Apollo Fruit Limited v Cooper Horticulture Limited HC Napier CIV 2006-441-908

[2007] NZHC 1610

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2006-441-908

UNDER  The Companies Act 1993

BETWEEN  APOLLO FRUIT LIMITED Plaintiff

ANDCOOPER HORTICULTURE LIMITED Defendant

Hearing:         25 January 2007

Appearances: M.E.J. Macfarlane for Plaintiff

T. Petherick for Defendant

Judgment:      14 February 2007

In accordance with r540(4) I direct the Registrar to endorse this judgment with a delivery time of 3.30pm on the 14th day of February 2007.

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

Introduction

[1]      On  24  November  2006  the  plaintiff  filed  a  Statement  of  Claim  in  this proceeding seeking an order for the liquidation of the defendant company.   The present application before the Court is an application by the defendant to restrain advertising and stay any further proceedings in relation to the plaintiff’s liquidation proceeding.  The proceeding relates to a debt of $351,518.77 claimed by the plaintiff for fruit packing and related fruit handling services performed for the defendant orchardist for the 2005 apple season.

[2]      The defendant’s application for stay and to restrain advertising is opposed by the plaintiff.

APOLLO FRUIT LIMITED V COOPER HORTICULTURE LIMITED HC NAP CIV-2006-441-908 14

February 2007

[3]      On  22  December  2005  the  plaintiff,  an  export  packing  house,  issued  a statutory demand against the defendant applegrower claiming $351,518.77, which as I have noted was said to be due for fruit packing and related fruit handling services.

[4]      In  response,  the  defendant  filed  an  application  to  set  aside  the  statutory demand.   This application went to hearing in this Court on 17 March 2006.   In a Judgment dated 24 March 2006  I declined the application and ordered  that  the defendant was to pay the debt due to the plaintiff within five working days of that date.

[5]      Payment was not made.  Instead, the defendant appealed the decision refusing to set aside the statutory demand to the Court of Appeal (“the appeal”).

[6]      And, on 26 April 2006 the defendant sought a stay of that 24 March 2006 judgment pending hearing of the appeal by the Court of Appeal.  On 27 April 2006 that stay was granted.  As I understand the position, the Court of Appeal is yet to hear the appeal.

[7]      Notwithstanding this, on 24 November 2006 the plaintiff filed its present Statement of Claim seeking an order for the liquidation of the defendant company (“the liquidation proceeding”).

[8]      The grounds advanced by the plaintiff in this Statement of Claim are set out in the following way:

6.1Cooper  is  unable  to  pay  its  debts.    The  volume  of  Cooper’s outstanding historical and current debts (even not counting Apollo’s and Crasborn’s debt) gives rise to an irresistible presumption of that company’s insolvency in terms of section 4 of the Act; and/or

6.2      It is just and equitable that Cooper be put into liquidation.

6.2.1Cooper is and has been for at least 18 months insolvent in terms of section 4 Act.

6.2.2Cooper has continued to trade paying creditors as a matter of convenience not contractual obligation.

6.2.3Cooper has been able to continue to trade only as a result of the support and direction of its secured creditors South Canterbury Finance.

6.2.4    Cooper has been selling off high value assets.

6.2.5In such circumstances it is in the public interest that Cooper not be permitted to continue to trade to the continued risk of creditors both current and historical.

[9]      On  30  November  2006  the  defendant  filed  the  present  stay  application. Before I turn to consider that application, however, there is a preliminary matter which arose and needs to be mentioned.

Preliminary

[10]     At the commencement of the hearing before me on 25 January 2007, Mr Petherick,  counsel  for  the  defendant,  sought  leave  to  have  the  Court  read  and consider an affidavit dated 22 January 2007 of Nigel Barry Cooper, director of the defendant.  This affidavit in support of the present stay application was not filed until

24 January 2007.  Mr Macfarlane for the plaintiff objected to this.

[11]     Further, Mr Macfarlane for the plaintiff similarly sought leave to have the

Court read and consider a second affidavit of Marilyn Anne Scott dated 3 January

2007.    This  affidavit  was  filed  on  9  January  2007  and  was  in  support  of  the plaintiff’s opposition to the stay application.

