All Metals Trading Company Limited v Tawil Holdings Limited
[2013] NZHC 3308
•11 December 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-4154 [2013] NZHC 3308
IN THE MATTER of the Companies Act 1993
BETWEEN ALL METALS TRADING COMPANY LIMITED
Plaintiff
ANDTAWIL HOLDINGS LIMITED Defendant
Hearing: 25 November 2013
Counsel: P F Dalkie for Plaintiff/Responent
A Commons for Defendant/Applicant
Judgment: 11 December 2013
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 11 December 2013 at 2.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date......................................
Solicitors: Dyer Whitechurch, Auckland
Schnauer & Co, Auckland
Copy to: P F Dalkie, Auckland
A Commons, Auckland
ALL METALS TRADING CO LTD v TAWIL HOLDINGS LTD [2013] NZHC 3308 [11 December 2013]
[1] The plaintiff filed its application for an order placing the defendant into liquidation on 20 July 2012 in what has proved to be a protracted proceeding. The application relies on s 241(4)(a) of the Companies Act 1993, alleging that the defendant is unable to pay its debts based on the statutory presumption of insolvency under s 289.
[2] It is not in dispute that substantive grounds for an order of liquidation exist:
(a) The defendant is presumed to be unable to pay its debts, having failed to comply with the statutory demand the plaintiff served upon it on 18
May 2012 for a debt of $405,577.01 for unpaid rent and outgoings.
(b)The defendant accepts it is in fact liable for that debt pursuant to a written guarantee, and that it presently lacks the resources to pay it.
[3] Nonetheless, the defendant applies for a stay of the plaintiff’s application. It says there is a compelling reason to allow it more time to attempt to clear the debt – based on a claim of abuse of process.
[4] The plaintiff opposes the application saying that there is no good reason to further defer the appointment of liquidators and points to the previous history of litigation in the proceeding. Relevantly, the defendant’s application is the second such application it has made. The first was dismissed on 6 March 2013 in the reserved judgment of Associate Judge Christiansen.1 That judgment was the subject of an application for review by the defendant which Woolford J dismissed in a judgment delivered on 28 August 3013.2
[5] The onus lies with the defendant to show grounds for a stay.
The application
[6] The defendant relies on High Court Rule 31.11 and the Court’s inherent
jurisdiction to prevent an abuse of process. Relevantly r 31.11 states:
1 All Metals Trading Co Ltd v Eagle Wire Products Ltd [2013] NZHC 425.
2 All Metals Trading Co Ltd v Eagle Wire Products Ltd [2013] NZHC 2198.
31.11 Power to stay liquidation proceedings
(1) If an application for putting a company into liquidation is made under rule 31.3, the defendant company, … may, within 5 working days after the date of the service of the statement of claim on the defendant company, apply to the court—
(a) …
(b) for an order staying any further proceedings in relation to the liquidation.
(2) The court must treat an application under subclause (1) as if it were an application for an interim injunction and, if it makes the order sought, it may do so on whatever terms the court thinks just.
(3) The inherent jurisdiction of the court is not limited by this rule.
[7] Essentially, what the defendant seeks (as explained by counsel at the hearing)
is that it be permitted further time:
(a) To retrieve from the plaintiff’s premises at Alfred Street, Onehunga an asset valued at $500,000 (a factory fit-out). It claims it has an assigned security interest over the asset from the security holder Wrights Investments Ltd to the extent of the debt owed to the plaintiff.
(b)To sell the asset and apply the proceeds to the debt in the anticipation that there will be sufficient to clear the debt.
[8] The defendant contends that it needs further time to take these steps as the plaintiff is preventing entry to its premises in a deliberate attempt to frustrate the security holder’s right to remove the fit-out. It says that but for the actions of the plaintiff it would have a realistic prospect of paying the debt within a reasonable time after the security holder retrieves the fit-out.
[9] Counsel for the defendant submits that these circumstances point to oppressive behaviour for the purpose of preventing it from producing evidence that it can meet All Metals’ debt within a reasonable time and therefore to unfair interference with the Court’s process. Hence, the Court is obliged to intervene; indeed, the justice of the case demands that the Court use its salutary power to stay the proceeding to prevent abuse.
[10] Counsel for the plaintiff submits the claim that it is abusing the Court’s process is unfounded, though conceding that there may well be an assignment as claimed by the defendant. Counsel submits that the very claim the defendant relies upon (that the security interest is sufficient to meet the debt) was considered and dismissed in the first stay application.
