Fog v Frimley Estate Limited
[2015] NZHC 3081
•7 December 2015
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2015-404-001191
[2015] NZHC 3081
BETWEEN MARIANNE FOG
Plaintiff
AND
FRIMLEY ESTATE LIMITED
Defendant
Hearing: 30 November 2015 Appearances:
R B Hucker and J L Schwarcz for the Plaintiff
E J Grove for the Defendant (for part of the hearing) P Davey for the Creditor in Support
Judgment:
7 December 2015
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 7 December 2015 at 4.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
KP Legal, Auckland
Hucker & Associates, Auckland C T Patterson, Auckland
P Davey, Auckland
FOG v FRIMLEY ESTATE LIMITED [2015] NZHC 3081 [7 December 2015]
[1] On 2 October 2015 I issued judgment on Frimley Estate Limited’s application to stay Ms Fog’s liquidation proceeding.1 I made the following orders:
[39]Frimley’s application for a stay of the proceeding is declined.
[40] The s 241 liquidation application is to go to a substantive hearing. It is to be listed in the Miscellaneous Companies List on 9 October 2015 at
11.45 am for the allocation of a fixture and such further timetable directions as may be required.
[2] I subsequently allocated a fixture and issued timetable directions to require Frimley to give particulars of its grounds of defence. Frimley failed to comply, and on 2 November 2015 Wylie J required compliance, allowing a brief extension of time for that purpose as an indulgence to the defendant. Frimley duly filed its amended grounds of defence and both sides generally complied with the extended timetable.
[3] A defended hearing of the liquidation application was to proceed on Monday 30 November 2015. However, on Friday 27 November 2015 counsel for Frimley filed a memorandum advising that it was no longer opposing an order for its liquidation, as a receiver had been appointed. Counsel confirmed that position at the commencement of the hearing (while emphasising at the same time that Frimley was not consenting to the appointment of a liquidator). At his request I gave him leave to withdraw. I heard briefly from counsel for the plaintiff and the creditor in support, and I reserved my decision.
Decision
[4] Though Frimley does not consent to an order for its liquidation, it is implicit in its decision not to oppose that it cannot sustain a viable defence and that it concedes it has no proper basis for resisting the appointment of a liquidator. Such a concession is appropriate and recognises the inevitable – that Ms Fog is entitled to an order for Frimley’s liquidation. My brief reasons follow.
1 Fog v Frimley Estate Ltd [2015] NZHC 2247.
[5] Ms Fog has satisfied the jurisdictional requirements for the Court to make an order putting Frimley into liquidation as required by s 241 Companies Act 1993. Under that section the Court may put a company into liquidation by the appointment as liquidator of a named person on the application of (among others) a shareholder or other entitled person; or a creditor (including any contingent or prospective creditor). Relevantly, s 241(4) provides:
(4) The court may appoint a liquidator if it is satisfied that—
(a) the company is unable to pay its debts; or
(b) the company or the board has persistently or seriously failed to comply with this Act; or
(c) the company does not comply with section 10; or
(d) it is just and equitable that the company be put into liquidation.
[6] It is plain that this is a case of a person entitled to bring the application for liquidation, Ms Fog being, as matters stand, a creditor by reason of her statutory right to a refund under s 37 Securities Act 1978. It is not a case of Frimley being confronted with an asserted claim of a right to a refund that it may ignore unless and until steps are taken to enforce the right.
[7] As I observed in my judgment of 5 October 2015 in relation to Ms Fog’s claimed status as a creditor, Asher J2 has already found that Frimley was liable to her for the return of her investments with statutory interest, subject only to possible limitation defences in any future enforcement proceeding which could only apply in respect of the first such investment. 3
[8]I also noted:
[16] More than that, Frimley’s application was for relief under s 37 of the Securities Act, and as such it implicitly acknowledged the existence of a statutory debt owed to Ms Fog which created the need for that relief. The application was refused. That seems to me to go a step beyond establishing Ms Fog’s status as a creditor in terms of s 241.
[9] Further, I noted that though Frimley has filed an appeal, it raised nothing of substance to suggest that Asher J’s finding was possibly susceptible to being wholly overturned on appeal. Such outcome depends upon a successful challenge to
2 Frimley Estate Ltd v Fog [2015] NZHC 1010, [2015] NZAR 1019.
3 At [15].
Ms Fog’s status as a member of the public, and the related contention that there can therefore be no breach of the requirement for a prospectus (and by dint of that, no obligation to refund any of her investments, under s 37).4 The material that Frimley put before me lacked anything of substance to demonstrate any apparently tenable basis for contradicting Asher J’s finding that Ms Fog is a member of the public – and thus her claimed status as a creditor. There has therefore been no serious attempt to show the existence of any real basis for challenging her claimed status as a creditor, and as Frimley has now chosen, in the context of the present application, to abandon its case in opposition, there is no call to revisit my finding that she is a creditor.
