30 April 2018

No liquidation where debt disputed

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The case is a reminder that a liquidation order will be dismissed when there are grounds to believe a debt is disputed.
New Zealand Insolvency/Bankruptcy/Re-Structuring
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Ezipaint Limited (in liq) v Peters Holdings Trustee Limited [2017] NZHC 3139

This case is a good reminder that a court will not enter a liquidation order where there are genuine grounds to believe that a debt is disputed, regardless of whether a defendant debtor has applied to have a statutory demand set aside.

The liquidators of Ezipaint Limited (Ezipaint) served a statutory demand on the defendant. The defendant did not comply with the demand, nor did it take any steps to set the statutory demand aside. Ezipaint applied for liquidation, at which time the defendant disputed that the debt was, in fact owing, and sought to challenge the validity of the statutory demand.

Associate Judge Doogue observed that the fact that the defendant had failed to apply to set aside the statutory demand did not prevent it from disputing the existence of the debt at the point where the Court was hearing an opposed application for liquidation. However, given the presumption of insolvency due to non-compliance with a statutory demand under s 287(a) of the Insolvency Act, the defendant had the onus of proving that there was a genuine and substantial dispute as to the existence of the debt. On the facts, his Honour considered that the defendant had discharged this onus: the parties to the litigation had shared many human agents and it was arguable that certain transactions between them had been made ultra vires. Liquidation proceedings were not an adequate vehicle to explore such complex issues and the liquidation application was dismissed.

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