Australian Quality Exporters Pty Limited v ASI Commodities Limited

[2022] NZHC 2839

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE

CIV-2021-488-000107

[2022] NZHC 2839

UNDER

the Companies Act 1993 and Limited Partnerships Act 2008

BETWEEN

AUSTRALIAN QUALITY EXPORTERS PTY LIMITED

Plaintiff

AND

ASJ COMMODITIES LIMITED

Defendant

Hearing:	29 June 2022
Appearances:	C J Pendleton for the Plaintiff T J P Bowler for the Defendant
Judgment:	1 November 2022

JUDGMENT OF ASSOCIATE JUDGE GARDINER

This judgment was delivered by me on 1 November 2022 at 11.30 a.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors: Neilsons, Auckland

Turner Hopkins, Auckland

AUSTRALIAN QUALITY EXPORTERS PTY LTD v ASJ COMMODITIES LTD [2022] NZHC 2839

[1 November 2022]

Introduction

[1]    This is an application for an order placing the defendant, ASJ Commodities LP, in liquidation. The defendant is a limited partnership. The partnership, through its general partner, opposes the application. It says that the statutory demand on which the application is based is defective, the proceeding was not properly served, there is a genuine and substantial dispute about whether the debt is owed, and the partnership has a counterclaim for losses caused by the plaintiff prematurely advertising the liquidation proceedings.

[2]The issues for consideration are:

(a)Is the statutory demand defective?

(b)Were the liquidation proceedings properly served?

(c)Is there a genuine and substantial dispute about the existence of the debt?

(d)Does the defendant have a counterclaim?

Background1

[3]    Adam Harwood and Sean McCarthy are directors of Australian Quality Exporters Pty Ltd (AQE) and SPMAAH Pty Ltd (SPMAAH), Australian companies that import, export and trade meat products. Jeffrey Putt had a meat distribution business in New Zealand. Mr Harwood, Mr McCarthy and Mr Putt decided to go into business together. The arrangement was for SPMAAH to supply meat products from Australia and other countries to Mr Putt, who would sell the products to butchers, restaurants and other retailers in New Zealand.

[4]    They  established  ASJ  Commodities  LP  (ASJ  LP)  as  the  vehicle  for  the business and signed a Limited Partnership Deed in early September 2020.

1      Some background is drawn from the related judgment SPMAAH Pty Ltd v ASJ Commodities LP

[2022] NZHC 1580.

ASJ Commodities NZ Ltd (ASJ NZ Ltd) was incorporated to be the general partner, with Mr Putt its sole director and shareholder. SPMAAH, as trustee for SMAH Asset Trust, contributed initial capital of $80 and therefore acquired 80 units in ASJ LP. Mr Putt contributed $40 of initial capital and acquired 40 units.

[5]    Before long, problems developed between the limited partners. SPMAAH was concerned about Mr Putt’s business practices and lower than expected sales volumes. Mr Putt had his own issues with SPMAAH, including concerns about the standard of some of the meat products supplied, and the way the directors treated him.

[6]    On 16 August 2021, Mr McCarthy informed Mr Putt that they wanted to end the partnership. Mr McCarthy and Mr Putt give different accounts of what they agreed about SPMAAH or AQE operating in New Zealand. Mr Putt says that Mr McCarthy agreed in principle to a restraint of trade. Mr McCarthy denies that, saying that he only agreed that they would not trade  Kilcoy  Global  Foods  meat  products  in  New Zealand.

[7]    Shortly afterwards, Mr Putt presented Mr McCarthy and Mr Harwood with a restraint of trade document for their signature. The document acknowledged that the partners had resolved to dissolve the partnership, voluntarily liquidate ASJ NZ Ltd, and that Mr Putt’s new company, BBQ Butcher Ltd, would carry on the meat import and supply business. It stated that in consideration for Mr Putt and ASJ NZ Ltd agreeing to dissolve the partnership, SPMAAH and AQE would not import or export specified  meat  products  in  New  Zealand  for  five  years.   Mr  McCarthy  and   Mr Harwood did not agree to this restraint of trade for SPMAAH or AQE.