[12]     Having considered submissions put to me on these two matters, I take the view that both affidavits should be read and considered.   Under the present circumstances as I see it, the Court needs to have available to it all possible information.  Appropriate weight can be given to the matters raised in the affidavits, given their late filing and the inability of the opposing party to file material in response.

[13]     I rule that these affidavits are to be read and considered in the hearing of this matter.

[14]     The present stay application is made pursuant to r700K High Court Rules. Rule 700K(1) states:

700K.  Power to stay [[liquidation]] proceedings

[[(1)     Where an application for putting a company into liquidation is made by the filing of a statement of claim pursuant to rule 700C(1), the defendant company, or, with the leave of the Court, any creditor or contributory or shareholder, as the case may be, of that company, or the Registrar of Companies, may, within 7 days after the date of the service of the statement of  claim  on  the  defendant  company,  apply  to  the  Court  for  an  order restraining publication of any advertisement required by rule 700I or any other information relating to that statement of claim and staying any further proceedings in relation to the liquidation.]]

[15]     Rule 700K empowers the Court to make an order restraining publication of any advertisement or any other information relating to that statement of claim and staying any further proceedings in relation to the liquidation.  Subrule (2) requires the Court to deal with such application as if it were an application for an interim injunction and provides that if the Court makes an order as sought, it may make it on such terms as the Court thinks fit.  The Rule further provides that nothing in it shall limit the inherent jurisdiction of the Court.

[16]     The principles to be applied in considering applications under r700K were outlined in Nemesis Holdings Limited v North Harbour Industrial Holdings Limited (1989) 1 PRNZ 379 at p385.   There, Wallace J summarised the principles in the following way:

(a) The Court has an inherent jurisdiction to stay winding-up proceedings where the debt upon which such proceedings are founded is the subject of a genuine dispute.    In those circumstances the plaintiff cannot show it has the status of a creditor or that there has been neglect by the company to pay.

(b) The jurisdiction is an inherent one to prevent abuse of process.

There is no inflexible rule.

(c)  The governing consideration is whether the proceedings suggest unfairness or undue pressure.

(d) It is a serious matter to stay winding-up proceedings, so the decision to do so is never made lightly.   The onus is on the

applicant   and   it   is   normally   necessary   to   demonstrate

‘something  more’  than  the  balance  of  convenience considerations which are usually considered on an application for interim injunction.   If the defendant company has had an opportunity to file appropriate affidavits, such defendant is required to establish a strong prima facie case of the existence of a genuine dispute on substantial grounds, or show that there are clear and persuasive grounds for a stay.

-    See McGechan HR700K.02.

[17]     The  grounds  put  forward  by  the  defendant  in  support  of  its  present application are:

(a)  There  is  no  presumption  of  insolvency  in  respect  of  the defendant company.  The defendant company is in (sp) solvent.

(b) The plaintiff company has failed to provide sufficient evidence to establish insolvency of the defendant company.

(c) The liquidation proceedings are defended.   As there is no presumption of insolvency, the matter cannot be dealt with on the papers and a full 2-3 day hearing will be required.   There will be delay.

(d) Advertising  would  cause  irreparable  damage  to  the  plaintiff company, and the plaintiff company’s goodwill.

(e)  The   creditors   allegedly   forming   part   of   the   liquidation application opposed the winding up of the defendant company.

(f)  A Statement of Defence has been filed.  The defendant company has a tenable defence to the liquidation application.

(g) There is a conflict of evidence relating to the facts which are relied upon by the plaintiff company.

(h) Not only is (sp) a serious question to be tried, but the balance of convenience favours the granting of the orders sought.

