Eastlight Asset Trading no.3 Limited v Jaafar Holdings Limited

[2017] NZHC 3105

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-001620 [2017] NZHC 3105

BETWEEN

EASTLIGHT ASSET TRADING NO.3

LIMITED Plaintiff

AND

JAAFAR HOLDINGS LIMITED Defendant

Hearing:	29 November 2017
Appearances:	Mr Q S Haines for Plaintiff Mr D Chisholm QC and D Bullock for Defendant
Judgment:	13 December 2017

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on

13.12.17 at 3.30 pm, pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

EASTLIGHT ASSET TRADING NO.3 LIMITED v JAAFAR HOLDINGS LIMITED [2017] NZHC 3105 [13

December 2017]

[1]      The plaintiff has brought proceeding to liquidate the defendant.  The dispute arises out of the sale by auction of two properties at Rotorua on 28 November 2013. The defendant sold the properties as mortgagee.   The plaintiff, represented by its director Mr Kooiman, placed bids at the auction by telephone link to a real estate agent employed by the defendant’s real estate agent company, Harcourts who was physically present at the auction.   The plaintiff was the successful bidder. Subsequently Mr Kooiman, as the conditions of auction sale required, signed a memorandum of the terms and particulars of sale at auction.

[2]      The defendant  never settled the transaction  and  on  30  January 2014  the defendant cancelled the agreements.   The plaintiff sought to recover the deposits paid, a sum of $149,500.   When the defendant declined to pay back the deposits which it claimed had been forfeited, the plaintiff served a statutory demand on 8

June 2017.

[3]      Due  to  what  was  described  as  communication  difficulties  between  the defendant and its solicitor, the defendant failed to take steps to set aside the statutory demand.

[4]      The plaintiff then filed  the current  proceedings  seeking  an  order for  the liquidation of the defendant company and the defendant filed a statement of defence.

[5]      In this litigation there are two essential issues:

(a) Whether the debts are materially disputed; (b) Whether the defendant is insolvent.

[6]      As it turns out I consider that the application can be resolved by consideration of the latter ground.

[7]      Mr D Chisholm QC for the defendant in his submissions emphasised that the jurisdiction to order liquidation of a company pursuant to s 241(4)(a) of the requirement for the Court to be satisfied that the Court is unable to pay its debts. That is the ground upon which the plaintiff in this case has brought its liquidation proceedings.  The plaintiff invokes the presumption of insolvency that arises under

s 287 in cases where the company has failed to comply with the statutory demand. Section 287 provides as follows:

287     Meaning of “inability to pay debts”

Unless the contrary is proved, and subject to s 288 of the this Act, the company is presumed to be unable to pay its debts if:

The  company  has  failed  to  comply  with  a  statutory  demand; however,   it   is   open   to   the   company,   notwithstanding   that presumption, to prove that the company is in fact able to pay its debts.

[8]      In  this  case  the  defendant  has  provided  extensive  evidence  intended  to establish that in fact it is solvent.

[9]      I   accept    that   the   evidence   supports    the   following   submission    that

Mr Chisholm made on behalf of the plaintiff:

2.1Jaafar’s director (Mr Husain Ali) and its accountant (Mr PR Murray of Peat Johnson Murray Limited) have both sworn affidavits confirming Jaafar’s solvent, profitable and substantial financial position.

2.2Jaafar is a financier/property owner with in excess of $34 million in shareholders’ funds and has on average earned over $1m per annum in after tax profits for the last four years.  It has successfully been in business since 1989.   Its annual financial statements (also tax accounts for the significant profit earned over the last 4 years), attached as Exhibits A to C to Mr Ali’s affidavit (CB2/266, 274 &

282), reinforce that it is solvent on both a balance sheet and cashflow basis (and paid significant tax for the 2017 year).  The table below shows  its  after  tax  profit,  shareholders’ funds  (assets  exceeding liabilities), positive working capital and cash in the bank for the last four financial years of trading to 31 March 2017.

Year	After Tax Profit	Shareholder’s funds	Positive Working Capital	Cash in bank
31/3/14	$1,148,696	$31,805,597	$20,524,349	$4,019,845
31/3/15	$870,793	$32,676,390	$1,423,846	$112,738
31/3/16	$1,169,598	$33,845,988	$2,610,999	$23,465
31/3/17	$999,993	$34,845,981	$3,623,412	$827,555

2.3.     Jaafar’s financial accounts for the year ended 31 March 2017 inter

alia confirm:

2.3.1    Jaafar’s revenue comprises rental income, interest income on

investments, dividends received and other income.

2.3.2    Jaafar’s fixed assets are made up of land and buildings.

2.3.3The bulk of its revenue in the 2017 year was sourced from its properties with its total revenue exceeding 2.665 m.

[10]     The position in summary therefore is that a director of the defendant as well as the chartered accountant who prepares its accounts, have both given evidence and the relevant accounts have been produced for three years – 2015, 2016, and 2017 and as well the comparative for the financial year ended 2014 has been provided.  The company has been trading for some 28 years.  Because of its longevity and the state of its accounts there is every reason to believe that its continued profitable operation is a sustainable prospect.   Therefore, while the last information contained in the accounts to 2017 shows the position some eight months ago, I have little doubt, in the absence of any evidence to the contrary that the profitable trading position of the company and its very solid working capital position and cash assets remain substantially as they were stated in those last accounts.

[11]     Mr Q S Haines who appeared as counsel for the defendant, adopted a realistic approach to the way in which the evidence of the financial position of the defendant should be viewed.  He made reference to the fact, as his considered it to be, that the defendant only provided detailed financial evidence of its financial standing months after a demand was made for payment of the debt and after the service of the statutory demand.   I should add that Mr Chisholm countered this submission by drawing to the attention of the Court that even though the defendant provided information about the state of the finances of the defendant, the plaintiff nonetheless pressed on and brought the matter before the Court on the date of the fixture, namely

28 November 2017.

[12]     In my view the matters that Mr Haines has raised may have some relevance to costs but they do not assist the plaintiff in the slightest on the crucial question of

whether the company is unable to pay its debts.  The case for the plaintiff had been put on the basis that the company was unable to pay its debts and it has failed to prove that element of its case because of the highly persuasive evidence to the contrary which the company has put forward.

[13]     That being the view of the Court, there is no need to enquire into the other broad basis for the statement of defence, namely that the defendant does not owe any debt to the plaintiff.  As I have noted though there is no need given my conclusions to go into that alternative ground for defence.  The result will be that the application brought by way of statement of claim for an order appointing liquidators in regard to the defendant is dismissed.

[14]     Counsel are to address the issue of costs in memorandum not exceeding five pages each within 10 working days of the date of this judgment.

J.P. Doogue

Associate Judge