[8]    On 10 September 2021, AQE’s solicitors sent a letter to ASJ LP and ASJ NZ Ltd demanding repayment of “loans” made by AQE to ASJ LP of $448,252.76. These loans were said to be “seed funding” and invoices paid for the partnership between September and December 2020 (less $150,000 repaid). AQE’s solicitors pointed out that under the Partnership Deed and the Act, the general partner is liable for the limited partner’s debts. The letter was emailed to Mr Putt (as director of ASJ NZ Ltd) and to Spire Accountants, recorded as the registered office and address  for  service  for ASJ NZ Ltd in the Companies Register.

[9]    On 5 October 2021, this letter, under a cover letter dated 30 September 2021, was personally served on Mr Putt for ASJ LP at the registered office and address for service for ASJ LP according to the Limited Partnerships Register — Newton Watts Drive, Kerikeri. The letter was also personally served on ASJ NZ Ltd as general partner at Spire Accountants, Kerikeri, its registered office and address for service according to the Companies Register.2

[10]   On 7 October 2021, Neilsons Lawyers wrote to AQE’s solicitors, Turner Hopkins, stating that ASJ Commodities Ltd disputed the loan and maintained that it was in fact a capital contribution for the purchase of stock and had been used for that purpose. They asked for any documentation to support the purported loan.

[11]   On 20 October 2021, SPMAAH, by its solicitors (Turner Hopkins), wrote to Neilsons Lawyers as the solicitors for ASJ NZ Ltd and ASJ LP. They attached the earlier demand on ASJ LP/ASJ NZ Ltd and asked that ASJ NZ Ltd agree to place ASJ LP in voluntary liquidation within five working days.

[12]   On 4 November 2021, Neilsons Lawyers wrote to Turner Hopkins, asking for a response to the earlier letter. They stated, “Until we have confirmation of your client’s position relating to the purported loan, our client is not in a position to deal with any other matters”.

[13]   On 5 November 2021, Turner Hopkins replied, attaching a balance sheet for ASJ LP describing the AQE money as a loan and asking that the demand, now overdue, be addressed urgently. They recorded that they did not consider that Neilsons Lawyers had authority to represent the LP. Neilsons Lawyers clarified that they acted for ASJ NZ Ltd and Mr Putt.

[14]   Neilsons Lawyers wrote on 8 November 2021, stating that the description “loan from AQE” in the balance sheet was inputted by the LP’s former accountant. They stated:

2      The registered office and address for service of the GP according to the LP Register is Newton Watts Drive, the same as the LP.

In relation to the balance sheet for ASJ Commodities LP supplied by you, we are instructed that the description of “Loan from AQE” was inputted by the former accountant for ASJ Commodities LP. We are instructed that that accountant is no longer engaged by ASJ Commodities LP.

In any event our client does not accept that the description is correct. For instance, we are instructed that at least half the value of the purported loan was in fact stock supplied to our client by AQE. Accordingly the description of “Loan” cannot be correct if it does in fact apply for provision of stock. Further, there can be no suggestion that the stock and monies can be treated as a loan when, for instance, there is no terms relating to the following:

(a)      the term of the loan;

(b)      the date of repayment;

(c)      the applicable interest rate;

The above list is not to be exhaustive.

For the reasons set out above our client does not accept that these provision of stock and monies is a loan. As previously advised, our instructions are that it was a capital contribution coupled with provision of stock (the value of which was also to be treated as a capital contribution).

[15]   AQE’s lawyers replied on 18 November 2021. They stated that any capital contribution would need to come from the limited partner rather than AQE. Further, any increase in capital would need to be approved by special resolution of the limited partners and an issue of additional units, which had not happened. They stated that their instructions were that the arrangement between AQE and the partnership in relation to the purchase of stock was that AQE would supply stock to the partnership, and this would be “paid for” by way of provision of a loan by AQE to the partnership. They referred to case authority for the proposition that when funds are advanced without any written record of the basis of the arrangement, the advance is considered a loan repayable on demand.

[16]   By this time, AQE had filed High Court proceedings on 27 October 2021 to put ASJ LP into liquidation.  The proceedings were listed in the liquidation list on  21 February 2022.

[17]    On 25 November 2021, Turner Hopkins advised Neilsons Lawyers that AQE had filed an application to put the LP in liquidation. They asked whether they had instructions to accept service for the partnership by email for the purpose of

considering/clarifying whether they could represent the partnership in the proceeding. It seems that Neilsons Lawyers did not respond.

[18]   On 6 December 2021, Turner Hopkins wrote to Neilsons Lawyers. They said that if they had any evidence to support the contention that the advances were capital contributions rather than loans (which AQE denied) it should be provided immediately, otherwise AQE would proceed to serve the proceedings.

