Body Corporate 372942 v The the King
[2022] NZHC 2854
•2 November 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-597
[2022] NZHC 2854
BETWEEN BODY CORPORATE 372942
Applicant
AND
THE CROWN
(acting through the Secretary to the Treasury)
Respondent
Hearing: 2 November 2022 Appearances:
J R Duckworth for Applicant
No appearance for Respondent (abides the decision of the Court)
Judgment:
2 November 2022
JUDGMENT OF LANG J
[on application for orders under s 269(5) of the Companies Act 1993]
This judgment was delivered by me on 2 November 2022 at 3 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
Solicitors:
Jennifer G Connell, Auckland
BODY CORPORATE 372942 v THE CROWN [2022] NZHC 2854 [2 November 2022]
[1] Body Corporate 392472 (the Body Corporate) seeks an order under s 269(5) of the Companies Act 1993 (the Act) vesting in it Unit G3, an apartment that forms part of a complex situated on the Whitianga Esplanade. Ownership of units within the complex is by way of stratum estate in freehold under the Unit Titles Act 2010. The Body Corporate is responsible for managing the affairs of the complex.
[2] The current owner of Unit G3 is a company called First Light Holdings Ltd (First Light). First Light was placed in receivership and then in liquidation. It has now been struck off the Companies Register. This has resulted in the unit vesting in the Crown under s 324(1) of the Companies Act 1993 (the Act).
[3] Dominion Finance Ltd (Dominion) and Bridgecorp Finance Ltd (Bridgecorp) hold registered mortgages over the title to the unit. Dominion also held a general security over First Light’s assets. Bridgecorp and Dominion were subsequently placed in receivership and liquidation and have now been removed from the Companies Register. The liquidators of both companies have disclaimed the mortgages on the basis that they are onerous property.1
[4] Unit G3 is currently vacant and is continuing to accrue indebtedness in the form of levies payable to the Body Corporate. These currently amount to approximately $100,000. In addition, rates in excess of $100,000 are currently owed to the Thames-Coromandel District Council and the Waikato Regional Council (the Councils).
[5] The Body Corporate considers the only way in which the present impasse can be resolved is for Unit G3 to be vested in it, so the unit can be sold to pay these debts. The Body Corporate therefore seeks a vesting order in its name under s 269(5)(b) of the Companies Act 1993 (the Act).
[6] The Treasury has confirmed on behalf of the Crown that it abides the Court’s decision and does not wish to be heard on the application. The proceeding has also been served on the liquidators of the two mortgagees and they both abide the Court’s decision. Not surprisingly, the Councils support the Body Corporate’s application.
1 Under s 269(1) of the Act.
The law
[7]Sections 269(5) and (6) of the Companies Act 1993 provide as follows:
269 Power to disclaim onerous property
…
(5)A person suffering loss or damage as a result of a disclaimer under this section may—
(a)claim as a creditor of the company for the amount of the loss or damage, taking account of the effect of an order made by the court under paragraph (b):
(b)apply to the court for an order that the disclaimed property be delivered to or vested in that person.
(6)The court may make an order under subsection (5)(b) if it is satisfied that it is just that the property should be vested in the applicant.
[8] The Body Corporate submits that the present application raises questions that do not appear to have been considered thus far in the context of s 269(5) of the Act. However, it says the Court should be guided by the approach taken in cases decided under s 119(3) of the Insolvency Act 2006. This is the equivalent provision to s 269(5) in circumstances where a person has been declared bankrupt.
[9]Section 119 provides:
119 Position of person who suffers loss as result of disclaimer
(1)A person suffering loss or damage as a result of disclaimer by the Assignee may—
(a)claim as a creditor in the bankruptcy for the amount of the loss or damage, taking account of the effect of an order made by the court under paragraph (b):
(b)apply to the court for an order that the disclaimed property be delivered to, or vested in, that person.
(2)The bankrupt may also apply for an order that the disclaimed property be delivered to, or vested in, the bankrupt.
(3)The court may make an order under subsection (1)(b) or (2) if it is satisfied that it is fair that the property should be delivered to, or vested in, the applicant.
[10] Although the Insolvency Act provides no guidance as to when it will be ‘fair’ to make a vesting order under s 119(3), Toogood J in Goldstone v Goldstone identified the following circumstances as being relevant to the Court’s determination:2
(a)the applicant's former interest in it, if any;
(b)how and when such interest was acquired;
(c)if the applicant had no interest in the disclaimed property, what other relationship formerly existed between the applicant and the property;
(d)whether the applicant has maintained or increased the value of the property to be vested or prevented its transfer to a third party;
(e)the circumstances in which the disclaimed property became vested in the Assignee through bankruptcy;
(f)the rights and interests of third parties, if any, and, in particular, whether they consent to the vesting; and
(g)the consequences of any vesting for the applicant and any other persons.
