Decision No Reasonable Liquidator Could Have Made

Overview Of Decision No Reasonable Liquidator Could Have Made

The court can disturb a Liquidator’s decision if all relevant information is not taken into account and it is not a matter of commercial judgment.

In the case of BBG Holdings Limited (in liquidation) v Fatupaito [2021] NZHC 1877 the Court in New Zealand reversed a Liquidator’s decision to reject a creditor’s Proof of Debt in a Liquidation on the basis that it had been a decision no reasonable liquidator could have made.

Damien Grant of Waterstone Insolvency was appointed Liquidator of BBG Holdings Limited (“BBG”) and sought confirmation from the Liquidators of CIT Holdings Limited (“CIT”) that BBG’s claim in the Liquidation of CIT was admitted. On 7 November 2019 acceptance was confirmed in the sum of $836,012.06.

It appears that Mr Grant became concerned about the delay in the CIT distribution thereafter.

After a formal meeting, the Liquidators of CIT informed Mr Grant there had been a request to reject BBG’s claim. In affording him a redacted copy of the request there was no indication of who it was from.

When CIT had gone into Liquidation an individual much as the heart of this case, Mr Olliver, who was then the sole Director of BBG and CIT, had advanced a claim on behalf of BBG with invoices for the relevant works but the Liquidators of CIT did not seek a copy of the contract between BBG and CIT.

These invoices were not rejected by CIT at the time or indeed for the next several years. It was only after a request from Mr Olliver that the claim was reconsidered:

More than six years after the invoices were issued and four years after the claim was made by BBG in the CIT liquidation, Mr Olliver asked the liquidators to reject BBG’s claim on the basis that “recent materials” had come to light…

The Court appeared surprised that the Liquidators being aware of a complex set of circumstances had not seemingly sought further information from Mr Olliver regarding the works in question and it notably said the following:

This is particularly the case where a request was made by Mr Olliver so late in the liquidation and where the reversal of the liquidators ’ position would be likely to result in entities associated with Mr Olliver receiving a greater distribution than otherwise.

Would The Court Disturb The Liquidator’s Decision And Was It Unreasonable?

The Court noted that when the Liquidators relied upon the contemporaneous documents supporting BBG’s claim, it had been admitted:

…it is clear that there is a credible factual basis for BBG’s claim. The claim is consistent with the contemporaneous documents issued at the time, which included invoices issued by BBG to CIT and not rejected at the time. Furthermore, the invoices were issued when Mr Olliver was the sole director of BBG and CIT. The claim was initially accepted by the liquidators with full knowledge that the invoices were for earthworks being on-charged by BBG to CIT and following provision of copies of the progress claims submitted by JG Civil and the certificates of payment issued by Woods. It was only after a request from Mr Olliver that the claim was reconsidered.

The Liquidators then decided to reverse their earlier acceptance of the BBG claim on the basis of legal principle. It seems however that the Court was concerned if the relevant legal principles applied to the facts of the case.

The contemporaneous documents it seems appeared to show an agreement between BBG and CIT involving the recharging of invoices issued to BBG for works undertaken, then onto CIT.

However, in reversing their decision the Liquidators of CIT asserted that there was no agreement from CIT that the works should either be undertaken or that BBG would be compensated for the same.

The Court referred to authorities involving the circumstances in which a Liquidator’s decision could be disturbed:

Both of the above cases make it clear that the Court will disturb a decision of a liquidator where the liquidator has not taken all of the relevant information into account. That appears to be exactly the position here.

Furthermore, the CIT liquidators ’ decision is not a matter of commercial judgment, as some liquidators ’ decisions are, and so there cannot be a concern that reversing the liquidators ’ decision would interfere with a commercial decision of expert liquidators .

The Court held that there was an agreement and that as a result, it would reverse the decision of the Liquidators of CIT:

It is clear that the above is not supported by the evidence both because the sale and purchase agreement entered into by BBG was not in respect of all the properties on which earthworks were undertaken and because there was an agreement for CIT to pay for those earthworks when viewed objectively. In these circumstances the decision by the liquidators to reject BBG’s claim is a decision that no reasonable liquidator could have come to and must be reversed.

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