[19]   Accordingly, on 20 December 2021, AQE served the proceedings  on  the ASJ LP and the GP at the registered office and address for service of ASJ NZ Ltd according to the Companies Register.

[20]   ASJ LP did not file a statement of defence within the required 10 days and AQE advertised the proceedings on 26 and 27 January 2022.

[21]   On 17 February 2022, the general partner filed a notice of appearance in opposition to AQE’s application. At the list call on 21 February 2022 directions were made for service on ASJ LP by email on Neilsons Lawyers. Service occurred that day.

[22]   On 6 April 2022, SPMAAH filed proceedings to place ASJ LP in liquidation and an ‘on notice’ application for the appointment of an interim liquidator. SPMAAH then filed a ‘without notice’ interlocutory application for the appointment of an interim liquidator on 13 April 2022. I declined to determine the matter on a ‘without notice’ basis and made directions for service on ASJ LP.3   In a decision dated 7 July 2022,    I appointed interim liquidators to ASJ LP and stayed the substantive application, requiring the partners to comply with cl 20 of the Limited Partnership Deed by attempting to resolve their dispute by alternative dispute resolution.4

[23]   On 8 September 2022, I lifted the stay of the substantive application for liquidation  and  set  down  that  application  to  be  heard  in  the  week  beginning   7 November 2022.5 It has been set down for 8 November 2022.

3      SPMAAH Pty Ltd v ASJ Commodities LP CRI-2022-488-000014 (Minute of Gardiner AJ dated 2 May 2022).

4      SPMAAH Pty Ltd v ASJ Commodities LP [2022] NZHC 1580.

5      SPMAAH Pty Ltd v ASJ Commodities LP CRI-2022-488-000014 (Minute of Gardiner AJ dated 8 September 2022).

Legal principles

[24]   Under s 90(1) of the Limited Partnerships Act 2008 (the Act), the Court may appoint a liquidator to a limited partnership on (amongst others) any of the following grounds:

(a)A material breach by any partner of the partnership agreement.

(b)Conduct of any partner which has prejudiced, or is likely to prejudicially affect, the business of the limited partnership.

(c)Conduct of any partner that makes it reasonably impracticable for the other partners to carry on a business in partnership with that partner.

(d)The limited partnership is unable to pay its debts.

(e)In the opinion of the Court, it is just and equitable that the limited partnership terminate.

[25]Under s 91 of the Act, a limited partnership is unable to pay its debts if:

(a)a creditor who is owed an amount exceeding $100 by the limited partnership has served on the limited partnership a demand for the payment of that amount; and

(b)the limited partnership has, for three weeks after the demand was served on it, failed to pay the amount due or secure the payment of it or compound it to the satisfaction of the creditor.

[26]    AQE applies for the limited partnership to be put into liquidation on the basis that it is unable to pay its debts, having failed to meet the statutory demand served upon it. Furthermore, it submits that it is just and equitable for the Court to order that the limited partnership terminates.

Preliminary matter

[27]   AQE submits that the general partner has no authority to defend the proceeding for the partnership or bring a counterclaim on its behalf; and Mr McCarthy states as much in his affidavit. AQE did not develop this submission further, possibly because that issue would need to be pursued by SPMAAH, which has not applied to intervene in this proceeding. I do not reach a finding on this matter, but I note that under the Partnership Deed, the general partner has sole authority to conduct the business of the partnership and has all the powers, authorities, and duties necessary to manage the partnership business.6

[28]   I will now consider each of the issues raised by ASJ LP in turn, addressing the more meritorious arguments first.

Is the demand defective?

[29]   The limited partnership submits that the demand is defective because the alleged debt was not called up by AQE prior to the demand being issued. The defendant relies on Bo Si Ltd (in liq) v Crusaders Building Development Ltd where Associate Judge Lester confirmed that a statutory demand may only issue in respect of a debt that is due.7 The Judge dismissed the application for liquidation because he was satisfied there was a genuine and substantial dispute as the existence of the debt. In doing so, he observed that had the defendant taken the point that the statutory demand was invalid because there was no prior demand, then it would seem inevitable that the statutory demand would have been set aside.8

