Liquidator "fabricated" key document – High Court

Liquidator "fabricated" key document – High Court

28 July 2016

A High Court finding this month that a liquidator fabricated a key document and failed to account for receipts of over half a million dollars highlights the need for regulation of the insolvency profession.

The case

The liquidator, Geoff Martin Smith, claimed to have sent a notice under section 305 of the Companies Act to the bank holding security over the company in liquidation. The notice required the bank’s election, in default of which its security would be deemed surrendered. The bank said it never received the notice.

The Court was satisfied that the document had been fabricated:

• expert forensic evidence, after examining the relevant computer, was that it had been created only recently
•
• it was addressed to an officer of the bank whose first contact with Mr Smith was not until about four months after the date of the alleged notice
•
• the photo allegedly proving service depicted a stamp which had not been published until 22 months after the event, and
•
• Mr Smith had a history of dishonesty, including convictions for tax evasion, theft, fraud and falsifying documents.
•
The Court ordered him to pay $540,402.82 plus interest, being funds he had received which were subject to the bank’s security.

View the case here.1

The current regime

Previous case law has confirmed that liquidators are officers of the Court and as such are:2

“obliged to act in a manner consistent with the highest principles”, and

“not permitted to take advantage of the strict legal rights available to them if to do so would mean that they were acting unjustly, inequitably, or unfairly”.

In 2012 the High Court held that the Court's oversight applies whether the liquidator is appointed by the court or by shareholders:3

“The intention of the New Zealand Parliament, when the 1993 Act was enacted, was to put all liquidators on an equal footing. That means that the Court’s ability to exercise its inherent jurisdiction to supervise liquidators, previously restricted to those appointed by the Court, now applies to all, however appointed”.

The Court therefore holds all liquidators to particularly high standards of conduct.

Mr Smith fell below those high standards.

Chapman Tripp comments

This case, which has involved a significant amount of litigation over time, shows the delay and cost that can be caused by liquidators who do not act with propriety.

Currently there is no “fit and proper person” test for liquidators. No training, qualification, registration or licensing is required.

New Zealand is unusual in that regard. It is a situation that ought to change.

For further information, please contact the lawyers featured.

Footnotes:

1 McKay v Johnson & Smith [2016] NZHC 1691
2 Strategic Finance Ltd (in rec & in liq) v Bridgman & Ors [2013] 3 NZLR 650 (CA)
3 ANZ National Bank Ltd v Sheahan [2012] NZHC 3037, [2013] NZLR 674 (HC)

ends

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