Trends creditors win bid to separate their claim

Trends creditors win bid to separate their claim from defamation action

By Fiona Rotherham

Dec. 18 (BusinessDesk) - Creditors of magazine publisher Trends Publishing International, which is being chased to repay debts including $383,000 of a government-funded research and development grant cancelled earlier this year, have won a High Court skirmish against the media company.

The five creditors – Accident Compensation Corporation, AdviceWise, Callaghan Innovation, Mediaworks Radio, and Webstar - collectively owed $450,000 - had applied to unwind a creditors’ compromise struck in April in order to resume liquidation proceedings. But Trends launched a counter-claim accusing Callaghan of defamation and breach of contract over a press release issued a year ago announcing it was terminating the R&D grant and had referred the matter to the Serious Fraud Office.

The creditors then sought an order from the High Court to separate the hearing of their claim from that of the defamation action. That application has been granted by Associate Judge Jeremy Doogue today. Trends hadn’t opposed separation but argued its counterclaim should be determined before the other, the written judgment said.

There was a strong public interest in preventing companies from trading while insolvent and Deloitte, which reviewed Trends before the Callaghan grant was cancelled, had serious doubts about the company’s solvency at the time, the associate judge said.

Trends admitted at the creditors’ meeting where the compromise was agreed to that it had been unable to pay its rent for six years. Under the compromise proposal, which allowed Trends to keep trading, the company offered to repay only a small portion of what was owed to many creditors. Creditors had their votes overshadowed by a $3 million debt to a party related to Trends owner David Johnson.

“The status of the company must be resolved urgently and it would not be in the public interest to allow Trends to pursue its counterclaim – which could, realistically take as long as 18 months – before the claim is determined,” he said.

The outcome of the creditor’s action may also have an impact on the counterclaim and even result in it being discontinued because the creditors’ compromise contains a moratorium on proceedings to recover debts owed by Trends, which Callaghan argued included a bar on exercising any rights of set-off or counter-claim.

If the courts uphold the compromise as valid, it will need to resolve the issue of the counterclaim’s status as raised by Callaghan. If the compromise is not binding, Callaghan has said it will plead its own claim against Trends for recovery of the grant, the associate judge said.

There was potential validity to Trends' argument that the publicity which Callaghan gave to the withdrawal of the grant caused the company’s solvency problems, he said, with its lawyer Kalev Crossland describing Callaghan's press release as having the effect of an “atomic bomb” because of its reference to the SFO investigation. That investigation is still on-going a year later.

But he said there is no doubt that the court won’t allow a creditor to proceed on a liquidation proceeding where it "savours" of unfairness or undue pressure.

Another fact the judge took into consideration was that only Callaghan was subject to the counterclaim rather than other creditors. “At the very least", they should be free to have their application heard promptly, he said.

(BusinessDesk)

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