Arrowmasters Limited (in liquidation) v C & E Limmer Holdings Limited
[2023] NZHC 2307
•23 August 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-002175
[2023] NZHC 2307
UNDER the Companies Act 1993 IN THE MATTER
of the liquidation of C & E LIMMER HOLDINGS LIMITED
BETWEEN
ARROWMASTERS LIMITED (in
liquidation) Plaintiff
AND
C & E LIMMER HOLDINGS LIMITED
Defendant
Hearing: 22 August 2023 Appearances:
K Puddle for the Plaintiff
No appearance for the Defendant
Judgment:
23 August 2023
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 23 August 2023 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
TWA Legal Limited, Auckland Copy to: S Masters
ARROWMASTERS LTD (in liq) v C & E LIMMER HOLDINGS LTD [2023] NZHC 2307 [23 August 2023]
Introduction
[1] Arrowmasters Limited (in liquidation) (Arrowmasters) and C & E Limmer Holdings Limited (C & E Limmer) are related companies. Arvind Masters (Mr A Masters) owns both companies. He is the sole director of Arrowmasters and he and his son Sanjay (Mr S Masters) are the directors of C & E Limmer.
[2] These proceedings concern commercial land on Great South Road from which C & E Limmer ran a car sales business. C & E Limmer leased the land from Arrowmasters pursuant to a deed of lease.
[3] The liquidators of Arrowmasters applied for an order placing C & E Limmer in liquidation on the basis that the company is presumed unable to pay is debts, having failed to satisfy a statutory demand for outstanding rent and outgoings. C & E Limmer opposed the application.
[4] At the hearing I made orders appointing Christopher Carey McCullagh and Stephen Mark Lawrence liquidators of C & E Limmer and awarding Arrowmasters costs. I now record my reasons.
Factual and procedural background
[5] On 30 June 2021, Arrowmasters was placed into liquidation by its shareholder. It was at that time also in receivership. Boris Van Delden and Keaton Pronk of McDonald Vague were appointed liquidators.
[6] On 23 November 2021, the liquidators wrote to Mr S Masters in his capacity as director of C & E Limmer, seeking payment of outstanding rent.
[7] On 2 September 2022, the liquidators served a statutory demand on C & E Limmer in respect of outstanding rent and outgoings from 31 August 2019 to 3 August 2020 totalling $221,392.88.
[8] C & E Limmer did not apply to set aside the statutory demand, pay the amount demanded, enter into any compromise, or offer security of any kind. Through
correspondence C & E Limmer disputed a large portion of the demanded debt while admitting that it owed $78,658.38. This undisputed portion was not paid in September 2022 or at any time after.
[9] On 7 November 2022, the liquidators applied for an order putting C & E Limmer in liquidation. The day before the first call, C & E Limmer filed a statement of defence and an application to file the defence out of time. Mr A Masters filed an affidavit in support.
[10] On 24 February 2023, Associate Judge Taylor granted C & E Limmer leave to file a statement of defence out of time.1 The Associate Judge directed that the defendant was to file any further evidence in support of the statement of defence at least 10 working days prior to the matter next being called before the Court.
[11] The application was called on 5 May 2023. C & E Limmer had not filed any further evidence. Associate Judge Brittain directed C & E Limmer to file and serve any further evidence by 2 June 2023. He set down the application for a hearing on 22 August 2023.
[12] The proceeding was listed in the Duty Judge List on 14 August 2023 to allow C & E Limmer to apply for an adjournment due to it needing to instruct new counsel. Lang J declined to adjourn the hearing and emphasised to Messrs A and S Masters that it was essential that they arranged for the company to have new legal representation as soon as possible.
[13] At a further review on 16 August 2023, Mr S Masters advised that Mr Bruce Stainton of the law firm Stainton Chellew had agreed to act on the matter but had indicated he required a month to prepare documents in opposition. Lang J declined to vacate the fixture and directed Mr Stainton to appear at the hearing to confirm that he had accepted instructions to act on behalf of the defendant and to advise the steps he proposed to take to have the defendant’s case brought to a state of readiness for hearing.
1 Arrowmasters Ltd (in liq) v C & E Limmer Holdings Ltd HC Auckland CIV-2022-404-2175, 27 February 2023.
[14] Mr Stainton appeared informally at the liquidation hearing. He informed the Court that he had not accepted instructions to act on behalf of the defendant as he had been unable to identify a basis for defending the liquidation application. He emphasised the complexity of the situation and asked the Court for an adjournment to give C & E Limmer more time to source the funds to pay the debt. He conveyed that Messrs A and S Masters saw the proceeding as manifestly unfair given the commonality of ownership between the companies.
