Fordyce Road Development Limited (in liquidation) v Khan

[2019] NZHC 1397

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-1099

[2019] NZHC 1397

UNDER

Part 32 of the High Court Rules 2016

BETWEEN

FORDYCE ROAD DEVELOPMENT LIMITED (IN LIQUIDATION)

First Plaintiff

BRYAN EDWARD WILLIAMS
Second Plaintiff

AND

FEROZ KHAN

First Defendant

CAROL LEON KHAN

Second Defendant

Hearing:	On the papers
Appearances:	M D Arthur
Judgment:	19 June 2019

JUDGMENT OF PALMER J

This judgment is delivered by me on 19 June 2019 at 10.00 am pursuant to r 11.5 of the High Court Rules.

.....................................................

Registrar / Deputy Registrar

Solicitors:

Chapman Tripp, Auckland

FORDYCE ROAD DEVELOPMENT LTD v KHAN [2019] NZHC 1397 [19 June 2019]

What happened?

[1]                 Fordyce Road Development Ltd (Fordyce), the first applicant, went into liquidation on 6 May 2016, owing at least $339,908.73 to creditors. Mr Bryan Williams is the liquidator. Mr Feroz Khan, the first respondent, was the director. Mrs Carole Khan, the second respondent, was a shareholder and former director.

[2]Mr Williams believes, three weeks prior to liquidation, Fordyce received

$100,000 in settlement of termination of a sale and purchase agreement of land Fordyce had agreed to buy. Mr Williams believes Mr Khan directed the funds, less legal fees, of $97,274.50 to be deposited into his personal bank account. Mr Williams was not advised of this at his meeting with Mr and Mrs Khan or during a subsequent examination. Mr Williams believes the funds have been partly transferred to Mrs Khan’s bank account and partly used for personal expenditure by Mr Khan. Mr Williams has uncovered this through documents from Fordyce’s solicitors and the property vendors’ solicitors. There is evidence consistent with his beliefs.

Applications

[3]                 The applicants are filing proceedings against Mr Khan for breach of director’s duties for $339,908.73 and for breach of director’s and fiduciary duties for $97,274.50. They are filing proceedings against Mrs Khan for knowing receipt of $29,000. The applicants also apply for freezing orders on a without notice basis. They submit there is a real risk service of the application will trigger dissipation of the assets and the matter is urgent because the Khans are aware the liquidator has discovered the alleged misapplication of funds. Fordyce gives an undertaking as to damages.

Decision

[4]                 I consider the plaintiffs have satisfied the criteria for the Court granting a freezing order without notice under pt 32 of the High Court Rules 2016.1 There are assets to which the order can apply. I consider the proposed claim is capable of tenable argument and supported by sufficient evidence, bearing in mind the early stage of the

1      Shaw v Narain [1992] 2 NZLR 544 (CA) at 548; High Court Rules 2016, r 32.5.

application.2 The applicants have a good arguable case. And I consider there is a real risk of dissipation of the assets, given the concealed transfer of funds to date.

[5]                 Weighing the need to protect the applicants with the prejudice to the respondents, I consider it is in the overall interests of justice for freezing orders to be made. I am also satisfied it is appropriate for the orders to be made without notice as service could trigger dissipation of the assets.  Ancillary orders may be made under   r 32.3.

[6]Accordingly, I direct:

(a)Mr Khan is prohibited from disposing of, dealing with or diminishing the value of his assets, including all funds in the account with Kiwibank Ltd bearing numbers 38-9006-00287293-00 and 38-9006-00287293- 01.

(b)Mrs Khan is prohibited from disposing of, dealing with or diminishing the value of her assets.

(c)Mr and Mrs Khan, within 15 working days of these orders being made, must each file and serve an affidavit setting out the nature, extent and value of his and her assets within and outside New Zealand, respectively, whether held by him or her directly or indirectly.

(d)Under r 32.7, the orders expire on 18 July 2019.

(e)The applicants may apply, on notice, for renewal of the orders before they expire.

(f)The applicants must serve these orders, and this judgment, on the respondents as soon as practicable.

2      Hannay v Mount [2011] NZCA 530 at [22].

(g)I grant leave for any party affected by the orders to apply to discharge or vary them on three working days’ notice to the other parties.

(h)Counsel should file memoranda by 4 pm Monday 24 June 2019 with timetabling proposals.

(i)The proceeding will be called in the Duty Judge List on Thursday 27 June 2019 for timetable directions.

Palmer J