Package includes:

Online CPD Module  l  Electronic booklet  l  PowerPoint Presentation

Package Fee (incl GST)

• $125 - NZLS members and Associate members
• $175 - Non-members

Note: Access to the online files is via your "My CPD" page. If you would like to purchase multiple packages, please contact us here.

Online CPD Module

The recent Supreme Court decision of Debut Homes Ltd has significant implications for companies facing solvency challenges. This seminar will examine the ramifications of the decision while also taking into account the broader picture in terms of the changing landscape in this area and what you need to be mindful of when advising your clients on a practical level.

• The frequent difficult decisions directors must face about trading on in situations of questionable solvency that require commercial judgement  
• Discussion on the disruptions directors faced through 2020 and how the expiry of the temporary COVID-19 safe harbour has not made things easier
• The risk directors may face of potentially significant personal liability in the event of formal insolvency
• What exactly is the Supreme Court’s scope of the decision made to offered guidance on this front in Debut Homes Ltd and what broader impact will it have?

Please contact us if you use a dial up internet connection.

Learning objectives

This module will give you clear guidance about:

• The scope of directors’ duties under ss 131, 135 and 136 of the Companies Act.
• Trading on in situations of questionable solvency.
• The ability to carry out a workout and use of other processes short of a formal insolvency process.
• Potential liability that directors may face.
• The validity of security in favour of the director(s) and associated interests.

Electronic paper 

Authors: Michael Arthur, Jacque Lethbridge
Published: 1 December 2020
Pages: 20

Introduction

The Supreme Court’s decision in Debut Homes Ltd v Cooper¹ has attracted a great deal of comment. Has it, as at least one commentator has suggested, “reset New Zealand company law”?² That may be a question of perspective. To a liquidator assessing a claim against a director who knowingly traded an unsalvageable company, with an intentional plan to advantage himself and place the loss on a specific, otherwise preferential creditor, it may come as no surprise that a remedy is available. By contrast, an independent director endeavouring to decide whether ongoing trading is appropriate, in circumstances where immediate insolvency processes would destroy value, but ongoing trading is not wholly certain, may well see the decision as “strikingly uncommercial”;³ limiting what would previously have been seen as reasonable options.

The implications of the decision will very much depend on how widely the key propositions underlying the decision will be applied. Will the impact of the decision be limited to those cases in which the director acted in a conflict of interest, targeted a particular creditor and/or knew the company to be incapable of rescue? Or will its key propositions be applied more widely? Those propositions include that solvency is vital to ongoing trading, that when considering the interests of creditors, directors must consider each and every creditor individually, rather than the body of creditors as a whole, and that in paying debts, directors must be cognisant, and uphold, the order of priorities that would occur in a formal insolvency.

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¹ [2020] NZSC 100.
² Susan Watson “What’s wrong with making directors liable for reckless trading?”, 15 October 2020: https://www.capitalletter.co.nz/column/directors-duties/58035/whats-wrong-making-directors-liable-reckless-trading
³ Professor Peter Watts QC Debut Homes in the Supreme Court — a product of the vicarage? [2020] Company and Securities Law Bulletin 107.

PowerPoint Presentation

These are the slides included in the presentation.