Annik New Plymouth Limited (in liquidation) v Annik Investments Limited

[2014] NZHC 3372

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-3309 [2014] NZHC 3372

BETWEEN

ANNIK NEW PLYMOUTH LIMITED

(IN LIQUIDATION) Plaintiff

AND

ANNIK INVESTMENTS LIMITED Defendant

Hearing:	On the papers
Counsel:	D Grove for the Plaintiff
Judgment:	19 December 2014

JUDGMENT OF ELLIS J (Interim Freezing Order application)

This judgment was delivered by me on Friday 19 December2014 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:………………………….

Counsel/Solicitors:

D Grove, Barrister, Auckland

ANNIK NEW PLYMOUTH LIMITED (IN LIQUIDATION) v ANNIK INVESTMENTS LIMITED [2014] NZHC 3372 [19 December 2014]

[1]      This judgment relates to a without notice application made by the plaintiff for freezing and related orders over the assets of the defendant.

Background

[2]      On 7 July 2014 judgment was entered against the plaintiff company, Annik New Plymouth Ltd (ANPL), in favour of Kyoto Trustee Ltd by Woodhouse J.1   The judgment debt is $176,000.  Interest and costs of $52,207.40 are also owed.

[3]      The plaintiff was placed in liquidation on 12 December 2014 by order of Associate Judge Christiansen.   Mr Damien Grant and Mr Steven Khov have been appointed  as  liquidators.   They have not  yet  ascertained  whether there are  any creditors apart from the plaintiff in the above-mentioned proceedings.

[4]      The plaintiff’s directors are:

(a)       Robin Leslie Edwards; and

(b)      Mary Christina Forbes-Edwards.

[5]      Mr  Edwards  and  Ms  Forbes-Edwards  are  also  the  shareholders  of  the company.   In his July judgment Woodhouse J also held that Mr Edwards and Ms Forbes-Edwards personally owed Kyoto Trustee Ltd approximately $1.13 million.

[6]      The defendant company, Annik Investments Ltd (AIL) has the same directors and shareholders as the plaintiff company.   AIL was also a party to the claim by Kyoto.

[7]     On 17 December 2014 the liquidators made contact with the plaintiff’s accountants and as a result were emailed a copy of the financial accounts for the plaintiff for the year ending 31 March 2014.  These (unsigned) accounts show that a debt is due from the defendant to the plaintiff in the sum of $387,959. A similar debt

is shown to have been owed in the previous financial year.  The liquidators assume,

1         Kyoto Trustee Ltd v Annik New Plymouth Ltd [2014] NZHC 1572.

reasonably, that the 2013 accounts would have been signed by Mr and Mrs Edwards as directors of the plaintiff.

[8]      The liquidators have also undertaken a property search which has revealed that the defendant company owns two properties, being:

(a)       172  Atkinson  Avenue  (Identifier  NA  11C/290  North  Auckland

Registry) being Lot 3, Deposited Plan 57240; and

(b)151   Mangere   Road   (Identifier   NA  137D/298   North  Auckland Registry) being Lot 1 Deposited Plan 196530 and Lot 1 Deposited Plan 176047.

[9]      There are first mortgages registered over these properties to Kiwibank.

[10]     Mr Grant has deposed that the liquidators’ concern is that on 11 August 2014, after final judgment was given against the plaintiff by Woodhouse J, Mr and Mrs Edwards have registered second mortgages over these properties in their own names. These documents may be in their names as trustees.  The priority sum is $5 million over each property.

[11]     Mr Grant also deposes that the property in Mangere Road (known as the Middlemore Lodge) is presently being marketed for sale and provides evidence of this.  He says that his concern is that Mr and Mrs Edwards are intending to sell the properties, make payment to Kiwibank and then to themselves pursuant to the recently registered mortgages.  Obviously the plaintiff’s ability to recover funds from the defendant company would be severely compromised.

[12]     Importantly, Mr Grant also says that the liquidators will co-operate with Mr and Mrs Edwards in relation to legitimate sales of the properties.  On the assumption that they are sold at fair market value to a third party the liquidators will not object. Nor will they object to legitimate and/or undisputed debts being paid, for example, to Kiwibank.   Any payment, at this stage, to Mr and Mrs Edwards  as mortgagees would, however, be opposed.

[13]     Mr Grant has also deposed that the defendant may own other assets including real estate and various motor vehicles.  He has, however, been informed that some of those properties have been sold by Mr and Mrs Edwards, as has an 11 metre motor home, valued at $185,000.  This fortifies his concern that the defendant’s assets are being dissipated.

The without notice application

[14]     As I have said, the plaintiff has applied for a without notice freezing and related   orders.      The   orders   are   grounded   in   debt   proceedings   that   have simultaneously been issued by the plaintiff against the defendant.  The freezing order sought relates to all assets owned by the defendant company in New Zealand and overseas, including, but not limited to the two properties that I have referred to above.

[15]     The ancillary orders sought would require (inter alia) Mr and Mrs Edwards to file affidavit evidence as to the assets owned by the defendant legally or beneficially and assets that have been disposed of, distributed or further encumbered by way of borrowings.

