New Zealand Tiny Homes (Tiny Homes) fell victim to liquidation on 15 November 2022. After its incorporation in 2020 this was a short, but most certainly not sweet, business affair for its director James Cameron of New Plymouth.
The liquidation of Tiny Homes was said to be linked to the liquidation of Tiny Town Projects Limited (Tiny Town) which was also liquidated on 15 November 2022, another of Mr Cameron’s companies incorporated in 2017.
Tiny Town and Tiny Homes were related companies. Tiny Homes held the intellectual property for the creation of building small properties in New Zealand, whereas Tiny Town was the company that actually attended to the building of these properties
The business of Tiny Homes and Tiny Town
Tiny Homes and Tiny Town were in the business of building small properties for consumers in New Zealand. The size of these properties allowed for a far more accessible fixed purchase price for home buyers.
At the time of liquidation of Tiny Homes and Tiny Town, there were a number of these homes that were virtually completed. The only hurdle being procedural matters of gaining compliance before title in the property could pass from Tiny Town to the purchaser.
It is important to note that each of these homes was customised and built on the purchaser’s instructions. A sale and purchase agreement was signed for each home and payment of the purchase price was paid to Tiny Town in instalments.
The first liquidator’s report of Tiny Town that the issues stemming from COVID-19, a spike in building costs and supply chain issues impacted the company’s ability to ‘fulfil fixed price contracts.’ This inability to fufil fixed price contracts led to both Tiny Town and Tiny Homes demise.
The liquidation
In November 2022, Tiny Town was placed into liquidation. At the point of liquidation there were 6 homes that were partially completed. Of the 6 purchasers of these homes, 3 had paid the full purchase price of their respective homes and were awaiting small changes to be made to be issued a code of compliance before the homes could be delivered. The remaining 3 purchasers had homes that were 40%-50% complete.
The first liquidators report for Tiny Town showed the company had very few assets, bar the 6 homes in question.
The liquidators filed proceedings in the High Court seeking directions on how to best deal with the 6 homes.
The proceedings
The case of Manginness v Tiny Town Projects Limited (In Liquidation) [2023] NZHC 494 (the Proceeding) was heard before Venning J on 20 February 2023 with the judgment being delivered on 14 March 2023.
One of the issues to be decided in the Proceeding was whether the 3 fully paid purchasers were entitled to take ownership of the homes, or whether they belonged to Tiny Town. There were also issues raised in relation to the Personal Property Securities Act 1993 (PPSA) as to whether an equitable lien was granted over all 6 homes.
When does property pass?
The first issue was whether property in the homes had passed to the 3 fully paid purchasers. Counsel for the purchasers argued that as the purchase price had been paid in full, the homes should pass to the purchasers. Counsel argued the compliance certificate should not be the decisive factor as in the liquidator’s evidence it was accepted delivery of the homes would occur when full payment was made, not when the compliance certificate was issued.
Venning J rejected this argument, stating that, property will only pass when the homes are ‘in a deliverable state.’ Venning J defined the deliverable state as when the compliance certificate was issued.
It was concluded on the first issue that property in the homes had not passed to the purchasers.
An equitable lien
Counsel for the purchasers argued that even though there was uncertainty on the property passing, that under section 53 of the PPSA the purchasers had an interest in the homes, whether by way of an equitable lien or a constructive trust.
An equitable lien is a form of equity which the Court can grant to give an indemnity or priority over other creditors. On the other hand, a constructive trust is a trust created whereby one person holds property for the benefit of another, it prevents someone holding property from unjustly benefitting from the holding of that property.
Venning J considered that section 53 of the PPSA did not apply here. However, His Honour’s view was different on the topic of an equitable lien. It was argued by counsel for the purchasers that an equitable lien should be granted to all purchasers over the homes based on the extent of money paid to Tiny Town by them.
A key argument is that these homes were identifiable to each purchaser, and had been built to their specifications. Counsel for the purchasers argued that “the purchasers’ equitable lien confirmed their in rem rights in the tiny homes that trumped any competing claim in the liquidation.”
