Mr Pala and Mr Luthera were directors of Shanton, a large retailer of women's clothing in New Zealand. BTC Group Limited (BTC) was in the business of supplying clothing to Shanton in accordance with Shanton's stock orders. BTC had obtained guarantees from Shanton's directors, pursuant to which each director guaranteed the obligations of Shanton to BTC. Earlier this year, Shanton was unable to pay its debts as they fell due and was placed into voluntary administration owing creditors over $7m.
When Shanton was unable to make payment under BTC's invoices as these payments fell due, BTC brought a claim for summary judgment in the High Court against the directors under their guarantees. It was successful in the High Court.
In Pala & Anor v BTC Group Limited  NZCA 487, Mr Pala and Mr Luthera appealed the High Court judgment. BTC had a perfected security interest over the garments it had supplied to Shanton, and therefore had the right to repossess its stock. However, it opted not to do so, given that it was based in Hong Kong (and the stock was spread amongst the various stores throughout New Zealand). One of the directors' arguments was that BTC took possession (although not physically) of certain garments and appointed the administrator to sell them as BTC's agent. The pair claimed the administrator had failed to get the best price possible for the clothes and that BTC was liable for this failure because the administrator was acting as BTC's agent.
The Court held that there was no evidence that the administrator was acting as BTC's agent. However, the Court reduced the amount for which the directors were found liable under their guarantee on another point concerning when the invoices for supply of the goods were payable.
See Court decision here.