Body Corporate 81012 v Memelink
[2022] NZHC 3307
•8 December 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-419
[2022] NZHC 3307
BETWEEN BODY CORPORATE 81012, BODY CORPORATE 68792 AND BODY CORPORATE 378945
Plaintiffs
AND
HARRY MEMELINK AND
CISCA JOHNETTE FORSTER as trustees of THE LINK TRUST (NO 1)
Defendant
CIV-2020-485-462 BETWEEN
THE OFFICIAL ASSIGNEE IN THE BANKRUPTCY OF HARRY MEMELINK ESTATE 889243
First PlaintiffTHE OFFICIAL ASSIGNEE IN THE BANKRUPTCY OF HARRY MEMELINK ESTASTE 895147
Second Plaintiff
AND
HARRY MEMELINK, CISCA JOHNETTE FORSTER and ROY WILLIAM
BASSETT-BURR as trustees of THE LINK TRUST (NO 1)
Defendant
CIV-2020-485-374 BETWEEN
LYNX TRUSTEES LIMITED (IN LIQUIDATION)
Plaintiff
AND
HARRY MEMELINK
First Defendant
Hearing: 6 December 2022
BODY CORPORATE 81012 & ORS v MEMELINK & ANOR [2022] NZHC 3307 [8 December 2022]
Counsel: A S Olney for Body Corporates 81012, 68792, and 378945 P R W Chisnall for Official Assignee
J D Haig for Receivers
S J Fraser for H Memelink and Lynx Trustees LtdJudgment:
8 December 2022
JUDGMENT OF CHURCHMAN J
[1] On 31 May 2022, I delivered a judgment appointing receivers over the Link Trust (No 1) (the Trust).1 That judgment concerned three proceedings, which I described as:2
(a)CIV-2021-485-419 Body Corporate 81012 & Ors v Memelink & Anor
(the receivership proceeding);
(b)CIV-2020-485-374 Lynx Trustees Limited (in liq) v Memelink & Ors
(the liquidation proceeding); and
(c)CIV-2020-485-462 Official Assignee & Anor v Memelink & Ors
(the bankruptcy proceeding).
[2] These proceedings have recently and helpfully been described by the Court of Appeal in the following manner:3
(a)The receivership proceeding: Three bodies corporate sought appointment of receivers over the Trust’s assets in order to recover unpaid levies on Trust properties and related debts.
(b)The liquidation proceeding: The liquidators of [Lynx Trustees Limited] brought a claim against the current trustees to be indemnified out of Trust property for debts arising in respect of certain claims against Lynx as a trustee of the Trust, and their reasonable remuneration. The liquidators sought, among other things, orders for sale of Trust properties to satisfy those debts.
(c)The bankruptcy proceeding: The Official Assignee sought to be indemnified out of Trust property for debts incurred by Mr Memelink in his capacity as trustee. The Official Assignee sought orders for sale of Trust properties to satisfy those debts.
1 Body Corporate 81012 & Ors v Memelink & Anor [2022] NZHC 1244.
2 At [2].
3 Memelink & Anor v Body Corporate 81012 & Ors [2022] NZCA 581.
[3] I appointed Mr Shephard and Mrs Kellow (the receivers) as receivers of the Trust on the terms of an order dated 31 May 2022. The receivers have now applied to the Court for orders varying the terms of their appointment. The variation sought is not opposed either by the bodies corporate, the liquidators, or the Official Assignee, being the plaintiffs in each set of proceedings.
[4] Mr Memelink opposes the orders sought by the receivers. I note also for completeness that on 1 December 2022 he filed an application for leave to apply to replace the receivers. That is a separate matter and is not addressed in this judgment.
Background
[5] The background to these proceedings is long and convoluted. No purpose would be served by recounting it here. I note that I set out that background at [3]–[16] of my judgment of 31 May 2022.4 In short, this is but another chapter in the saga involving Mr Memelink’s attempts to avoid paying what he owes to his creditors. However, it is necessary to briefly touch on events following the appointment of the receivers.