(i)  The plaintiff is not a “creditor” and has no standing to bring the application.

[18]     As a preliminary point, the defendant contended that the plaintiff’s present liquidation proceedings were a nullity, as the form of Statement of Claim used did not conform with r64A as required in r700C High Court Rules.

[19]     Rule 700C(1) provides in part that an application to put a company into liquidation “shall be made by Statement of Claim in Form 64A in accordance with these rules”.

[20]     This want of form argument by the plaintiff, in my view, is of little substance. A comparison of the pleading in the plaintiff’s Statement of Claim and Form 64A in my view indicates that the pleading is not in any way deficient in form or substance. It discloses proper grounds for appointment of a liquidator and a cause of action against the defendant  in  terms  of  s241  Companies  Act  1993.    In  my view  the decision referred to me by counsel for the defendant Jugum v Stevenson & Jugum Limited (1989) 1 PRNZ 373 is clearly distinguishable here.

[21]     Further, and in any event, I am satisfied that if there are minor defects in the plaintiff’s pleading here they can be cured by amendment at the discretion of the Court – Hollands Printing Limited v San Michele Limited [1992] 3 NZLR 469. But, in my view, no amendment to the pleadings is required.

[22]     The second broad argument advanced before me by counsel for the defendant was that the plaintiff does not have standing to bring the present liquidation application, as it is not a “creditor” of the defendant within the meaning of the Companies Act 1993.

[23]     In the earlier proceedings in this matter involving the defendant’s application to set aside the statutory demand, I noted in my 24 March 2006 Judgment at paragraphs [6] and [30] that the defendant did not appear to seriously dispute that the packhouse work carried out under the contract between the applicant and the respondent had been properly completed, nor that the charges levied were anything other than appropriate.  The debt which is the subject of the present proceeding was effectively undisputed by the defendant.  Rather, it endeavoured to argue that it had a counterclaim which exceeded the plaintiff’s debt and achieved set-off.

[24]     That said, there is no question in my mind that the plaintiff has established it is a creditor of the defendant company.  I reject the argument that there is an absence of standing here.

[25]     The next argument advanced before me on behalf of the defendant is that there is no presumption of insolvency against the defendant under s287 Companies Act 1993, in that the defendant says its failure to comply with the statutory demand issued against it by the plaintiff (which was the subject of its earlier unsuccessful application to set aside the demand) is currently the subject of an appeal to the Court of Appeal.

[26]     Although that may be so, s287 states that it is subject to s288 Companies Act

1993 and s288(2) permits proof by other means that a company is unable to pay its debts.

[27]     Brookers Company and Securities Law at para CA288.02 states:

CA288.02       Company unable to pay debts

Proof  that  a  company  is  unable  to  pay  its  debts  is  not  limited  to  the occurrence of the events described in s287.  It is open to a creditor to prove the insolvency of the company by producing evidence to the Court that shows the company is unable to meet the current demands on it.   See, for example, Re Taylors Industrial Flooring (1990) BCC44; (1990) 8ACLC 529 (CA) where it was affirmed that if a debt was due and undisputed, failure to pay was itself evidence of inability to pay (on substantive grounds).

[28]     Dealing with these aspects, I turn first to consider the plaintiff’s evidence. The  plaintiff  has  filed  supporting  affidavits  dated  23  November  2006  and  14

December 2006 providing to the Court the independent expert evidence of Mr John Francis Managh, an experienced accountant from Napier as to the defendant’s solvency and debt position.   In his first affidavit Mr Managh attaches a “Payables Reconciliation (summary)” as at 30 June 2006 for the defendant company which shows total payable accounts for the company of $1,096,718.72, of which the debts outstanding for more than three months total $879,837.74.

[29]     Mr Managh goes on to comment at paragraph 10 of his 23 November 2006 affidavit that:

Based on my exchanges with those creditors and the information obtained from them and the information in Exhibit “C” (a list of the company’s assets and liabilities supplied to Mr Managh), in my opinion Cooper (the defendant company) is unable to pay its debts, and has been for a considerable period, from its own monies as they become due in the normal course of business.

