the accumulation of interest penalties, by the drawings on the defendants joint current account, by the failure of Mr Liefting to dem repayment of the joint current account. Thomas J held that in the circumstances, there was clearly a direct causal link between Mr Liefting s breaches of his duty as director the loss suffered by the Company s creditors. Culpability The Liquidators subitted that while Mr Liefting may not have been dishonest, his actions fell well below the stard of care required to discharge his duties under the Act identified three areas of default: (a) continuing to trade the Company after he knew or ought to have known that the increasing levels of overdue tax liability meant the Company was insolvent; (b) choosing to pay himself his wife by taking drawings, /or allowing Mrs Liefting to take drawings, instead of paying the Company s creditors; (c) having allowed the drawings, failing to dem repayment of the outsting joint current account. Duration The Company traded for around 3 a half years. It was insolvent by 1 July 2010 did not cease trading until January It therefore traded while insolvent for approximately 2 a half years all but 10 months of its trading life. This caused significant losses to creditors. Quantum of relief The Liquidators argued that it was appropriate that Mr Liefting contribute $258, the entire amount owed by the Company to its external creditors, plus interest from the date of liquidation. Thomas J adopted the approach taken by Muir J in Mizeen Painters Ltd (in liq) v Tapusoa [2015] NZHC 826: [61] I accept the liquidators submission that this claim is conceptually independent of a claim to the current account is appropriately the subject of a separate award. The fact that the current account claim of itself exceeds the creditor claims plus costs that additional awards unders300s301createafurthermarginoverthose liabilities is not unusual in this context. In each of Bay company securities law bulletin February

6 Kiwifruit Contractors Ltd(in liq) v Ladher; Madsen-Ries v Petera Richard Geewiz Gee Consultants Ltd (in liq)vgee;cumulativeawardsinrelationtooneormore of current accounts, salaries paid in breach of s 161(5) Section 300 /or S 301 claims exceeded total outsting creditor claims. As identified in Morgenstern vjeffreys,theexcesswillreturntomrmrstapusoa as shareholders in any event. In that respect I again record the position of a liquidator is to avoid unnecessary circularity. Those practical issues should not, in my view, detract from the principle that discrete heads of claim should be the subject of discrete judgments. [63] In a number of cases, including Mako Holdings Ltd (in liq) v Crimp Lakeside Ventures 2010 Ltd (In Liq) vlevinthecourthasmadeawardsunders301equating to100percentofcreditorlosses.inmakoholdingsltd the award also included liquidators costs(including the costs of litigation on an effectively solicitor own client basis with the admonition that unless Judges take a firm line with those who choose to act in breach of their director s duties we will wind up creating incentives for directors to strip their companies on the basis that they can argue about it later. In Lakeside Ventures 2010 Ltd the Court awarded costs on a 2C basis. ThomasJheldthatitwasclearthatasfromatleast1July2010, thecompanywasunabletopayitsdebtsthatshouldbe taken as effectively the date when Mr Liefting s breaches as a director commenced. As a director, he permitted the Company to continue trading when it could not pay its debts the defendants continued to draw from the Company. There was the requisite causation, culpability duration. If there was a surplus in the liquidation, this amount would be returned to Mr Liefting as the Company s sole shareholder. The overall effect of the order sought under s 301 was to shift the financial consequences of Mr Liefting s breaches of duty from the Company s creditors to Mr Liefting. Thomas J found that this consequence was just. Fourth cause of action: breach of duties under s 194 of the Act s 10 of the Financial Reporting Act 1993 The Plaintiffs also submitted that Mr Liefting breached his duties as director as follows: (a) s 194 of the Act: failure to keep proper accounting records which correctly recorded explained the transactions of the Company would at any time enable the financial position of the Company to be determined with reasonable accuracy; (b) s 10 of the Financial Reporting Act 1993: failure to ensure the Company completed complying financial statements for the years ended 31 March March TheCourtreferredtoThomContractorsLtd(inliq)vThom HC Auckl CIV , 28 April 2009(at[17]), a case concerning a dispute raised by Mr Thom as to the company s accounts, where the Court said: Astothefinancialstatements,towhichMrThomhasnot subscribed, the liquidators are also able to say that insofar as they, or the company s records from which they derive, are deficient Mr Thom must accept responsibility.assoledirectorhewasobligedunders194(1)of the Companies Act 1993 to ensure that the company s records, amongst other things, correctly recorded explained the company s transactions(subpara(a)), enabled its financial position to be determined with reasonable accuracy at any time (subpara (b)) its financial statements to be readily properly audited (subpara (d)). He is accountable for any failure in the accounting records to record entries of money received spenteachdaythematterstowhichtheyrelate: s 194(2). These instances are not exhaustive. Unders10oftheFinancialReportingAct1993adirectorof a reporting entity must ensure that financial statements that comply with s 11 of the Financial Reporting Act 1993 are prepared within five months of the end of each financial year. Mr Liefting failed to do this failed to enable the financial position of the Company to be determined with reasonable accuracy. The financial statements of the Company did not comply with generally