[6] The terms of the receivers’ appointment allowed for them to sell Trust assets to pay the Trust’s creditors (including the bodies corporate) and also to provide for indemnities awarded to the liquidators and the Official Assignee. The Trust’s creditors were to be treated equally.5 I considered that were no other appropriate means to achieve payment of the debts owed.6
[7] Since their appointment, the receivers have been engaged in discovering the reality of the Trust’s financial position. As provided for in their submissions, and Mr Shephard’s affidavit:
(a)the Trust’s monthly expenses outweigh its income by $20,918.00 per month, meaning that it is unable to pay its debts as they fall due;
4 Above n 1.
5 At [124].
6 At [79].
(b)the Trust’s known liabilities amount to $6,692,526.00;7
(c)the Trust borrowed a sum of approximately $675,000 immediately prior to the order for the appointment of receivers being made, seemingly in an attempt to pay debts owed to the body corporates, so as to avoid the receivership order;
(d)the Trust’s properties all appear to be impaired “to a greater or lesser extent”;
(e)the Official Assignee’s costs in Mr Memelink’s liquidation as at 27 October 2022, were $802,501.27;
(f)in addition to the liquidator’s fixed costs of $449,505.66 (plus GST), they have accumulated further costs of $346,165.08;
(g)Mr Memelink has failed to comply with requests for information by the receivers pursuant to s 261 of the Companies Act 1993, thereby complicating their task and adding costs;
(h)the receivers have commenced sale processes for six of the Trust’s 14 properties; and
(i)in the circumstances, there is real doubt as to the overall solvency of the Trust.
[8] On 28 November 2022, the Court of Appeal issued a judgment declining an application by Mr Memelink for an extension of time to file a case on appeal and a stay of the appointment of receivers.8
7 This does not include a further sum of $4,064,848 that Mr Memelink alleges is owed to him by the Trust.
8 Above n 3.
Orders sought by the receivers
[9] In their application for variation of the terms of their appointment, the receivers seek orders that:
(a)they be released from personal liability for contracts for sale and lease entered into for the disposition of property of the Trust;
(b)they may seek regular interim approval of their renumeration on a monthly or bi-monthly basis, rather than at the conclusion of the receivership;
(c)they be able to ring-fence the debt claimed against the Trust by Body Corporate 68792, while the payments of levies and costs owed to the other body corporates is made in the usual fashion, upon settlement of sales of Trust properties;
(d)all of the body corporates must provide the receivers with a pre- settlement disclosure statement, and a certificate to any purchasers pursuant to s 147 of the Unit Titles Act 2010;
(e)s 124(2) of the Unit Titles Act 2010 does not apply to units to be sold in Body Corporate 68792, so that those units may be passed to purchasers free from any outstanding debt;
(f)s 248(1)(c) of the Companies Act 1993 applies to the receivership of the Trust, so that all proceedings by and against the Trust are stayed unless the receivers agree or otherwise ordered by the Court, with:
(i)claimants in existing proceedings being able to submit a creditor claim in the receivership normally; but without
(ii)limiting the ability of the liquidators or the Official Assignee from making applications to the High Court for the approval of their respective renumeration;
(g)their decision to advertise for creditor claims in the New Zealand Gazette to be filed by 28 October 2022, is approved by the Court, pursuant to s 34 of the Receiverships Act 1993;9
(h)they are not acting as trustees of the Trust;
(i)their renumeration, costs and disbursements from 31 May 2022 to 30 September 2022 be approved on an interim basis, in the sum of
$330,758.52 (including GST); and
(j)their renumeration, costs and disbursements for October 2022 be approved on an interim basis, in the sum of $137,218.02 (including GST).
[10] In a memorandum filed on 5 December 2022, the receivers sought two further amendments to cl 1(h) of the original sealed order, namely that, if the Court granted the receivers’ application to import s 248(1)(c) into the receivership (to stay current proceedings by and against the Trust), ss 307 and 310 should be added to cl 1(h) of the order to expressly allow the receivers:
(a)to make an estimate of the amount of the unascertained creditor claims and for claimants aggrieved by the estimate, to apply to the Court (s 307); and
(b)to set-off sums owing to the Trust against creditor claims (s 310).
