Auckland Council v Forest Trustee Limited

[2012] NZHC 2459

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-3253 [2012] NZHC 2459

UNDER  the Companies Act 1993

BETWEEN  AUCKLAND COUNCIL Plaintiff

ANDFOREST TRUSTEE LIMITED Defendant

Hearing:         21 September 2012

Counsel:         J A Hilario for plaintiff

M J Collier for defendant
P Mawhinney (contributory) in person

Judgment:      21 September 2012

(ORAL) JUDGMENT OF LANG J

[on applications to stay proceeding and to appoint interim liquidator]

AUCKLAND COUNCIL V FOREST TRUSTEE LIMITED HC AK CIV-2012-404-3253 [21 September 2012]

[1]      In  this  proceeding  the  Auckland  Council  seeks  an  order  placing  Forest Trustee Limited (“Forest Trustee”) in liquidation.   The Council alleges that Forest Trustee owes it approximately $41,000 in unpaid rates.  The rates relate to a rural property of which Forest Trustee is currently recorded as the registered proprietor, and is also currently shown in rating records as the owner.

[2]      The Council relies on a statutory demand that it alleges was served on the registered office of Forest Trustee on 27 April 2012.   It says that non-compliance with the statutory demand gives rise to the statutory presumption that Forest Trustee is unable to pay its debts.[1]

[1] Companies Act 1993, s 287(a).

[3]      Forest Trustee has  filed  a statement  of defence.    In  addition,  one of  its shareholders, Mr Peter Mawhinney, intends to oppose the application as a contributory of the company.

[4]      The next stage in the proceeding is therefore that it will need to be set down for a defended hearing.  It is currently listed for mention in the Liquidations List on

12 October 2012.

Application for order staying the proceeding

[5]      Mr  Mawhinney has  applied  for  an  order  staying  the  proceeding.    He  is supported in his application by Forest Trustee.  Mr Mawhinney contends that several factors justify the Court making the order that he seeks.  First, he contends that the Council’s process server did not in fact serve the statutory demand on the registered office of Forest Trustee.  He has filed a significant body of evidence suggesting that the process server served the statutory demand at a neighbouring property, and not at the registered office of Forest Trustee.  The process server, Mr Parkes, has filed an affidavit,  however,  confirming  that  he  did  serve  the  statutory  demand  at  the registered office of Forest Trustee.

[6]      There is therefore a clear conflict in the evidence, and that conflict cannot be resolved in an interlocutory hearing such as this.  It can, however, be readily resolved at the substantive hearing of the application to place Forest Trustee in liquidation.

[7]      Even if the statutory demand was not served at the correct address, however, the Council may still prove that Forest Trustee is insolvent.  It is not bound to rely solely on the statutory presumption as to insolvency created by non-compliance with the statutory demand.  It will be for the Council to determine whether it wishes to proceed in this alternative manner after making further enquiries with its process server.

[8]      Mr   Mawhinney   also   contends   that   Forest   Trustee   has   a   substantial counterclaim against the Council. This arises out of the manner in which he claims it has dealt with previous applications for resource and subdivision consents sought by Forest Trustee.  He and Forest Trustee have recently commenced another proceeding in  this  Court  seeking  damages  against  the  Council  in  respect  of  these  alleged failures.[2]     Mr Mawhinney submits it would be unjust to allow the Council’s liquidation proceeding to move forward whilst his counterclaim against the Council is still in its infancy.

[2] Mawhinney v Auckland Council HC Auckland. CIV-2012-404-4906

[9]      I  do  not  regard  the  existence  of  a  potential  counterclaim  as  a  ground justifying an order the staying the present proceeding.   The existence of the counterclaim is a matter that the Court can take into account in determining whether or  not  to  exercise  its  discretion  to  place  Forest  Trustee  in  liquidation.    The appropriate forum for that issue to be aired is, in my view, the substantive hearing of the Council’s application.

[10]     Mr Mawhinney also contends that Forest Trustee has substantial grounds on which it can dispute the validity of the rates assessment.  Whether or not that is the case remains to be determined, but, again, I am satisfied the appropriate forum within which to determine that particular issue is the substantive hearing in relation to the Council’s application.

