Abchal Investments Limited v Saini
[2022] NZHC 1954
•12 August 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-322
[2022] NZHC 1954
BETWEEN ABCHAL INVESTMENTS LIMITED
Applicant
AND
AKASHDEEP SAINI
Respondent
CIV-2022-404-328 BETWEEN
VALUE SAVE LIMITED
ApplicantAND
AKASHDEEP SAINI
Respondent
Hearing: 6 July 2022 Appearances:
Natalie Tabb for the Applicants
Brett Martelli for the Respondents
Judgment:
12 August 2022
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
This judgment was delivered by me on 12 August 2022 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
………………………….
Registrar/Deputy Registrar
Solicitors:
Natalie Tabb, North Harbour, Auckland, for the Applicant
HC Legal Limited (Brett Martelli), Auckland, for the Respondent
ABCHAL INVESTMENTS LIMITED v SAINI [2022] NZHC 1954 [12 August 2022]
Introduction
[1] Abchal Investments Ltd (Abchal) applies to set aside a statutory demand that Mr Akashdeep Saini has made on it. The sole director of Abchal is Mr Parminder Bawa (Mr Bawa).
[2] In a separate proceeding, Value Save Ltd (Value), a company owned and controlled by Mr Bawa, also applies to set aside a statutory demand that Akashdeep1 has made on it (the Value proceedings).2
[3] As this proceeding and the Value proceedings are inextricably linked with overlapping factual matters, this judgment will deal with both proceedings.
Background
[4] The background to the statutory demand arises from Abchal’s 2019 purchase of an Oamaru business called BG’s Dairy and Takeaway (the business). Abchal purchased the business from A & R 2019 Ltd (A & R), a company owned and controlled by the wife of Akashdeep’s brother, Aman Saini. As part of the transaction, Akashdeep paid Abchal $35,000, with such sum to be applied by Abchal to the sale price.
[5] Akashdeep’s account is that he intended the $35,000 would be paid in two tranches, with $30,000 going directly to Abchal. The balance of $5,000 would go to Value, for subsequent transfer to Abchal. In the event, the full $35,000 was paid to Abchal. The parties now disagree on whether that payment was in the nature of a transfer or a loan.
[6] The parties are also in dispute as to the structure of the transaction, the means by which it was effected, and the correct sale price for the business. Abchal maintains
1 Given the commonality of surnames in this proceeding, and meaning no disrespect, I will refer to the Sainis by their given names.
2 Value Save Ltd v Saini HC Auckland CIV-2022-404-328.
the correct sale price was $200,000; Akashdeep says it was $250,000. Abchal considers the business fully paid for; Aman and Akashdeep insist amounts are outstanding. On 14 February 2022, with the alleged debt remaining unpaid, Akashdeep served a statutory demand on Abchal in the sum of $41,103.46.
Abchal’s application to set aside statutory demand
[7]Abchal seeks orders:3
(a)Setting aside the statutory demand for $41,103.46 dated 8 February 2022 and served on 14 February 2022
(b)That the respondent pay the applicant’s costs of and incidental to this application on a solicitor client basis;
[8]The grounds on which Abchal seeks the orders are:
(a)There is a genuine and substantial dispute regarding the amount claimed in the statutory demand;
(b)The debt claimed in the statutory is not due and owing by the applicant to the respondent
(c)And upon the further grounds set out in the affidavit of Parminder Bawa filed in support of this application.
