Digital Signs 2017 Limited v Digital Advertising Limited (in liquidation)

[2025] NZHC 296

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-2332

[2025] NZHC 296

BETWEEN

DIGITAL SIGNS 2017 LIMITED

Applicant

AND

DIGITAL ADVERTISING LIMITED (IN LIQUIDATION)

Respondent

Hearing:	3 February 2025
Appearances:	Anitesh Govind for the Applicant Robert Hucker for the Respondent
Judgment:	28 February 2025

JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

[Application to set aside a statutory demand]

This judgment was delivered by me on    28 February 2025 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

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

Solicitors:

Resolute Lawyers (Anitesh Govind), Auckland, for the Applicant Molloy Hucker, Auckland, for the Respondent

Counsel:

Robert Hucker, Durham Street West Chambers, Auckland, for the Respondent

DIGITAL SIGNS 2017 LIMITED v DIGITAL ADVERTISING LIMITED [2025] NZHC 296 [28 February 2025]

Introduction

[1]                  Digital Signs 2017 Limited (Digital Signs 2017) seeks to set aside a statutory demand   issued    by    Digital    Advertising    Limited    (In    Receivership) (Digital Advertising) for monies claimed to be owed to Digital Advertising following a series of transfers between the companies.

[2]                  The key issues for the Court are whether there is a substantial dispute as to the existence of the alleged debt, and if the application is otherwise an abuse of process.

Background

[3]                  Digital Advertising received advances totalling $456,000 from Wilson Parking New Zealand Limited (Wilson) for the purpose of assisting with the construction of two billboards. The advances were made under two loan agreements entered into between Wilson as lender and Digital Advertising as borrower, both dated 26 March 2024 (the Loan Facility Agreements). The billboards were to be displayed on Wilson’s sites in Christchurch.

[4]                  In addition to entering into the Loan Facility Agreements, Wilson and Digital Advertising entered into two licensing agreements in respect of the billboards, both dated 26 March 2024 (the Licensing Agreements) under which Wilson was to receive a licence fee, while Digital Advertising was to retain ownership of the billboards.

[5]                  The billboards have never been completed, and the whereabouts of any partially completed billboards, if any exist, is unknown.

[6]                  After being advised that the contracts would not be able to be completed and following the first repayments due under the terms of the Loan Facility Agreement not being paid,1 Wilson placed Digital Advertising in liquidation.

[7]                  The receiver of Digital Advertising identified that funds had been transferred from Digital Advertising’s account that had received the advances from Wilson, to an account held by Digital Signs 2017.

[8]                  A total of $452,000 in payments was made by Digital Advertising to Digital Signs 2017 between 28 March 2024 and 11 August 2024. Additionally, $74,500 had been deposited by Digital Signs 2017 into the account that had received the advances from Wilson. This represents the net deficiency of $377,500, which was the amount claimed from Digital Signs 2017 in the statutory demand issued by Digital Advertising on 5 September 2024 (the statutory demand).

[9]                  On 30 June 2021 Digital Signs 2017  (then  known  as  Corporate  Restructure 2321 Limited) entered into an agreement to sell the business to Digital Signs Limited (Company number 8182120) (Digital Signs) (the Sale and Purchase Agreement).

[10]              On 18 September 2024, Digital Signs 2017 filed an application to set aside the statutory demand pursuant to s 290(4)(a) of the Companies Act 1993.

Digital Signs 2017’s application to set aside statutory demand

[11]              Digital Signs 2017 seeks an order that the statutory demand be set aside.2 The grounds on which the order is sought are, in summary:3

(a)There is a substantial dispute as to whether or not the debt specified in the statutory demand is owing or due by Digital Signs 2017.

1      The first repayments were due on 1 August 2024. Demand was then made by Wilson according to the Loan Facility Agreement. The demand was not met, and receivers were appointed under a General Security Agreement.

2 Originating application for order to set aside statutory demand, dated 18 September 2024, at [1].

3 At [2].

(b)Digital Advertising is seeking debt owed from 24 August 2022 onwards; however, Digital Advertising was only incorporated on 9 May 2023.  Therefore, the  debt  cannot be owed from   24 August 2022.

(c)Digital Signs 2017 ceased trading on 30 June 2021 and sold its business in its entirety as a going concern to Digital Signs.

