Body Corporate 172108 v Manchester Securities Limited (in liquidation)

[2021] NZHC 2580

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-1066

[2021] NZHC 2580

BETWEEN

BODY CORPORATE 172108

Plaintiff

AND

MANCHESTER SECURITIES LIMITED (IN LIQUIDATION)

First Defendant

FLAT BUSH FINANCE LIMITED
Second Defendant

ROBERT JAMES CUMMINS

Third Defendant

Hearing:

24 September 2021

Appearances:

Tim Allan for the Plaintiff

Kim C Francis for the First Defendant
Kevin P Sullivan for the Second and Third Defendants

Judgment:

29 September 2021

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on 29 September 2021 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:

Grove Darlow (Tim Allan/Kirstin Wakelin), Auckland, for the Plaintiff Lindsay & Francis (Kim Francis), Auckland, for the First Defendant

Reeves Lawyers (Graeme Reeves), Wellington, for the Second and Third Defendants

Copy for:
Jonathan Orpin-Dowell, Stout Street Chambers, Wellington, for the Plaintiff

Ryan Eathorne, Wellington, Liquidator of Manchester Securities Limited as First Defendant Kevin P Sullivan, Port Nicholson Chambers, Wellington for the Second and Third Defendants

BODY CORPORATE 172108 v MANCHESTER SECURITIES LIMITED (IN LIQUIDATION) [2021] NZHC

2580 [29 September 2021]

[1]                  This is a decision under s 248(1)(c) of the Companies Act 1993 on whether Manchester Securities Ltd can be sued while it is in liquidation. The company was ordered into liquidation on 11 March 2020.1 The liquidator is Mr Ryan Eathorne of Wellington. Body Corporate 172108 is a creditor of the company for $1,318,674.28. Flat Bush Finance Ltd says that it is also a creditor of the company for about

$2,000,000. Both say they are more than unsecured creditors. The body corporate says that Manchester incurred its liabilities to it when it was the corporate trustee of the Manchester Securities Trading Trust. Under its creditor’s right of subrogation, it has an equitable lien over the trust assets which include the top floor of the body corporate premises at 196 Hobson Street, Auckland. Flat Bush Finance Ltd says that it is a secured creditor under an unregistered mortgage. There is a contest between the body corporate and Flat Bush Finance Ltd as to priority. Mr Cummins, the third defendant, is the sole director and shareholder of Manchester Securities Ltd and Flat Bush Finance Ltd and the current trustee of the Manchester Securities Trading Trust.

[2]                  The body corporate lodged a caveat to protect its interest in Manchester Securities Ltd’s penthouse apartment. In Body Corporate 172108 v Flat Bush Finance Ltd,2 Gwyn J upheld the caveat. Following that decision, the body corporate began this proceeding to obtain a substantive decision upholding the interest claimed in its caveat. It seeks two declarations:

(a)A declaration that the assets of the Manchester Securities Trading Trust, including but not limited to unit 12A/196 Hobson Street, Auckland, more particularly described in record of title NA105A/850, stand charged in favour of the plaintiff to the extent of the debts, together with such further debts as may continue to accrue (and such further interest and costs as may accrue) and the plaintiff is entitled to discharge the indebtedness out of the property of the Manchester Securities Trading Trust.

(b)A declaration that the plaintiff’s equitable proprietary interest ranks ahead of the equitable proprietary interest of Flat Bush Finance Ltd.

It also seeks a final order that its caveat not lapse.

1      Body Corporate 172108 v Manchester Securities Ltd [2020] NZHC 198.

2      Body Corporate 172108 v Flat Bush Finance Ltd [2020] NZHC 3135, (2020) 21 NZCPR 622.

[3]                  For Flat Bush Finance Ltd and Mr Cummins, Mr Sullivan indicated that the equitable lien claimed by the body corporate is not in issue, subject to two matters. One is that Flat Bush Finance Ltd says that its interest comes first. Second, the defendants say that the amount claimed by the body corporate should be reduced on account of a set-off under s 310 of the Companies Act 1993. If Flat Bush Finance Ltd is found to take priority over the body corporate, it will seek removal of the caveat so that it can register its security. Flat Bush Finance Ltd’s pleading does not yet, however, seek removal of the caveat.

[4]                  Manchester Securities Ltd is a necessary party to the proceeding as both the body corporate and Flat Bush Finance Ltd are claiming interests in its assets. It needs to be a party to a proceeding in which the court determines the other parties’ proprietary claims. While the company is a party, there is little that the liquidator needs to do. Moreover, it would not be desirable to compel him to take active steps in this proceeding. There are unlikely to be funds available to meet his expenses. Once the claims of the body corporate and Flat Bush Finance Ltd are met, a surplus for unsecured creditors is unlikely.

[5]                  The usual way to deal with creditors’ claims in a liquidation is under Part 16 of the Companies Act. Secured creditors may choose their options under s 305. Unsecured creditors lodge claims which the liquidator accepts or rejects under s 304. Any disputes may be resolved by applications for directions under s 284. Here the protagonists, the body corporate and Flat Bush Finance Ltd, are not ordinary unsecured creditors. The body corporate is claiming a lien over the company assets and Flat Bush Finance Ltd says it has security. The contest between them is better resolved by this proceeding than by requiring the parties to try to fit the dispute into the procedures under Part 16 of the Companies Act.   Accordingly, I consent under   s 248(1)(c) to the body corporate bringing this proceeding against Manchester while it is in liquidation.

[6]There was discussion of case management matters.

[7]                  Flat Bush Finance Ltd should amend its pleadings to include a claim for removal of the body corporate’s caveat if it establishes its priority over the body corporate.

[8]                  For the body corporate, Mr Allan sought discovery. At this stage I direct standard discovery, which  the  second  and  third  defendants  are  to  complete  by  5 November 2021. Mr Allan is to write to counsel for the second and third defendants setting out the scope of discovery and the categories of documents he expects the defendants to disclose.

[9]                  The second and third defendants did not seek discovery from the body corporate. Mr Sullivan doubted that discovery was required because of the extensive disclosure of documents to date in the proceedings between the parties.

[10]              The Registrar is to allocate a case management conference after 26 November 2021 for further directions. If discovery has been completed, it may be possible to fix a hearing date. Counsel should advise of the hearing time required and the likely number of witnesses.

[11]              Pending further order, the liquidator is not required to take any further steps in the proceeding.

[12]              As mentioned above, the second and third defendants say that the body corporate’s claim should be reduced under s 310 of the Companies Act because of an alleged set-off. That is not to be determined in this proceeding. Counsel gave a background to other proceedings between the body corporate and Manchester and other interests associated with Mr Cummins. Deciding any set-off claim is still some way off.

[13]              It would be helpful if this proceeding were case-managed in conjunction with the other proceedings. Counsel advised me that in earlier proceedings a request had been made to have one Judge assigned to manage all the proceedings. They also advised that Powell J had heard some matters recently, but they were not sure whether he was an assigned Judge. There are several ongoing proceedings between the body

corporate and Mr Cummins. The issues are relatively complex and continue to evolve. It would make for smoother management of their disputes if one judge ran all the proceedings.

[14]              I direct the Registrar to refer this decision to the Civil List Judge to consider whether this proceeding and other Body Corporate 172108 v Manchester Securities Ltd proceedings should be assigned to a judge for case-management and final decision.

…………………………………….

Associate Judge R M Bell