Forensic Recovery Associates Limited v farmers First Livestock Limited
[2024] NZHC 3135
•25 October 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2024-409-244
[2024] NZHC 3135
UNDER the Companies Act 1993 IN THE MATTER
of the liquidation of Farmers First Livestock Limited
BETWEEN
FORENSIC RECOVERY ASSOCIATES LIMITED
Plaintiff
AND
FARMERS FIRST LIVESTOCK LIMITED
Defendant
Hearing: 25 October 2024 Counsel:
J P Hodgins on behalf of D G Hayes for Plaintiff G K Riach for Defendant
Judgment:
25 October 2024
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 25 October 2024 at 3.30 pm pursuant to rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:
FORENSIC RECOVERY ASSOCIATES LIMITED v FARMERS FIRST LIVESTOCK LIMITED [2024] NZHC
3135 [25 October 2024]
[1] This is an application by the plaintiff to put the defendant company into liquidation. The application is opposed and gives rise to two issues, namely:
(a)is the plaintiff a creditor of the defendant company with standing to apply for an order putting the defendant company into liquidation; and
(b)is the defendant company unable to pay its debts.
Background
[2] There is little affidavit evidence before me. Apart from affidavits of service, the only evidence filed by the plaintiff is an affidavit of Nicholas Hayes purporting to verify the statement of claim. The affidavit follows the standard form in the High Court Rules 2016 but does not establish what Mr Hayes’s relationship is with the plaintiff, that he has personal knowledge of the facts or that he is authorised to make the affidavit on the plaintiff’s behalf.1
[3] I have done my best to piece together the background from the pleadings, documents attached to an affidavit of service of a statutory demand and the affidavit of the defendant company’s director, Leonard Bourton, filed in support of the defendant company’s successful application for an extension of time to file its statement of defence.2
[4] It appears the plaintiff is a debt collection company, although the statement of claim does not identify its business in the intituling nor is it stated in the body of the document.3 I am advised the defendant company is a cartage contractor. The defendant company was in receivership between 1 March 2024 and 30 May 2024.
[5] On 30 November 2023 KT Law Ltd, a legal firm at Christchurch, wrote to Mr Bourton on behalf of its client, Pawan Kahlon, in relation to disputes over a vehicle purchased by Mr Kahlon on 20 September 2023 and employment matters. The letter
1 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR31.5.02] and [HR31.5.03].
2 The timetabling orders made on 5 August 2024 anticipated that the affidavit of Mr Bourton would be relied upon and the Court may have regard to it under the High Court Rules 2016, r 7.32.
3 High Court Rules, r 5.11(g).
provides details of the disputes. Most relevantly for present purposes, in relation to the vehicle (a truck and trailer) it was said that Mr Kahlon had paid for the vehicle in full on 25 September 2023 but when he sought to collect it, he was told it was held by a third party, Dudley Mechanical & Parts Ltd. The letter records broken promises by Mr Bourton to Mr Kahlon about collecting the vehicle. There was said to be $17,365 owing to Dudley Mechanical & Parts Ltd for work on the vehicle.
[6] In relation to the employment matters, it appears that notwithstanding that the letter was addressed to Mr Bourton personally it was said Mr Kahlon’s employer was Farmers First Logistics (which I take is a reference to the defendant company).
[7] On 14 March 2024 KT Law Ltd sent, on behalf of Load Carriers Ltd, a statutory demand to both a personal email address of Mr Bourton and the email address of the receiver of the defendant company. There is an affidavit of service sworn by Mr Hodgins, who appeared as counsel for the plaintiff, confirming that the statutory demand was served by email. At the hearing today Mr Hodgins said he also handed the statutory demand to Mr Bourton. This was the first time this had been suggested. The issue of whether service of the statutory demand was properly effected has always been contentious. Having sworn an affidavit in the proceeding, Mr Hodgins should not have appeared as counsel.4 I was not prepared to accept evidence from the Bar on such a matter, and proceed on the basis that the plaintiff’s evidence is that service of the statutory demand was effected by email in the manner set out in Mr Hodgins’s affidavit.
[8] The email to which the statutory demand was attached advised that KT Law Ltd acted for Mr Kahlon, a director of Load Carriers Ltd, and noted that as no response had been received to the letter of 30 November 2023 a statutory demand was attached for “work done on 2018 Iveco Stralis Tractor Unit NCH904 by Dudley Mechanical & Parts Limited”. The statutory demand required payment by the defendant company of $21,770.81:
... for the repair of 2018 Iveco Stralis Tractor Unit at Dudley Mechanical & Parts Limited, please see attached the invoices which were paid by Mr Pawandeepsignh Kahlon on behalf of Farmers First Livestock Limited in
4 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, r 13.5.
order to access the truck and begin earning with it, as per the agreement he had entered with Mr Leonard Bourton of Farmers First Livestock Limited.
