BUSINESS LAW 2.

TUTORIAL 4 - INSOLVENCY

WEEK COMMENCING 21 AUGUST 2023

Read the attached newspaper articles about Steve Rout

Contracting and Coronet Peak Hotel and discuss the following :

(a) What is a receivership?

(b) What is liquidation?

(c) What did Steve Rout Contracting Limited do, what processes
did it go through, and what debt did it owe?

(d) What did Coronet Peak Hotel Limited do, what processes did
it go through, and what debt did it owe?

(e) What is a preferential claim and what liabilities were

recorded as preferential?

(f) Did the unsecured creditors get any money back?

Read the attached article regarding Postie Plus.

(a) Why was Postie Plus put into administration?

(b) What is voluntary administration and what potential

advantage is this for the company?

(c) Search the internet and find out what happened to the Postie
Plus business.
Read the attached article "Bankrupt Accountant Pleads Guilty to
Insolvency Act Breaches".

(a) Explain the factual background.

(b) What was the accountant trying to do and what offence did
he commit?

(c) What is the policy reason why this is an offence?

Attached is an article about a case involving a possible voidable

transaction. A company tenant had gone into liquidation. Prior to
the liquidation the landlord company had received payments of
rental.

The law around voidable transactions recognises that certain

transactions entered into before the commencement of a
liquidation have the effect of giving one creditor an unfair
advantage over another creditor. As a general principle all
creditors should be treated the same.

(a) Discuss the test for a voidable transaction (refer section 292,
294 and 295 Companies Act I 993).

(b) Do you think the law around voidable transactions is fair?

6/18/23.1:43 PM No funds to pay 35 creditors I Otago Daily Times Online News

Tuesday, ,O January 20.2

No funds to pay 35 creditors

By Joe Dodgshun (/author/Joe%200odgshun)

Regions (/regions) > Regions (/regions/queenstown-lakes)

Steve Rout Contracting owes creditors more than $5.3 million, and no funds are expected to be
available for the 35 unsecured creditors claiming almost $600,000, the second receivers' report
says.

The company, owned by Steve Rout, was incorporated in August 1995 and ceased trading last May,
at Mr Rout's request, owing more than $11 million to known creditors.
Receivers Stephen Tubbs and Colin Gower, of BDO Christchurch, yesterday released their second
report showing "no funds available for unsecured creditors" based on available information.
Of the $5,314,730 owed by the company, secured creditors have laid claim to $4,116,198, including
$3,874,245 owed to UDC Finance.

Preferential creditor the inland Revenue Department was, on November 2, owed $603,499, with a
distribution to be made in the next reporting period.

To date, the receivers have received 35 claims from unsecured creditors totalling $595,023.
The receivers were appointed by UDC Finance last May, with the company at the time owing
secured creditors $7,919,161, of which $7,285,320 was owed to UDC.
Other secured creditors were BNZ, John Deere Credit, Toyota Finance New Zealand, Marac
Finance, Porter Hire andTraffic Signs New Zealand, and unsecured trade creditors $2,120,138.
Since July 3, employee preferential claims for wages and holiday entitlements were paid in full.
The company was placed in liquidation by order of the High Court on August 91ast year and Craig
Me Ihuish and Keiran Horne, of Christchurch, were appointed asjoint and individual liquidators.

Since then, the majority of the company's remaining assets had been sold by public tender and net
proceeds disbursed to secured creditors. Plant, machinery and other assets, including a
' shareholding in a joint venture company, are still to be disposed of, and accounts receivable are to
be recovered.

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https://WWW. odt. conz/regions/queenstown-lakes/no-funds-pay-35-creditors

6/18/23,1:44 PM Bad news for Peak Hotel creditors I Otago Dally Times Online News

Tuesday, 7 August 20.2

Bad news for Peak Hotel creditors

By Tracey Roxburgh (/author/Tracey%20Roxburgh)

Regions (/regions) > Regions (/regions/queenstown. lakes)

it is unlikely 17 unsecured creditors owed

$455,186 by Coronet Peak Hotel Ltd will receive
any payout, the latest liquidator's report says.