(d)During the sale, Digital Signs 2017 transferred the control and ownership of the BNZ bank account (the Nominated Account) to Digital Signs.

(e)Digital Signs 2017 denies the outstanding sum is a debt, however, if the Court finds it is a debt, the debt is owed by Digital Signs, not Digital Signs 2017.

(f)Digital Signs 2017 does not have a common shareholding with Digital Advertising and has not received any intercompany advances from Digital Advertising. Digital Signs 2017 is not indebted to Digital Advertising.

(g)There is substantial defect or irregularity in the statutory demand which would cause substantial injustice if it were not set aside.

Digital Advertising’s opposition

[12]Digital Advertising opposes the application on the following grounds:4

(a)The director of Digital Signs 2017 (Mr Jaques) acknowledges that the monies referred to in the statutory demand have been received into an account in the name of Digital Signs 2017.

(b)To the extent there are transactions that may predate the incorporation of Digital Advertising, the statutory demand may be reduced by the amounts of those transactions.

4 Notice of opposition, dated 11 October 2024, at [3].

(c)The bank account nor any amounts held in the bank account of Digital Signs 2017 were not included amongst the assets transferred under the Sale and Purchase Agreement, nor [were] they included as assets in the valuation of assets to support the transfer.

(d)The transaction under which the funds were paid into an account in the name of Digital Signs 2017 was not intended to be a gift and in those circumstances can only be an advance to Digital Signs 2017.

(e)Any obligation that Digital Signs 2017 may have had to account to other entities within Mr Jaques’ group of companies does not affect the nature of the transaction and the treatment of the transfer of the funds as a loan to Digital Signs 2017.

(f)The funds that were advanced by Wilson to Digital Advertising, and ultimately transferred to the account in the name of Digital Signs 2017, were not used for the purposes for which the funds were advanced, and were misapplied by Mr Jaques.

(g)In allowing its account to be used for this purpose Digital Signs 2017 is liable to account to Digital Advertising and Wilson for such funds.

Legal principles

[13]Section 290 of the Companies Act 1993 provides, relevantly:

290     Court may set aside statutory demand

(1) The court may, on the application of the company, set aside a statutory demand.

…

(4)    The court may grant an application to set aside a statutory demand if it is satisfied that—

(a)    there is a substantial dispute whether or not the debt is owing or is due; or

(b)    the company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or

(c)    the demand ought to be set aside on other grounds.

[14]The Court has set out the principles relevant to the application of s 290(4):5

What the  applicant must show is that the dispute it raises has substance;    the applicant must explain to the court what the dispute is; and the dispute so shown must be a real and not a fanciful or insubstantial dispute. The Court must bear in mind that it is operating in the summary jurisdiction, with the accompanying disadvantages that brings for any applicant. The Court must also keep in mind the requirement that what is intended to be a summary hearing should not be converted into a full-blown trial.

[15]              As to s 290(4)(a), the Court is to look at whether a genuine substantial dispute exists.6 Mere assertion of a dispute does not suffice, and Digital Advertising has to show a fairly arguable basis for it.7 In practice, it is required that there be some material short of proof that backs up the claim that the amount is in dispute.8

[16]              Where a counterclaim, set-off, or cross-demand is sought to be raised, the Court has a discretionary power to set aside the statutory demand, but the company must show a real basis, on clear and persuasive grounds, for doing so. And “pay now, argue later” considerations have sometimes been allowed to prevail over the effect of liquidation.9

Analysis

[17]              The issue to be determined in this judgment is whether there is a substantial dispute as to whether the debt claimed in the statutory demand is owing or due by Digital Signs 2017.

5      AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559, [2016] NZAR 1338 at [22] (footnotes omitted).

6      Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA) at 301.

7      N F Global Ltd v Sky Capital Management Ltd [2020] NZHC 2196 at [39]. See also United Homes (1998) Ltd v Workman [2001] 3 NZLR 447 (CA) at [27].

8      Arzan Investments Ltd v Beresford Apartments Ltd (2003) 16 PRNZ 825 (HC) at [17].

9      N F Global Ltd v Sky Capital Management Ltd, above n 7, at [40], citing Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd (2005) 18 PRNZ 97; Browns Real Estate Ltd v Grand Lakes Ltd [2010] NZCA 425, (2010) 20 PRNZ 141; Covington Railways Ltd v Uni- Accommodation Ltd [2001] 1 NZLR 272 (CA) at 274–275.