Mr Bawa’s affidavit
[9] Mr Bawa, sole director of Abchal, has made an affidavit in support of the company’s application. He deposes Abchal does not owe Akashdeep any money. He says he cannot understand how the amount demanded in the statutory demand is calculated. He says he has never received any invoice in relation to the loan apparently forming the basis of the statutory demand.4
[10] Mr Bawa says Abchal did receive a payment of $35,000 on 10 December 2019. He says at the time he thought the payment came from Aman, in the context of ongoing negotiations for him to purchase Aman’s business. He says the payment was conditional on him immediately transferring the sum on to A & R, the company that
3 Originating application for order setting aside statutory demand dated 28 February 2022 at [1].
4 Affidavit of Parminder Bawa in support of originating application for order setting aside statutory demand dated 28 February 2022 at [1]–[4].
operates the business. For background, Mr Bawa says he had initially been interested in purchasing the business, but that his finance application to BNZ had been declined. Aman reduced the purchase price from $250,000 to $225,000. Mr Bawa says he then applied to Heartland Bank for finance of $125,000. Heartland advised it would only approve a loan amount of $100,000. Mr Bawa says he then advised Aman he would not be able to purchase the business.5
[11] Mr Bawa says Aman offered to reduce the price of the business to $200,000. Aman said the price reduction could be effected by him transferring $35,000 to Mr Bawa, and Mr Bawa transferring that amount back to A & R — effectively, Aman would be paying part of the purchase price himself. Mr Bawa says the agreement was therefore that A & R would receive $225,000, but Aman would pay $35,000 of that and Mr Bawa or Abchal would pay the balance of $190,000. Mr Bawa says Aman said at this time that they should not involve lawyers because it was close to Christmas time and that would slow down settlement of the purchase.6
[12] Mr Bawa says that on 10 December 2019, Aman came to his workplace and gave him some documents to sign relating to the purchase of the business. He says he was busy with customers at the time and did not read the documents; he just signed them where Aman showed him. He says he now knows those documents to be loan and guarantee documents. He deposes that, as agreed, Abchal received $35,000 and then immediately paid it to A & R. He says, however, that when Abchal received the deposit, it came with the reference “Akashdeep”. He enquired with Aman, who told Mr Bawa “don’t worry, that is my brother”.7
[13] Mr Bawa says the purchase of the business settled on 16 December 2019 and that he took over operation of the business from that date. He says Aman phoned him about six months later and told him that there was some money owing on the business. He said he was not clear what Aman was referring to, but that he did pay Aman an additional $10,000 on 11 June 2020 because he knew the agreed purchase price for the business was $200,000 and he thought he might have only paid $190,000.8
5 At [5]–[6].
6 At [7]–[8].
7 At [9]–[11].
8 At [12]–[13]
[14] Mr Bawa says that by late 2020 he realised that the turnover and profitability of the business were nowhere near what Aman had represented. He says he attended a meeting at the offices of Western Legal in early August 2021. Also present were Aman and Inderjeet Singh, a partner at Western Legal. There, Aman stated Mr Bawa owed him more money for the business. Mr Bawa expressed that he thought he had overpaid for the business and that he was not, in any event, obligated to pay more than the agreed purchase price.9
[15] Mr Bawa says Abchal has a defence, set off or counterclaim against the statutory demand on the basis that the $35,000 Abchal received was not a loan and was immediately paid to A & R in accordance with his and Aman’s agreement. He says there is no loan and nothing owing by Abchal and asks the Court to set aside the statutory demand.10
Late filing of affidavits
[16] Ms Natalie Tabb, for the applicants, sought leave to file a late affidavit of Mr Bawa in reply. Leave was granted to file the affidavit late, and the respondents were allowed a period of three weeks from the date of the hearing to file any response to the affidavit. Mr Bawa’s sworn affidavit was filed on 6 July 2022 and, by agreement with Ms Tabb, Aman filed an affidavit in reply sworn on 9 August 2022.
[17] In Mr Bawa’s further affidavit in reply, he attaches two documents from Richard Allen Law, Abchal’s legal advisor on the acquisition of the business. The documents are a version of the sale and purchase agreement showing the purchase price at $225,000 and a settlement statement prepared by Richard Allen Law. Mr Bawa confirms his previous affidavits to the effect that the purchase price of the business was reduced to $200,000 and for the reasons set out in his previous affidavits, the sale and purchase agreement was not prepared or signed recording the reduction in the purchase price to $200,000. He further deposes that the settlement statement shows the amount requested to settle the purchase of the business was $190,000, and this confirms [13] of his affidavit of 28 February 2022.