[30]   In 21st Century Investments Ltd v ANZ National Bank Ltd,9 Associate Judge Bell followed the decision of Master Kennedy-Grant in Keene v Okere Holdings Ltd, in which he noted that under the Companies Act a statutory demand must relate to a debt that fell due before the demand was served; the demand itself cannot create the

6      Clauses 7.1 and 8.1.

7      Bo Si Ltd (in liq) v Crusaders Building Development Ltd [2022] NZHC 788 t [33].

8 At [38].

9      21st Century Investments Ltd v ANZ National Bank Ltd HC Auckland CIV 2010-404-7366, 25 February 2011 (upheld in 21st Century Investments Ltd v ANZ National Bank Ltd [2011] NZCA 548).

debt.10 Accordingly, Associate Judge Bell concluded that a bank must first make demand of a customer before there can be a debt owing for overdrawn funds. A statutory demand can only be issued once that debt is established — the bank cannot use the demand to create the liability.11

[31]   The cases above are in line with English authority, specifically Re Bryant Investment Co Ltd, which held that no statutory demand can be issued for a debt that is not “presently payable” to the creditor.12

[32]   In this case, there is a dispute between Mr McCarthy and Mr Putt as to whether the advances were loans or capital contributions. There is no written record of a loan agreement. Nor is there any record to support the notion that the amounts were capital contributions. But AQE’s own evidence is that the purported loan was “repayable on demand”.

[33]   Therefore, I accept the defendant’s submission that the first demand made on 10 September 2021 was not a statutory demand for the purposes of s 92 of the Act. As the purported loan had not yet been demanded, the debt was not due. AQE could not make the debt due by issuing a statutory demand.

[34]   However, I accept AQE’s submission that if that is the case, AQE demanded repayment of the “loan” by its 10 September 2021 letter. The debt became due when the 14 days given for repayment expired.

[35]   Mr Putt was then personally served with the demand on 5 October 2021. Section 73 of the Act provides that a limited partnership may be served by delivery of a document to its address for service; or to the general partner according to the Limited Partnerships Register. The general partner according to the register is ASJ NZ Ltd. Consistent with s 387(1)(a) and (c), the demand was delivered to Mr Putt, director of ASJ NZ Ltd, and it was also left at the company’s registered office and address for

10 Keene v Okere Holdings Ltd HC Hamilton M209/95, 30 November 1995 at 9.

11 21st Century Investments Ltd v ANZ National Bank Ltd, above n 7, at [15].

12 Re Bryant Investment Co Ltd [1974] 1 WLR 826 (Ch) at 685. For some more recent New Zealand cases supporting this point, see Sports Services Ltd v AGC (NZ) Ltd (1995) 8 PRNZ 653 (HC) and All Safe Scaffold Ltd v Coghlan [2016] NZHC 3106.

service.    This constituted valid and effective service of the statutory demand on  ASJ LP.

Is there a genuine and substantial dispute as to the existence of the debt?

[36]   Section 92 of the Act provides that Part 16 of the Companies Act 1993 (dealing with liquidations) applies, with such modifications as may be necessary, to the liquidation of a partnership. Certain sections are excluded, including s 287 which defines when a company is presumed to be unable to pay its debts. The Act contains its own definition of when a partnership is “unable to pay its debts” at s 91.

[37]   Notably, s 290 of the Companies Act, which enables a Court to, on the application of a company, set aside a statutory demand, is not excluded. It was common ground that the partnership could have but did not apply to set aside the demand AQE served upon it.

[38]   The LP submits that it is still entitled to dispute the debt in the context of this liquidation  application.   I  accept   that  submission.   In  Heron’s   Flight  Ltd  v    NZ Properties International Ltd, this Court held:13

[22]    The Companies Act states the consequence of not applying to set aside a statutory demand under s 290. Under s 287, that consequence is that a presumption of insolvency arises if the company does not comply with the statutory demand. The Companies Act does not provide any other consequences. If Parliament had intended further consequences to arise, they would be set out in the statute. I see no reason to add a gloss to the words of the statute.