[18]              Mr Govind, for Digital Signs 2017, says that there is a substantial dispute that the debt sought in the statutory demand is owing by Digital Signs 2018 because the statutory dema

statutory demand has been issued against the wrong company, and the debt is owing by Digital Signs.

Submissions for Digital Signs 2017

[19]              Mr Govind, in support of his submission that the statutory demand has been issued against the wrong company and should have been issued against Digital Signs, makes the following submissions:

(a)Digital Signs 2017 was never engaged in any commercial transactions with Digital Advertising, nor has there been any movement of funds, whether  received,  paid  or  advanced,  between  the  two  entities.  Mr Jaques, on behalf of Digital Signs 2017, confirms no debt arrangements exist between the parties;

(b)all payments claimed by Digital Advertising as debts were in fact made to Digital Signs, not Digital Signs 2017;

(c)there is no substantive connection between the parties, the sole link being through the Bank of New Zealand (BNZ). The bank account in question was transferred from Digital Signs 2017 to Digital Signs, thereby severing any financial ties related to the claimed debt between Digital Signs 2017 and Digital Advertising. Evidence of emails from BNZ confirm that it would not open a new account for Digital Signs and consequently the bank account of Digital Signs 2017 had to be transferred;

(d)the reason why Digital Signs 2017’s bank account had to be transferred to Digital Signs was that BNZ would not allow Digital Signs to open a new bank account. Digital Signs needed a bank account to undertake transactions and trade;

(e)the invoice issued by Digital Signs to Digital Advertising on 31 March 2024 for the supply of the billboards is further evidence that the true party supplying the billboards was Digital Signs, not Digital Signs 2017;

(f)should the Court not set aside the statutory demand, it would result in significant injustice, leading to the wrongful liquidation of Digital Signs 2017.

[20]              Mr Govind submits there is a genuine and substantial dispute that the debt is owed by Digital Signs 2017. He submits the evidence supports the fact the debt is not owed by Digital Signs 2017 but by Digital Signs, and the only similarity between the companies is that Mr Jaques is director and shareholder of the parties and Digital Signs.

[21]              Mr Govind raises an additional ground for setting aside the statutory demand relating to the validity of the appointment of a receiver of Digital Advertising. This issue was however not pursued at the hearing by Mr Govind.

[22]              Mr Govind raised as a further ground for setting aside the statutory demand, that the demand was for an incorrect amount, on the basis that some of the transactions claimed in the debt by Digital Advertising pre-dated the incorporation of Digital Advertising (which was incorporated on 9 May 2023). As to this point Mr Hucker, for Digital Advertising, accepts that amounts included in the debt which pre-date the incorporation of Digital Advertising ought not to be included. He submits the net effect of these transactions would be to reduce the amount claimed in the statutory demand by $18,000 and he submits that this is not material in the context of the statutory demand for an amount of $377,500.

Digital Advertising’s submissions

[23]              As background to his submissions, Mr Hucker sets out the chronology and key transactions in relation to the funds advanced by Wilson as follows:

(a)On 28 March 2024 Mr Jaques provided Wilson with instructions that the loan funds are to be paid into the Nominated Account, which is in Digital Advertising’s name.

(b)Wilson released the first tranche of loan funds of $285,000 to the Nominated Account. $270,000 was immediately transferred from the Nominated Account to a second account in the name of Digital Signs 2017 (the 372 Account).

(c)On 4 June 2024, Wilson released the second tranche of funds of

$171,000  to  the  Nominated Account.    $100,000 was immediately transferred from the Nominated Account to the 372 Account.

(d)Between 11 and 15 June 2024, three further transfers were made from the Nominated Account to the 372 Account totalling $54,800.

[24]              Mr Hucker submits the net effect is that $377,500 was transferred from the Nominated Account to the 372 Account, in the name of Digital Signs 2017. Consequently, the statutory demand was issued for that amount.