[11]     Finally, Mr Mawhinney submits that the only source of funds from which Forest Trustee could pay the rates is from the proceeds of sale of its land.  It has been prevented, he says, from selling the land because of the Council’s defaults.   This, too, is a matter that can properly be aired at the substantive proceeding.

[12]     For these reasons I am satisfied that it would not be appropriate to stay the proceeding at this stage, and Mr Mawhinney’s application is dismissed as a consequence.   I am satisfied, however, that subject to one exception, all of the relevant material is now on file and the matter should be allocated an early fixture.

[13]     I therefore direct that the Council’s application is to be heard in this Court on

24 October 2012 at 10 am (one day allocated).

[14]     It will be apparent that one of the principal issues to be determined at the hearing on 24 October is whether the Council’s process server did in fact serve the statutory demand at the correct address.   Associate Judge Sargisson has  already indicated in an earlier minute that the Council should file a further affidavit by the process server to address this issue.  To date, for whatever reason, the Council has not taken up that invitation.  It is important that the Court and Mr Mawhinney know the Council’s position in relation to this issue prior to the hearing.  For that reason I direct that Mr Parkes is to file a further and detailed affidavit by 3 October 2012 responding to the evidence that Mr Mawhinney has filed regarding the location at which the statutory demand must have been served.

[15]     Mr Mawhinney will have until 10 October 2012 to file any affidavits in response.  I record that I have advised him that this is not an invitation to file further affidavits rehearsing issues that have already been raised in earlier affidavits.  Rather, he and his witnesses should confine themselves to responding to any new matters that may come to light as a result of the affidavit that Mr Parkes is to file.  I have also advised the parties that all deponents should be available for cross-examination at the hearing on 24 October 2012.

[16]     I further direct:

(a)       The  Council’s  synopsis  of  submissions,  together  with  a  paginated

bundle  of  documents,  is  to  be  filed  and  served  no  later  than

15 October 2012.

(b)The submissions for Forest Trustee and Mr Mawhinney are to be filed and served no later than 19 October 2012.

Application for order appointing interim liquidator

[17]     The Council has also filed an application for an order appointing an interim liquidator.[3]   It does so on the basis of a professed concern that Forest Trustee may be dissipating its assets, and that an order appointing an interim liquidator should be made  to  guard  against  the  prospect.    I do  not  consider,  however,  the  evidence supports the conclusion the Council asks the Court to reach.

[3] High Court Rules, r 31.23.

[18]     Forest Trustee’s principal asset appears to be the land that is the subject of the rates demand.  It is currently in Forest Trustee’s name, and the rates are a charge on that land.[4]     Even if Forest Trustee was to dispose of the land, the charge would remain.

[4] Local Government (Rating) Act 2002, s 59.

[19]     The Council is also concerned that Forest Trustee may be spending large amounts of money on lawyer’s fees in the new proceeding that it has filed against the Council.

[20]     I am told that the new proceeding has been allocated a first case management conference on 12 October 2012.  It is unlikely that a great deal of work will need to be done in relation to the proceeding between now and 12 October.  I do not consider that this particular issue warrants the step of appointing an interim liquidator.

[21]     That step, of necessity, would result in Forest Trustee incurring considerable expense  because  the  interim  liquidator  would  need  to  immediately identify and

assume control over the company’s assets.  Past experience with interim liquidations

suggests that, of itself, this is likely to be a costly exercise.  Given the imminence of the trial date, I do not consider an order for the appointment of interim liquidators is appropriate. That application is therefore dismissed.

Costs

[22]     Each party has succeeded in relation to one application, and failed in relation to the other.  For that reason, I direct that costs in relation to the two interlocutory applications are to lie where they fall.

Next event

[23]     The  next  formal  call  of  this  proceeding  is  in  the  Liquidations  List  on

12 October 2012 at 10.45 am.  Although the proceeding must formally be called at that time, it will only be for the purposes of adjourning it to the defended hearing on

24 October 2012.  I therefore excuse appearances on 24 October 2012.

Lang J

Solicitors:

Auckland Council, Legal Services Group, Auckland

Davenports West, Waitakere City