[9] Neither Mr Bourton nor the receiver responded to the statutory demand. Whilst Mr Bourton acknowledges the email was received at his “personal email address”, he says at that time the defendant company was in receivership and it was his understanding that the statutory demand had not been properly served nor received by the receiver.
[10] On 20 May 2024 this proceeding was commenced by the plaintiff. It seeks an order for liquidation of the defendant company but does not, in my view, satisfactorily plead the basis upon which the plaintiff is said to be a creditor of the company nor the grounds upon which the application is based. I infer from the reference to service of the statutory demand upon the defendant company that the plaintiff relies upon s 241(4)(a) of the Companies Act 1993 (the Act).
[11] The statement of claim pleads that the defendant company owed a debt to Dudley Mechanical Ltd (not Dudley Mechanical & Parts Ltd) of $21,770.81 and that Mr Kahlon paid that debt “on behalf of his company Load Carriers Limited”.5 It then pleads service of a statutory demand, without any details of who issued the demand or what it was in respect of. It pleads the demand expired unpaid and undisputed and that “the debt” was assigned to the plaintiff.
[12] The defendant company did not file a statement of defence as required by r 31.17, but on 11 July 2024 was granted an extension of time for filing its statement of defence. The statement of defence (and the affidavit of Mr Bourton filed in support of the application for leave extending time for filing of the defence) opposed the application for liquidation on several grounds. These are that:
(a)it denies it was indebted to Dudley Mechanical & Parts Ltd or that Mr Kahlon paid Dudley Mechanical & Parts Ltd himself or on behalf of his company;
5 Mr Riach points out that there is no company called Load Carriers Ltd, only Load Carrier Ltd, but nothing turns on that for present purposes.
(b)the statutory demand was not properly served;
(c)it denies any knowledge of an assignment of the debt owed to Dudley Mechanical & Parts Ltd as alleged, and was not served with any notice of assignment;
(d)any debt was owed to Mr Kahlon personally and not to Load Carrier Ltd;
(e)it has a set-off and/or cross-claim against Mr Kahlon and/or Load Carrier Ltd which exceeds the amount claimed in this proceeding; and
(f)this proceeding is an abuse of process.
[13] This application was first set down by Associate Judge Lester for hearing on 19 September 2024. On the application of the plaintiff’s counsel the hearing was adjourned to 25 October 2024. In a minute of 5 August 2024, I made directions for the filing of further evidence and submissions prior to the hearing. Neither the defendant company nor the plaintiff filed any further evidence. Brief submissions have been filed.
The Companies Act
[14]Section 241 of the Act relevantly provides:
241 Commencement of liquidation
(1)A company may be put into liquidation by the appointment as liquidator of a named person or of an Official Assignee for a named district.
(2)A liquidator may be appointed by—
…
(c) the court, on the application of—
…
(iv)a creditor (including any contingent or prospective creditor); or
…
(4)The court may appoint a liquidator if it is satisfied that—
(a)the company is unable to pay its debts; or
…
Is the plaintiff a creditor of the defendant company?
[15] The plaintiff’s application proceeds on the basis that it is a creditor of the defendant company and therefore has standing to apply for an order for liquidation. It appears from the statement of claim that its status as a creditor is said to arise from the following:
(a)the defendant company owed an entity called Dudley Mechanical Ltd an amount of $21,770.81;6
(b)Mr Kahlon paid that debt on behalf of Load Carrier Ltd; and
(c)the debt was assigned to the plaintiff.
[16] These assertions do not mirror the statutory demand issued by KT Law Ltd which asserts that Dudley Mechanical & Parts Ltd was paid by Mr Kahlon on behalf of the defendant company “as per the agreement he had entered with Mr Leonard Bourton of Farmers First Livestock Limited”. Based on this account, it is not clear on what basis the statutory demand was issued by Load Carrier Ltd.
[17] In any event, all the matters in [15] above are disputed by the defendant company, and there is insufficient evidence to establish any of those pleaded assertions bearing in mind that it is the plaintiff that has the burden of proving its claim to the civil standard.
6 It appears this was meant to be Dudley Mechanical & Parts Ltd.
[18] In relation to the first matter in [15(a)] above, there is attached to the plaintiff’s affidavit of service copies of invoices apparently rendered by Dudley Mechanical & Parts Ltd to the defendant company but no other evidence to establish the defendant company’s liability for those invoices. Mr Hodgins advised me that an affidavit could be obtained for Dudly Mechanical & Parts Ltd if I required that but of course, that evidence should already have been filed.
[19] In relation to the second matter in [15(b)], KT Law Ltd’s letter of 30 November 2023 identifies a dispute between Mr Bourton and Mr Kahlon over the vehicle. There is no mention of Load Carrier Ltd and no evidence of any payment by Load Carrier Ltd to Dudley Mechanical & Parts Ltd. As noted above, the statutory demand states Mr Kahlon paid Dudley Mechanical & Parts Ltd.