9 At [14]–[18].
10 At [19]–[20].
[18] In Aman’s further affidavit, he deposes that the “money-go-round” of $35,000, where Mr Bawa alleges that the $35,000 was paid to Abchal, and which was then paid back to A & R, does not make any sense and lacks credibility. He further deposes that the Richard Allen law settlement statement, showing the amount to settle as $190,000 is misleading. He deposes that the statement from Mr Allen does not say the purchase price was $200,000 or acknowledge that Abchal had already paid $35,000. He attaches to his affidavit a statement from his lawyers (Western Legal) which he deposes shows the real composition of the purchase price.
Akashdeep’s notice of opposition
[19] Akashdeep opposes Abchal’s application on the grounds that Abchal owes Akashdeep the amount demanded from Abchal in Akashdeep’s statutory demand dated 8 February 2022.11
Akashdeep’s affidavit in support
[20] Akashdeep has made an affidavit in support of his notice of opposition. He deposes that in mid-November 2019, Aman told him that Abchal had agreed to purchase the business for $250,000, with Abchal paying $100,000 from loans arranged by Mr Bawa; Abchal paying $125,000 of its own or Mr Bawa’s money; and the remaining $25,000 to be paid by Abchal or Mr Bawa by the end of February 2020 as a vendor finance loan. He says Aman told him the purchase was supposed to be completed on 30 November 2019, but that Mr Bawa had told Aman that Abchal needed an additional $35,000 to complete the purchase.12
[21]Akashdeep deposes that Aman asked him if he would lend Abchal the last
$35,000. He says he wanted to help Aman and agreed to advance the sum. He says he decided to make the advance in two tranches: one payment of $30,000 to Abchal, and a further payment of $5,000 to Value. He says he did this because he knew that
$30,000 was the maximum amount claimable in the Disputes Tribunal.13
11 Notice of opposition to originating application for an order to set a statutory demand aside dated 14 April 2022 at [3].
12 Affidavit of Akashdeep Saini supporting notice of opposition to originating application for an order to set a statutory demand aside dated 13 April 2022 at [1]–[6].
13 At [7]–[10].
[22] Akashdeep says his solicitors drafted four documents, being loan agreements for the two loans and corresponding guarantees by Mr Bawa. He says Aman provided him with the signed documents on 10 November 2019. He says Aman then told him that Mr Bawa wanted the $5,000 due to Value to be paid directly to Abchal. He says he advanced $30,000 to Abchal on 10 December 2019, and a further $5,000 a few days later. He says he advanced the $5,000 to Abchal because he was told it was the account Mr Bawa had nominated for the advance to Value.14
[23] Akashdeep says the loan to Value was due for repayment on 16 June 2020. He says he has no doubt Abchal’s 11 June 2020 payment to Aman of $10,000 was a part repayment of the $25,000 vendor finance loan. He says Value has not repaid anything of the $5,000 advance or interest. He says further that the loan to Abchal was due for repayment on 16 December 2020 and that it has defaulted. He says it has not repaid anything of the loan or interests or costs.15
[24] Finally, Akashdeep says that in the last two years neither Abchal nor Value has tried to challenge the loan agreements or to set them aside. He says he does not know Mr Bawa, and that he did not pressure him to sign the loan or guarantee documents. He says he made no representations to Mr Bawa of any kind.16
Aman’s affidavit in support
[25] Aman has also made an affidavit in support of the notice of opposition. He deposes that in 2019 he saw the business for sale for $250,000. He says that in July of that year, his wife’s company, A & R, bought the business. He says that just a few weeks before he was supposed to take over the business, he and his wife went to India on holiday. There, he suffered a severe back injury. He says he thought then that he could recover quickly and be able to take over the business smoothly. But, when he did take over, he found he could not work effectively and could not stand for more than half an hour.17
14 At [11]–[17].
15 At [18]–[25].
16 At [26]–[28].
17 Affidavit of Aman Saini supporting notice of opposition to originating application for an order to set a statutory demand aside dated 13 April 2022 at [6]–[13].
