Liquidators could not reclaim security for costs money once a company folded
The Employment Court has awarded security for costs money to a defendant after the plaintiff's liquidation, ruling the funds stayed under court control, not the liquidators'.
In Black Lion Holdings Ltd (in liquidation) v Peterson [2026] NZEmpC 117, Black Lion Holdings Ltd (in liquidation) had discontinued its proceeding against Carolyn Peterson, who had challenged an Employment Relations Authority determination. The court held $4,000, plus interest of less than $15, that Black Lion had paid towards security, less than half the amount it had been ordered to pay.
When the liquidators filed the notice of discontinuance, they asked the court to return the money to the company so it could distribute the funds to preferential creditors under sch 7 of the Companies Act 1993.
The court sought Peterson's view and referred both parties to a previous ruling finding that once a plaintiff paid money into court as security, the sum ceased to be an asset of any party and remained under the court's control until the court ordered how to pay it out.
Relying on that previous ruling, Peterson asked the court to pay her costs. The liquidators repeated their request and did not address it.
The court stated that the purpose of security for costs was to protect a defendant so it could defend a claim, confident it would recover costs up to the security if the plaintiff failed. Returning the money to a plaintiff that then went into liquidation would run contrary to that purpose, the court said – "precisely the kind of situation against which a defendant is seeking to be protected."
Money paid into court as security did not form part of a plaintiff company's assets, the court held, and a plaintiff could not demand its return. The liquidators had no better claim than the company itself, and the money could not be "diluted through the operation of a formal insolvency regime." It remained under the court's control until the court ordered its distribution.
Peterson, who received legal aid, noted that the scale costs for the steps taken to date totalled $4,611 on a category 1A basis. The court accepted that her costs could reasonably exceed the $4,000 it held and found that the full amount should be available to her.
The court ordered that, once the total cost of legal aid services became known, the Registrar release up to $4,000 plus interest to Peterson's counsel, with any surplus paid to the liquidators.
