Sanson v Ebert Construction Limited  NZHC 2402 concerned the successful application by liquidators to set aside payments made pursuant to a direct deed arrangement, as they were payments made on behalf of the insolvent developer. Sanson was the first New Zealand case where a liquidator has raised this argument but it is unlikely to be the last. Direct deeds are a common contractual tool in construction projects to give financiers the right to step into the place of the developer and directly arrange for payments to the contractor to ensure that the development is completed.
Importantly, direct deeds do not create an independent obligation on the financier to make payments, rather they allow the financier to elect to make payments in place of the developer and prevent the contractor cancelling the contract upon a default. Such payments are made from the loan facility available to the developer and are accordingly limited to the extent of that facility. It is on this basis that the liquidators in Sanson argued that the payments made by BOS International (Australia) Limited (BOSI) were actually the property of the developer, Takapuna Procurement Limited (TPL), which were applied by BOSI on TPL's behalf and therefore unfairly received by Ebert Construction in preference to other creditors.
The court agreed with the liquidators and declared the payments voidable under section 293 of the Companies Act 1993. The result of this judgment is that contractors who negotiate and enter into direct deeds are unlikely to get the protection that they will have expected. Despite this, the decision of the court does appear to be correct.
See Court decision here.