[23]     The approach I prefer is that a company faced with a statutory demand has a number of lines of defence open to it. Which line is taken may turn on tactical or practical considerations (such as whether the company instructed its lawyers in time to make an application under s 290). If it is served with a statutory demand, it may apply under s 290 to set the demand aside. If it does not apply or if its application is unsuccessful and it does not comply with the statutory demand, the rebuttable presumption of insolvency will arise. But it may take other steps as the proceeding develops. It might apply for an injunction to restrain the issue of a proceeding, as in Exchange Finance Co Ltd v Lemmington Holdings Ltd [1984] 2 NZLR (CA) 242. Or once the proceeding has issued, it might apply for a stay and restraint of advertising under r 31.11. Or again, it might elect simply to defend the proceeding on the merits. The fact that it has not applied to set aside a statutory demand does not

13     Heron’s Flight Ltd v NZ Properties International Ltd [2012] 1 NZLR 424 (HC).

stand in the way of it taking those other steps, save for this, it may be subject to the presumption of insolvency which it may have to rebut.

[39]   In Yan v Mainzeal Property and Construction Ltd (in rec & liq), the Court of Appeal found:14

[61]      It has long been established that, as a general rule, an order to put a company into liquidation will not be made where the application is founded upon a debt that is genuinely disputed. To apply to wind up a company in such circumstances is regarded as an abuse of the court’s process: Bateman Television Ltd (in liq) v Coleridge Finance Co Ltd. In such cases, the court has an inherent jurisdiction to prevent such an abuse of process. But the court also has power to consider disputed debts in the context of an opposed application for liquidation or upon applications for orders restraining advertising and staying proceedings. The relevant principles were recently summarised by Associate Judge Faire (now Faire J) in South Waikato Precision Engineering Ltd v Ahu Developments Ltd in these terms:

(a)        A winding up order will not be made where there is a genuine and substantial dispute as to the existence of a debt such that it would be an abuse of the process of the Court to order a winding up;

(b)        In such circumstances, the dispute, if genuine and substantially disputed, should be resolved through action commenced in the ordinary way and not in the Companies Court;

(c)        The assessment of whether there is a genuine and substantial dispute is made on the material before the Court at the time and not on the hypothesis that some other material, which has not been produced might, nonetheless be available;

(d)    The governing consideration is whether proceeding with an application savours of unfairness or undue pressure.

[62]      Similar views were expressed by this Court in Link Electrosystems Ltd v GPC Electronics (NZ) Ltd. We endorse the principles summarised in the South Waikato Precision Engineering Ltd case.

(citations omitted)

[40]   The defendant maintains that there is a genuine and substantial dispute about the existence of the debt. As noted, Mr Putt denies that the advances were loans. He has filed an affidavit in which he deposes that it was never agreed that the advances were loans and would be repaid. He deposes that it was his understanding that AQE was providing “seed capital” to the LP.

14     Yan v Mainzeal Property and Construction Ltd (in rec & liq) [2014] NZCA 190 at [61].

[41]   Mr McCarthy on the other hand has filed an affidavit deposing that the money AQE advanced,  and  its  payment  of  invoices  for  the  partnership,  was  a  loan. Mr McCarthy deposes that when he discussed forming the partnership with Mr Putt, they agreed that AQE would provide seed funding to assist with the set-up of the business by way of loans and those loans would be repaid to AQE when required. He says that Mr Putt also agreed that invoices paid for the partnership by AQE would be treated as loans. He says:

The whole discussion with Jeff was that we would take the same approach as we had taken in our similar Australian business partnerships. We would provide loans to the Limited Partnership as seed funding and would continue to support it financially as the business grew.

[42]   While there is no written document recording the purported loan arrangement, AQE relies on a series of emails from Mr Harwood to the partnership’s bookkeeper and accountant, Lisa Seto. Mr Putt was copied into these emails.

[43]   The first email is dated 30 October 2020. The subject is “Loan Register AQE to ASJ”. In the email, Mr Harwood sets out “the current loan register from AQE to ASJ” which he says he will update as time goes on. The following table then appears:

Date	Amount (AUD)	Transfer type	Entity	Type
21 September 2020	$37,325.97	BT	ASJ Commodities LP	Seed funding
23 October 2020	$22,136.76	BT	ASJ Commodities LP (SCIO56837 - Kilcoy)	INV PMT
30 October 2020	$30,474.43	BT	ASJ Commodities LP (SCIO57352 - Kilcoy)	INV PMT
30 October 2020	$134,903.67	ASJ Commodities LP (282185 - AMG)	INV PMT

[44]   In an email dated 6 November 2020 with the subject “Invoice and Loan Register”, Mr Harwood asks Ms Seto to add the attached invoice to Xero. It is an invoice dated 20 October 2020 on AQE letterhead to ASJ Commodities LP in respect of Kilcoy stock to the value of $22,136,76. This corresponds with the second entry in the table sent on 30 October 2020.