[10] Even if there were cause to doubt Ms Fog’s status as a creditor (and I do not think there is), that could not aid Frimley or contradict Ms Fog’s claims to be a person entitled to seek an order for liquidation. If she were not a creditor, she must be a shareholder. Either way, Ms Fog is a person entitled to make an application under s 241.
[11] It is also plain that the Court is entitled to conclude that Frimley is unable to pay its debts for the purpose of s 241(4). The reasons are twofold:
(a)First, Frimley advises that a receiver has just been appointed, and on this basis that it longer opposes an order for liquidation. Its sole asset is a piece of undeveloped land known as the “ADB block”. The only available inference is that Frimley accepts that the receiver has been appointed in respect of all or a substantial part of its assets. It is therefore presumed to be able to pay its debts pursuant to s 287(c) Companies Act.
(b)Secondly, the evidence before me plainly indicates that Frimley is in fact insolvent on both a cash flow and an assets basis:5
(i)On a cash flow basis, it is clear that Frimley cannot meet the current demands upon it. Counsel for Frimley admitted in
4 The Securities Act 1978 has been repealed. However, under the Financial Markets Conduct Act 2013, sch 4, cls 15, 17 and 19, the Securities Act still applies to Ms Fog’s investment.
5 Companies Act 1993, s 4.
argument before me at the previous hearing that it would not be able to refund the three amounts Ms Fog invested with statutory interest.6 As well as those debts, which amount to
$281,687.05 as at 30 November, Frimley acknowledges it owes $337,134.88 to a Mr and Mrs Rinckes,7 as well as management fees and guarantee fees to its director. It also owes significant GST arrears of at least $262,000, plus a raft of other smaller debts. Even putting aside the component of its debts that are subject to Ms Fog’s appeal, on Frimley’s own admission it cannot afford to prepare its final accounts for the 2012 financial year.
(ii)On an asset basis, it is equally clear that the value of Frimley’s liabilities exceeds the value of its assets. The ADB block is, on the most recent valuation evidence obtained by the plaintiffs, valued between $850,000 and $1,470,000 excluding GST. The
$850,000 figure is a forced sale figure, which I accept I should adopt, considering that any sale of the land to pay Frimley’s debts at this late stage would, indeed, be a forced one. With a debt of $1 million secured against the ADB block, and total debts closer to $3 million, it is clear that regardless of which valuation figure is accepted, Frimley’s liabilities exceed its assets.
[12] Either of these bases are sufficient for me to hold that Frimley is insolvent and unable to meet its debts as they come due. Additionally by withdrawing its opposition to an order for liquidation, Frimley has abandoned any remaining argument that there are discretionary reasons why an order for liquidation should not be made. All of the indications are that the financial affairs of the company should be brought under the control of a liquidator without further delay in order to protect the interests of creditors. There is more than a suggestion in the evidence that the
6 See Fog v Frimley Estate Ltd, above n 1, at [11].
7 In respect of the debts to the Rinckes, Frimley has discontinued its application for relief orders under s 37AH of the Securities Act 1978. This has the effect of making those debts due and owing under ss 37(4) to (6) of the Securities Act.
company’s assets are being dissipated, and that those with the effective management and control of the company are not using their power to ensure that the company’s obligations to creditors are met, but to reward themselves. It is, in all the circumstances, just and equitable that the company be put into liquidation.
Result
[13]The defendant company is put into liquidation.
[14]Vivian Fatupaito and Shaun Neil Adams are appointed liquidator(s).
[15] The defendant company is to pay 2B costs to the plaintiff and the supporting creditor, plus disbursements as fixed by the Registrar.
[16]I make the following orders in relation to the remuneration of the liquidators:
a)The rates of remuneration of the liquidators and staff working under their supervision and control are fixed at the rates set out in the liquidator’s consent dated 30 July 2015, subject to the proviso that the hourly rate for a partner / director may not exceed $500.
b)The liquidators are to apply at the conclusion of the liquidation for approval of their overall remuneration.
[17]These orders are timed at 2.20 pm on 7 December 2015.
Associate Judge Sargisson
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