[30]     In response to the evidence of Mr Managh provided in his 23 November 2006 affidavit, the defendant filed an affidavit of Nigel Barry Cooper (“Mr Cooper”) dated

30 November 2006 which endeavours to counter a number of the matters raised by

Mr Managh.

[31]     Mr Managh’s second affidavit dated 14 December 2006 refers directly to this

30 November 2006 affidavit of Mr Cooper.   In doing so, Mr Managh in his later affidavit makes the following comments:

a)        Paragraph 2:

…The financial information available has been limited.   However, Mr Cooper having the opportunity to put before the Court the fullest position of Coopers Horticultural Limited’s has not done so.  What has  been  disclosed  is  deliberately selective.    Cooper  says  in  his paragraph 2 he only became aware of the current proceedings to liquidate on the 27th of November.  Despite that, Cooper was able to instruct his accountants to prepare a Statement of Financial Position. They did so with it being dated 29 November.

b)        And paragraph 8:

Cooper  in  paragraph  7  says  Coffey  Davidson  confirmed  that Coopers is solvent.   Coffey Davidson’s letter dated 29 November has several important qualifications.   Importantly, the statement of financial position as at 29 November supplied by Coffey Davidson to Coopers has not been put before the Court.  The assertions and qualifications are unable to be tested.

c)        And:

Paragraph 5.  Cooper says in paragraph 6 Coopers has always been solvent.  Such a statement begs the question that if the company has always been solvent, why would it need to compromise for certain creditors and pay others very late?  The only reasonable conclusion is that Coopers was insolvent and remains so.  This puts an onus on the  company  to  prove  in  the  affirmative  that  it  has  met  and  is meeting all of its debts as they fall due.  Cooper says the company’s

2006 tax returns have not been completed as they have until April

2007 to file them.   That is irrelevant.   The company’s income tax liability is not in question.   Its solvency is.   Cooper by default is

saying that no financial statements have been prepared as they do not

need to be filed until April 2007.   Cooper is implicitly saying he does not know how the company has traded in recent times nor

knows whether a resulting profit or loss has restored shareholders

funds or further eroded these…I believe Cooper knows very well how  the  company  has  traded  since  1  April  2005  and  what  its financial position is.  Cooper has avoided putting any real evidence

before the Court to support his assertion of the company being solvent.

d)        And paragraph 9:

The company’s June 2005 financial accounts (which are before the Court) show a marked contrast in “current assets” when compared to “current liabilities”.  A deficit of $4,592,815.00 was recorded.  The company would not have been able to pay its debts as they fell due. Cooper  has  avoided  the  opportunity  of  putting  the  June  2006 position before the Court.   I express the view that if that position were favourable, it would have been put forward.

e)        And paragraph 11:

Cooper says in paragraph 10 that many of the debts referred to in my earlier affidavits are subject “to an agreed repayment arrangement” or have been paid.  It would seem that such an arrangement purports to be an informal compromise with creditors.  This, in effect, gives certain creditors a preference.   Creditors are not being treated pari passu.   A reasonable assumption for such unequal and unjust treatment is that the company cannot treat all of its creditors equally by paying them.  It is unable to as it is insolvent.

f)         And in conclusion at paragraph 1:

I  refer  to  my  affidavit  of  23  November  2006  and  stand  by  its contents  notwithstanding  now  having  read  the  affidavit  of  Mr Cooper sworn 30th November last.

[32]     Mr Bruce McDonald Beaton, a director of the plaintiff, filed an affidavit dated 14 December 2006 on behalf of the plaintiff and deposed at paragraph 3:

3.        Apollo  Fruit  is  very  gravely  concerned  that  Cooper’s  litigation conduct, its attempts to keep quiet its troubles and to do deals with one creditor or another without all the other creditors knowing, is a remedy for disaster.   Coopers plainly cannot pay creditors on conventional terms and has been obliged to threaten, compromise, make payment arrangements with and simply refuse to pay, creditors in order still to be able to carry on in business.