[25]              Mr Hucker submits that the legal owner of the funds in Digital Signs 2017’s 372 Account is Digital Signs 2017. He submits that the transfer of funds from the Nominated Account to the 372 Account could only have four possible legal classifications:

(a)Firstly, a gift from Digital Advertising to Digital Signs 2017. He submits there is no suggestion that a gift has occurred and, even if there was, a gift would offend against the principles of sub-part 6 of the Property Law Act 2007.

(b)Secondly, a loan from Digital Advertising to Digital Signs 2017. He submits there is no evidence of this and no loan agreement setting out the terms of the loan.

(c)Thirdly, that Digital Signs 2017 operates as a trustee company or agent for other companies controlled by Mr Jaques. He submits that even if other companies are beneficially entitled to the funds, it does not alter the legal status of the transaction under which funds were deposited in the 372 Account.

(d)Fourthly, that Digital Signs 2017 had no entitlement to receive any money from Digital Advertising, and the principle of money had and received applies.

[26]              Mr Hucker submits that under any of the above categorisations of the transactions with Digital Signs 2017, it has an obligation to refund the amounts received to Digital Advertising.

[27]              As to the contention by Digital Signs 2017 that the 372 Account was transferred to Digital Signs under the Sale and Purchase Agreement for the sale of Digital Signs 2017’s business, Mr Hucker submits there is no document confirming the transfer of the 372 Account, nor is there any suggestion that BNZ agreed to the transfer of the 372 Account. He submits that if Digital Signs 2017 was acting as agent or trustee for Digital Signs, and the principles applicable to dealings by agents or trustees with third parties apply, none of those principles make Digital Signs 2017 the wrong party to be joined, given Digital  Signs  2017  is  the  legal  owner  of  the  372 Account and, ultimately, the funds.

[28]              As to the content of the Sale and Purchase Agreement, Mr Hucker submits that the Agreement does not refer to the transfer by Digital Signs 2017 of the 372 Account, nor funds or cash held in the bank account. He submits the tangible and intangible assets subject to the sale were the fixed assets, the website, the trading name and that the bank account was not included. He submits that there is no evidence of the transfer of the 372 Account.

[29]              To counter this point, Mr Govind points out that BNZ has continued to allow the 372 Account to be traded by Digital Signs, and if BNZ had not consented to the transfer, it would not be allowing such continued trading of that account.

Result

[30]              I am of the view that the statutory demand should be set aside. It is reasonably arguable that the debt sought by Digital Advertising under the statutory demand is not owed by Digital Signs 2017 but by Digital Signs and that the latter is the correct entity against which the statutory demand should have been issued. There is some evidence supporting the transfer of the 372 Account to Digital Signs and some evidence to the contrary:

(i)Mr Hucker submits that there is no evidence of transfer of the 372 Account from Digital Signs 2017 to Digital Signs, there was no consent from BNZ, and the 372 Account does not appear to have been transferred pursuant to the Sale and Purchase Agreement.

(ii)Mr Govind submits that had BNZ not consented to the transfer it would not have allowed Digital Signs to continue to operate the account. I note that Exhibit K to Mr Jaques’ affidavit, dated 19 September 2024, indicates the bank declined to open any further accounts for Digital Signs.

(iii)Mr Govind also points to the invoice rendered by Digital Signs to Digital Advertising on 31 March 2024 for the amount of

$570,000 plus GST, relating to the supply of three billboards and the installation of them on the Wilson sites. This invoice is presented to support the contention that transfers from Digital Advertising’s Nominated Account to the 372 Account were not inter-company loans, but payments to Digital Signs for goods and services.

[31]              The above raises an arguable and substantial dispute as to whether the debt is owed by Digital Signs and not by Digital Signs 2017 and accordingly the matter needs to be resolved by evidence at trial.

Orders

[32]I make the following orders:

(a)Digital Signs 2017’s application to set aside the statutory demand is granted.

(b)As Digital Signs 2017 is the successful party, costs should follow the event. Counsel are directed to endeavour to agree costs and failing agreement being reached within a period of 20 working days from the date of this judgment, counsel for Digital Signs 2017 will file a memorandum as to costs (not to exceed five pages) within five working days after the expiry of the 20 working day period, and counsel for Digital Advertising will file a memorandum (not to exceed five pages) in response within five working days of receipt of counsel for Digital Signs 2017’s memorandum. A decision as to costs will then be made on the papers.

…………………………….. Associate Judge Taylor