For the first time in New Zealand, the High Court has considered whether a compromise under Part 14 of the Companies Act 1993 can release guarantors of a company's debts. Silverfern proposed a Part 14 compromise to its creditors and, as part of that compromise, the guarantees given by Silverfern's directors and shareholders, Mr and Mrs O'Connor, of Silverfern's debts, would be unconditionally released. The compromise was approved by the required majority but opposed by the plaintiffs.
The plaintiffs, as creditors of Silverfern, sought declaratory orders that a Part 14 compromise does not permit the "confiscation" of standalone rights possessed by a company's creditors against a third-party guarantor. Muir J found in favour of the plaintiffs, holding that a compromise between a company and its creditors does not mean a compromise between the company, its creditors, and the company's guarantors. The Court was persuaded that much clearer language would be required before the courts would impute an intention on the legislature to "expropriate or extinguish valuable rights without fair compensation."
See Court decision here.