[33]     In general response, in his affidavit dated 22 January 2007 Mr Cooper (at paragraph 14) deposes that:

Coopers is solvent and through prudent financial management has made a considerable profit in the 2006 year.   Coopers has all the indications of a substantial profit being made for the current season also.

[34]     Notwithstanding that comment, however, Mr Cooper at paragraph 7 of this affidavit does refer to the “Payables Reconciliation” schedule (referred to in paragraph [28] above and states:

In terms of the Payables Reconciliation dated 30 June 2006 as Exhibit B to Mr Managh’s affidavit of 23 November 2006, Coopers Horticulture Limited have repaid most of those debts which were incurred in trade and which were current at the time.  The current debts outstanding by Coopers, relating to that Reconciliation Schedule, are now approximately 30% of the value contained in Exhibit B to Mr Managh’s affidavit.

[35]    I repeat that the total outstanding debts in the “Payables Reconciliation (summary)” as at 30 June 2006 were $1,096,796.30.   30% of that figure is approximately $330,000.00.  Clearly on any arithmetical calculation this would need to have included certain of the defendant’s “over three months” creditors, given that the three months creditors figure on 30 June 2006 was $879,837.74.

[36]     In addition, a quick perusal of the 30 June 2006 “Payables Reconciliation (summary)” discloses that the debt to the plaintiff the subject of the present proceeding ($351,518.77), together with the debt to Crasborn Packing Limited of

$565,716.71 (confirmed as still being owing to Crasborn Packing Limited in the affidavit of Edward Lambertus Mario Crasborn dated 23 November 2006 filed on behalf of the plaintiff in this proceeding) appear to be excluded.  These two amounts totalling over $900,000.00 would considerably inflate the outstanding debts of the defendant, even on the basis of the claims made in paragraph 7 of the affidavit of Mr Cooper dated 22 January 2007 noted at paragraph [34] above.

[37]     In argument before me, counsel for the plaintiff contended that the defendant has for nearly 18 months held up payment to the plaintiff, and to Crasborn Packing Limited, along with other creditors of the plaintiff.   Throughout this period the plaintiff maintains the defendant has been preferring other creditors, compromising claims with creditors who the defendant was refusing to pay, incurring new trade debt, selling off assets, and all the time obtaining additional funding from a secured creditor, South Canterbury Finance Limited.

[38]     Counsel for the plaintiff contended too that there is no admissible evidence before  the  Court  of  the  defendant’s  solvency.    The  claims  to  solvency  in  Mr

Cooper’s affidavit are unsupported by any independent admissible evidence. Significantly, the statement of financial position as at 29 November 2006 for the defendant prepared by Coffey Davidson (and noted at paragraph 31(b) above), has not been put before the Court.  The only real motive here which can be attributed to the defendant in opposing this application, according to the plaintiff, is a collateral one which, in the words of counsel for the plaintiff, is to “buy time to keep the plaintiff’s smaller creditors on side or under control while fighting on untenable grounds against its larger creditors which it is unable to keep onside”.

[39]     According  to  counsel  for  the  plaintiff,  all  this  indicates  that  there  is  an important public interest aspect in this case, in that these liquidation proceedings need to continue for the benefit and protection of all those who have both done business with the defendant in the past, and also those who may yet do business with it in the future.  The plaintiff maintains that it is in this context that the Court should consider the questions of whether the requirements for the defendant’s application for a stay have been made out.

[40]     These last contentions put forward on behalf of the plaintiff are serious ones. They were strongly disputed by counsel on behalf  of  the  defendant.    They are nevertheless of concern and I must bear all these matters in mind in making a decision here, although I make no definitive findings as to the specific claims  made by the plaintiff.