Discussion

[16]     I am satisfied that it is appropriate to proceed on a without notice basis.

[17]     On the basis of the material presently before the Court I consider that the plaintiff company has established a good arguable case against the defendant.  The financial accounts that have been provided to the liquidators by the plaintiff company’s accountants suffice for that purpose.   I am also satisfied that there are assets owned by the defendant company to which the order can apply, namely the two properties to which I have already referred.

[18]     Again, on the basis of the available evidence I accept that there is a risk of dissipation  on  the basis  that  at  least  one  of the  defendant’s  properties  is  being marketed for sale at present. And I accept that the recent mortgages registered by the defendant’s directors and shareholders, give rise to concerns as to their intentions

regarding  payment  of  the  debt  that  is  apparently owed  by the  company to  the plaintiff.

[19]     More  problematic  is  the  standard  requirement  for  an  undertaking  as  to damages.  Rule 32.6 suggests that the requirement may only be waived in “special circumstances”.  The commentary in McGechan suggests that any such undertaking should be meaningful.

[20]     Mr Grove submitted that because the plaintiff company is in liquidation it cannot provide a meaningful undertaking in that respect.   He referred me in that respect to the decision in Watt v Sharma.2   In that case, Asher J was prepared to grant freezing orders notwithstanding the likelihood  that  Mr Watt’s  undertaking  as  to damages would be of no real value.   However it is relevant that he did so after a defended hearing which enabled him to make an informed assessment of where the overall justice of the matter lay.  In particular it seems he was influenced by proven wrongdoing by Mr Sharma; the fact that he had misled of the Court.

[21] In the present case all I have before me is the untested evidence of the liquidators who were appointed only a very short time ago. But after discussion with Mr Grove he agreed that the freezing orders could appropriately be limited to just the two properties I have identified above. If the orders are limited in that way, the liquidators’ stance, that I have noted at [12] above, becomes particularly relevant. Kiwibank’s mortgagee rights are not therefore prejudiced. And leave will of course be reserved to the defendant to revisit this issue.

[22]     For the above reasons I am satisfied that orders should be made.  I record that the terms of the orders below differ somewhat from (are more restricted than) those proposed by Mr Grove. Those orders are that:

(a)       Subject to sub-paragraph (c) below the defendant is restrained from disposing of, dealing with, or diminishing the value of, (including by

way of further borrowings) the following assets:

2      Watt v Sharma HC Auckland CIV 2006-404-2975, 17 August 2010.

(i)       172 Atkinson Avenue (Identifier NA 11C290 North Auckland

Registry) being Lot 3, Deposited Plan 57240.

(ii)      151 Mangere Road (Identifier NA 137D/298 North Auckland

Registry)  being  Lot  1,  Deposited  Plan  196530  and  Lot  1

Deposited Plan 176047.

(b)The defendant, through its directors, shall file within fifteen working days of the date of this order affidavit evidence advising:

(i)All  assets  that  are  owned  by  the  defendant  legally  or beneficially;

(ii)All assets that have been disposed of, distributed or further encumbered by way of borrowings, or transferred by the defendant during the period of one year prior to this order, identifying:

Ø        The asset.

Ø        To whom the asset was transferred or sold.

ØWhat  consideration  was  paid  for  the  disposition  or transfer.

ØThe further borrowings that have been secured over any specific asset and what use the borrowings were applied to.

(c)       The freezing order at (a) above does not prohibit the defendant from dealing with the assets covered by the order for the purpose of:

(i)       Paying ordinary living expenses; or

(ii)      Paying legal expenses relating to these proceedings; or

(iii)Disposing of the assets, or making payment, in the ordinary course of business, including business expenses incurred in good faith.

(d)Five working days before any dealings with the assets listed in subparagraph (a), pursuant to subparagraph (c) of this order, the defendant must advise the plaintiff in writing, as to:

(i)       The transaction to be undertaken.

(ii)      The date that the transaction will be completed.

(iii)What funds the defendant will receive as a result of the transaction.

(iv)     How any funds received by the defendant will be used.

[23]     Although I am unable to see why it might be necessary I make (at Mr Grove’s request) the further ancillary order that the freezing order at (a) above does not affect anyone outside New Zealand until  it is declared  enforceable by a Court  in  the relevant country (in which case it affects a person only to the extent that it has been declared enforceable) unless the person is:

(a)      The person to whom this order is addressed, or an officer of that person, or an agent appointed by power of attorney of that person; or

(b)      A person who:

(i)       Has been given written notice of this order at the person’s

address or place of business within New Zealand; and

(ii)Is able to prevent acts or omissions outside the jurisdiction of this Court that constitute, or assist, a breach of this order.

[24]     The application for freezing order is to be listed for mention in the Duty

Judge list in the week commencing 2 February 2015.

[25]     Leave is granted to the defendant to apply to vary or discharge the above orders on three working days notice.  The term “working day” has the meaning given to it in rule 1.3 of the High Court Rules.

[26]     These orders may be varied by consent reached between the plaintiff and defendant and evidenced in writing.

Rebecca Ellis J