A High Court finding this month that a liquidator
fabricated a key document and failed to account for receipts of
over half a million dollars highlights the need for regulation of
the insolvency profession.
The liquidator, Geoff Martin Smith, claimed to have sent a
notice under section 305 of the Companies Act to the bank holding
security over the company in liquidation. The notice required the
bank's election, in default of which its security would be
deemed surrendered. The bank said it never received the notice.
The Court was satisfied that the document had been
expert forensic evidence, after examining the relevant
computer, was that it had been created only recently
it was addressed to an officer of the bank whose first contact
with Mr Smith was not until about four months after the date of the
the photo allegedly proving service depicted a stamp which had
not been published until 22 months after the event, and
Mr Smith had a history of dishonesty, including convictions for
tax evasion, theft, fraud and falsifying documents.
The Court ordered him to pay $540,402.82 plus interest, being
funds he had received which were subject to the bank's
Previous case law has confirmed that liquidators are officers of
the Court and as such are:2
"obliged to act in a manner
consistent with the highest principles", and
"not permitted to take advantage of the strict
legal rights available to them if to do so would mean that they
were acting unjustly, inequitably, or unfairly".
In 2012 the High Court held that the Court's oversight
applies whether the liquidator is appointed by the court or by
"The intention of the New
Zealand Parliament, when the 1993 Act was enacted, was to put all
liquidators on an equal footing. That means that the Court's
ability to exercise its inherent jurisdiction to supervise
liquidators, previously restricted to those appointed by the Court,
now applies to all, however appointed".
The Court therefore holds all liquidators to particularly high
standards of conduct.
Mr Smith fell below those high standards.
Chapman Tripp comments
This case, which has involved a significant amount of litigation
over time, shows the delay and cost that can be caused by
liquidators who do not act with propriety.
Currently there is no "fit and proper person" test for
liquidators. No training, qualification, registration or licensing
New Zealand is unusual in that regard. It is a situation that
ought to change.
1McKay v Johnson & Smith NZHC 1691
2Strategic Finance Ltd(in rec & in
liq) v Bridgman & Ors 3 NZLR 650
3ANZ National Bank Ltd v Sheahan NZHC 3037,  NZLR 674 (HC)
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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As a demonstration of India's combined political will, the much awaited and debated Insolvency and Bankruptcy Code, 2016 was passed by the Upper House of the Parliament on 11 May 2016 (shortly after being passed by the Lower House on 5 May 2016).
The Code envisages that the insolvency resolution processes will be conducted by insolvency professionals.
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