A High Court decision has ruled against Robt. Jones Holdings in a long-running fight over payment due to the company by the former Blue Chip group (now Northern Crest, in Liquidation).
Robt. Jones Holdings claimed approximately $800,000 due to the company that the Northern Crest liquidators claimed were voidable.
The lawyer for the claimants, Damian Chesterman, claimed that the liquidators’ claims were an abuse of process and displayed misconduct among other things.
However Justice Christine Gordon rules against his client on the basis that the company would have received more in satisfaction of the debt due to it than they would under the liquidation.
She summarised legal issues on companies paying their debts
The principles to be applied when determining whether a company is able to pay its due debts are well established and are summarised as follows:95
(a) The test of insolvency is an objective one. (b) The ability of the company to pay its debts is concerned with the position of the debtor at the time when the charge or payment is made or other specified act takes place.
(c) In considering the present position regard may be had to the recent past. Ability or inability to pay debts in the recent past may be relevant.
(d) In determining the ability to meet debts as they become due, account must be taken of outstanding debts. (e) The words “as they become due” mean, as they legally become due.
(f) The reference to “payment from his own money” has not been interpreted strictly to require a debtor to keep sufficient cash on hand at all times for that purpose. It is a matter of striking a balance. It is not a matter of simply measuring assets against liabilities, and it is not a matter of whether, given sufficient time, assets could be realised and debts paid.
(g) The section is concerned with solvency, so there must be a substantial element of immediacy in the ability to provide cash from non-cash assets. (h) If, as is well established, convertibility to cash of non-cash assets on hand may be taken into account in determining solvency, so too must debts becoming due while that conversion takes place. Moreover, the words “as they become due” involve consideration of a debtor’s position over a period not an instant of time. (i) Ability to meet debt from borrowed funds is relevant.
The possibility that a third party may prop up a company is not taken into account.
The Judge also considered the issue of voidable transactions, noting –
In his submissions Mr Chesterman added to those particulars by submitting that the filing of the notice to set aside voidable transactions dated 4 July 2010 was premature, there was a large level of fees quickly incurred without funding, a subsequent failure of the liquidators to use their powers to properly investigate the claim or the liquidation and non-disclosure to RJH of information essential to its defence. 
The question of when a liquidator’s conduct will constitute an abuse of process has been considered by the New Zealand courts in a number of cases.
In the leading High Court decision ANZ National Bank Ltd v Sheahan the Court was asked to determine whether an order requiring the respondent to be examined by the liquidators should be granted.108