Rowmata Holdings Limited (in liquidation) (RHL) & Anor v Hildred & Ors  NZHC 2435 involved a sale and purchase agreement whereby land was sold to two trusts, subject to finance. RHL (a company incorporated by the purchasing trusts) claimed and received a GST refund for the purchase. However, on settlement date, RHL defaulted on the purchase, went into liquidation, and the GST refund became repayable to the Inland Revenue Department (IRD).
The liquidators contended that the directors of RHL were personally liable for the GST refund owing to breached duties of the Companies Act 1993.
The High Court found in favour of the liquidators and ordered the trustees to pay $720,000 plus interest.
On the breaches of duties in the Companies Act, the High Court held that the directors had believed on reasonable grounds to have committed RHL to a contractual obligation that the company could not perform. Williams J concluded that ASB bank's support and sympathy, coupled with the optimism of the market rising, was insufficient to constitute a reasonable basis for belief that the obligation would be satisfied. Further, the long period of time until settlement was necessary was of limited relevance as RHL had no money or prospective income upon receipt of the GST refund, nor any financial assistance from ASB.
The Court also believed that the directors had not exercised proper care, diligence and skill by using the $720,000 to repay the two trusts during the global financial crisis. The prudent course of action, in the Court's view, would have been to retain the refund so that it could be returned to the IRD in the event of default. Moreover, the purchase transaction was not in the company's best interests, as it was highly probable from the outset that it would fail.
The liquidators argued that the directors were responsible for the entirety of the loss. However, owing to difficult economic conditions unforeseen by the directors, the Court held that the directors were accountable for only 70%.
The liquidators were, however, entitled to recover the entire amount expended by RHL, as the purchase transaction was voidable under the Companies Act. RHL paid the $720,000, and was therefore a party to the deposit transaction. However, RHL did not receive any value in return, as the trusts were having the land vested in them, not RHL. Accordingly, the liquidators recovered the entire $720,000 being the difference between what RHL paid, and what they received.
Finally, the Court held that the liquidators were entitled to recover the $720,000 from the trusts under the doctrine of unjust enrichment. Williams J described this cause of action as a common law version of the statutory claim that the liquidators had already succeeded on.
See Court decision here.