Venning J submitted this was a difficult issue to ascertain based on the facts of this case. His Honour laid weight on the fact these homes were specified to each purchaser and could not reasonably have been sold by the liquidators to other parties. Venning J concluded there was an equitable lien over the 6 homes.
The next issue was whether the lien was subject to the PPSA, to which Venning J referred to it as being excluded under section 23(b) of the PPSA. His Honour’s full conclusion was “I conclude that the individual purchasers are entitled to equitable liens for the extent of the value of the purchase moneys paid by them and that their equitable liens sit outside and are not affected by the provisions of the PPSA.”
The result of the judgment was that the purchasers of the 6 homes were entitled to an equitable lien against the homes to the extent of the purchase moneys paid by them.
Summary
This judgment has been described as ‘ground-breaking’ and that certainly is the case. This judgment will change the way assets in liquidation are dealt with. The judgment gives rights to the purchasers in a situation where in the normal course of the liquidation it would be common for them to lose their assets.
This decision plays on the fairness of the justice system and emphasises the importance of natural justice in a situation where typically there really are no winners. Although it is arguable this ruling is to the disadvantage of other unsecured creditors in the liquidation, it is weighed on the balance of taking away homes from 6 individuals who in some cases may have been left homeless without this judgment.
The judgment will cast a positive light on the prospects of recovery in liquidations for some creditors, showing them the law of equity can assist in certain circumstances. However, it also results in some doubt for secured creditors whose position is ultimately worsened if equity prevails.
In this case it seems as If on the balance the correct decision was made, however this may not always be the case. If you require assistance on your position as a creditor in a liquidation or want some further information on your rights please do not hesitate to contact us for a free no obligation discussion.
Our lawyers at Norling Law can discuss the outcome of this case as part of our no obligation legal consultation. To book a free 30-minute consultation please click this link
At Norling Law, we are passionate about providing our clients with a problem-solving approach to solving legal issues. We use our problem-solving skills in serving our clients on a daily basis.
This article discusses skills required by mediation advocates from Dr Grant Morris and Annabel Shaw’s commentary (A to Z of New Zealand Law — Alternative Dispute Resolution — Mediation (online ed, Thomson Reuters)).
Parties often have mediation advocates in commercial mediations. Mediation advocates are the representatives who act on behalf of the parties in a mediation. While mediation advocates are usually lawyers, different advocacy skill sets are required.
The adversarial approach
It is common for mediation advocates to adopt the adversarial approach. This is because lawyers are used to litigation and being focused on rights rather than interests. This hinders effective mediation and is not beneficial to the clients.
Another reason why the adversarial approach is commonly used by mediation advocates is because statutory regimes govern a lot of mediation in New Zealand and mediation is often considered to resolve civil legal claims once they have been commenced. For example, a lot of commercial mediations happen as part of the litigation process. In other situations, clients may expect their lawyers to take an adversarial approach.
Some view that mediation advocates who are lawyers prefer the adversarial approach because of economic reasons. This is because mediation usually reduces future disputes and consequently legal fees.
However, it is important for lawyers to remember that rule 13.4 of the Conduct and Client Care Rules provides that a lawyer assisting a client with the resolution of a dispute must keep the client advised of alternatives to litigation that are reasonably available to enable the client to make informed decisions regarding the resolution of the dispute.
Mediation advocacy skills
It is important for mediation advocates to have knowledge of the process. Having knowledge of the mediation rules, ethics, contractual obligations and the law relating the subject matter is also important.
Preparing before the mediation process is essential. Mediation advocates should know the issues and facts well. They should adopt a mediation advocacy approach as they will be the ones that influence the clients’ approach to mediation.
Mediation advocates should also help clients identify their interests and needs and prepare an explanation of the client’s perspective and desired outcome. They should prepare the clients so they can respond to unexpected situations and emotions and assist clients identify possible results by undertaking a risk assessment. They should also encourage their clients to actively participate in the process.
