ASB Bank staffer avoids paying $500,000 shares in company he quit because of 'substantial' IRD debt

The key factor in the Court of Appeal case was whether a cancellation of the share sale had occured and been communicated in 2009. Photo / Getty Images

A bank employee won't have to repay the $500,000 worth of shares he had in a company he quit working for after discovering it had financial problems and owed 'substantial sums' to IRD.

On Wednesday, the Court of Appeal dismissed a case from businessman Paul Coffey who was attempting to be paid for $500,000 of shares in two security companies he sold to security consultant Mark Walker in 2008.

Walker held a senior position at ASB bank and was a long-time acquaintance of Coffey when he purchased $700,000 of shares in the security companies which Coffey was a trustee of.

Walker paid for only $200,000 of those shares in May 2008 and was given the remaining $500,000 of shares as a loan that was due by June 2013.

But along with the share purchase, Walker also agreed to leave his position at ASB and work for the security and alarms companies in which he had bought the $700,000 of shares: Alligator and Independent Monitoring Services.

In the decision handed down in the Court of Appeal this week, Justice Patricia Courtney described how Walker quickly realised how poor the finances of both companies were once he started working there

"Within a short time Mr Walker could see there were financial problems. In particular, substantial sums were owing to the Inland Revenue Department (IRD) for PAYE and GST," said Justice Courtney.

By June 2009, Mr Walker had resigned as a director of both companies and secured another job with ASB.

In 2011, both security companies were placed into liquidation after Coffey was unable to resolve matters with the IRD.

But Coffey still sought payment for the $500,000 of shares he claimed he was owed from the 2008 sale for the now non-existent companies.

In 2015, Coffey demanded payment via debt collectors, but Walker did not accept he was under any obligation to pay.

Nothing further happened with the case until 2019 when Coffey issued proceedings against Walker for payment.

But in both the original case against Walker and the Court of Appeal decision handed down this week, the judges deemed Walker didn't have to pay because Coffey misrepresented the financial health of his security companies when he made the 2008 share sale.

Walker said he would not have agreed to buy the shares had he known the extent of the companies' liabilities.

In the original 2019 case, Associate Judge Warwick Smith refused Coffey's attempt to be paid $500,000 "on the ground that it was reasonably arguable that Mr Coffey had misrepresented the extent of the companies' liabilities and that Mr Walker had cancelled the share sale agreement for that reason, thus relieving him of any further obligations under the agreement."

Coffey argued in his appeal that Walker never actually cancelled the share sale in June 2009 as he claimed.

In the Court of Appeal decision, Justice Courtney found no issue with Associate Judge Smith's original decision that it was "reasonably arguable" that Walker had communicated to Coffey that he was cancelling the purchase of the shares

Justice Courtney said in dismissing Coffey's appeal that there is sufficient evidence that Walker did cancel the share sale.

"What emerges from the evidence is that there are a number of important factual issues in dispute regarding what was said between the parties in 2009 and 2011 and that there is evidence on which it could reasonably be argued that Mr Walker had taken steps that conveyed cancellation of the agreement," said Justice Courtney.

"Some of the recorded communications are consistent with either cancellation or affirmation. But it is significant that there are a number of pieces of evidence that are consistent with cancellation."