Issues for determination
[11] Bearing in mind that the onus is on the defendant to demonstrate that the plaintiff is committing an abuse as claimed, the issues for determination are whether the defendant has established a proper basis for its claim that:
(a) A valuable security interest in the fit-out remains live and the fit-out could readily be sold to realise that value and pay off the entire debt.
(b)The plaintiff is barring the defendant from uplifting and selling the fit- out and that such conduct, in the circumstances, is oppressive.
Background
[12] I am satisfied that the application must fail. I turn presently to my reasons.
[13] I begin with brief reference to the relevant factual background and Woolford J’s judgment of 28 August 2013 as the plaintiff’s application needs to be considered in that context.3
[14] It is sufficient to note the following facts:
(a) A company related to the plaintiff, Wire by Design Limited, was incorporated on 4 November 2010. It leased the plaintiff’s premises at Alfred Street pursuant to an agreement to lease dated 1 December
2010. One of the guarantors was the plaintiff, another being Eagle
Wire Products Limited.
3 At [4]-[18].
(b)The agreement to lease envisaged that a formal deed of lease would be entered into between the parties but that never eventuated.
(c) On 1 April 2011 Wire by Design executed a general security agreement in favour of Wrights Investments Limited over all of its assets, which included an expensive factory fit-out at the plaintiff’s premises.
(d)On 9 May 2012 Wire by Design was placed into receivership by Wrights Investments Ltd. It was also placed into liquidation on the same day on the application of the Commissioner of Inland Revenue as it was unable to meet its taxation liabilities. It was also unable to pay rent and outgoings owing under the agreement to lease.
(e) On 9 May 2012 the plaintiff’s solicitors negotiated a limited licence to allow the receiver of Wire by Design to occupy the premises. The purpose of the licence to occupy was to enable the receiver to take steps to sell Wire by Design’s plant and equipment. The receiver guaranteed the rental payment of $6,000 per week only to the extent of the secured assets to be sold on the basis that the plaintiff would be paid in priority to all other claims on those assets.
(f) The plaintiff served statutory demands on the defendant and Eagle Wire which were unsatisfied. Therefore on 20 July 2012 it filed applications to liquidate them.
(g)On 27 July 2012 in accordance with the terms of the licence to occupy, the plaintiff gave the receiver ten working days notice to vacate the premises. The notice expired on 10 August 2012. The receiver ceased to occupy the premises on or about that date, when the plaintiff resumed occupation.
(h)Counsel for the defendant and Eagle Wire made written request to the solicitor for the plaintiff inviting the plaintiff to withdraw its applications for orders for liquidation which the plaintiff refused.
(i)On 12 September 2012 the defendant made its first application for a stay (together with Eagle Wire), claiming that it had genuine grounds to defend the application for an order placing it into liquidation. Following Associate Judge Christiansen’s dismissal of the application the defendant filed its application for review.
[15] Turning to the decision on review, His Honour’s consideration of the defendant’s claim to an arguable defence of conversion is pertinent. He stated:4
[49] Finally, the defendants claim that Wrights Investments still has a registered security over the fit-out. … they argue that the plaintiff’s possession of the fit-out is therefore subject to Wrights Investments’ secured interest in that property. I am however of the view that this claim lacks substance. Firstly, Wrights Investments has already exercised its power under the general security agreement exercised by Wire by Design in its favour by appointing a receiver. The receiver then set out to secure and sell whatever she could of Wire by Design’s assets, including its fixtures, fittings and chattels in the plaintiff’s premises. For this purpose, the receiver had access to the premises for approximately three months pursuant to the licence to occupy. The plaintiff permitted the receiver to remove both large and fixed items of equipment/chattels subject to consent, which was not to be unreasonably withheld.
[50] Secondly, the defendants have not provided any credible evidence of the value of the fit-outs which remain after both Wrights Investments and the Crown exercised their rights pursuant to their respective security interests. They have provided evidence of the cost of both the factory fit-out and the electrical fit-out but those figures are meaningless given the exercise of their security rights by Wrights Investments and the Crown.
[51] In conclusion, the defendants have not persuaded me that Associate Judge Christiansen’s decision was wrong in that it rested on unsupportable findings of fact and/or applied wrong principles of law. I agree with the Judge that the defendants have not established a strong prima facie case for the existence of a genuine dispute on substantial grounds or shown that there were clear and persuasive grounds for a stay. The defendant’s application for review is dismissed.