[26] Aman says that despite his back problems, the business performed in line with projections. He says he expected the business turnover would peak over summer. But, soon after, his wife, who is Auckland, began going through a very tough time. He began visiting her from Oamaru every week, each trip involving 3–4 hours of driving to Christchurch and a two-hour flight. He says he and his wife decided to sell the business.18
[27] Aman deposes that a friend introduced him to Mr Bawa. He says he explained to Mr Bawa that due to health issues and family circumstances, he wanted to sell the business. He says he introduced Mr Bawa to the same business broker who assisted him to purchase the business in 2019. Negotiations commenced. Aman says he told Mr Bawa he would accept $250,000 for the business.19
[28]Aman deposes that Mr Bawa told him that he could borrow a maximum
$100,000 (conditional on him purchasing a business for a maximum of $225,000) and that he had $125,000 of his own. He says Abchal offered to pay A & R $250,000 for the business, broken down into a cash payment of $225,000 on the settlement date and
$25,000 payable as a vendor finance loan by the end of February 2020. He says the vendor loan could not be recorded in the sale agreement because Mr Bawa would not be able to get finance for a business worth $250,000.20
[29] Aman says the sale agreement reflected the arrangement struck between him and Mr Bawa, save the vendor loan. He says he regrettably omitted to document that loan separately. He says A & R never agreed to accept only $200,000 for the business. And he says it would have made no sense for A & R to advance $35,000 to Abchal for it to pay to A & R— that structure would create a risk of Abchal failing to transfer the sum.21
[30] Aman says the date for settlement was 30 November 2019. He says when that date approached, Mr Bawa said he could not complete the purchase because he had applied some of his deposits to other business interests and that he could only complete
18 At [15]–[19].
19 At [20]–[24].
20 At [25].
21 At [26]–[29].
the purchase if A & R gave him an additional vendor finance loan of $35,000. He said he asked Akashdeep to help by advancing a $35,000 loan to Abchal. Akashdeep agreed. Their solicitors then drafted four documents that recorded the two loans and associated guarantees by Mr Bawa.22
[31] Aman says that on 10 December 2021, he went to Mr Bawa’s work to get him to sign the documents. He says that Mr Bawa read and signed all of the documents in front of a witness. He deposes further that Mr Bawa asked that Akashdeep pay the full $35,000 to Abchal rather than advance $30,000 to Abchal and $5,000 to Value. He says he supposed Mr Bawa wanted to save himself the trouble of making an extra transfer of $5,000 from Value to Abchal and then to A & R.23
[32] Next, Aman deposes that Abchal’s vendor finance loan was due to be repaid to A & R on 29 February 2020, but that Abchal defaulted. He says he began to pursue Mr Bawa for the amount in June 2020. Mr Bawa said he would pay $15,000. On 11 June 2020, Abchal paid $10,000 against the vendor finance loan owed to A & R. Aman says he rejects Mr Bawa’s evidence that the $10,000 payment completed Abchal’s purchase of the busines for $200,000.24
Mr Bawa’s affidavit in reply
[33] Mr Bawa has made an affidavit in reply to Akashdeep and Aman’s affidavits in both proceedings. The sworn version is dated 6 July 2022. He says he has never met or spoken to Akashdeep and he therefore cannot speak to Akashdeep’s evidence as to conversations he had with Aman. However, Mr Bawa says that if those conversations occurred as alleged, then what Aman told him about the purchase price for the business and how it would be paid was untrue. He says there was no vendor finance loan, and that it was a condition of his loan with Heartland Bank that there was to be no vendor finance. For that reason, Abchal did not, and would not have, borrowed $25,000 from A & R or from Aman.25