[45]   In a follow-on email the same day, Mr Harwood sets out what he refers to as an “updated loan register”. He states that he assumes that even though AQE has paid the attached invoices for the partnership on its behalf in the form of a loan, the partnership will still need to enter the invoices as expenses. In this “register”, the second entry on the table has been removed and there is a further entry:

(a)6 November 2020, $29,370.28, BT, ASJ Commodities LP (SCIO57544

- Kilcoy), INV PMT.

[46]   Three invoices for the 30 October and 6 November entries are attached to the email.

[47]   On 9 November 2020, Ms Seto responds “yes” and that she would reflect payment against AQE on the balance sheet. Mr Putt is copied into this email.

[48]   On 13 November 2020, Mr Harwood sent Ms Seto a further “updated loan register” and attached an invoice. The new entries are:

(a)9 November 2020, $46,969.97, BT, ASJ Commodities LP, “Seed Funding”.

(b)13    November    2020,    $21,463.79,    BT,    ASJ    Commodities    LP (SCIO57866 - Kilcoy), INV PMT.

(c)13 November 2020, $142,766.04, BT, ASJ Commodities LP, “Seed funding”.

[49]   On 3 December 2020, Mr McCarthy sent an email attaching an invoice from Dunleavy Meats for EUR35,096.07 with a corresponding new entry in the updated “loan register”:

(a)3 December 2020, $57,801.76, BT, ASJ Commodities LP (85427 Dunleavy Meats Ltd) INV PMT.

[50]   The final email is dated 12 January 2021. It attaches an invoice from Australian Meat Group for $84,253.83 and sets out an “updated loan register” with the corresponding entry:

(a)23 December 2020, $84,253.83, BT, ASJ Commodities LP (283820 – AMG) INV PMT.

[51]   Subsequently, Mr Harwood emailed Ms Seto and asked her to “update Xero to reflect the below update in the loan transactions line”.

[52]   AQE relies on the fact that the advances made were described as loans in these emails, and Mr Putt never questioned the recording of the advances as loans in this “loan register”.

[53]   Further, AQE relies on the fact that the advances were recorded as liabilities in the partnership’s management accounts. The balance sheet dated 30 June 2021 records a loan from AQE of $598,253. The balance sheet to 30 September 2021 in the management accounts records a loan of $448,253 – the difference is the payment of

$150,000 made to AQE by the partnership in August 2021.   AQE points out that   Mr Putt did not object to or raise any issue with the recording of the advances as loans in the management accounts, which he sent to the SPMAAH directors.

[54]   In reply, Mr Putt acknowledges that he was copied into the emails to Ms Seto described above but says that neither he nor the LP agreed to a loan arrangement. However, he says that if there was any loan advance, that was “capped at the sum of NZD $150,000, being the sum that has already been repaid to AQE”.

[55]   Before discussing these submissions, I note that the task of the Court is not to resolve the dispute but to determine whether there is a substantial dispute as to whether the debt is due. The mere assertion of a dispute is insufficient; material short of proof is required.15 What the applicant must show is that the dispute it raises has substance; the applicant must explain to the court what the dispute is; and the dispute so shown

15     See for example Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].

must be a real and not a fanciful or insubstantial dispute.16 These are principles in relation to applications to set aside statutory demands under s 290(4) of the Companies Act, but they apply equally to the present situation.

[56]   In my assessment, the LP has demonstrated that there is a genuine dispute about the existence of the debt. For the debt to exist, the advances must have been loans and the loans must have been repayable on demand. I consider that there is doubt about whether the advances, or all the advances, were intended by both AQE and ASJ LP to be loans; and that the loans would be repayable when AQE demanded.

[57]   In view of the conflicting evidence between Mr McCarthy and Mr Putt as to the nature of AQE’s advances, AQE relies on the emails from Mr Harwood described above setting out a “loan register” and the fact that Mr Putt never objected to or questioned this description. It also relies on the recording of a loan to AQE in the partnership’s management accounts. However, there are issues with relying on these documents to determine the nature of the advances.

[58]   First, some of the advances are described as “seed funding” in the “loan register”. The partnership submits that the term “seed money” is synonymous with “seed capital”17, and typically refers to an investment of capital in a start-up company, generally in exchange for an equity stake or convertible note. I accept that the term “seed funding” often, but not always, refers to an advance to a start-up in exchange for equity. At best, the term is ambiguous. On Mr Putt’s evidence, there would be no reason for him to object to the description of certain advances as “seed funding” by Mr Harworth if he understood the term to refer to capital advances rather than loans.