Mediation advocates require other skills in addition to those that are required in an adversarial role. These include communication skills, relationship management skills, ability to build rapport, emotional competence, ability to be persuasive, advanced negotiation skills and problem-solving skills.
Ways to increase mediation advocacy
Because the mediation advocacy approach results in better outcomes for the clients, it should be encouraged to mediation advocates. Mediation education should be encouraged to the legal profession to increase awareness of the mediation advocacy approach.
Educating clients and the wider community about mediation can be another way to increase awareness. This can include teaching dispute resolution skills to the wider public.
Conclusion
The adversarial approach is used excessively even though it is not beneficial to the clients. The importance of mediation advocacy should be promoted, and awareness should be increased to improve the efficacy of mediations. This will allow the parties to reach quick and affordable resolutions while preserving relationships as well.
Clients should ensure that they engage experienced mediators and mediation advocates who encourage the mediation advocacy model. Mediator skills are discussed in our previous issue.
How can you find out more?
At Norling Law, we are passionate about solving commercial disputes and legal issues.
We offer professional, independent, and impartial mediation services to users in a dispute. Norling Law supports mediation as an efficient way of solving legal issues. Especially if the parties to the dispute want a negotiated outcome that remains private and confidential and puts a prompt end to the costs of having the dispute ongoing.
As mediators and mediation advocates, we assist the users to a mediation achieve their priorities throughout the mediation process and enable them to make informed decisions regarding the resolution of the disputes they are involved in.
Our mediator, Wendy Alexander, understands the importance of the mediation advocacy approach and regularly assists with the facilitation of settlements through mediation.
At Norling Law, we receive a large number of commercial disputes. Commercial disputes can be extremely stressful and can often be suitable for mediation. The parties may have been negotiating directly to reach a solution that would meet the interests of both parties. However, the parties often find it difficult to reach agreement.
Using mediation is an option that could potentially resolve commercial problems quickly and efficiently. Mediation is a low-cost option to consider before deciding on whether to litigate. Traditional mediation is usually a more expensive process as it involves the users meeting physically and there are resulting costs involved with travel and booking a neutral meeting room (or rooms). Sometimes traditional mediation might not be available at all for urgent matters.
Wendy can effectively assist users of mediation with her extensive experience as a commercial mediator. Wendy completed training at Program on Negotiation at Harvard Law School, USA and the AMINZ. Wendy is also an Associate Member of AMINZ. This training complements the skills she already has in negotiation and dispute resolution.
Wendy often receives feedback from the mediation parties that they felt relaxed and in safe hands with the management of the dispute and that Wendy truly understood where they were coming from.
If Wendy’s expertise can be of assistance, the first step is to send us the details of your dispute here.
At Norling Law, we are passionate about providing our clients with a problem-solving approach to solving legal issues.
This article discusses skills required by mediators from Dr Grant Morris and Annabel Shaw’s commentary (A to Z of New Zealand Law — Alternative Dispute Resolution — Mediation (online ed, Thomson Reuters)).
Mediator skills
Mediators should have sound knowledge of the relevant law and specific subject matter. Mediators also require skills including communication skills, ability to deal with conflict, sound knowledge about the context and procedure, and negotiation and decision-making skills.
Some skills such as effectively displaying empathy are inherent.
Being able to deal and work with conflict is one of the most important skills. The ability to manage the process, facilitate parties’ communication and negotiations, and problem-solving are important skill sets.
These skills are used by the mediator throughout the mediation process.
Process management
Whether the mediation process is productive will depend on the mediator’s ability to build and maintain trust with the parties. This is because parties will need to share sensitive information so that the mediator can identify the issues and needs of the parties.
Mediators also need to build rapport, be empathetic and impartial throughout the mediation process. They also need to be able to adopt a process that is appropriate to the relevant dispute. This requires practical skills such as the ability to analyse and use information.