22 At [30]–[36].
23 At [38]–[41].
24 At [42]–[50].
25 Reply affidavit of Parminder Bawa (undated) at [1]–[4].
[34] Mr Bawa reiterates that he did not read the documents Aman presented to him, and that he did not know they were loan agreements. He confirms he did not ask for any loans from A & R, Aman or Akashdeep. He says Value was not involved in the purchase of the business. He says Value never received any money from Akashdeep and it is not indebted to Akashdeep. He says there is no loan to repay and no debt that could be claimed or demanded from Value by way of statutory demand.26
[35] Mr Bawa says it is incorrect that he could only borrow a maximum of $100,000 and that he had $125,000 of his own at the time of the negotiations. He says he had only $100,000 of his own funds available at that time. He says he applied to Heartland Bank for $125,000 but was advised that the maximum available loan was
$100,000. He says he told Aman that the maximum he could pay for the business was
$200,000 and that he would need to walk away from buying it because he could not get any more money. He reiterates that Aman then agreed to reduce the sale price to
$200,000. Mr Bawa says it was only then that he and Abchal could commit to the purchase.27
[36] Mr Bawa says he agrees with Aman that the sale and purchase agreement does not correctly reflect the purchase price, but for different reasons. He says Aman’s understanding was that the true purchase price was $250,000; his understanding was that the purchase price was only $200,000. He repeats that he did not ask for any kind of vendor finance, and certainly not vendor finance of $60,000. He says when Abchal paid the $10,000 to Aman in June 2020, he relied on Aman’s assurance that $15,000 was owing. He says he has subsequently undertaken his own reconciliation of payments for the purchase of the business and stock and concluded that Abchal had paid $200,000 and did not owe anything further.28
[37] Summarising, Mr Bawa says Abchal paid $200,000 to purchase the business. He says this is the total purchase price and there is nothing further owing. He says Abchal has a claim against Aman for misrepresenting the business’s turnover figures. He strongly disputes Akashdeep and Aman’s descriptions of the transactions relating
26 At [5]–[10].
27 At [11]–[12].
28 At [13]–[17].
to the business’s purchase. He also confirms that Abchal is a profitable business and is not insolvent. He says it can pay its debts as they fall due and it has more assets than liabilities. He asks the Court to set aside the statutory demand served on Abchal.29
Abchal’s submissions
[38] Ms Tabb submits that there is a substantial dispute whether the amount claimed in the statutory demand is owing; that there is a counterclaim, set off or cross demand that exceeds the amount claimed in the statutory demand; and that the demand is defective and should be set aside. She says there will be circumstances where the Court is unable to uphold a statutory demand because the creditor cannot show the amount claimed in the demand is quantified.30
[39] Ms Tabb submits that both parties’ evidence is that no loan was made to Value. Therefore, the statutory demand in the Value proceeding should be set aside. Apart from that, the factual disputes are extensive. The parties disagree, among other things, as to the nature of the transaction; the sale price for the business; and the presence or absence of a vendor finance loan. On Mr Bawa’s evidence, nothing further is owing that could form the basis of a statutory demand.31
[40] Ms Tabb submits that Abchal has met the onus to show there is arguably a genuine and substantial dispute as to the existence of the debt. She says material supporting the claim that the debt is disputed should first be resolved in ordinary civil proceedings before a statutory demand is issued. Alternatively, she says Abchal has established a reasonably arguable set off, counterclaim or cross demand arising from the contended breach of the turnover warranty. She submits the extensive factual disputes and conflicting evidence will require credibility assessments to resolve.32
[41] Further, Ms Tabb submits the statutory demand is defective because it relies on an “outstanding invoice” that has not been proffered in evidence — the inference being
29 At [18]–[22].
30 Submissions of counsel for applicants for hearing on 6 July 2022 at [6]–[10], citing Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16]; HSK Trading Ltd v Carter Building Supplies Ltd [2021] NZHC 1987; and Autoterminal New Zealand Ltd v IBC Japan Ltd [2020] NZHC 843 at [156]–[157].