[11] On appeal, the Court of Appeal observed that the assessment of fairness “must take in all the circumstances of both the applicant(s) and the property”.3
[12] The Body Corporate contends the same approach should be taken when the Court is assessing whether it is ‘just’ to make a vesting order under s 269(5) of the Act. I accept this submission because I do not see any material distinction between the words ‘just’ and ‘fair’ given the similar context in which they are used.
[13] I therefore accept it is appropriate to follow the approach taken in cases decided under s 119. The first of these, Re Body Corporate 201036, concerned a unit within a building complex that was abandoned by its bankrupt owner and subsequently disclaimed by the Official Assignee.4 A registered mortgage held over the unit had also been discharged. The body corporate responsible for managing the affairs of the complex was therefore unable to levy the owner of the unit for the unit’s share of the cost of remediation works carried out on the complex. This amounted to approximately $170,00. In those circumstances Thomas J was satisfied it was appropriate to vest the unit in the body corporate.5
2 Goldstone v Goldstone [2019] NZHC 1649 at [41].
3 Goldstone v Goldstone [2021] NZCA 664 at [26].
4 Re Body Corporate 201036 [2016] NZHC 2035, (2016) 17 NZCPR 659.
5 Above n 4, at [42].
[14] A similar situation arose in Re Body Corporate 447594.6 In that case, the registered proprietors of a unit in a complex managed by a body corporate had been adjudicated bankrupt. The Official Assignee disclaimed the unit as onerous property. This left the body corporate unable to recover outstanding levies of approximately
$104,000. I made orders vesting the unit in the body corporate, noting:
[11] … There is no point in the Crown continuing to remain the beneficial owner of the unit in circumstances where levies will continue to increase and remain unpaid.
[15] In each of these cases, as in the present, the Crown did not oppose the order sought by the applicant.
[16] In the ordinary course the Body Corporate could have relied on the two mortgagees to sell Unit G3 once payments under the mortgages fell into arrears. This would have resulted in another person acquiring Unit G3 and assuming responsibility for future rates and levies payable in relation to the unit. That is no longer the case, given the fact that the two mortgagees disclaimed their interests under the mortgages. To that extent the Body Corporate has suffered loss or damage as a result of the disclaimer. I therefore consider jurisdiction exists to make an order under s 269(5)(b) of the Act.
[17] I am also satisfied it is just to make the order the Body Corporate seeks. If this is not done the unit will continue to accrue indebtedness and this will be to the detriment of the remaining unit owners in the complex. The order will allow the Body Corporate to sell the unit to a solvent purchaser who will be able to satisfy the levies and rates payable in respect of the unit in the future.
[18] However, the unit will still be subject to the mortgages registered in favour of Dominion and Bridgecorp. The effect of a disclaimer of land subject to a mortgage was considered in Smith v Southern Builders Ltd (in liq):7
6 Re Body Corporate 44759 [2018] NZHC 3078.
7 Smith v Southern Builders Ltd (in liq) [2015] NZHC 160 at [12], citing Re David James & Co Ltd [1991] 1 NZLR 219 (HC) at 225.
(a) although disclaimer determined the liability of the company, for the future, under a mortgage, it did not discharge the debt or the security interest existing at the time of the disclaimer nor render the mortgage a mere “shell”;
(b) even though there may be difficulty about enforcing the security provisions of the mortgage, it remained a security over the land in respect of the amount secured by the mortgage at the time;
(c) although there may well be no personal liability on the Crown to make payments due under the mortgage, the disclaimer did not “eliminate the liability of the land under the mortgage”; and
(d) to the extent the realisation of the land could satisfy the amount owing at the date of the disclaimer, it should be applied in reduction or payment in full of the secured debt at the time of the disclaimer.
[19] In the present case it will obviously be necessary for the Body Corporate to deal with this issue when it sells the unit.
Orders
[20]I grant leave to bring the present proceeding by way of originating application.
[21] I make an order under s 269(5) of the Companies Act 1993 vesting in the applicant the stratum estate in freehold in Unit G3 and Accessory Unit 36, 40-41, 43 and 63 on Deposited Plan 372942 contained in Identifier 320081.
Lang J
0
5
1