accepted accounting practice enabled the financial statements of the Company could not be readily properly audited. Mr Liefting also failed to ensure that the Company completed complying financial statements for the years ended 31 March March Mr Liefting s failure to comply with his duty to keep adequate accounting records resulted in substantial uncertainty as to the Company s financial position which contributedtoitsinabilitytopayitsdebtscausedtheliquidators to incur fees expenses they would not otherwise have incurred. The fourth cause of action complemented the third. If the creditors full loss was awarded under the third cause of action, no additional compensation was sought regarding the fourth cause of action. The Plaintiffs accepted that the commonality of the behaviour relied upon in respect of the third fourth causes of action meant that no additional orders would be sought. Result Thomas J held: (a) Judgment was given for the Company in its claim for $294, plus interest costs. The defendants were jointly liable. (b) The claims against the first defendant succeeded. He was to pay compensation of $258, plus interest from the date of liquidation, subject to the extent to which the IRD claim included interest. Cases considered Australian Growth Resources Corp Pty Ltd v Van Reesema (1988) 13 ACLR 261; Chesterton Holdings Ltd (in liq) v Durney HC Napier CIV , 19 May 2011; 26 company securities law bulletin February 2016

7 Fatupaito v Bates [2001] NZHC 401; [2001] 3 NZLR 386 (HC); Jordan v O Sullivan HC Wellington CIV , 13 May 2008; Lakeside Ventures 2010 Ltd (in Liq) v Levin [2014] NZHC 1048; Löwer v Traveller [2005] NZCA 187; [2005] 3 NZLR 479 (CA); Madsen-Ries v Cy [2015] NZHC 1229; Mako Holdings Ltd (in liq) v Crimp HC Invercargill CP23/ 99, 28 November 2000; Mason v Lewis [2006] NZCA 55; [2006] 3 NZLR 225 (CA); Mizeen Painters Ltd (in liq) v Tapusoa [2015] NZHC 826; Morgenstern v Jeffreys [2014] NZCA 449; Nicholson v Permakraft (NZ) Ltd [1985] NZCA 15; [1985] 1 NZLR 242 (CA); Peace Glory Society Ltd (in liq) v Samsa [2009] NZCA 396, [2010] 2 NZLR 57; Re New World Alliance Pty Ltd; Sycotex Pty Ltd v Baseler [1994] FCA 1117; (1994) 51 FCR 425 (FCA); Re Samarang Developments Ltd (in liq) HC Christchurch CIV , 30 September 2004; Richard Geewiz Gee Consultants Ltd (in liq) v Gee [2014] NZHC 1483; Robb v Sojourner [2007] NZCA 493; [2008] 1 NZLR 751; Sojourner v Robb [2006] 3 NZLR 808 (HC); Thom Contractors Ltd (in liq) v Thom HC Auckl CIV , 28 April Tom Pasley Freelance contributor Current Developments Report on state of competition in dairy industry released After a process in which dairy industry stakeholders were engaged, the commerce commission released its final report on the state of competition in the dairy industry. This report was required under the Dairy Industry Restructuring Act which also allowed the formation of Fonterra includes provisions to promote the efficient operation of dairy markets. Primary Industries Minister Nathan Guy stated that the report found that competition in the New Zeal dairy industry is not sufficient to warrant full deregulation at this time. Amongst other recommendations, the Commerce Commission recommended that the default expiry provisions in the Dairy Industry Restructuring Act be repealed that a further review take place when independent processors collect30percentofthetotalmilksolidsinthenorthisl or South Isl, or at the end of the 2021/22 dairy season. Nathan Guy will respond with the Government s intentions within 90 days as required by the legislation. The Government will then begin public consultations on a package of policy proposals. A copy of the Commerce Commission s final report is available on the Commerce Commission website: comcom.govt.nz/ Information about the Dairy Industry Restructuring Act review process is available on the Ministry for Primary Industries website: FMA put major focus on licensing funds management firms From now until the 1 December the Financial Markets Authority (FMA) will be focusing on the licensing of funds management firms, which will then continue on as one of their most important responsibilities. More than half of NewZealersrelyonfundmanagerstotakecareoftheir wealth. Under the new Financial Markets regulations, the managers of managed funds, now called managed investment schemes, need to be licensed. Rob Everett, FMA chief executive, stated that licensing is about instilling confidence in the industry by helping to manage provider conduct monitor major risks across thesector.itisjustthebeginningofatransformationinthe relationship between the industry the regulator. The big change in the licensing framework is our continuous ongoing role in supervising the conduct of providers to ensure they are putting the interests of their customers at the centre of their operations. TheFMAintendtostarttalkingwithfundmanagersnow to talk them through minimum stards levels of compliance they will need to comply with in order to continue offering managed investment schemes to consumers. Stards approval board appointed New Zeal s first Stard Approval board has been appointed under the Stards Accreditation Act 2015 (the Act) which came in to force on 1 March This board is made up of six members, with Vaughan Renner as Chairperson. The stards brought in by the Act will continue to be developed by industry experts approved by this new independent Stards Approval board. For more information about the New Zeal Stards Approval board, you can visit their website here: Korea/NZ free trade agreement now effective A fair trade agreement between New Zeal the Republic of Korea took effect on 20 December Changes to be brought in as part of this agreement include tariff reductions over the next 15 years, with two tariff cuts having already occurred on the 20 December January The next tariff cut is due on 1 January 2017, company securities law bulletin February