31 At [11]–[12].
32 At [13].
the invoice does not exist. She says the statutory demand does not have documentation attached to show how the amount demanded was calculated or supporting the debt claimed. She therefore submits that the statutory demand is so defective it should be set aside in its entirety.33
[42] Concluding, Ms Tabb says Abchal has met the onus of showing there is arguably a genuine and substantial dispute as to the existence of the debt. She says resolving the extensive factual disputes will require credibility assessments, which should be undertaken in a different forum. And she submits the statutory demand has a number of material defects that are so fundamental that it should be set aside in its entirety. She seeks costs.34
Akashdeep’s submissions
[43] Mr Brett Martelli, for Akashdeep, submits that the actual sale price for the business is irrelevant. He says Mr Bawa signed loan agreements under which Akashdeep provided finance to Abchal and Value to enable Abchal to purchase the business. He says Abchal and Value have not repaid the $35,000.35
[44] Mr Martelli says the debts are indisputable as Akashdeep’s advances were recorded in written loan agreements, which Mr Bawa signed. He says Abchal and Value have never raised legal defences such as duress, undue influence or unconscionability to invalidate the agreements. He says setting the statutory demands aside in the face of overwhelming objective evidence as to the debts will cause Akashdeep unfair loss and delay. The facts and law are clear; to the extent conflict evidence needs to be considered, the Court should take a robust approach to Mr Bawa’s credibility; and the Court should uphold the demands.36
[45] Mr Martelli highlights that pursuant to the loan agreements, Akashdeep advanced $30,000 to Abchal and $5,000 (nominally) to Value. Those advances have not been repaid, and with default interest and costs factored in, Abchal and Value now
33 At [14]–[15].
34 At [16]–[17].
35 Submissions for respondent dated 30 June 2022 at [1]–[5].
36 At [6]–[8].
owe $43,542 and $11,009 respectively. He says it is irrelevant what Mr Bawa thought about the nature of the $35,000 — Mr Bawa must establish that Akashdeep did not advance the money pursuant to the loan agreements. Mr Martelli says Mr Bawa asks the Court to accept implausible propositions, including his explanation of the transaction structure and that he, a prudent businessman, simply signed the loan documents without reading them. He says Mr Bawa’s evidence, taken cumulatively, is unbelievable. Akashdeep’s evidence, by contrast, is consistent with the nature of the transaction and the agreements themselves.37
[46] Mr Martelli also submits that even if Mr Bawa did not read the loan agreements, they remain valid nonetheless. He says it was incumbent on Mr Bawa to read and understand them before committing Abchal and Value to the terms of the loan agreements; Akashdeep made the advances as specified in those agreements; and neither Abchal nor Value have raised defences to invalidate the agreements.38
[47] As to Akashdeep paying to Abchal the $5,000 that had been designated for Value, Mr Martelli says Value’s liability is unaffected. He submits Mr Bawa, as Value’s sole director, was authorised to direct a lender to pay an advance meant for Value to Abchal. He submits Mr Bawa’s denial he instructed Aman to ask Akashdeep to pay the advance directly to Abchal must be considered in the context of commercial commonsense and Mr Bawa’s otherwise incongruous version of events.39
[48] Mr Martelli says further that is it not relevant that there is no invoice underlying the statutory demands. The source of the liability is clear: advances made under the loan agreements that have not been repaid. The reference to an invoice is not a material misdescription. As to the amount of $30,410 claimed in the Value statutory demand, Mr Martelli acknowledges it is probably a material misdescription. But he says upholding the demand will not result in substantial injustice in any event.40
[49] Concluding, Mr Martelli says the Court is not required to accept all statements on oath without question. It may take a robust, commonsense approach. He says that
37 At [10]–[24].
38 At [25].
39 At [26]–[28].
40 At [33]–[38].
even were this Court to accept Mr Bawa’s evidence, the facts remain that Mr Bawa admits signing the loan agreements for advances from Akashdeep to Value and Abchal; Akashdeep in fact made those advances; and neither Value nor Abchal have challenged the agreements. The agreements remain enforceable — there is no basis for setting the statutory demands aside.41
Legal principles
Setting aside statutory demand
Section 290 of the Companies Act 1993 provides, relevantly:
290 Court may set aside statutory demand
(1)The court may, on the application of the company, set aside a statutory demand.