Another essential skill is the ability to manage the mediation process well. It is important not to own or control the process, but to manage it.
Communication facilitation
Mediators will need to manage the parties’ communications and interactions by conveying their understanding to the parties. This will happen more often in the joint session and negotiation phases. The mediators will encourage the parties to share information and clearly identify their interests. Mediators will also assist the parties understand where the other side is coming from.
Parties may show hostility because of stress or other reasons. For this reason, mediators need to be able to communicate clearly to the parties. Managing effective communication requires skills in dealing with emotion and unexpected behaviour. Active listening is another important communication skill.
Written communication skills such as writing and drafting skills are crucial as well. This is because mediators need to be able to effectively manage written communications. Mediators could also be involved in drafting agreements.
Mediators need to ask the right questions and reframe them accordingly. They may also coach the parties on how they can constructively communicate with each other. For example, mediators could encourage the parties to reframe their language. Mediators also need to be fair when they provide coaching to make sure they always appear impartial.
Mediators may sometimes choose to remain silent. This will encourage the parties to communicate with each other and discuss possible resolutions.
Problem-solving and facilitating negotiations
Another important skill is to facilitate the parties’ negotiations and help them reach an agreement. The mediator will help the parties identify possible options for resolutions. Mediators can guide negotiations by encouraging parties to have realistic expectations.
Mediators may also help the parties conclude the mediation process if an agreement cannot be reached. It is important to manage the conclusion of the mediation appropriately.
Conclusion
Some mediator skills are inherent, others can be learnt. Emotional competency skills distinguish great mediators from good mediators.
Having a skilful mediator manage the mediation process is crucial. Our mediator, Wendy Alexander, has extensive experience in facilitating settlements through mediation. Wendy often receives feedback from the mediation parties that they felt relaxed and in safe hands with the management of the dispute and that Wendy truly understood where they were coming from.
How can you find out more?
At Norling Law, we are passionate about solving commercial disputes and legal issues.
We offer professional, independent, and impartial mediation services to users in a dispute. Norling Law supports mediation as an efficient way of solving legal issues. Especially if the parties to the dispute want a negotiated outcome that remains private and confidential and puts a prompt end to the costs of having the dispute ongoing.
As mediators and representatives, we assist the users to a mediation achieve their priorities throughout the mediation process and enable them to make informed decisions regarding the resolution of the disputes they are involved in.
At Norling Law, we receive a large number of commercial disputes. Commercial disputes can be extremely stressful and can often be suitable for mediation. The parties may have been negotiating directly to reach a solution that would meet the interests of both parties. However, the parties often find it difficult to reach agreement.
Using mediation is an option that could potentially resolve commercial problems quickly and efficiently. Mediation is a low-cost option to consider before deciding on whether to litigate. Traditional mediation is usually a more expensive process as it involves the users meeting physically and there are resulting costs involved with travel and booking a neutral meeting room (or rooms). Sometimes traditional mediation might not be available at all for urgent matters.
Wendy can effectively assist users of mediation with her extensive experience as a commercial mediator. Wendy completed training at Program on Negotiation at Harvard Law School, USA and the AMINZ. Wendy is also an Associate Member of AMINZ. This training complements the skills she already has in negotiation and dispute resolution.
If Wendy’s expertise can be of assistance, the first step is to send us the details of your dispute here.
This article discusses the classic process of mediation and what is involved in a mediation session from Dr Grant Morris and Annabel Shaw’s commentary (A to Z of New Zealand Law — Alternative Dispute Resolution — Mediation (online ed, Thomson Reuters)).
Mediation process
While there is no set process of mediation, facilitative mediation is the usual model. The three stages involved with facilitative mediation is pre-mediation, mediation session and post-mediation.
Pre-mediation
Pre-mediation consists of initiation, intake and preparation.
The initiation of mediation can happen through a contract clause, court referral, or through the parties’ representatives.
During the intake phase, the parties will be informed about the process and will be able to decide if mediation is suitable for them. Parties and mediators will also be able to build rapport.
