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Companies Act 1993

Liquidations - Recovery in other cases

299: Court may set aside certain securities and charges

You could also call this:

“Court can cancel certain company securities during liquidation”

If a company can’t pay all its debts when it’s being shut down, the court can cancel certain security arrangements or charges the company made. This applies to securities or charges the company created for:

  • Its directors, their relatives, or trustees for them
  • People who controlled the company or their relatives
  • Other companies controlled by the company’s directors, their relatives, or trustees for them
  • Related companies

The court can do this if they think it’s fair, considering how the security was created and how the person or company acted towards the company being shut down.

However, this doesn’t apply if someone else bought the security or charge. The buyer must not be one of the people or companies mentioned above, and they must have bought it in good faith and paid a fair price.

The court can also make other orders to help cancel these securities or charges.

This rule applies even if the security involves land transfer, which usually has its own set of rules.

To figure out if a company controls another company, you need to look at section 7 of this law.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM322321.

Topics:
Business > Industry rules
Business > Fair trading
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“Rules for unfair transactions between companies and their directors or related parties”

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Part 16 Liquidations
Recovery in other cases

299Court may set aside certain securities and charges

  1. Subject to subsection (2), if a company that is in liquidation is unable to meet all its debts, the court, on the application of the liquidator, may order that a security or charge, or part of it, created by the company over any of its property or undertaking in favour of—

  2. a person who was, at the time the security or charge was created, a director of the company, or a nominee or relative of or a trustee for, or a trustee for a relative of, a director of the company; or
    1. a person, or a relative of a person, who, at the time when the security or charge was created, had control of the company; or
      1. another company that was, when the security or charge was created, controlled by a director of the company, or a nominee or relative of or a trustee for, or a trustee for a relative of, a director of the company; or
        1. another company, that at the time when the security or charge was created, was a related company,—
            1. shall, so far as any security on the property or undertaking is conferred, be set aside as against the liquidator of the company, if the court considers that, having regard to the circumstances in which the security or charge was created, the conduct of the person, relative, company, or related company, as the case may be, in relation to the affairs of the company, and any other relevant circumstances, it is just and equitable to make the order.

          1. Subsection (1) does not apply to a security or charge that has been transferred by the person in whose favour it was originally created and has been purchased by another person (whether or not from the first-mentioned person) if,—

          2. at the time of the purchase, the purchaser was not a person specified in any of paragraphs (a) to (d) of that subsection; and
            1. the purchase was made in good faith and for valuable consideration.

              1. The court may make such other orders as it thinks proper for the purpose of giving effect to an order under this section.

              2. Nothing in the Land Transfer Act 2017 restricts the operation of this section.

              3. The provisions of section 7 apply with such modifications as may be necessary to determine control of a company.

              Compare
              • 1955 No 63 s 311B
              • 1980 No 43 s 27
              Notes
              • Section 299(4): amended, on , by section 250 of the Land Transfer Act 2017 (2017 No 30).