…
(4)The court may grant an application to set aside a statutory demand if it is satisfied that—
(a)there is a substantial dispute whether or not the debt is owing or is due; or
(b)the company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c)the demand ought to be set aside on other grounds.
…
[51]Principles that have been held to be relevant to the application of s 290(4) are:42
What the applicant must show is that the dispute it raises has substance; the applicant must explain to the court what the dispute is; and the dispute so shown must be a real and not a fanciful or insubstantial dispute. The Court must bear in mind that it is operating in the summary jurisdiction, with the accompanying disadvantages that brings for any applicant. The Court must also keep in mind the requirement that what is intended to be a summary hearing should not be converted into a full-blown trial.
41 At [39]–[42].
42 AAI Ltd v 92 Lichfield Street Ltd (in rec & liq) [2015] NZCA 559, (2015) 23 PRNZ 52 at [22] (footnotes omitted).
[52] The Court of Appeal, in Confident Trustee Ltd v Garden and Trees Ltd, reiterated:43
(a)The onus is on the applicant seeking to set aside the statutory demand to show that there is arguably a genuine and substantial dispute as to the existence of the debt. The Court’s task is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
(b)The mere assertion that a dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
(c)If such material is available, the dispute should normally be resolved first in ordinary civil proceedings before any statutory demand is issued.
(d)If a counterclaim, cross-demand or set-off is suggested an applicant must establish that this is reasonably arguable in all the circumstances.
(e)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise unless such evidence is contrary to the available documents or earlier statements made by the parties.
[53] Where a counterclaim, set-off, or cross-demand is sought to be raised, the Court has a discretionary power to set aside the statutory demand, but the company must show a real basis, on clear and persuasive grounds, for doing so. And “pay now, argue later” considerations have sometimes been allowed to prevail over the effect of liquidation.44
Analysis
[54]The questions that fall to be determined in this proceeding are:
(a)For the purposes of s 290(4)(a) of the Companies Act (the Act), is there a substantial dispute whether the amounts claimed in the statutory demand are owing?
43 Confident Trustee Ltd v Garden and Trees Ltd, above n 30, at [16].
44 At [40], citing Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd (2005) 18 PRNZ 97 (HC); Browns Real Estate Ltd v Grand Lakes Ltd [2010] NZCA 425, (2010) 13 NZCPR 349; and Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA) at 274–275.
(b)For the purposes of s 290(4)(b) of the Act, if the answer to the question at [54](a) is “No”, is there a counterclaim, set off or cross demand for an amount that exceeds the amounts claimed in the statutory demand?
(c)For the purposes of s 290(4)(c) of the Act, if the answer to the questions at [54](a) and (b) are both “No”, should the statutory demand be set aside on other grounds?
(d)For the purposes of s 290(5) of the Act, if the answer to the questions in [54](a), (b) and (c) are all “No”, should the statutory demand be set aside due to defects in it?
[55]I will deal with each of these questions in turn.
For the purposes of s 290(4)(a) of the Act, is there a substantial dispute whether the amounts claimed in the statutory demand are owing?
[56] Ms Tabb submits that the disputes of fact are extensive. She cites the following:
(a)Akashdeep says that the loan agreement, allegedly prepared by his solicitor, do not record the transactions correctly.
(b)Both parties state the sale and purchase agreement does not correctly record the sale price of the business, however they each offer different evidence on what the sale price of the business was.
(c)Abchal denies Akashdeep’s allegation that there was vendor finance.
(d)Abchal denies requesting or obtaining any loan from Akashdeep.
(e)Abchal states the purchase price of the business was $200,000 and that this has been paid in full. Akashdeep’s evidence accepts that $200,000 was paid but disagrees that the purchase price was $200,000.
(f)On Abchal’s evidence, nothing further is owing which could form the basis for a statutory demand.
[57] On the other hand, Mr Martelli submits that the debt on which the statutory demand is based is indisputable. He submits the following in support:
(a)Akashdeep’s advances to Abchal were recorded in written loan agreements.
