Davies v Zhong

[2024] NZHC 839

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-000447

[2024] NZHC 839

UNDER

Section 284 of the Companies Act and Part 19 of the High Court Rules

IN THE MATTER

of an originating application for directions in relation to a liquidation

BETWEEN

KEVIN JOHN DAVIES

Applicant

AND

WEI (WALKER) ZHONG

First Respondent

Cont’d overleaf

Hearing:

17 April 2024

Appearances:

P L Rice for Applicant

No appearance by or on behalf of Respondents

Judgment:

18 April 2024

JUDGMENT OF ANDERSON J

This judgment was delivered by me on 18 April 2023 at 10.30 am pursuant to Rule 11.5 of the High Court Rules 2016.

………………………………

Registrar/Deputy Registrar

Solicitors:
Haigh Lyon Lawyers Limited, Auckland

DAVIES v ZHONG [2024] NZHC 839 [18 April 2024]

YI (AMY) ZHANG

Second Respondent

LI YU WEI
Third Respondent

MENGXIN (LULU) LI
Fourth Respondent

AION CARGO SOLUTIONS LIMITED
Fifth Respondent

[1]                 This originating application for directions is brought by Mr Kevin Davies, as Liquidator of three related companies, being Oceania Natural Limited (in liquidation) (ONL), Oceania Natural Finance Limited (in liquidation) (ON Finance) and Camsing Trading Limited (Camsing). ONL is the sole shareholder of both ON Finance and Camsing.

[2]                 The Liquidator seeks directions concerning 113 barrels of honey currently stored at the warehouse of the fifth respondent, Aion Cargo Solutions Limited. The directions sought were initially against four respondents who had claimed security interests in the honey barrels. The honey is the only significant asset in the liquidation of the companies. It is estimated to have a value of approximately $339,000 including GST.

[3]                 The security interest in 12 of the barrels claimed by the second respondent is accepted by the liquidators. A notice of discontinuance has been filed in respect of that respondent. All respondents have been served. In the case of Mr Zhong, the first respondent, this was via substituted service pursuant to orders made by Johnstone J on 20 March 2024. Mr Zhong was the sole director of both ON Finance and Camsing and was a director of ONL. In his capacity of the Zhong Family Trust he jointly holds 60.85% if the shares in ONL.

[4]                 Mr Zhong’s claim to a security interest is over 118 barrels of honey, being more than the honey currently stored at the warehouse. The other remaining respondents have a claim for six barrels and three barrels respectively. The claims are based on debt security agreements with ON Finance and the register of these in the Personal Property Securities Register.

[5]                 The matter came before me in the Duty Judge List yesterday. There was no appearance by any of the respondents and they have taken no steps in the proceeding. In those circumstances I may determine the application in the parties’ absence in any manner that appears just.1 The Liquidator sought orders in terms of his application. The directions sought are for the following declaratory and costs orders:

1      High Court Rules, rr 19.10, 7.24, 7.25, 7.40.

(a)That Camsing Trading Limited (in Liquidation) is the lawful owner of the honey barrels currently stored at the warehouse of the fifth respondent (“the honey barrels”) (excluding the 12 honey barrels claimed by the second respondent) and the Liquidator is at liberty to sell the honey barrels and apply the sale proceeds to creditors in accordance with the Companies Act and Liquidation Regulations;

(b)That the first, third and fourth respondents have no valid interest and/or enforceable security in the honey barrels;

(c)That the first, third and fourth respondents pay the Liquidator’s costs in bringing this application.

[6]                 Having considered the application and affidavit of the Liquidator filed in support, I am satisfied that I should make the orders sought.

[7]                 Fundamentally, that is because I am satisfied on the material filed that ON Finance never held any rights in the honey/honey barrels so is not in a position to grant any interest in it. At all material times the honey was owned by Camsing and remained in its possession. In particular:

(a)The basis for a claim to rights in the honey is the issue of certain “Manuka Bonds” via subscription agreements. ONL gave notice of its intention that ON Finance would issue these debt securities in August 2016 after Camsing acquired the honey.

(b)However, the investor subscription payments were not released to ON Finance but instead were released to ONL. ONL did not use the subscription payments exclusively (or at all) for the purchase of manuka honey barrels. Instead, the money was used for ONL’s general purposes including staff salaries, wages and operational expenses.

(c)Mr Davies deposes that he has been unable to find any traceable link between monies raised by the Manuka Bond issue and the purchase of any honey.

(d)As well, Mr Davies says there is no evidence that Camsing sold or otherwise transferred any interests in the honey to ON Finance (or ONL for that matter). Nor are there are any primary documents to corroborate the transfer of honey from Camsing to ON Finance let alone documents to identify which particular honey barrels were transferred, if that occurred.

[8]                 Accordingly, I accept the Liquidator’s position that at no point did ON Finance ever acquire any rights in the collateral. I have considered the specific evidence of Mr Davies relating to each of the respondents’ claims. I consider it supports the position I describe above.

[9]                 In addition to the lack of any rights in the honey, the Liquidator also raises a more technical issue as to the descriptions of the honey barrels in the respondents’ registered financing statements. On that basis, the Liquidator says that the respondents’ interest was not “perfected” even if there was such interest.

[10]             While I acknowledge the differences and difficulties in matching honey to the financing statements, I prefer to rest the judgment on the first issue discussed above.

[11]             The Liquidator seeks costs on the application. I consider this is appropriate given the respondents had made claims in the liquidation and I have not found them to be supported by the facts.

[12]             Accordingly, I make orders in terms of paragraphs [5](a)-(c) above. Costs are to be on a 2b basis and are to be as fixed by the Registrar.

Anderson J