Abedi v Sultan Kebab Limited (in liquidation)

[2018] NZHC 2426

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-000463

[2018] NZHC 2426

BETWEEN

FAKHRODIN ABEDI

Appellant

AND

SULTAN KEBAB LIMITED (IN LIQUIDATION)

Respondent

Hearing:

16 August 2018

Appearances:

J Noble for the Appellant

P Shackleton for the Respondent

Judgment:

14 September 2018

JUDGMENT OF HINTON J

This judgment was delivered by me on 14 September 2018 at 11.00 am pursuant to Rule 11.5 of the High Court Rules

…………………………………………………………………… Registrar/Deputy Registrar

Solicitors:

Boyle Mathieson, Auckland Meredith Connell, Auckland

ABEDI v SULTAN KEBAB LIMITED (IN LIQUIDATION) [2018] NZHC 2426 [14 September 2018]

[1]                  This is an appeal against a decision of the District Court, granting summary judgment to the liquidators of the Company, against its sole director and shareholder, for the balance of an overdrawn current account.1 The issue on appeal is as to the correct balance of the appellant’s shareholder current account, and whether the appellant has raised a tenable defence, such that the matter should go to a defended hearing.

Background

[2]                  The respondent is Sultan Kebab Limited  (In Liquidation).  The  appellant, Mr Abedi, was at all material times the sole director and shareholder of Sultan Kebab Limited (the Company). Prior to liquidation, the Company operated a takeaway shop, working mainly on the basis of cash receipts, much of which it seems Mr Abedi took from the till, or paid into his personal account.

[3]                  The Company’s record-keeping was very poor, and it failed to file GST or income tax returns for a number of years before being liquidated on 7 November 2014, on an application filed on 22 September 2014.

[4]                  On 16 February 2018, Judge G Harrison entered summary judgment against Mr Abedi in the sum of $153,364.16 for his overdrawn shareholder current account.

[5]The liquidators calculated Mr Abedi’s shareholder current account balance as

$156,915.26, made up as follows:	Payments Made	Payments Received	Total
Vehicle expenses (@ 75%	$	$	$
of $4,420.23)	3,315.17	3,315.17
Cash withdrawals	49,632.60	49,632.60
Donations	64.50	64.50
Farmers finance	665.99	665.99
Personal insurance for Fakhrodin Abedi	2,342.42	(1,307.21)	1,035.21
Legal expenses	280.00	280.00

1      Sultan Kebab Ltd (In Liq) v Abedi [2018] NZDC 2199.

Loan repayments	679.00	679.00
Other personal expenses	1,092.46	(7.09)	1,085.37
Transfer to personal account 0156-0225441-25	91,188.67	(10,246.25)	80,942.42
Transfer to Ziba Abedi	15.00	15.00
Balance of sale proceeds from sale of business	19,200.00	19,200.00
Total	168,475.81	(11,560.55)	(156,915.26)

[6]                  The difference of $3,551 between the total in the Liquidators’ Schedule, and the judgment sum, arises because the respondent did not seek summary judgment for some amounts included in the schedule. This was because those amounts fell outside the restricted period for the purposes of s 310 of the Companies Act 1993 (the Act), to which I refer shortly.

[7]                  Mr Abedi’s defence to the summary judgment was that any money he had received from the  Company as  detailed in  the Liquidators’ Schedule, and  more,  (in fact, a total of approximately $163,590) was used to pay the Company’s bills. In other words, he had simply acted as an intermediary or agent for the Company and he therefore did not owe the Company any money.

[8]                  Judge Harrison found against that argument on the basis that there were no records to support it.

[9]Mr Abedi now appeals.

Analysis

[10]              There is no real dispute that the “payments”, as set out in the Liquidators’ Schedule, were received by Mr Abedi in the first instance.

[11]              Rather, Mr Abedi has provided evidence of what he says are company expenses that he has paid totalling $163,590.

[12]              Ordinarily, Mr Abedi might have been entitled to claim the benefit of the expenses he says he has paid, as a potential set-off, such that arguably no net amount

was due by him to the Company. Summary judgment would then not have been available.

[13]              However, Mr Abedi is precluded from claiming any set-off by the operation of s 310 of the Act.

[14]              Under s 310(3) of the Act, following a liquidation, a related person is not entitled to claim the benefit of a set-off arising from a transaction made within the “restricted period” unless the related person proves that at the time of the transaction, the related person did not have reason to suspect that the company was unable to pay its debts as they fell due.

[15]              The restricted period means the period of two years before the application to the Court, plus the further period to the date of the order. The restricted period would therefore be from 22 September 2012 to 7 November 2014. As all of the payments allegedly made by Mr Abedi, occurred during the period between October 2012 and 7 December 2014 they clearly fall within the “restricted period”, or after the liquidation.

[16]              Moreover, Mr Abedi is clearly a related person for purposes of s 310(5) of the Act, and the respondent has provided proof that Mr Abedi could not have had reason to consider the Company was able to pay its debts as they became due when he made all of the payments comprising the $163,590 sum. That is not contested by Mr Abedi.