[41]     I turn now to consider what evidence of substance is before the Court from the defendant as to its ability to meet the current demands on it to the extent that it can show it is able to pay its debts.

[42]     I need to repeat at the outset that, in my view, it is of some significance that, despite having opportunities to do so here, the defendant has placed no independent evidence before the Court from its accountant or any other party or expert on behalf of the defendant to confirm its financial position, its ability to pay its debts or its general solvency.   The sole evidence offered by the defendant is contained in the affidavits of Mr Cooper, a director of the defendant.  And, as I have noted earlier, the defendant  has  specifically  chosen  not  to  put  before  the  Court  the  recent  29

November 2006 financial report for the defendant which Mr Cooper confirms was prepared by the defendant’s accountants Coffey Davidson.

[43]     What is clear to me is that faced with the expert evidence of Mr Managh in his affidavits of 23 November 2006 and 14 December 2006, and the attached list of the defendant’s “Payables Reconciliation (Summary)” at 30 June 2006, Mr Cooper on behalf of the defendant rather unhelpfully states (at paragraph 4 of his last 22

January 2007 affidavit) “Coopers can adduce evidence at a hearing of this matter that shows that the company is solvent”.   He then goes on to acknowledge that “the current debts outstanding by Coopers, relating to that Reconciliation Schedule, are now approximately 30% of the value contained in Exhibit B to Mr Managh’s affidavit” – paragraph 7 affidavit dated 22 January 2007.   As I have noted above, these debts must also exclude the over $900,000.00 in generally undisputed debts claimed by the plaintiff here and Crasborn Packing Limited which were omitted from the list in the Reconciliation Summary.

[44]     Two things must of course be acknowledged.   The first is the defendant’s assertion  that  it  has  a  counterclaim  against  the  plaintiff  (and  against  Crasborn Packing Limited and Kiwi Crunch Grower Pool 2005 Limited) for some $1.2 million broadly for misrepresentation, promissory estoppel, breach of contract and breach of the  Fair  Trading Act  regarding  alleged  inducements  and  losses  incurred  by the defendant  for  the  2005  apple  season.    Proceedings  for  this  counterclaim  have recently been lodged by the plaintiff in the High Court at Napier.

[45]     And secondly, before me the essential ground relied upon by the defendant in bringing this stay application was that the debt owing to the plaintiff, although undisputed in itself, is the subject of the set-off or counterclaim claimed in terms of these recent High Court proceedings.

[46]   In response to this, before me counsel for the plaintiff argued that the defendant’s claim to a set-off or counterclaim was entirely unsupportable, spurious and was simply a delaying tactic.

[47]     It  is  undisputed  that  “clear  and  persuasive  grounds”  for  a  set-off  or counterclaim must be established as Blanchard J indicated in Covington Railways Ltd  v  Uni  Accommodation  Ltd  [2001] 1 NZLR 272 at 275. In that decision Blanchard J stated:

It (the company) must be able to point to evidence before the Court showing that  it  has  a real  basis for  the claimed  set-off  and that  accordingly  the applicant’s claim to be a creditor is to the extent of the set-off seriously in doubt.

[48]     And Master Faire (as he then was) stated in Te Uenga Ltd v R Kendall & Co Ltd (HC AK, 11 May 1999, M286/IM99), there must be some material short of proof which backs up a particular counterclaim put forward by the company.

[49]     In my Judgment in this matter dated 24 March 2006 in which I refused to set aside  the  statutory demand,  I noted  at  paragraph  56  that  the  applicant,  Cooper Horticulture Limited, had been unable to point to any material of a substantial nature to support the counterclaim or set-off which it advanced.

[50]     In the present application before the Court, in my view little further material of substance has been advanced by the defendant to support this counterclaim against the plaintiff.

[51]     It is interesting to note that a claim upon similar lines to that which the defendant proposes to advance here in its counterclaim against the plaintiff and others was put forward recently in Clark v Crasborn Packing Limited (HC AK, 18

October 2006, CIV-2006-441-657), but firmly rejected by Venning J in that case.

