Debut Homes Ltd (in liq) v Cooper - [2018] NZHC 453

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2015-404-002280

[2018] NZHC 453

BETWEEN
DEBUT HOMES LIMITED (IN LIQUIDATION)

First Plaintiff

HENRY DAVID LEVIN AND VIVIEN JUDITH MADSEN-RIES AS

LIQUIDATORS OF DEBUT HOMES LIMITED (IN LIQUIDATION)
Second Plaintiffs

AND

LEONARD WAYNE COOPER

First Defendant

LEONARD WAYNE COOPER AND

TRACEY COOPER AS TRUSTEES OF THE L & T COOPER FAMILY TRUST

Second Defendants

Hearing: 13-17 March, 9 October and 13 October 2017

Appearances:

P Shackleton and J Angelson for the First and Second Plaintiffs R Hucker, H Holland (March only) and R Selby (October only) for the First and Second Defendants

Judgment:

15 March 2018

JUDGMENT OF HINTON J

This judgment was delivered by me on 15 March 2018 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules

Solicitors:

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

DEBUT HOMES LIMITED (IN LIQUIDATION) v COOPER [2018] NZHC 453 [15 March 2018]

Meredith Connell, Auckland Hucker & Associates, Auckland

[1] The liquidators of the plaintiff company (Debut) are suing its sole director for breaches of the Companies Act 1993 (the Act).

[2] In particular, the liquidators say that the director incurred debts without a reasonable belief that Debut would be able to meet them when they fell due, in breach of s 136 of the Act. They plead related breaches of other duties.

[3] Unsecured creditor claims in the liquidation total $499,507. The bulk of this is GST debt owed to the Inland Revenue Department (the IRD), $366,011 core GST and $84,088 accrued interest and penalties. The balance is trade creditors. Mr Cooper and his ex-wife, Ms Cooper are owed about $210,000 on their shareholders’ current account, but have not proven in the liquidation.

[4]The liquidators claim the full amount of $499,507 against the director.

Background

[5] Debut was a small business, which developed residential houses in New Plymouth. It was incorporated in 2005. Mr Cooper was the sole director and he worked full-time in the business. The shareholders were Mr and Ms Cooper.

[6] Up until 31 October 2012, Debut paid all of its debts when they fell due, including GST. It had completed a number of developments and had a number still on foot, funded by BNZ and JTJ (a second-tier lender). The loans from JTJ and BNZ were secured by mortgages and guaranteed by Mr Cooper.

[7] It is undisputed that Debut had been balance sheet insolvent from at least March 2009, but it was supported by the shareholder loans from the Coopers.

[8] In early September 2012, Debut entered into agreements to sell completed properties at 2 and 7 Karika Place for $586,000 and $240,000 respectively, including

GST. GST was not due until 30 November 2012.1 The settlements took place in early to mid-October 2012. From the 2 Karika Place proceeds, Debut paid JTJ $490,390 and retained $93,600. From the 7 Karika Place proceeds, Debut paid JTJ $210,390 and retained $28,000.

[9] Debut was experiencing costs overruns and increasing debt. On 23…

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: [2018] NZHC 453
Decision Date: 15 March 2018

CaseChat Overview and Summary

In Debut Homes Ltd (in liquidation) v Cooper, the liquidators of Debut Homes Ltd sued Leonard Cooper, the sole director of the company, for breaches of the Companies Act 1993, including incurring debts without a reasonable belief that the company could meet them when they fell due. The liquidators sought compensation for the full amount of $499,507 in unsecured creditor claims, including GST debt owed to the Inland Revenue Department. Mr Cooper claimed a defence under s 138 of the Act, arguing he had relied on professional advice. The court found that Mr Cooper breached ss 131, 135, and 136 of the Act by not acting in good faith and in the best interests of the company, and by causing the business to be carried on in a manner likely to create a substantial risk of serious loss to the company's creditors. The court rejected Mr Cooper's defence under s 138, as the advice he relied on was not professional or expert advice for purposes of the section. The court ordered Mr Cooper to contribute $280,000 towards the assets of Debut, set aside payments made by Debut to Mr Cooper as voidable transactions, and set aside the general security agreement held by the L and T Cooper Family Trust against the amounts awarded in the judgment. The court declined to set aside belated claims by the trustees at zero, but granted leave to the liquidators to re-apply for an increase in compensation if the trustees succeed in proving their unsecured debt in the liquidation.

Orders