The company was behind the pioneering hotel at

Arthurs Point, which comprises 78 rooms, a
restaurant and bar, management offices, a
commercial-grade kitchen, commercial laundry
services, sauna and spa facility, an outdoor
swimming pool and two-bedroom manager's
accommodation.

The hotel near Queenstown also includes the

resort's only commercial bowling alley.

The company was placed in liquidation in

December; at the time, the February 22
Christchurch earthquake was described as the
"death of the business".

The 5600sq in building, the bowling alley and

2105sq in of land at the edge of the premises
leased to Rock Gas Ltd, were put on the market
in a mortgagee sale by Bayleys in June, with
tenders closing on July 20.

Bayleys Queenstown managing director David David Murray.

Murray told the Otago Daily Times yesterday
there was "no update at the moment", but
Bayleys was negotiating with one tenderer.

Christopher MCCullagh and Stephen Lawrence, of PKF Corporate Recovery and Insolvency
(Auckland) Ltd, said they had reviewed the company's records and "investigated the reasons for the
company's failure".

"As at the date of liquidation, the only company assets were uncollected debtors. The majority of
the outstanding debtors related to overseas tour operators who have since left New Zealand
following the global economic downturn.

"The collection of the outstanding debtors has also been frustrated by the time period between
when the debts were incurred and the date the company went into liquidation. "

In December, the Otago Daily Times reported 57 creditors were listed, but the only preferential
creditor was the Inland Revenue Department. At that time, it was owed an estimated $281,925.

https://WWW. odt. conz/regions/queenstown-lakes/bad-news-peak-hotel-creditors

6/18/23,1:44 PM Bad news for Peak Hotel creditors I Otago Daily Times Online News

The liquidators said IRD had submitted a preferential claim for outstanding Child Support Employer
deductions, PAYE deductions and GST, now totalling $327,534.
'The liquidators will continue to collect on the outstanding debtors of the company with the view to
making a partial distribution to the preferential creditor. "
Seventeen unsecured creditor claims had been received in the six months from December 20,
totalling $455,186, but "the liquidators do not anticipate any funds to be available for distribution to
unsecured creditors in the liquidation".

A statement of the realisations and distributions of the company between December and June
showed the company had $15,337 cash at bank, with debtors realising $4514 and $225 in interest,
taking the total realisation to $20,076.
However, $2421, including $1573 in advertising, had been distributed, leaving a closing balance of
just $17,655.
t was estimated the Iiqui at10n would be complete by Decem er.

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https://WWW. odt. conz/regions/queenstown-lakes/bad-news-peak-hotel-creditors

6/18/23,1:45 PM Postie Plus in administration I Otago Daily Times Online News

Tuesday, 3 June 20.4

Postie Plus in admit^stration

Business (/business)

Postie Plus, the worst performing stock on the New Zealand stock market, has appointed
administrators after its lenders withdrew support as the company continued to make ongoing
losses.

The Auckland-based retailer appointed David Bridgman and Colin MCCloy of PWC as administrators,
saying attempts to recapitalise the business had been unsuccessful. The retailer's board also
sought to sell the business outright, or find a new cornerstone shareholder. The administration
should allow Postie Plus to keep trading so it can be sold as a going concern.

"Despite restructuring, optimising of the existing DC (distribution centre), and recent improvements
to gross margin and market share, the company has continued to make ongoing trading losses, "
the company said in a statement. 'The company's bank has been supportive through this period,
but has decided it cannot extend its facilities further to cover ongoing losses. "

In April, Postie Plus said it was in breach of its lending covenants and expected to remain so "for the
foreseeable future, " meaning its bank funding is repayable on demand, though the arrangements it
had in place with its bank were sufficient to meet the company's forecast funding requirements up
to July 30.

The company was hit by supply chain disruptions in the summer of 2012 and 2013 after outsourcing
its distribution centre to a third part, while shifting its headquarters to Auckland, where it anticipated
growth. After receiving legal advice, Postie Plus said it intends to "vigorously" pursue a damages
claim.