[52]     That  said,  it  may  well  be  that  ultimately  the  defendant  will  have  some difficulty in establishing its counterclaim against the plaintiff, but that is a matter for consideration on some other occasion.

[53]     For the purposes of the present application, I am satisfied that the defendant in the words of Blanchard J in Covington Railways Limited has been unable to point to evidence before the Court to show that it has a real basis for the claimed set-off or

counterclaim.  Certainly the defendant, as I see it, falls well short here in its attempt to establish “clear and persuasive grounds” for a set-off or counterclaim.

[54]     Turning back to the question of whether the defendant here is “unable to pay its debts”, as I have noted above, s288(2) Companies Act 1993 permits proof by means other than a failure to comply with a statutory demand that a company is unable to pay its debts for the purposes of a liquidation application under s241(4)(a).

[55]     For the reasons I have outlined above, I am satisfied that there is sufficient evidence before the Court to show that the defendant is unable to meet the current demands on it which constitutes evidence of its inability to pay its debts – see Re Taylors Industrial Flooring.  Even on Mr Cooper’s own evidence (paragraph 7, 22

January 2007 affidavit) a significant proportion of the defendant’s over three months debt in its 30 June 2006 “Payables Reconciliation” Schedule (i.e. debts then over ten months  due  at  least)  still  remained  unpaid,  in  addition  to  the  plaintiff’s  and Crasborn’s effectively undisputed debt of nearly $900,000.00 outstanding since late

2005.

[56]     I find, therefore, that for the purposes of s241(4)(a) Companies Act 1993, the plaintiff has done sufficient here to show that the defendant company is unable to pay its debts.  That is sufficient in terms of s241(4) to dispose of this matter.  I need not go further to consider the alternative ground for a liquidation order advanced by the plaintiff in terms of s241(4)(d) that it is just and equitable that the defendant be put into liquidation.  The claim by the defendant that the liquidation proceedings are to be defended also does not assist it here.  The defendant has had ample opportunity to file appropriate affidavits to establish, as it is required to do, a strong prima facie case of the existence of a genuine dispute on substantial grounds with respect to the debts claimed against it, but in my view, it has fallen well short of doing this.

[57]     The defendant’s further claim that its creditors oppose the winding up of the defendant is not supported, in my view, by any significant evidence before the Court. Issues arise as to several creditors with whom the defendant has no doubt made particular arrangements, and some of these have provided some documentation for the  Court.    Nothing  of  a  significant  nature  is  before  the  Court,  however,  to

substantiate the defendant’s claim that the creditors as a group oppose winding up.  I

reject this ground put forward in support of the defendant’s application.

[58]     As  to  the  defendant’s  claim  to  solvency  advanced  in  support  of  this application, in my view the material before the Court does not support the defendant here.

[59]     For the purposes of the present application, the only evidence of solvency advanced for the defendant are the claims made by its director Mr Cooper and the material he provides in his various affidavits.

[60]     In my view, however, this material before the Court is inadequate.  As I have noted, no recent independently prepared accounts or information for the defendant’s operations have been provided.  Properly in my view, Mr Managh has commented adversely on this.   And tellingly, financial position statements to 30 June 2006 although prepared by the defendant’s accountants, and despite requests by the plaintiffs, these were not made available to the Court.  Nor were any other accounts for the defendant for periods more recent than the twelve months ending 30 June

2005 which showed a huge deficit.  This can only be seen as unacceptable.  Under all the circumstances here, it is difficult to escape arriving at an adverse inference as to the solvency of the defendant.

[61]     From the comments noted at paragraph [16] above, the authorities establish that it is a serious matter to stay winding up proceedings, and any decision to do so is not to be made lightly.  The defendant is required to show that there are clear and persuasive grounds for a stay.  A governing consideration must always be whether the proceedings issued by a plaintiff suggest unfairness or undue pressure.   In the present case I am satisfied that although these proceedings no doubt have placed pressure upon the defendant, that pressure could not be said to be “undue”, nor could the present proceedings be categorised as unfair.