[15] I refused to adjourn the hearing, as the application received its first call on 24 February 2023 and had been adjourned twice already. The statutory demand was served on 2 September 2022. C & E Limmer had had nearly a full year to pay at least the undisputed portion of the debt. Further delay was not warranted.
Legal principles
[16] A creditor of a company may apply to this Court for a company to be placed into liquidation.2 The Court may exercise its discretion to place a company in liquidation if satisfied that:3
(a)the company is unable to pay its debts;
(b)the company or the board of the company have persistently or seriously failed to comply with the Companies Act 1993 (Act);
(c)the company, or one or more of its directors or shareholders have intentionally provided the Registrar of companies with inaccurate information;
(d)the company, or one or more of its directors or shareholders has persistently or seriously failed to comply with duties under the Act or the Financial Reporting Act 1993;
2 Companies Act 1993, s 241(2)(c)(iv).
3 Section 241(4).
(e)the company does not comply with the essential requirements in s 10 of the Act; or
(f)it is just and equitable that the company is put into liquidation.
[17] A company that has failed to comply with a statutory demand is presumed to be unable to pay its debts.4 The presumption is rebuttable. 5 The company must present cogent evidence of solvency.6
[18] While the Court has a discretion as to whether to place a company that is unable to pay its debts into liquidation, companies that are clearly insolvent should not be allowed to continue to trade.7
Should liquidators be appointed?
[19] Having failed to comply with the statutory demand, C & E Limmer is presumed to be unable to meet its debts. C & E Limmer has not provided any evidence to displace that presumption. It has not provided any evidence of its solvency to the Court. There are no financial statements, bank accounts, list of company assets or inventory and no information about other creditors provided.
[20] Rather, the fact that it asks for more time to pay even the undisputed portion of the debt confirms that it is unable to pay its debts.
[21] The statement of defence and the affidavit of Mr A Masters set out three reasons for opposing the liquidation application.
[22] First, that C & E Limmer disputes the amount of rent and outgoings claimed in the statutory demand. Even if there is a genuine and substantial dispute about the correct amount outstanding, C & E Limmer does not dispute that it owes Arrowmasters $78,658.38. There is therefore no basis for concluding that the
4 Section 287.
5 Heron’s Flight Ltd v NZ Properties International Ltd [2012] 1 NZLR 424 (HC) at [23].
6 Duffill Watts Ltd v Mogans Homes Ltd HC Auckland CIV-2009-404-1483, 28 May 2009 at [28].
7 Bank of New Zealand Ltd v Rada Corporation Ltd [1989] 1 NZLR 750 (CA) at 757.
proceeding is an abuse of process because there is a genuine dispute about the existence of the debt upon which the proceeding is based.
[23] Second, that C & E Limmer will be able to pay the debt with time. In his affidavit affirmed on 23 February 2023 Mr A Masters deposed he would be able to raise funds from his family to pay the liquidators once it was confirmed that C & E Limmer was not to be joined to relationship property proceedings brought by Mr S Master’s former wife. Additionally, that there was sufficient money being held in the trust account of a law firm to pay the debt. This argument is not persuasive, as it is now six months from these statements and the undisputed portion of the debt has not been paid.
[24] Third, Mr A Masters deposed that it would be unjust for the company to be placed into liquidation due to a debt owed to Arrowmasters when he is the shareholder of both companies. This defence overlooks the separate legal personality of a company from its shareholders.8 Further, the liquidators of Arrowmasters have a principal duty to realise the assets of the company and distribute them to the creditors of Arrowmasters in accordance with the Act in a reasonable and efficient manner.9
[25] I am satisfied that the company is unable to pay its debts and a liquidator should be appointed under s 241(4)(a) of the Act. Permitting the company to continue to trade while insolvent poses a risk to existing and potential creditors. C & E Limmer’s defence does not provide the Court with any basis to conclude that the application relates to a disputed debt, or is an application that suggests unfairness, such that the discretion ought to be exercised to not make an order for liquidation.
Costs
[26] The defendant is to pay Arrowmasters’ costs on a 2B basis of $10,874.50 and disbursements of $2,241.32.
Associate Judge Gardiner
8 Companies Act 1993, s 15.
9 Section 253.
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