Published 7 August 2011
Law firm Glaister Ennor had more than $50,000 of fees owed by 2 of property developer Rob Vincent’s companies paid by 2 of his trusts as the companies were about to be wound up.
A ploy to get round the voidable preference sections of the Companies Act or a legitimate transaction?
Liquidator Grant Reynolds argued the money was paid in March 2010 on behalf the companies, Chaffers Properties Ltd & Warkworth Grange Property Investment Ltd, which were wound up on 1 September 2010. Solicitor Peter Chamberlain signed an authority to Glaister Ennor authorising the law firm to use proceeds of sale of a Paihia property by one of the trusts (after repaying the ANZ National Bank) to cover Glaister Ennor’s conveyancing fees for the sale and $57,653 of other fees.
In a judgment issued on 1 August, Associate Judge Tony Christiansen agreed with Mr Chamberlain: the payment, while covering sums in Glaister Ennor invoices to the Vincent companies, was a gift.
The judge’s slight acknowledgment that creditors of Chaffers & Warkworth Grange might be hard done by through this deal was to prefer that costs of the court case lie where they fell, rather than go to the victor.
Counsel Bruce Pamatatau, for the liquidator, argued that the payment by Pigeon Bay Barrier Ltd, as trustee of the Pigeon Bay Trust and the Barrier Trust, was on behalf of Chaffers & Warkworth Grange and resulted in Glaister Ennor being paid in preference to other unsecured creditors.
Mr Pamatatau argued: “To agree with Glaister Ennor would effectively create a situation where an insolvent company could choose to prefer creditors by getting its debtors to pay its creditors, which is what has happened here. This is not the objective of the insolvent transaction regime.”
But Glaister Ennor lawyer Haylee McKee stressed the payment was a gift from the trusts, didn’t pass through the companies and wasn’t a loan to the companies. The trusts didn’t file a proof of debt in the companies’ liquidations, although they’d paid debts which were the companies’.
Associate Judge Christiansen concluded “there is no evidence, merely supposition, from which to conclude the payment of the respondent’s invoices was made on behalf of the companies…. The trust account transactions do not record anything more than the name of the companies for the purpose of confirming the trustee’s instructions for settlement of the respondent’s invoices. The companies had no control over that process.
“There is no clear contemporaneous documentary evidence of an agreement between the companies and a third party providing for payment of a creditor’s claim and recording it as a loan to the companies. In this case the trustee had no obligation to the companies to make payments to the respondent.”
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Attribution: Judgment, submissions, story written by Bob Dey for the Bob Dey Property Report.