Bankruptcy on company failure may not clear personal liability for director's duties. Auckland property developer Jason Pan remains liable on a court order he pay $196,800 for breaching directors’ duties because this court order imposing liability came after he was bankrupted.
As a general rule, bankruptcy provides a clean slate leaving unpaid creditors to prove against available pre-bankruptcy assets. Bankrupts are able to start afresh, without the weight of past debts dragging them down.
In turn, full liability is imposed for post-bankruptcy debts. Changxin Pan, also known as Jason Pan, faces post-bankruptcy personal liability for his reckless business activity prior to bankruptcy.
In May 2021, Mr Pan’s company Red Beach Construction Ltd went into liquidation unable to pay its tax debts. Insolvency specialists from Grant Thornton were appointed liquidators.
Tracking through Red Beach payments, they found payments totalling $196,800 paid across to other businesses in which Mr Pan had an interest. These were payments made at a time when Red Beach was insolvent. Red Beach received no apparent benefit in return for the payments made.
In the High Court, Justice Andrew ruled Mr Pan was in breach of his duties as a Red Beach director; failing to act in the best interests of the company and carrying on business in a manner likely to create a loss to creditors.
Mr Pan was ordered to compensate Red Beach for the $196,800 given away.
This court order came eight days after Mr Pan was bankrupted. As a post-bankruptcy debt, Mr Pan remains liable to pay the full amount. It is open for liquidators Grant Thornton to later pursue Mr Pan for full payment once he is in a more solid financial position.
Mr Pan did not appear in court to defend the claim.
Grant Thornton are also liquidators of another Pan company: Gaode Holdings Ltd. This company is also in liquidation, insolvent.
They identified that Mr Pan had used company cash for what appeared to be non-company business. Gaode Holdings financial statements record Mr Pan as owing his company some $255,300. Shareholder advances, payment made by a company on behalf of a shareholder, are unsecured loans to the shareholder, repayable on demand. When Mr Pan ignored liquidators demand for repayment, they sued.
Justice Andrew ruled Mr Pan was personally liable to repay this $255,300. Mr Pan did not defend the claim.
This is a pre-bankruptcy debt. Gaode Holdings is left to prove in Mr Pan’s bankruptcy as an unsecured creditor.
Jeffreys v. Pan – High Court (13.06.24)
24.148