Question
Terra Estates Ltd (Terra) is a Napier-based property development company that specialises in converting warehouses into apartments. Purchasers of the apartments buy off-plan (before the
Terra Estates Ltd (Terra) is a Napier-based property development company that specialises in converting warehouses into apartments. Purchasers of the apartments buy off-plan (before the conversion is completed). Terra is highly geared but has successfully operated on this basis for more than 20 years. The company has a reputation in the region for paying its creditors late, unless it needs urgent work done. Terra has a complicated financing structure including secured debt, unsecured debt and subordinated debt owed to its directors.
Terra's latest project is developing an old wool store at Ahuriri in Napier. In 2020 heavy rains cause subsidence around the wool store and the building is 'red stickered'. This means that no one may enter the building except to make it safe. Potential purchasers are scared-off and sales for wool store apartments dry up. Terra soon stops paying its debts, including money owed to the Inland Revenue Department (IRD).
On 1 December 2020, Terra engages Neptune Engineering Ltd (Neptune), a Christchurch firm to advise on preventing further slips. Neptune's chief engineer immediately flies up and inspects the building. Seeing that extensive work must to be done, Neptune advises Terra that they will need to engage more engineers. Neptune charges Terra $20,000 for its initial consultancy work and, on the basis of immediate payment, Neptune employs two engineering graduates.
On 1 January 2021, Jupiter Scaffolding Ltd, a secured creditor, retrieves its equipment from the work site. Seeing this happen, other contractors immediately start suing Terra for unpaid debts. It cannot pay its debts, and a liquidator is appointed on 31 January 2021.
Required:
(a) List the order of payment on liquidation in relation to:
i. Pluto Bank Ltd, which holds a security interest over all of Terra's present and after-acquired property;
ii. IRD for unpaid goods and services tax;
iii. Terra's directors for subordinated debt;
iv. Terra's unpaid employees; and
v. the liquidator's fees.
(b) Explain if the court might approve an application by the liquidator to avoid the payment of $20,000 to Neptune. You should also consider any defences available to Neptune.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started