15.04.2021

Adjudication When In Administration

In Meltzer and Lamacraft v Amstar New Zealand Ltd the High Court highlighted the interplay between insolvency and construction adjudication issues.

The High Court in Meltzer and Lamacraft v Amstar New Zealand Ltd [2020] NZHC 3510 has confirmed that a payee cannot enforce an adjudication determination and may not be able to maintain charging orders if the payer goes into administration.

In Meltzer, a contractor, Amstar New Zealand Ltd (Amstar), was engaged by Lighthouse Property Development (No.1) Ltd (Lighthouse), a property developer, to construct an apartment building.  The parties fell into dispute and sought adjudication under the Construction Contracts Act 2002 (CCA).  In the adjudication determination, Amstar was awarded more than $1.5m plus interest and costs, and had charging orders over unsold apartments approved.

When Lighthouse did not pay, Amstar filed an application in the District Court for the determination to be entered as a judgment under s 73 of the CCA. Later the same day, Lighthouse put itself into administration.  Approximately two weeks later, the adjudicator’s determination was entered as a judgment and charging orders were issued.  These were lodged against the titles of the apartments.  The administrators applied to the Court for directions under s 239ADR(1) of the Companies Act 1993 (Companies Act) as to whether Amstar could enforce its rights under the determination once Lighthouse had gone into administration. 

Were the administrators entitled to apply for directions? 

Amstar objected to the administrators’ application for directions under s 239ADR(1), arguing that the application went beyond the scope of the section. That section allows an administrator to apply to the court for directions in relation to the exercise of its powers during administration.

The Court reviewed similar provisions in other New Zealand legislation (such as the Insolvency Act 2006 and the Receiverships Act 1993), as well the equivalent provision in Australia, which is almost exactly the same as s 239ADR(1).  The Australian authorities (decided under the equivalent section) pointed in favour of upholding the administrators’ application (ie preventing AMSTAR from enforcing the adjudication determination).

The charging orders that Amstar had lodged against the titles of the apartments prevented the administrators from completing any sales on the apartments.  The Court held that this affected the administrators’ powers under ss 239U and 239V of the Companies Act, which allow them to carry on the business of the company.  On a balancing exercise, the Court was of the view that it would make sense for administrators to have an avenue to apply to the Court for orders when they consider that the actions of a creditor would adversely affect the conduct of the administration. 

Could the administrators enforce the determination while Lighthouse was in administration? 

The second main issue dealt with was whether Amstar’s enforcement of the adjudication determination while Lighthouse was in administration was barred by sections 239ABE and 239ABG of the Companies Act.

The Court confirmed that the determination was enforceable in the first instance as Lighthouse had failed to pay the amount due under the determination by the due date.  However, s 239ABE prohibits a proceeding from beginning or continuing against a company during its administration. Section 239ABG prohibits an enforcement process in relation to a company’s assets during its administration.  Both sections have an exception in which a proceeding or enforcement action is allowed with the administrator’s consent or with the permission of the Court. 

The Court focused its analysis on the steps taken by Amstar to determine that Amstar’s actions were in breach of both sections 239ABE and 239ABG of the Companies Act.

Amstar denied that it was continuing a proceeding in breach of s 239ABE, arguing that the steps that were taken after it had applied to have the determination entered as a judgment were automatic and that lodging the charging orders was an administrative process, not judicial. 

Although the application for judgment was lodged by Amstar before the administration started, the Court held that Amstar took active procedural steps to pursue the judgment during the administration, with the aim of obtaining a judgment it could enforce.   The Court also found that Amstar was actively involved in taking enforcement steps under s 239ABG of the Companies Act when it applied for charging orders, had them sealed, and then lodged them against the titles of the apartments.  It followed that Amstar’s actions were taken with the objective of obtaining an advantage over other creditors and were therefore a breach of sections 239ABE and 239ABG of the Companies Act.

This case highlights the interplay between insolvency and construction and the relief that may be sought by administrators when faced with the enforcement of an adjudication determination through application to the Court.

If you have any questions about this article please get in touch with our construction team or your usual contact at Hesketh Henry.

 

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

 

 

 

 

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