[11]The wording that they proposed for the first few lines of cl 1(h) was:
In relation to any creditor claim that has not been proven in a Court or a Tribunal or admitted by the assignee in the bankruptcy of Harry Memelink, ss 304, 305, 307 and 310 of the Companies Act 1993 shall apply…
9 As discussed at [33] below, during the course of the hearing, this date was amended to 19 December 2022.
Positions of the parties
The receivers
[12] Counsel for the receivers, Mr Haig, submits that the receivers’ application is made pursuant to the leave granted by the Court to apply for further directions required to implement the receivership decision. 10 He says also the application is made pursuant to s 34 of the Receiverships Act 1993, which provides that the Court may upon application give, revoke, or vary directions in relation to any matters relating to the performance of a receiver’s functions.11
[13] Mr Haig submits that it is necessary to return to the Court for further direction as a result of issues encountered in the management of the receivership, and to ensure that the receivers can fulfil the purpose of their appointment. The receivers see the purpose of their appointment as being to sell Trust properties so as to repay creditors.
[14] Mr Haig submits that generally receivers are protected from personal liability when selling property pursuant to s 32(2) of the Receiverships Act. He says that the receivers are concerned that they could be exposed to personal liability in sale and lease contracts given the Trust’s uncertain financial position. Mr Haig submits that Mr Memelink’s opposition on the basis that the receivers are destroying the Trust is misguided. He says that the exclusion of liability sought is fair on the following bases:
(a)the contracts for which the receivers seek protection do not create a liability for the Trust that is at risk of not being met, but rather are converting a Trust asset into an account receivable;
(b)sale and lease contracts do not include standard vendor/lessor warranties, such that there is no reliance placed on representations made by the receivers; and
(c)purchasers may still have recourse against the trustees.
10 Above n 1, at [168].
11 See also Rea v Omana Ranch Ltd [2013] 1 NZLR 587 at [11].
[15] Mr Haig and the receivers take issue with the terms of the receivers’ appointment as it currently refers to the resolution of disputed levies and costs. Mr Shephard’s evidence is that:
While in some receiverships it would be feasible to identify an appropriate, efficient, and cost-effective process for resolving disputed levies and costs (such as appointing an arbitrator to make a decision on the papers), here, because it is not specified in the order, and because Mr Memelink has had a very long history of disputing Body Corporate levies in many proceedings over many years, we do not see the order as it is currently drafted as sufficiently clear for us to apply without undue risk of Mr Memelink taking issue with our approach at some later point (and thus increasing our own personal liability) or through him submitting material that would unduly increase the cost and time to resolve the issues.
Therefore, we are asking that…all Body Corporate claims for levies and costs are simply addressed by the proof of debt procedure currently provided for…We can then apply the standard for assessing proofs of debt under section 304 of the Companies Act 1993, a process we are very familiar with.
[16] The receivers’ position is also that any disputes around process can be wrapped up when they seek to distribute funds to creditors pursuant to Court orders. Also in respect of the sale of Trust properties, the receivers seek direction regarding the provision of information to purchasers. This is to ensure that the Trust receives a proper price for the sale of the properties, and consequentially has a greater chance of paying creditor debts. Mr Haig submits that the orders sought which reference the Unit Titles Act can be made pursuant to s 34(4)(a) of the Receiverships Act 1993 and s 3 of the Declaratory Judgments Act 1908.
[17] The receivers seek the order staying all proceedings by or against the Trust on the basis that continuing such litigation (which relates to potentially contingent assets) is outside their core role, being to realise Trust assets for distribution to creditors. They say that the Trust’s solvency is uncertain, and to continue such litigation would constitute an undue risk to the interests of creditors, because it is hard to gauge the prospects of success. They say that Mr Memelink’s history and practice of litigation reinforces the view that a stay is required.
[18]Mr Haig submits that:
(a)the trustees do not have the ability or the means to provide an indemnity;
(b)there are already extant costs orders; and
(c)claimants in existing proceedings may make creditor claims in the receivership if they wish to.
[19] Mr Haig accepts that such a stay should not apply to the liquidators or the Official Assignee where they seek to have their renumeration fixed, and says that the addition of powers pursuant to ss 307 and 310 would streamline the process.
[20] Mr Haig submits that it was appropriate for the receivers to publish a notice in the New Zealand Gazette so as to establish clearer picture of the Trust’s financial position, and is a standard approach for a company in liquidation. He says that it did not prevent creditors from making a later claim.
[21] Mr Haig submits that an order clarifying that the receivers are not acting as trustees is necessary to correct a misunderstanding on the part of Mr Memelink. He says that the receivers understand that the duties of court-appointed receivers are different to that of a trustee (and conflicting), and therefore seek the matter be resolved by way of order or direction.
