Insolvency and restructuring newsletter - First edition 2022
8 March 2022
We open the year with several events of major significance. The unlawful invasion of Ukraine by Russia is justifiably dominating the news cycle, with harrowing images of the impact of Russia's indiscriminate military bombardment on Ukrainian cities and towns. The invasion will have a substantial impact on the global economy. The conflict is also highly likely to have implications for our own domestic markets despite the geographical distance between us. Local sharemarkets have been volatile and oil prices have spiked in the last week. Global sanctions may well push up the price of oil even further, given Russia is a significant supplier of crude. Current speculation is that crude oil prices may well push up to US$150 a barrel, with current Brent Crude and WTI prices hovering between US$120-125 per barrel, while Russian crude is in negative price territory. Any increase in fuel prices is likely to have a wider inflationary effect domestically. New Zealand is already dealing with increases in the cost of importing fuel. Russia and the Ukraine also supply a significant quantity of the world's wheat and barley crops, as well as contributing significantly to global supplies of sunflower oil so the economic impact of the conflict will not be limited to crude oil1 prices.
The other major event facing New Zealand is the massive surge in Covid positive cases in the community. At the time of writing this, there were over 20,000 daily cases reported. With such high numbers, there will be a short-term impact on business continuity and supply chains. The Australian labour market recorded an almost 10% reduction in hours worked in January as a result of Omicron cases, and it will be interesting to see whether we have the same impact here.
On the positive side of the ledger, it is encouraging to see that our borders are beginning to reopen, with indications that we may be welcoming tourists earlier than the government's scheduled plan of July - October 2022, albeit that some international airlines are not expected to return to New Zealand until after the Northern Hemisphere summer season is over. Higher dairy prices are providing support to the economy, with prices at the GDT auction in mid-February almost 30% higher than the same period last year.2 While the IPO market was muted, 2021 was a bumper year for M&A transactions, as money flowed into the economy and the "hot money" from around the world made its way into New Zealand. As we move into 2022 with the inexorable rise in interest rates, projected high inflation, the lingering effects of the global pandemic and a cooling property market, will we see a shift towards a distressed M&A market? David Perry comments that our clients are increasingly being careful with cash and telling us that while their own costs are increasing, there will undoubtedly be acquisition opportunities. That can only mean the market itself is either contemplating or is aware of real financial pressure on other market participants - so expect signs of that distress as the year progresses.
Kicking things off for our first Insolvency and Restructuring newsletter for the year, David Broadmore looks at the issue of third-party payments, and the circumstances in which they fall foul of the voidable transaction provisions in the Companies Act - perhaps an area for further judicial clarification this year. Alec Duncan looks at what is hopefully the final chapter in the Ross Asset management litigation, with a judgment from the High Court on the appropriate distribution model to distribute the proceeds of settlement from ANZ. He also looks at the Federal Court of Australia's decision confirming that set-off is not available as a defence to unfair preference claims. We expect this to be the position adopted in New Zealand also, should the matter come before the Courts.
Honor Kelly considers the Australian High Court's decision to allow shareholders to use public examination powers to pursue potential personal class action claims, while Brooke Marriner considers the New Zealand Court of Appeal's treatment of an application under s266 Companies Act for examination and delivery up of documents. George Taylor analyses the Court of Appeal's treatment of liquidators' fees in the case of Toon (as liquidator of Investacorp Holdings Ltd) v Quinn (as trustees of the CA Quinn Trust). As a postscript, we note that the respondent has sought leave to appeal that decision to the Supreme Court.
Those with an interest in directors' duties will be hoping for some clarity from the Supreme Court's judgment on the Mainzeal appeal, which is being heard this month. Given the clear tensions between the Court of Appeal's 2021 decision under appeal and the Supreme Court's 2020 decision in Debut Homes, it is not clear which way the appeal might go. Luke Sizer recently published an article in the New Zealand Law Journal on issues arising from the appeal.3
We hope you enjoy our first edition for 2022. Please get in touch if we can provide additional information.
1 Ukraine Invasion Threatens Global Wheat Supply - The New York Times (nytimes.com)
3  NZLJ 33