(b)Abchal and Value’s director (Mr Bawa) admits that:
(i)he signed the agreements for his companies (although he denies reading the agreements); and
(ii)Abchal received $35,000.
(c)Abchal and Value have never raised legal defences (eg duress, undue influence, unconscionable bargain) to invalidate the loan agreements.
[58]In relation to Value, Ms Tabb submits:
(a)Value had nothing to do with the purchase of the business that was purchased by Abchal.
(b)If there was any vendor finance (which is denied by the applicants) this could only be owing by Abchal, not by Value.
(c)No money was ever paid by Akashdeep to Value. The $5,000 which was allegedly loaned to Value was never advanced to Value. Mr Bawa denies instructing Aman to pay the $5,000 advance due to Value to Abchal instead.
(d)The statutory demand was palpably for an incorrect amount — a material defect in the statutory demand.
[59]In relation to Value, Mr Martelli submits:
(a)The loan of $35,000 to Abchal was divided into $30,000 to be advanced to Abchal and $5,000 to be advanced to Value. This is because Akashdeep was concerned that the jurisdictional limit of the Disputes Tribunal was $30,000 if he had to enforce the loan agreements — hence the separate loan of $5,000 to Value which was intended to be on-lent to Abchal.
(b)The fact that Value directed the loan of $5,000 from Akashdeep to itself be paid directly to Abchal does not alter Value’s liability as a debtor for the amount of the loan to Akashdeep.
(c)While there were material mistakes in the statutory demand issued to Value, upholding the statutory demand will not result in substantial injustice in any event.
[60]Mr Martelli submits that Mr Bawa puts forward implausible propositions:
(a)As part of Abchal paying the purchase price for the business, Aman/A & R agreed to pay $35,000 to Abchal only for Abchal to then pay the $35,000 to A & R. He points out that Aman in his affidavit has noted the nonsense of that proposition as it involved a credit risk that Abchal did not forward the $35,000 to A & R.
(b)Mr Bawa, in the context of being a prudent businessman:
(i)simply signed the loan agreements (headed in large font “Loan Agreement and Deed of Guarantee Indemnity”) without reading them;
(ii)did not check how much he had to pay against the purchase price before he paid an additional $10,000 towards the purchase price; and
(iii)did not check how much he had paid against the purchase price before he admitted that he owed more money to complete the purchase and requested more time to pay.
[61] My conclusion is that there is substantial conflict in the evidence before the Court as to the structure of the transaction, the purchase price of the business, whether vendor finance was involved and the circumstances around the signing of the loan agreements and guarantees. There are conflicting versions of the sale and purchase agreement, conflicting versions of the relevant settlement statements relating to the transaction, and conflicting explanations as to the differences in these documents. These conflicts of evidence cannot be resolved in the context of an application to set aside the statutory demands. There are clear issues of credibility of evidence which need to be tested at trial.
[62] The applicants have, in my view, met the threshold of establishing that there is a substantial dispute as to whether the amounts claimed in the statutory demands are due and owing. Accordingly, the application to set aside the statutory demand should succeed.
The remaining questions as set out at [54] above
[63] As I have reached the conclusion that a substantial dispute exists as to whether the debts on which the statutory demands are based are owing, then it is not necessary to consider the remaining questions set out at [54](b), (c) and (d).
Result
[64]I make the following orders:
(a)The statutory demand issued by Akashdeep to Abchal for $41,103.46 dated 8 February 2022 and served on 14 February 2022 is set aside pursuant to s 290 of the Companies Act.
(b)The statutory demand issued by Akashdeep to Value for $30,410.86 dated 8 February 2022 and served on 14 February 2022 is set aside, pursuant to s 290 of the Companies Act.
(c)Costs in respect of the Abchal proceedings are awarded to Abchal on a 2B basis.
(d)Costs in respect of the Value proceedings are awarded to Value on a 2B basis.
…………………………….. Associate Judge Taylor
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