Foote v Keltern Stud Ltd

[2013] NZHC 579

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2012-441-497 [2013] NZHC 579

UNDER  the Companies Act 1993

IN THE MATTER OF     an application for liquidation

BETWEEN  SUSANNE JANE FOOTE AND STUART DAVID FOOTE AS TRUSTEES OF THE FOOTE FAMILY TRUST

Plaintiffs

ANDKELTERN STUD LIMITED Defendant

Hearing:         25 March 2013 (Heard at Napier)

Counsel:         J.L. Bates - Counsel for Plaintiff

N.J. Russell - Counsel for Defendant

Judgment:      25 March 2013

ORAL JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

Solicitors:      Gresson Grayson, Solicitors, PO Box 1045, Hastings

Chen Palmer Public and Employment Law Specialists, PO Box 2160, Wellington 6140

SJ FOOTE AND SD FOOTE AS TRUSTEES OF THE FOOTE FAMILY TRUST V KELTERN STUD LIMITED HC NAP CIV-2012-441-497 [25 March 2013]

Introduction

[1]      Before the Court is an application by the plaintiffs seeking orders to place the defendant company into liquidation.

[2]      The grounds advanced by the plaintiffs in support of this application relied first upon s 241(4)(a) Companies Act 1993, that the defendant company was unable to pay its debts and therefore an order for liquidation should be made; and alternatively, and secondly, on s 241(4)(d) Companies Act 1993, that it was just and equitable that the company should be placed into liquidation.

[3]      The liquidation application before the Court was originally opposed by the defendant.  More on this aspect later.

Background Facts

[4]      Some brief background to the dispute between these parties is useful here.

[5]      As  I noted  earlier in  this  proceeding  in  an  oral  judgment  I gave on  13

December 2012 this proceeding involves a company Keltern Stud Limited which was formed many years ago by members of the Kelt Family.

[6]      Prior to the death in 2000 of Mr G.R. Kelt (senior) (the late Mr G.R. Kelt senior), the father of both the first-named plaintiff and her brother David Andrew James Kelt (Mr Kelt), as I understand it a 50% shareholding in the defendant company was owned by the late Mr GR Kelt senior who had originally set up the company, and a 50% shareholding was owned by his son Mr Kelt.

[7]      Following the death of her father, the late Mr GR Kelt senior, Ms Foote acquired effectively by an inheritance his 50% shareholding in the defendant company.  In addition, about that time as I understand the position, the company records show that the late Mr GR Kelt senior and his son, Mr Kelt as shareholders in the defendant, had made advances to the company each totalling  approximately

$313,000.00.  I believe these amounts were described at the time in the accounts of

the defendant company as shareholders’ current account loans. The plaintiff throughout has maintained that this is significant here.

[8]      Following her acquisition of the shares and shareholders’ loans I understand that in about 2000 Ms Foote became a director of the defendant company along with her brother Mr Kelt.  They continued as directors until Ms Foote resigned, I am told in  about  2010.    Ms  Foote’s  50%  shareholding  in  the  capital  of  the  defendant company has for some time now been held by the plaintiffs as trustees of the Foote Family Trust.

[9]      As I noted in my 13 December 2012 judgment, it seemed at that point that from all accounts in the recent past Ms Foote and her brother Mr Kelt had fallen out in a rather major way.  Certainly, as I had noted there, so far as the defendant company  was  concerned,  as  family  member  shareholders,  they  had  become estranged from each other.  On 13 December 2012 I recorded that both counsel who appeared before me at that time had acknowledged that this was the case.

[10]     That situation if anything it seems has worsened since December 2012.

[11]     This has resulted in fact as recently as last week on 20 March 2013 with the filing  by the  defendant  of  a  “Notice  of Admission  of  Cause  of Action”.    It  is important to set out the terms of that Notice of Admission which was filed here which reads:

1.          The Defendant in this proceeding, Keltern Stud Limited, admits on just and equitable grounds that the company should be put into liquidation for the reasons that:

(a)        The shareholders of the company have become estranged such that agreement on direction and management of the company has become impossible; and

(b)        The Defendant company has been unable to operate as a result ...

[12]     It is clear from this Notice of Admission and in addition from the submissions advanced to me today by counsel for both parties that an order for liquidation of the defendant company is appropriate and should be made. That order is to follow.

[13]     The only effective issue before me therefore is a contention advanced to the Court by Mr Bates for the plaintiff that the Court should also rule on the first cause of action advanced by the plaintiffs in their amended statement of claim, that an order for liquidation of the company should be made in terms of s 241 (4)(a) Companies Act 1993, in that the company is unable to pay its debts.

Counsel’s Arguments and My Decision

[14]     As best I can tell from submissions advanced to me today by Mr Russell for the defendant, it opposes any order for liquidation which specifies that it is made on the basis that the company is unable to pay its debts.  This is notwithstanding that an order for liquidation on just and equitable grounds under s 241 4(d) Companies Act

1993 is to be made.

[15]     Thus, effectively without opposition now, an order for liquidation is to follow here.   Notwithstanding this, I will deal briefly with the outstanding arguments advanced before me by counsel as to whether, in addition to the just and equitable ground in terms of s 241(4)(d) Companies Act 1993 on which this liquidation order is to be based, the question whether the order is to be made also under s 241(4)(a) on the basis that the company is unable to pay its debts, will be addressed.

[16]     On this, s 287 Companies Act 1993 is relevant here and states as follows:

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

(a)       The company has failed to comply with a statutory demand ....