Mr Memelink
[22] Mr Memelink filed a notice of opposition and an affidavit of on 11 November 2022. Mr Memelink’s sole ground of opposition was that his application for an extension of time to file a case on appeal in the Court of Appeal was still active. As noted above, the Court of Appeal dismissed that application on 28 November 2022, and it can have no further effect on this matter.
[23] Mr Memelink’s accompanying affidavit made allegations that went well beyond the ground relating to his Court of Appeal case. He asserted that:
(a)the receivers had ample time to scrutinise the terms of their appointment, and have not done so until now, after they have “wrought significant destruction of the Trust”, for which they are now seeking an indemnity;
(b)the variations sought by the receivers will take power away from the trustees;
(c)if the Court grants the orders sought it will be sanctioning the destruction of the Trust;
(d)the litigation that the receivers wish to be stayed is litigation which will improve the Trust’s position;
(e)it would be unfair for the receivers to be indemnified against liability for all of their actions in the receivership; and
(f)the receivers are acting in a serious conflict of interest, have not followed through on their undertakings to the trustees, and should be removed.
[24] Filed alongside Mr Memelink’s affidavit of 11 November 2022 was an affidavit by Mr Benjamin Stockbridge, a chartered accountant, seeking to dispute the levies payable to Body Corporate 68792.
[25] On 5 December 2022, Mr Fraser filed submissions in opposition, accompanied by a further affidavit from Mr Memelink. Mr Fraser highlighted that Mr Memelink’s primary focus was disputing the debt owed to Body Corporate 68792, and alleging that the Trust is in fact solvent.
[26] Mr Fraser’s submissions allege that Mr Memelink had advised him that day that he “can obtain finance to clear all debt”, and he argued that the receivers must be removed owing to a conflict of interest with Mr Naylor, a former Court-appointed administrator of Body Corporate 68792. He says that it is Mr Memelink that has been struggling to get information from the receivers, rather than the other way around. He
submits that the litigation the Trust is involved in has merit and should not be stayed, and that the receivers’ fees are unreasonable. Mr Memelink’s additional affidavit covers much of the same ground.
Discussion
[27] In short, for the reasons set out in the submissions filed on behalf of the receivers, I am satisfied that the orders sought by the receivers are logical and appropriate in the circumstances. Mr Memelink’s only points of contention are either not relevant or based on a misunderstanding of the role of the receivers. The role of the receivers is to, as officers of the Court, realise Trust property for the benefit of the Trust’s creditors. To the extent that this constitutes the ‘significant destruction’ of the Trust, then that is the inevitable result of the receivership. Since my judgment of 31 May 2022, it is now clear that the Trust is teetering on the edge of insolvency, and that the receivers have made significant process in winding the Trust up. It is axiomatic that in making that progress, the receivers have not been acting as trustees of the Trust – but rather officers of the Court whose function is to attempt to provide for the Trust’s creditors. It is therefore appropriate to make the order sought by the receivers directing that they are not acting as trustees. In my view, that should already have been self-evident.
[28] Mr Haig is correct that a Court-appointed receiver’s position is generally different than a private receiver. A Court-appointed receiver is not an agent for any person, but an officer of the Court, and is typically considered to be personally liable on all contracts they enter into, subject to a right to be indemnified.12 To the contrary, a private receiver may contract out of personal liability.13 I accept Mr Haig’s submissions that the receivers should not be restricted in their ability to realise Trust assets, or face a higher level of risk in doing so than they would were they private receivers.
[29] Key in this conclusion is the purpose for which the receivers were appointed. It is for that reason that I am also of the view that the orders sought at [9(c)]–[9(f)] be
12 Burt, Boulton & Hayward v Bull [1895] 1 QB 276.
13 Receiverships Act 1993, s 32(2).
granted. Such variations of the terms of appointment are directed towards the receivers fulfilling the purpose of their appointment, and are appropriate in terms of the leave granted to seek further direction. To the extent that it is relevant, I accept that as the terms of appointment took effect immediately following my original judgment, there was not time for the receivers to seek variations or clarification of those terms.