[17]              Therefore, the potential set-off of $163,590 is not available to Mr Abedi by virtue of s 310(3) of the Act.

[18]              In those circumstances, in order to defeat the summary judgment application, Mr Abedi needed to put up some plausible evidence that the Company monies received by him, as listed in the Liquidators’ Schedule, were used to pay the Company’s expenses. On that basis, he would not have in effect personally received them, as he would be only an intermediary or agent, acting for the Company. He obviously does not need to prove that is the case, but he needs to put up some plausible evidential

foundation for his defence.2 The evidence he has put up would have been sufficient  at a summary judgment level if a set-off were available, but for the defence to which he is limited, he needs evidence of a link between the payments in the Liquidators’ Schedule and the payments allegedly made by him.

[19]              Leaving to one side the Cash Withdrawals ($49,632) and the Transfers to Personal Account ($80,942), there is no evidence (other than assertion) that the balance of the items in the Liquidators’ Schedule (vehicle expenses, et cetera) were paid to Mr Abedi as an intermediary for the company. The total of those balance items, being $26,340, would therefore be an undisputed shareholder current account balance, regardless of the position with the alleged payments made by Mr Abedi.

[20]              The payments of $163,590 Mr Abedi says he has made, would therefore need to be married-up with the breakdown of the Cash Withdrawals and Transfers to Personal Account in the Liquidators’ Schedule.

[21]              Of the “Company expenses” Mr Abedi says he has paid, $85,270 does not qualify. This is the total of rental payments made by Mr Abedi for the lease of the shop. The lease was in the name of Mr Abedi and a Mr Khaden, not in the name of the Company. This was therefore his own obligation, not a payment he made on behalf of the Company. He might well claim or have a set-off against the Company because it in turn (presumably) leased the premises from himself and Mr Khaden, but that does not affect the calculation of his current account in this case and it cannot be said that when he paid the $85,270 sum, he was paying the Company’s debt.

[22]              Of the balance payments Mr Abedi says he made (totalling $78,320), he has provided no plausible evidence linking them directly or proximately with the cash withdrawals, or the transfers to personal account, debited to his shareholder current account, with the exception of payments totalling $9,896. To the extent of the $9,896 sum, Mr Abedi’s evidence, or the evidence of Ms Keene for the plaintiff, does link cash withdrawals debited to Mr Abedi’s current account with payments made by him at the same (or similar) time on behalf of the Company. Mr Shackleton, for the respondent acknowledged that was arguable.

2      Maclean v Stewart (1997) 11 PRNZ 66 (CA).

[23]              As to the payments totalling $9,896, I therefore consider there is a tenable defence. That amount may be wrongly included as shareholder debt, when in fact it represents funds of the Company paid to Mr Abedi (or used by him), for payment of the Company’s expenses.

[24]              There is otherwise no evidence, other than assertion on the part of Mr Abedi, to link any particular cash withdrawal (or transfer to his personal account) with an expense paid by him on behalf of the Company. That includes no linkage in terms of timing of payments, nor any contemporaneous documentation. Also, this is not a situation where Mr Abedi has not had an opportunity to provide some evidence, beyond assertion, if it existed.

[25]              As was held in Centaur Flooring Systems Ltd (In Liq) v Dolbear3 and in Thom Contractors Ltd (In Liq) v Thom,4 both of which were summary judgment applications, a director of a Company must bear responsibility for maintaining proper accounting records, such that in the event that the Company’s records do not adequately record (or record at all) whether or how payments were made for the Company’s purposes, a defendant director cannot rely on the failure to keep proper records to advance a defence. That principle applies here, by analogy.

[26]              I therefore conclude that Judge Harrison was right that there was no tenable defence to the application for summary judgment for the overdrawn current account, to the extent of $143,468 approximately, being the total sum for which he allowed summary judgment ($153,364), less the sum of $9,896. In respect of that sum, I accept there is a tenable defence.

[27]The respondent is therefore entitled to summary judgment in the sum of

$143,468.

3      Centaur Flooring Systems Ltd (In Liq) v Dolbear HC Auckland CIV-2010-404-6677, 31 August 2011 at [36]-[39].

4      Thom Contractors Ltd (In Liq) v Thom HC Auckland CIV-2008-404-6829, 28 April 2009 at [17] and [21]-[22].

[28]              As Mr Shackleton notes, while Mr Abedi is prohibited by s 310(3) of the Act from asserting a set-off against the Company, and therefore summary judgment is available to the respondent, Mr Abedi can still file a separate claim in the liquidation for the amount which he says is due to him, which will then be subject to the usual assessment by the liquidators. (Mr Shackleton has already noted in his submissions on this appeal that a number of the payments allegedly made by Mr Abedi on behalf of the Company, are disputed.)

Conclusion

[29]The appeal succeeds in that the summary judgment quantum is reduced from

$153,364.16 to $143,468.

[30]              The appellant having been substantially unsuccessful, must pay costs on a  2B basis to the respondent.

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Hinton J