[17]     In this case, the defendant was served by the plaintiff with a statutory demand claiming the amount of $313,213.00 said to be a debt owing to the plaintiffs.  This statutory demand was served on 17 July 2012.

[18]    It is not questioned here that the defendant, having been served with the statutory demand, took no steps at that point and did not comply with the demand. Thus the plaintiff then filed in this Court a statement of claim seeking orders that the

defendant be placed into liquidation on the basis that it was presumed to be unable to pay its debts in terms of s 241 (4)(a) Companies Act 1993 and that a liquidation order should follow.

[19]    When this matter came before me previously on 13 December 2012, an application made on behalf of the defendant for an adjournment was granted, but very much on the basis that there appeared to be a real dispute between the parties regarding this $313,213.00 debt and that it was critical for the Court to have before it all available evidence on that aspect to make a proper decision on a matter as serious as liquidating a company.  Accordingly, in my 13 December 2012 judgment at para [44] I made directions that the plaintiffs were to have a three week period of time for filing  and  serving  any  additional  affidavit  evidence  they  might  wish  and  the defendant was then to have a further period of some two weeks thereafter to file and serve any affidavit/s it may wish in reply.

[20]    As a result, since 13 December 2012 the plaintiffs have filed a significant number of affidavits to put before the Court additional evidence regarding this debt and other matters.

[21]     Perhaps somewhat surprisingly, the defendant however has chosen to put no additional affidavit evidence before the Court.  There has been no independent verification of statements made by Mr Kelt in earlier affidavit evidence before the Court as to the position concerning the $313,213.00 debt. Accordingly, Mr Bates for the plaintiff urged upon me the contention that it cannot be in any way suggested here that the defendant has done sufficient to rebut the presumption of insolvency which arises through its failure to comply with the earlier statutory demand.

[22]     What is clear to me from all the material which has been placed before the

Court, is that at an early point in the history of this whole tangled family matter, the

$313,213.00 owing to the plaintiffs Foote Family Trust was regarded as a shareholders  current  account  loan  to  the  defendant  company,  and  indeed  was matched by a similar loan from Mr Kelt’s interests.

[23]    In recent times, however, it does seem that a change in approach to the categorisation of this advance has materialised at the behest it seems of Mr Kelt.

[24]     Before me, Mr Russell counsel for the defendant endeavoured to explain that the defendant has chosen to put no further evidence before the Court subsequent to my decision of 13 December 2012 as, in his words, it would make little difference here as the company in any event was to be placed into liquidation on just and equitable grounds.

[25]     Notwithstanding this, it is my view in this case that the defendant has clearly done insufficient  here to  rebut  the presumption  against  it  that,  having failed  to comply with the statutory demand, it is unable to pay its debts.  I am aware that the defendant, in submissions from its counsel, still endeavours to maintain that the

$313,213.00 claim from the plaintiffs represents capital in the defendant company rather than a loan but notwithstanding this, there is additional evidence before the Court as to further substantial indebtedness of the defendant which would support the view here that the company is insolvent and unable to pay its debts when they fall due.

[26]     This  additional  evidence  includes  a  supplementary  affidavit  of  Mr  Gary James McKosh a senior manager in the asset management unit of Crown Asset Management Limited sworn 21 March 2013 confirming an earlier affidavit he has provided sworn 20 March 2013.  These affidavits depose that, notwithstanding Mr Kelt’s earlier claims in September 2012 that the company is able to pay its debts as they fall due, a debt in excess of $1.4 million is owing and overdue from the defendant to Crown Asset Management Limited, and a lawyer’s demand for this debt was made in December 2012 but has been unanswered.   This Crown Asset Management Limited debt is also in fact referred to in draft accounts for a 2012 period completed by WHK, the accountants to the defendant company which presumably were assembled following instruction by Mr Kelt, the company’s sole director.  There has been, as I understand it, some argument in the past from Mr Kelt that this Crown Asset Management Limited debt is not owing or is subject to some dispute, counterclaim, or set-off but on its face it remains a debt outstanding by the defendant which it is unable to pay.

[27]     In addition, there is also evidence before the Court from independent sources as to additional overdue debt due from the defendant in particular owing to PGG Wrightson Finance Limited.  That debt totals some $110,043.60 plus interest, costs and expenses and a demand requiring payment by about the end of January 2013 remained unmet.

[28]     Weighing up all these matters, I come to the conclusion that, notwithstanding the provisions of s 241(4)(d) Companies Act 1993, an order for liquidation of the defendant company here should also be made in terms of s 241(4)(a) Companies Act

1993 in that this company is presumed to be unable to pay its debts pursuant to s 287

Companies Act 1993 and it has been quite unable to properly rebut this presumption made against it.

Conclusion

[29]    For all the reasons outlined above, the liquidation application before me succeeds and the following orders are now made:

(a)       An  order  is  made  placing  the  defendant  company  Keltern  Stud

Limited into liquidation.

(b)       The Official Assignee is appointed liquidator.

(c)       Costs with respect to this application are reserved – more on this costs aspect below.

(d)      This order is timed today 25 March 2013 at 3.30 pm.

Costs

[30]     As to costs, as I note above these are reserved.

[31]     If counsel and the parties are unable to resolve the question of costs between them, then they may file memoranda on the issue of costs sequentially which memoranda are to be referred to me, and in the absence of either party indicating

they wish to be heard on the matter, I will decide the question of costs based on the material then before the Court.

‘Associate Judge D.I. Gendall’