The parties will be able to ask questions about the process during the preparation stage. They will then provide relevant information to the mediator and exchange information with each other. They will also agree on the venue and duration of mediation.
Mediation session
The mediator and parties will try to understand and define the issue and resolve it in the mediation session.
A mediation session usually includes a mediator’s opening, parties’ openings, mediator’s summary, joint discussion, negotiation, separate meetings, final decision-making, agreement and closing. The duration of this process will depend on the nature of the dispute.
The mediator during the mediator’s opening will remind the parties of the process and will help them to build trust.
The parties’ openings let the parties understand the legal issues, risks and other side’s perspective. The mediator will assist the parties to resolve the issues.
The mediator will then summarise each parties’ perspectives. This step allows the parties to hear the other side’s story through an impartial mediator.
The parties can then clarify and discuss the issues in the joint discussion. The mediator will guide the discussion and the parties can directly talk about the issues. This process will allow them to understand the relevant interests. The mediator will generally ask questions to assist the discussion.
During the negotiation and problem-solving phase, the parties will be able to consider the options for resolution. The mediator will guide the parties to be realistic and work through any deadlocks.
Mediation caucusing is the use of separate meetings between the mediator and the parties individually. This may happen at any stage of the mediation process. It can be used to discuss the conflict and overcome barriers and challenges of mediation. Mediation caucusing is discussed in our previous issue ‘Overcoming barriers and challenges of mediation’ article.
The final decision-making and agreement stage allows the parties to finalise the outcome. If the parties fail to reach a resolution, caucus sessions may be held to check if an agreement can be reached. The parties may also consider whether to pursue further mediation, alternative dispute resolution or litigation.
In the closing phase, the mediator will acknowledge the effort the parties have made, and the parties will be able to make comments.
Post-mediation
After the conclusion phase, the parties may finalise or certify the agreements. Post-mediation may happen if a case was adjourned or if the parties were unable to reach a resolution.
How can you find out more?
At Norling Law, we are passionate about solving commercial disputes and legal issues.
We offer professional, independent, and impartial mediation services to users in a dispute. Norling Law supports mediation as an efficient way of solving legal issues. Especially if the parties to the dispute want a negotiated outcome that remains private and confidential and puts a prompt end to the costs of having the dispute ongoing.
As mediators and representatives, we assist the users to a mediation achieve their priorities throughout the mediation process and enable them to make informed decisions regarding the resolution of the disputes they are involved in.
Our mediator, Wendy Alexander, regularly assists with the facilitation of settlements through mediation.
At Norling Law, we receive a large number of commercial disputes. Commercial disputes can be extremely stressful and can often be suitable for mediation. The parties may have been negotiating directly to reach a solution that would meet the interests of both parties. However, the parties often find it difficult to reach agreement.
Using mediation is an option that could potentially resolve commercial problems quickly and efficiently. Mediation is a low-cost option to consider before deciding on whether to litigate. Traditional mediation is usually a more expensive process as it involves the users meeting physically and there are resulting costs involved with travel and booking a neutral meeting room (or rooms). Sometimes traditional mediation might not be available at all for urgent matters.
Wendy can effectively assist users of mediation with her extensive experience as a commercial mediator. Wendy completed training at Program on Negotiation at Harvard Law School, USA and the AMINZ. Wendy is also an Associate Member of AMINZ. This training complements the skills she already has in negotiation and dispute resolution.
Wendy often receives feedback from the mediation parties that they felt relaxed and in safe hands with the management of the dispute and that Wendy truly understood where they were coming from.
If Wendy’s expertise can be of assistance, the first step is to send us the details of your dispute here.