[59]    Second, it is unclear whether the partnership’s accountant recorded a loan from AQE in the management accounts relying on Mr Harworth’s emails to her in which he described the advances as loans, or some further instruction or endorsement by Mr Putt. AQE argues that in preparing the management accounts, the accountant

16     Re A Company [1991] BCLC 737 (Ch) at 740 per Harman J.

17     See Oxford English Dictionary (online ed, Oxford University Press), definition of “seed capital” (under “seed”).

worked under the instructions of Mr Putt. However, it is clear from the emails that Mr Harworth was also instructing Ms Seto.

[60]   AQE argues that the partnership’s case that the advances, or at least some of the advances, were capital contributions is not credible because AQE, not being a partner, could not provide a capital contribution to the partnership. Additionally, any contribution of capital by a party to the LP must be approved by special resolution and recorded in an appropriate Deed of Accession according to cl 4.2 of the Partnership Deed.

[61]   Yet it is evident that the distinction between SPMAAH and AQE was not strictly observed by their directors. For example, it is unusual for a creditor to be instructing a debtor’s accountant on how they should record transactions between them. However, this is explainable by the fact that AQE is wholly owned by the limited partner, SPMAAH, and Mr Harworth is a director of both companies. I also note that the email address recorded in the ASJ LP Register for the LP is

[email protected]. This intermingling of the two companies when dealing with the partnership raises the possibility that it may not have been clear who was advancing the money (as between SPMAAH and AQE) and on what the basis.

[62]   AQE relies on Wiig v Daken18 for the submission that where there is no written record of the basis on which the funds were advanced, the law treats it as a debt repayable on demand. The issue in that case was whether funds the plaintiff advanced to a company he had recently sold to the defendant were, as the plaintiff contended, a loan to assist with cashflow difficulties which the company was liable to repay on demand or, as alleged by the defendant, payment of invoices from two of the company’s suppliers which should have been paid before settlement of the sale of the business. There was no written record of the basis on which the funds were advanced. Cunningham J found that “in the absence of any circumstances to suggest that the payment was made in acknowledgement of an obligation to pay it, it is prima facie a debt repayable on demand.”19

18     Wiig v Daken [2016] NZHC 645.

19 At [125].

[63]   I have reservations about applying that statement to this case, because of the additional complexity here that the company which advanced the money is wholly owned by one of the partners in the partnership. This gives rise to another possibility, that the funds, or some of the funds, were advanced effectively by that partner, by way of capital contribution.

[64]   Additionally, I note that the general partner is the sole manager of the partnership according to the Partnership Deed.20 Only the general partner has the authority to borrow for the partnership.21 Further, no limited partner is to be involved in the management of the partnership business and nor does any limited partner have the authority to bind the partnership or incur any obligation of the partnership.22 Thus, the Partnership Deed required Mr Putt, for the general partner, to agree to the partnership taking on loans on the basis that the loans would be repayable on demand. SPMAAH and its directors were not permitted to commit the partnership in this way. It is unclear whether Mr Putt agreed in advance to AQE paying the invoices in question as a loan to the partnership on these terms. It is also unclear whether Mr Putt agreed to the partnership receiving “seed funding” as a loan repayable on demand. As noted, there is a fundamental conflict in the evidence between Mr McCarthy and Mr Putt on this issue.

[65]   For all the above reasons, I find that there is a genuine and substantial dispute about the existence of the debt that should be resolved through ordinary proceedings rather than an application for liquidation of the alleged debtor.

[66]   That disposes of the application, and it is unnecessary for me to consider the remaining objections raised by the LP.

Result

[67]The application by AQE for an order that ASJ LP be put into liquidation is

dismissed.

20     Clause 7.1.

21     Clause 8.1(d).

22     Clause 7.2.

[68]   My preliminary view is that as the successful party, ASJ LP should be paid its costs on a 2B basis, and reasonable disbursements. I expect that the parties will be able to agree the terms of a costs order. If they cannot, ASJ LP may file a memorandum of not more than three pages within 20 working days and AQE may file a memorandum in reply of not more than three pages within a further 10 working days.

Associate Judge Gardiner