In our April 2019 newsletter we reported on the High Court judgment in Mainzeal Property Construction Limited (in liq) & Ors v Yan & Ors  NZHC 255. The directors were ordered to contribute $36m to Mainzeal’s assets to be distributed to creditors. The Court found that Mr Yan was the most culpable director and had induced the other directors to breach their duties. Accordingly, he was held to be solely liable for $18m.
Mr Yan and the three other directors have appealed to the Court of Appeal.
In the meantime, the liquidators applied for Mr Yan to be adjudicated bankrupt for failing to pay the $18m judgment, or provide any proper security for it. It was not in dispute that the requirements of section 13 Insolvency Act had been made out and that Mr Yan had committed an act of bankruptcy; the judgment sum is immediately payable and Mr Yan advised he was unable to pay it. However, Mr Yan argued that the bankruptcy proceedings should be halted under section 42 of the Insolvency Act in light of the upcoming appeal. Section 42 gives the court powers to halt or refuse an application when a judgment is under appeal.
The court acknowledged that it has a wide and unfettered discretion under section 42; the Insolvency Act does not prescribe relevant factors the court has to consider, or the weight to be accorded to them. Accordingly, whilst recognising the prejudice and uncertainty for creditors and the liquidators, the court granted an order that the bankruptcy proceedings should be halted, pending the determination of the Court of Appeal. The court considered that if the proceedings were not halted, there would be a real risk that the right to appeal the judgment would be rendered nugatory.
The court emphasised that a decision to halt the proceedings did not mean the bankruptcy application would ultimately fail, and the proceedings have simply been adjourned.
Interestingly, the court did not impose any conditions on Mr Yan to provide security. This was despite suggestions that Mr Yan had not been transparent or candid about his financial means or situation. The court considered that to do so may disrupt or interfere with the impending appeal proceedings.
The decision can be found here.