If a creditor has served liquidation proceedings on your company, you may want to consider placing the company into liquidation before the matter is brought before the court and the court appoints a liquidator chosen by that creditor. In doing this, the company’s shareholders have the chance to appoint a liquidator (usually referred to as a voluntary liquidation) who could act more favourably towards them as opposed to the creditors throughout the course of the liquidation. Section 241AA of the Companies Act 1993 (“the CA”) forces companies to act quickly when considering this option. Creditors can bypass and replace the shareholder appointed liquidator with one who would act more favourably towards their interests. However, they too must act quickly.
Purpose of section 241AA
Under section 241AA of the CA, a company has 10 working days to appoint its own liquidator from the date when it was served with liquidation proceedings from a creditor. The 10 working-day provision in section 241AA(2)(a) pushes companies to take quick action to move into voluntary liquidation if appropriate. It also prevents a company from deferring voluntary liquidation until shortly before the court is due to consider the liquidation application, which can lead to excessive costs for the creditor.
In 2020, section 241AA(2) was amended and section 241AA(2)(b) was introduced to allow for the company shareholders to appoint a liquidator after the 10working day limit if the creditor that brought the liquidation proceedings consents to the appointment. This also assists in avoiding any unnecessary costs as the creditor may agree with the appointment of the liquidator suggested by the company shareholders.
The shareholder appointed liquidator
A company can place itself into liquidation by the passing of a special resolution of its shareholders (granted it is within 10 working days of being served liquidation proceedings from a creditor). Passing a special resolution requires 75% of all shareholders that are entitled to vote on the matter to then vote in favour of the resolution. A shareholder resolution is not required to be passed if the consent of the petitioning creditor to the appointment has been given.
If the shareholders appoint a liquidator, there is a perception that the liquidator is more likely to act in the interests of the shareholders as opposed to one appointed by the creditor. Although this is not true to every situation, it is still a strong trend in insolvency.
For example, a liquidator will have a contact network of lawyers and accountants. If a lawyer has a client that intends to place their company into liquidation, they will recommend a liquidator that would tend to act in the interests of shareholders. This would be a liquidator who is less likely to pursue areas such as an overdrawn current account or breach of director’s duties.
In many cases the shareholder appointed liquidator will typically remain appointed. Creditors do have an opportunity to replace them, however.
The creditor appointed liquidator
Creditors must act quickly to replace a liquidator if they are concerned by one appointed by the shareholders. In this circumstance, the most cost-effective way to achieve this is by passing a resolution to replace the liquidator at an initial creditors’ meeting.
The process to calling a creditors’ meeting is as follows:
The liquidator must give notice of the creditors’ meeting to every known creditor (see section 243 of the CA).
If the liquidator has decided not to call a meeting, they must give notice to the creditors advising that no meeting will be held and provide reasons for this (see section 245 of the CA).
If a creditor wishes for a creditors’ meeting to be held, the creditor must notify the liquidator in writing within 10 working days of the liquidators’ notice to dispense with a creditors’ meeting (also under section 245 of the CA).
The timeframes to call a creditors’ meeting are critical. If a creditor fails to notify within the statutory timeframes, the opportunity to attempt to replace the liquidator is lost.
A resolution to replace the liquidator may be put forward by a creditor at the creditors’ meeting and, if passed, the proposed liquidator will become the new liquidator of the company. The majority in number and value of the creditors voting must vote in favour of the resolution for it to succeed.
In many cases the creditors will be unsuccessful in replacing liquidators who have been appointed by the shareholders. The number of steps in the replacement process and the amount of lobbying of fellow creditors to vote in favour of the resolution to replace the liquidator can sometimes be too tall of a task.
Conclusion
If the perception of the favourable liquidator is legitimate, we suggest following our recommendations above to appoint a liquidator who will act more favourably toward your interests. As a word of caution, please note that although these perceptions exist, sometimes it can merely be a perception.
Whether it be creditors or shareholders that we act for, we encourage our clients to investigate a liquidator and their history to see if they are likely to act in the best interests of our clients. A liquidator’s reputation can be investigated either by publicly searching through judicial decisions or discussing with one of our insolvency experts.
If you require our legal assistance, please contact us for a no obligation discussion.