[30] I note for completeness that I agree with Mr Haig that s 34 of the Receiverships Act provides the Court with the jurisdiction to make the orders sought. That jurisdiction must be exercised for the purpose of facilitating the conduct of the receivership. 14 I am satisfied that is the case here, where the receivers have sought further direction clearly related to facilitating the conduct of the receivership. In addition, the plaintiffs, which includes the relevant body corporates, have consented to the orders sought. That means that there is no opposition in respect of directions which will remove the discretion of a body corporate to withhold pre-settlement disclosure on the basis of unpaid levies.15 The fact that the body corporates have consented to this order means that the Court is merely recording or accepting a state of affairs or an agreement between those parties, in the terms of appointment of the receivers. Likewise, the order sought regarding s 124(2) of the Unit Titles Act falls into that same category, whereby the parties have agreed that the sale of the units at the highest price will benefit all involved. It is also as I see it, an admission of an appropriate intent to pursue the party who has incurred the debts (the Trust), rather than an unsuspecting purchaser, through proceedings instituted after the fact.
[31] I agree that a stay of proceedings involving the Trust would increase the likelihood of Trust assets being realised for the benefit of creditors. Mr Memelink’s litigiousness is well-documented, and extant litigation and unpaid cost orders represent a risk to the efficacy of the receivership. The rationale for the rule in s 248(c) of the Companies Act is to prevent wasteful expenditure of assets in a liquidation through litigation.16 That rationale applies to the Trust in this case, as an applicable
14 Simpson v Commissioner of Inland Revenue [2012] NZCA 126, [2012] 2 NZLR 131; and
Gower v FTG Securities Ltd [2019] NZHC 1610.
15 See Unit Titles Act 2010, s 147(4).
16 Commissioner of Inland Revenue v Robertson [2017] NZHC 31, (2017) 28 NZTC 23-000 at [113] and [114]; and JK Trading Ltd v RimPro-Tec (in liq) [2019] NZHC 376 at [7].
risk in the receivership of the Trust, which is to be managed as if it were a company in liquidation.
[32] I am not satisfied that Mr Memelink’s optimism as to the prospect of that litigation improving the position of the Trust has any rational basis. His failure to pursue the appeal of my judgment to the Court of Appeal would seem to indicate that he does not seek through litigation to improve the position of the Trust, but rather to continue to avoid liability. Such a stay is only to operate until the conclusion of the receivership, and as requested by the receivers, should not prohibit the liquidators or Official Assignee seeking to fix their renumeration.
[33] I am satisfied that the receivers decision to advertise in the Gazette when they did was appropriate,17 and that the orders they seek regarding their renumeration, in respect of the process for approval, and fixing quantum may be granted. To me such orders appear to be sufficient in the circumstances, and no basis has been established for refusing to grant them. It is not apparent to me what the relevance of Mr Memelink’s continued assertions regarding Body Corporate 68792 levies is to the orders sought by the receivers, or that the allegation of a conflict of interest has any merit.
[34] Finally, Mr Memelink’s assertion that he has the ability to refinance “all debt”, while remaining an undischarged bankrupt is fanciful. I note that he has not provided any evidence to establish that is a realistic prospect. That appears to be another attempt by Mr Memelink’s to frustrate the efforts of all involved in the present proceedings to enable the satisfaction of the rights of the creditors of the Trust.
Result
[35] I am satisfied that the orders sought by the receivers may be granted,18 and I grant those orders in the terms sought. In order to be certain that I have fully dealt
17 During the course of the hearing, Mr Fraser submitted that the advertising date of 28 October 2022 was improper because Mr Memelink may wish to advance claims of his own. He suggested an advertising date of 19 December 2022. There was no opposition to that by Mr Haig or/and of the other plaintiffs, and I make that direction accordingly.
18 Including the further variation to cl 1(h) discussed in [10] and [11] above.
with the various changes to the directions sought, I invite the receivers to prepare a draft order for review by the Court and approval for sealing.
[36] I encourage the parties to agree costs but, if that is not possible, the applicants will file and serve a memorandum no later than 15 days from the date of this decision with Mr Memelink having 15 days to reply. Costs will then be determined on the papers.
Churchman J
Solicitors:
Meredith Connell, Auckland for Plaintiff in CIV-2020-485-374 Steve Hill Law, Lower Hutt for Plaintiff in CIV-2021-485-419 Anthony Harper, Christchurch for Plaintiff in CIV-2020-485-462
ccS J Fraser, Wellington for H Memelink and Lynx Trustees Ltd J D Haig, Wellington for Receivers
12
6
0