Related party creditors influence on liquidations has limitations

November 19, 2013

in Insolvency


The New Zealand Court of Appeal has recently issued a decision confirming that where creditors are related to the party in liquidation their ability to influence decisions at meetings of creditors is severely limited.

Under Section 245A of the Companies Act the Court has the ability to set aside resolutions passed at creditors meetings that have the effect of defeating other classes of creditors such as unsecured creditors or a minority of creditors. 

In the particular case in question a company was placed in liquidation and liquidators appointed by an unsecured creditor which had obtained a large judgment against the company.  Related parties of the company which had monies owing to it as well (through related party transactions) passed a resolution at a creditors meeting removing the liquidators that had been appointed by the judgment creditor.

Essentially the related parties were the only other significant creditors of the company in liquidation. They were obviously motivated to avoid an investigation by the liquidators into related party transactions which may have resulted in funds coming back to the company in liquidation to satisfy the judgement debt.

The Court of Appeal concluded that the resolution was contrary to the interests of unsecured creditors other than the related parties. The Court considered it doubtful that the new liquidators appointed by the related parties would complete an adequate investigation of potential recovery against the related parties.

We are often being consulted by clients who consider that they have suffered disadvantage through a liquidation process which has been effectively controlled by parties related to or associated with the company in liquidation.  There are protections available to creditors where they consider a liquidator or other parties have influenced the due process of a liquidation.  This case shows that the Courts will not allow those actions to go untested.

Farry and Co. has extensive experience in all aspects of receiverships and liquidations and can assist you whether you are a company facing receivership or liquidation or a creditor that is owed money by a company that has been put into receivership or liquidation.

If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:

Paul Farry

09 379 0055 or 03 477 8870


The information contained in this publication is intended as a guide only.  It does not constitute legal advice and should not be relied upon as such.  Professional advice should be sought before applying any of the information to particular circumstances.  While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain. 

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