When will it ever end?

Bob Jones was in the news again recently, not as might be expected for an incendiary newspaper column or an airline fracas, but the more mundane business of voidable insolvent transactions and another twist in the sorry saga of Blue Chip NZ.

We are glad Bob took this point of principle though, as it led to the Supreme Court’s judgment in Robt. Jones Holdings Ltd v McCullagh.1 The decision will be of interest to professionals advising insolvent companies and liability insurers. In it, the Supreme Court decided that a payment to Robt. Jones Holdings Ltd was a voidable insolvent transaction under s 292 Companies Act 1993, even though the payment did not result in loss to Northern Crest or its unsecured creditors.

Key points

  • An orthodox approach to statutory interpretation will generally prevail: begin with the plain meaning of the text before considering purpose.
  • Section 292 is concerned with the effect of a transaction: whether the creditor receives more than they would have received pari passu in the liquidation. There is no common law requirement that the transaction diminish the assets available to creditors. All that is required is for the transaction to meet the statutory requirements in s 292(2)(a) and (b).
  • The Supreme Court’s interpretation of s 292 provides certainty, consistent with the overall purpose of the Act to provide straightforward and fair procedures for realizing and distributing the assets of insolvent companies.
  • The decision is also of consequence to professional advisers of insolvent companies as it draws a “bright line” for transactions undertaken during troubled times.

The facts

Northern Crest leased premises owned by RJH but fell into arrears. In 2010 Northern Crest and RJH entered into a settlement agreement in satisfaction of the debt.

MSH NO 2 Pty Ltd (MSH2), an Australian subsidiary of Northern Crest, paid RJH $262,758.05 to meet Northern Crest’s obligations under the settlement agreement. At the time Northern Crest was insolvent and unable to pay its debts when due. The payment was made within two years of the appointment of liquidators to Northern Crest.

The liquidators applied to set aside the MSH2 transaction on the basis that MSH2’s payment was an insolvent transaction under s 292 and sought orders that RJH pay them a sum equal to the amount it received on behalf of Northern Crest.

RJH contended MSH2’s payment did not engage s 292 because it did not reduce the pool of assets available to Northern Crest’s unsecured creditors. The transaction had a neutral effect on Northern Crest’s assets: it simply substituted Northern Crest’s debt to RJH with a debt for the same amount to MSH2. It was not enough to meet the statutory requirements of s 292(2)(a) and (b), under the common law the transaction must also diminish the assets available to creditors.

RJH was unsuccessful in the High Court and Court of Appeal. That did not change in the Supreme Court.

Supreme Court judgment

Section 292(1) provides that a transaction is voidable by the liquidator if it is a voidable transaction and entered into within the two-year period preceding the appointment of a liquidator. An insolvent transaction2 under s 292(2)(a) and (b) is:

  • a transaction by a company that is entered into at a time when the company is unable to pay its due debts; and
  • which enables another person to receive more towards satisfaction of a debt owed by the company than the person would receive or would be likely to receive in the company’s liquidation.

The s 296(3) defence of bona fide exchange for value without notice did not apply. RJH’s sole basis to resist liability to repay the money was that Northern Crest had not suffered any diminution in its assets from the MSH2 payment.

The historical genesis of the voidable transactions regime lies in Bankruptcy, and Debtor and Creditor enactments in New Zealand and the UK focusing on the intention of the debtor. The wrong that these provisions were intended to prevent was a debtor preferring certain creditors to others. However, the Companies Act 1993 changed the focus of the voidable transaction regime to the effect of the transaction, as part of its overall purpose to simplify company law resulting in less need for liquidators to refer matters to the Court and achieve greater commercial certainty.

RJH sought to overturn the Court of Appeal’s decision in Levin v Market Square Trust3 that there was no reason to depart from the plain meaning of s 292 by adding a common law diminution requirement.4 It said Levin v Market Square was wrong as the common law diminution requirement was effectively carried through from s 309 (s 292’s predecessor) and express language was necessary to revoke it. The Supreme Court rejected this and confirmed the Court of Appeal’s orthodox approach to statutory interpretation of s 292:  beginning with the text and then considering purpose. There was nothing in the text of the enactment to indicate that an (unstated) common law requirement for an “insolvent transaction” remained.

RJH submitted the real purpose of s 292 was to protect creditors as a whole against diminution of the insolvent company’s assets. The Supreme Court also rejected this submission. Section 292 had multiple purposes. Debtor deterrence, creditor deterrence and creditor equality were relevant purposes.

Overall, Australian, Canadian and UK authorities on similar provisions were of little assistance in construing s 292 as they showed divergent views within and between jurisdictions on whether diminution was a requirement.

The adverse consequences of adopting RJH’s interpretation were a significant factor. RJH’s meaning compromised the statutory objective of simplicity in company law. Determining whether s 292 applied would be costly and protracted, and the “creditor substitution” structure was artificial and likely to apply to commonplace transactions, not just the transaction in issue.

The Supreme Court therefore concluded that the MSH2 payment was an insolvent transaction and the requirements of s 292(2)(a) and (b) were met.


The Supreme Court plainly preferred a straightforward, orthodox approach to statutory interpretation that began with text of the enactment and then considered its specific purpose and the overall purpose of the Act. An unstated requirement with no foundation in the plain wording could not be fixed onto the provision. This approach is consistent with the express purpose of the Companies Act:  to provide straightforward procedures for realizing and distributing assets of insolvent companies.

So marks the end of yet another chapter in the Blue Chip NZ legal annals.

  1. Robt. Jones Holdings Ltd v McCullagh [2019] NZSC 86
  2. A transaction includes paying money or anything done or omitted to be done for the purpose of entering into the transaction or giving effect to it:  s 292(3)
  3. Levin v Market Square Trust [2007] NZCA 135 3 NZLR [2007] 3 NZLR 591
  4. Robt Jones (CA) at [130]

This publication is intended as a general overview and discussion of the content dealt with. It should not be used in any specific situation, in which case you should seek specific legal advice.