In Robt. Jones Holdings Limited v McCullagh  NZSC 86, the Supreme Court unanimously held that it is unnecessary for a liquidator to prove that any payment actually diminished the assets of a company to claw back that payment under s 292 of the Companies Act (Act).
The case concerned an appeal from the decision of the Court of Appeal reported in our December 2018 update. Robt. Jones Holdings (RJH) leased a property to Northern Crest Investments Limited (Northern Crest). Following Northern Crest falling into arrears, the parties agreed an amount that Northern Crest was to pay RJH to satisfy its liability under the lease. Some of those payments were made by a subsidiary of Northern Crest to RJH on Northern Crest's behalf. Northern Crest was subsequently placed into liquidation less than two years after those payments were made.
The liquidators applied to the High Court to have those payments set aside as insolvent transactions under s 292 of the Act. It was common ground that the requirements specified in the text of s 292 of the Act were met. Nevertheless, RJH argued that it was also necessary for any payment voided under s 292 to diminish the assets of the company in liquidation. RJH asserted that this had not occurred because the payments were in effect a loan from the subsidiary to Northern Crest.
The Supreme Court unanimously rejected RJH's appeal. In doing so, it affirmed the Court of Appeal's previous decision in Levin v Market Square Trust, and emphasised the policy objectives underpinning s 292 as being to ensure the equal treatment of the company's creditors, to prevent a race for payment by creditors, and to simplify the recovery of voidable transactions. The statutory gloss argued for by RJH would, in the Court's view, undermine each of those statutory objectives.
The decision provides an authoritative restatement of the existing law, and ensures that creditors as a whole will not be disadvantaged by any sharp practice of financially distressed companies.
See a copy of the Court's decision here.