Beer Spot Limited v Payn - [2022] NZHC 1941

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2022-404-000363

[2022] NZHC 1941

UNDER The Companies Act 1993

AND

IN THE MATTER OF

an application to set aside a statutory demand

BETWEEN

THE BEER SPOT LIMITED

First Applicant

TBS HUAPAI LIMITED
Second Applicant

TBS MORNINGSIDE LIMITED
Third Applicant

AND

JASON PHILLIP LESTER PAYN

Respondent

Hearing: 1 August 2022

Appearances:

B J Upton for the Applicants S J Tee for the Respondent

Judgment:

8 August 2022

JUDGMENT OF VAN BOHEMEN J

This judgment was delivered by me on 8 August 2022 at 4.00pm Pursuant to Rule 11.5 of the High Court Rules

…………………………
Registrar/Deputy Registrar

Solicitors/Counsel:
Simpson Grierson, Auckland Morton Tee, Auckland

THE BEER SPOT LIMITED v PAYN [2022] NZHC 1941 [8 August 2022]

Introduction

[1] The applicants, The Beer Spot Ltd (The Beer Spot), TBS Huapai Ltd (Huapai) and TBS Morningside Ltd (Morningside), apply pursuant to s 290 of the Companies Act 1993 to set aside three statutory demands made by the respondent, Jason Payn, who is a director and shareholder of the three companies and was formerly an employee of The Beer Spot.

[2] The applicants say there is a substantial dispute as to whether the amounts in the statutory demands are debts owing to and payable on demand by Mr Payn. They say that the amounts claimed by Mr Payn are really capital rather than loans by Mr Payn to the companies. They also say that it was understood between Mr Payne and Mr Van Dam, the other principal shareholder in the companies, that the shareholders would not seek payment of funds held in their respective shareholders’ current accounts unless the companies had sufficient cash flow to cover the payments.

[3] The applicants also say the statutory demands have been made for tactical reasons in the context of discussions among shareholders to buy out Mr Payn, who has been dismissed as an employee of The Beer Spot. They also say Mr Payn’s demands for payment, which were made without notice, are inconsistent with Mr Payn’s duties as a director of the three companies and with the partnership nature of the enterprise as reflected in the constitution of The Beer Spot. For these reasons, the applicants say that, even if amounts claimed are debts owing to Mr Payn, the Court should set the statutory demands aside on “other grounds” as envisaged in s 290(4)(c) of the Companies Act.

[4] Lastly, the applicants say that, even if the amounts claimed are debts owing to Mr Payn and the statutory demands are not set aside on other grounds, the Court should extend the time for compliance with the statutory demands by six months.

[5] Mr Payn says it is plain from the companies’ financial statements, which have been approved by the companies’ directors and shareholders, that the amounts claimed are debts owing to him. The amounts are the balances of Mr Payn’s shareholders current accounts which are recorded as liabilities in…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2022] NZHC 1941
Decision Date: 8 August 2022

CaseChat Overview and Summary

The Beer Spot Limited, TBS Huapai Limited, and TBS Morningside Limited sought to set aside statutory demands made by Jason Phillip Lester Payn, a director and shareholder of the three companies, under s 290 of the Companies Act 1993. The applicants argued there was a substantial dispute as to whether the amounts claimed in the statutory demands were debts owing to and payable on demand by Mr Payn. They also argued that the statutory demands had been made for tactical reasons in the context of discussions among shareholders to buy out Mr Payn, who had been dismissed as an employee of The Beer Spot. The applicants also argued that the statutory demands were inconsistent with Mr Payn's duties as a director of the three companies and with the partnership nature of the enterprise as reflected in the constitution of The Beer Spot. Mr Payn opposed the application and argued that the applicants had failed to discharge the presumption that the amounts were debts owing and payable to him.

The Court concluded that the funds in Mr Payn's shareholder current accounts were loans and not capital, and that it was not genuinely arguable that the advances were capital and not loans. The Court also concluded that it was not genuinely arguable that there was an agreement or understanding that the funds in the shareholder current accounts would be withdrawn only when the cash flow of the companies permitted such withdrawal. The Court further concluded that there were no compelling reasons to exercise its discretion under s 290(4)(c) of the Companies Act to set aside the statutory demands. The Court dismissed the application to set aside the statutory demands and extended the time for compliance with the statutory demands to 16 September 2022. The Court also ordered that Mr Payn was entitled to costs on a 2B basis.

Orders