The decision was reached ‘on balance’ and it is easy to see why. Implications: Relief for purchasers, but uncertainty for liquidators and secured lenders As value had been given by the purchasers, it was just and equitable to find that there was a lien over the homes to the extent of the value given. The basis for this finding was that the particular tiny homes were readily identifiable as relating to the particular contracts and, in the ordinary course of business, the company could not sensibly have sold them to anybody else. Venning J found that they had an equitable lien (a right over a specific asset conferred by law rather than agreement) over the tiny homes and this right had priority over other security interests (including registered ones). However, the purchasers only had to succeed on one ground. They did not limit how the company could apply the purchase price-it was entitled to use it in the course of its business. The contracts between Tiny Town Projects were ordinary agreements to sell.
The tiny homes were not held on trust (implied, resulting, constructive, or otherwise) for the purchasers.In this case, the sale had not yet completed sale so the section did not apply. This section helps buyers who innocently buy goods that are subject to a security interest. Section 53 of the Personal Property Securities Act 1999 (PPSA) did not help the buyers.Title in the tiny homes had not passed to the purchasers (even those who had fully paid for them) as the sale would only complete at the point at which CCC had been issued and the homes were ready for delivery.Taking the unsuccessful arguments first, Venning J found: Decision: Purchasers have an equitable lien and can trump other creditors The liquidators applied to the High Court for directions and lawyers were appointed to put forward the competing arguments. The alternative was that the liquidators would sell the homes and use the proceeds to pay preferential unsecured creditors and, if there were sufficient assets, secured and then ordinary unsecured creditors-until this judgment, this would have been the orthodox process. The purchasers of the homes argued, on four different grounds, that the liquidators should release the homes to them. The other three were partially paid for and 40-50% complete. Three of them were fully paid for and 95% complete. When liquidators were appointed, six of these homes were partially complete. Tiny Town Projects was a manufacturer of tiny homes. Background: Argument over who is entitled to part-complete homes It will also make life more difficult for insolvency practitioners, who will have to weigh up arguments which will invariably be finely balanced, or incur the expense of applying to court for directions. While good for these creditors, the ruling is to the detriment of other creditors and especially secured creditors. This judgment opens the door to other purchasers of bespoke goods to argue that, in an insolvency situation, the goods should be released to them rather than realised by insolvency practitioners. The basis for this decision was that the purchasers had equitable liens in the homes up to the value they had paid for them. In Maginness & Booth v Tiny Town Projects Ltd (in liq) NZHC 494, the Court ruled that the liquidators of a tiny homes manufacturer should release part-complete homes to the purchasers of those homes rather than sell them and distribute the assets in accordance with the normal rules of insolvency. If you are an insolvency practitioner or a secured creditor, you might be hearing a lot more about equitable liens after a recent High Court decision. The question is therefore-who loses out? Generally, the answer is-ordinary unsecured creditors. The directors will have to prove the company’s worth to pay all debts.By definition, in an insolvent liquidation there are not enough assets to pay all creditors in full.
A qualified insolvency practitioner will commence the process of liquidation.
In this type of liquidation, the court will conduct the hearing for the closedown of the company. The company holds enough cash to close operations without owing money to any creditors. The shareholders of the company initiate the member’s voluntary liquidation despite the company being solvent. The directors of the company initiate creditor’s voluntary liquidation. However, at times the company is unable to pay back all the creditors. The creditors’ voluntary liquidation occurs when the company’s shareholders decide to terminate a company they hold shares. The following are the three types of liquidation: Creditors’ Voluntary Liquidation After gaining an insight into the reasons for liquidation, let us understand the types of liquidation for a clearer view of the concept. These are a few of the reasons for the liquidation of a company. The business was started and run for the wrong reasons.
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