[16] I turn then to discuss the issues.
4 At [49]-[51].
Is there a live valuable security interest that could be readily sold to pay off the debts?
[17] Counsel for the defendant accepts that on the face of it, Woolford J has found that the claimed registered security interest over the fit-out lacks substance for two reasons. The first reason is that Wrights Investments had already exercised its power under the security agreement by appointing a receiver who secured and sold whatever she could of Wire by Design’s assets including the factory fit-out. The necessary inference is that the security interest no longer exists as it has been realised to the extent that the receiver considered appropriate.
[18] The second reason is that as Wrights Investments exercised its security rights and as there was no credible evidence of any remaining value in the fit-out, there was no substance to the claim that Wrights Investments still had a valuable registered security over the fit-out.
[19] Counsel for the defendant argues that nonetheless, properly interpreted, His Honour’s judgment was that the registered security continues to exist but there was no evidence that it existed in respect of anything of value. Therefore, he contends, there has been no finding that the security interest does not exist and hence the plaintiff remains bound by the terms of the security agreement to allow access for the purpose of permitting removal of the fit-out.
[20] I do not think the submission is right. I agree with counsel for the plaintiff that Woolford J’s first reason was a determination that there was no longer a registered security over the fit-out as its value had been realised.
[21] Whether or not I am right about that, however, is of no consequence for, as counsel concedes, His Honour’s second reason (that there was no credible evidence of anything remaining of value) stands unchallenged. That finding has not been appealed. Additionally there is no new evidence before the Court as to value. There is therefore no evidential foundation on which to revisit the finding on value (assuming I have jurisdiction to do so given the interlocutory context in which His Honour’s decision was made).
[22] The answer to the question whether the defendant has established a proper foundation for its first claim is, therefore, “no”. The same applies to the second claim. As counsel properly acknowledged there is no new evidence to show that the factory fit-out (or what remains that might be moveable and saleable) would realise anything approximating the debt or within a reasonable time.
[23] Counsel for the defendant accepts that the defendant has no idea if the security interest will realise enough to clear the debt. He also has no idea how long it will take to sell the fit-out.
[24] The result is that there is no basis to find any realistic prospect of payment that would clear the debt.
Is the plaintiff barring the defendant from entering the premises? Is that conduct oppressive?
[25] It is common ground that the plaintiff has refused the defendant’s request to
enter the premises.
[26] However, such conduct has not been shown to be oppressive. The claim about oppression needs to be considered having regard to the history of this litigation. The Court’s previous judgments are particularly relevant. The failure to appeal Woolford J’s judgment is also pertinent.
[27] The defendant’s argument effectively ignores what the Court has already said about the security interest that the defendant relies upon and the inadequate valuation evidence.
[28] The plaintiff is simply acting upon Woolford J’s statement that the claim that the fit-out is subject to a secured interest (being the interest the defendant says has been assigned to it) lacks substance. Additionally, unless there is a real basis for the defendant’s claim that a security interest worth $500,000 still exists and can be sold in a reasonable time (and I have found there is not) there can be no basis for any causative link between anything the plaintiff has done and the defendant’s ongoing state of insolvency.
[29] The defendant’s argument also ignores previous opportunities given to the receiver. The plaintiff was prepared to allow the receiver the opportunity to take what it wanted of the fit-out. The receiver was acting in the security holder’s interests. That is not suggestive of oppression.
[30] In view of the Court’s findings on these matters the plaintiff’s conduct cannot
be viewed as oppressive.
[31] In these circumstances I accept that the remaining value (if anything) is a matter for the liquidator. The harsh reality is that the defendant is insolvent and that it is appropriate that its affairs be placed in the hands of a liquidator.
Result
[32] The application to stay the liquidation proceeding is declined.
[33] The plaintiff’s application for an order for liquidation is to be relisted in the liquidation list on 14 February 2014 at 10 a.m. The plaintiff will be at liberty to proceed with its application at that time subject to proof as to any remaining procedural matters unless the foundation debt is paid in the meantime.
[34] The plaintiff is the successful party. Under the statutory costs regime it is entitled to an order for costs. I make an order for costs in its favour on a 2B basis
together with disbursements as fixed by the Registrar.
Associate Judge Sargisson
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