The shares were halted on Thursday at 7.3 cents, valuing the company at $2.9 million. The shares
have slumped 72 percent since the start of 2012.

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 NEW ZEALAND
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LAW SOCIETY

Bankrupt accountant leads g ilty to insolvency

at breaches

01 March 2018

An accountant has pleaded guilty to seven charges under the Insolvency Act 2006
brought by the Official Assignee (OA) at the Auckland District Court.

itThis individual offended in a serious way to breach acceptable commercial standards,

both before and during his bankruptcy, which he would have been well aware of as an
experienced accountant. His actions have caused real harm in the community " savs

The Ministry of Business, innovation and Employment (MBIE) says Stuart Francis
Clarke concealed property from the OA, a charge which carries up to three Years in
prison, and for managing a business while bankrupt without consent from the OA,
which carries up to two years, Sentencing will take place on 23 March 2018.

Mr Clarke ran an accounting practice in Ponsonby under various names, including CK

Accountants Ltd, and Wellpark Finendal Ltd. After being adjudicated bankrupt, he
continued to operate the practice, despite repeated warnings from the OA that he
could not do so.

On the day of his adjudication in March 2014, Mr Clarke authorised several changes to
his shareholdings on the Companies Register, and listed other people as the directors
of the companies through which he operated his business, despite retaining the
exclusive underlying control.

MBIE says by arranging for the transfers he attempted to put these shares out of the
reach of the OA. The OA is now in the process of reversing these transfers. The
prospect of returns for creditors is unclear.

"Mr Clarke could have acted to protect the interests of his creditors, but chose to
maintain his lifestyle instead, acting with contempt for the law and seeking to put his
property out of the OA's reach, " says Mr van der Schyff.

Mr Clarke concealed a bank account from the OA, into which over $78,000 had been
deposited, which he has since spent and is no longer available to be used to repay
creditors.
it was also noted that between December 2013 (when he was served with the
application to adjudicate him bankrupt) and May 201.4, a period of 21 weeks, Mr
Clarke spent $84,160 in restaurant and bars, and in cash withdrawals.

'it is concerning a bankrupt who managed their financial affairs in such a way has
continued to offer accountancy services to the public, and we see this kind of
behaviour as an affront to the wider community who conduct business honestly and
meet all their obligations, " says Mr van der Schyff,

Last updated on the 1st March 2018

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9 Aug. 20,912:59pm
3 minutes to read

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Bob Jones lost a Supreme Court appeal over rental payments to

one of his companies. Photo I File
BusinessDesk
By: Victoria Young
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Bob Jones has lost a Supreme Court appeal over rental payments to one of
his companies for the firm formerly known as Blue Chip.
The property magnate has fought for years with the liquidators for Blue Chip,
which is now called Northern Crest. The finance company had leased a
building owned by Jones.
Back in 2017 at the High Court stage, liquidators Arithony MCCullagh and
Stephen Lawrence argued Jones's company Robt Jones Holdings skipped the
queue when it received payments ahead of other creditors.
The liquidators sought to make about $800,000 in payments made to Jones's
company voidable.

Liquidators can apply to void a transaction if they believe it has left other
creditors at a disadvantage and can meet a statutory test. Doing so puts the
money back into the liquidators' pool to be distributed among creditors.
Having lost in the High Court and Court of Appeal, Iamy, ers for Jones ent to
the Supreme Court in April this year to argue the transaction was not voidable
under the Companies Act.
There were two payments made to satisfy the rent owing, one made by a third
party Columbus, and the other by a Northern Crest subsidiary. hile the case
originally concerned both payments, at the Supreme Court stage the fight was
only over about $200,000 paid by the orthern Crest subsidiary.
The Supreme Court allowed the appeal on the question of whether a
transaction as only voidab!e if it actually lowered the amount available to
creditors. The other aspects of the test were already met.
Robt Jones Holdings argued the payments were effective Iy a loan so didn't
actually reduce the pool to creditors.

The lawyer for the liquidators said the voidable transactions regime should be
simple and cost-effective, and taking Robt Jones Holdings' approach and
analysing the source of payments would create lengthy litigation, as it had in
the present case.