[62]     For all these reasons, I reach the conclusion that unless there is some good reason to do otherwise, the defendant’s application for a stay of this proceeding and to restrain advertising should be rejected.

[63]     Notwithstanding this conclusion, it is clear that on occasions the Courts have accepted that in cases where the full amount claimed by a creditor has been paid over as security, or alternatively a proper security for that debt provided, it was difficult to imagine that proceedings should continue and a liquidation order be justified – see McGechan, paragraphs HR700K.04 and HR700K.07.  And Airborne Freight Limited v Fastway Express Parcels (NZ) Limited (1994) 7 PRNZ 372.

[64]     At  the  hearing of this  matter  before  me  on  25  January 2007,  given  the defendant’s claim to solvency and in particular, his claim that it satisfied the “cashflow” test of solvency, I raised with Mr Petherick, counsel for the defendant, the question whether the defendant if ordered to do so would be in a position to pay the plaintiff’s debt of $351,518.77 into Court, or provide a suitable security for this. Mr Petherick replied that this was a possibility, and that within a matter of a few days the defendant would be able to confirm its ability to make this payment into Court, or provide an acceptable security.

[65]     That said, and notwithstanding my finding that the plaintiff has done enough here to successfully oppose the defendant’s present stay application, I am of the view that if the defendant is able to make a payment of the plaintiff’s debt into Court or provide suitable security for that debt, then this would not only provide some indication as to its claimed solvency, but also justify an order for stay which is sought here.

[66]     There is authority for an order staying liquidation proceedings to be granted conditional upon payment into Court or some other form of security being provided

– see Maru Industries Limited v Don Forbes Construction Limited (1989) 2 PRNZ

176, Taylor Smith Lundie Plastics Limited v Rio Beverages Limited (1994) PRNZ

70, Taxi Trucks Limited v Nicholson [1989] 2 NZLR 297 and Morrison v Speedy

Parcels Limited (1995) NZCLC 66, 203 (CA).

[67]     In Taylor Smith Lundie Plastics Barker J at page 73 stated:

The consequence of an order requiring monies to be paid into Court on an application of this nature (an application for stay) is not in my experience an unusual one; it is normally made for one, the other or both of the following

reasons, (a)  The financial ability of the applicant for the order is suspect, or

(b) The counterclaim or set-off raised by the applicant for the order is weak.

[68]     Here, as I have noted above, I am satisfied first that particularly given the absence of independent financial information provided to this Court, the defendant’s financial ability and solvency here can only be considered as weak, and secondly, the counterclaim or set-off raised by the defendant against the plaintiff’s claim must also be considered as weak.

[69]     That said, I am satisfied that a conditional order restraining advertising and staying this proceeding should be made.

[70]     An order is now made, therefore, restraining advertising and staying this proceeding conditional upon the defendant within 10 working days of the date of this judgment either:

a)       Paying into Court the sum of $351,518.77, to be held by the Court as security for the debt claimed by the plaintiff; or

b)The defendant providing a bank bond for the said sum of $351,518.77 as security for the plaintiff’s debt upon terms and in all respects to the satisfaction of the Registrar of this Court.

[71]     Leave is reserved for either party to apply further on two days notice in the event that:

a)        There is no agreement as to the form of the bond required.

b)Any other difficulties may arise in satisfying the conditions noted above or in the implementation of these orders.

[72]     So far as costs are concerned, these are reserved.  If there is any issue as to costs between the parties, then counsel may file appropriate memoranda and I will

decide the issue of costs upon the basis of the material filed.

Associate Judge D.I. Gendall

Solicitors:

Sainsbury Logan & Williams, Napier for Plaintiff

Gresson Grayson, Hastings for Defendant