[20] Third, in relation to [15(c)], there is no evidence of an assignment to the plaintiff of any debt owed as between Load Carrier Ltd and the plaintiff. While Mr Riach accepts that as a matter of law notice to a debtor is not a formal requirement to effect a valid assignment, that is not what is in issue here.7 What is in issue is whether an assignment was ever effected and what was assigned. It is fundamental that in a case where those matters were put in issue by the defendant company that the plaintiff would produce the assignment.
[21] Further, and importantly, it is entirely unclear to me how a payment by Mr Kahlon or Load Carrier Ltd to Dudley Mechanical & Parts Ltd creates a debt owed by the defendant company. Counsel for the plaintiff asserts in written submissions that “[t]he evidence is that Load Carriers Limited by way of subrogation came into possession of the debt owed to Dudley Mechanical & Parts Limited…”. There is no such evidence, nor an explanation of how as a matter of law that could be the case. Mr Hodgins was unable to assist me on this point at the hearing.
[22] The plaintiff chose not to file evidence in response to the defendant company’s statement of defence and the affidavit of Mr Bourton. It was aware its status as a creditor is in issue. It has failed to establish it is a creditor of the defendant company. It follows it has no standing to make this application. That is enough to deal with the
7 Property Law Act 2007, s 51(3).
application. However, there are other reasons this application must fail to which I will now turn.
Is the defendant company unable to pay its debts?
[23] There is no allegation in the statement of claim that the defendant company is unable to pay its debts, but I understand that is what the plaintiff asserts. What it relies on to establish the defendant company’s inability to pay its debts is non-compliance with the statutory demand. The plaintiff says the statutory demand was served by email to both the director and receiver of the defendant company and that this is valid service. I do not agree.
[24] Service of statutory demands is governed by s 388 of the Act.8 Section 388 relevantly provides:
388 Service of other documents on companies
(1)A document, other than a document in any legal proceedings, may be served on a company as follows:
(a)by any of the methods set out in paragraph (a) or paragraph
(b) or paragraph (c) or paragraph (e) of subsection (1) of section 387; or
(b)by posting it to the company’s registered office or address for service or delivering it to a box at a document exchange which the company is using at the time; or
(c)by sending it by facsimile machine to a telephone number used for the transmission of documents by facsimile at the company’s registered office or address for service or its head office or principal place of business; or
(d)by emailing it to the company at an email address that is used by the company.
…
[25] Section 388(1)(d) of the Act refers to a document being served by emailing it to the company at an email address used by the company. Here, there is no evidence that the email address to which the statutory demand was sent was used by the
8 See Upright Scaffolding Ltd v Pinnies Painters & Plasterers Ltd [2019] NZHC 1495, [2019] NZAR 1084.
company. I was not referred to anything to contradict Mr Bourton’s evidence that the email address to which the statutory demand was sent was his personal email address.
[26] Maple Land International Ltd v Ping concerned an application to set aside a statutory demand.9 The statutory demand was emailed to the alleged debtor’s solicitor. It was also delivered to the solicitor’s office by courier and undoubtedly received. I applied Upright Scaffolding Ltd and other authorities and concluded that a statutory demand is not a notice in a legal proceeding for the purposes of s 387 of the Act and therefore must be served in accordance with s 388 of the Act.10 The applicant in Maple Land International Ltd submitted there was nothing in ss 387 or 388 permitting service of a statutory demand at the offices of a company’s solicitor, so the act of delivering the statutory demand to the solicitor’s office was of no effect and it made no difference that Maple’s director received a copy of the statutory demand by email from their solicitor. I said:
[31] … there is authority that where there has been irregular service it is not sufficient that the document in question has subsequently come to the attention of the person to be served. I agree with that approach. The fact that [the director] accepts the statutory demand was sent by email to him (albeit some days after it was received by his solicitors) does not change the fact that it was never validly served.
(footnotes omitted)
[27] Simple Engineering Ltd v Ingenious 1 Ltd was another case where statutory demands were served by email to the defendant company’s solicitors.11 Associate Judge Lester followed my decision in Maple Land International Ltd and found that the statutory demands were a nullity as they were not validly served.12
[28] Here, the statutory demand was also sent to the receiver but service on the receiver is not service on the defendant company, and I have not been referred to anything that would suggest otherwise.
9 Maple Land International Ltd v Ping [2022] NZHC 248.
10 At [17].
11 Simple Engineering Ltd v Ingenious 1 Ltd [2024] NZHC 1186.
12 At [17].
[29] Although the argument was not advanced, I should note that I would not accept an argument that receipt of the statutory demand by Mr Bourton by email was valid service under ss 388(1)(a) and 387(1)(a) of the Act as “delivery to a person named as a director of the company on the New Zealand register”. As I noted in Maple Land International Ltd under s 387(1)(a) “delivery” to a person named as a director contemplates personal delivery, not transmission by electronic means.13
[30] It follows that the statutory demand was not validly served and is a nullity. There is no other evidence from which I could conclude the defendant company is unable to pay its debts justifying the making of an order for liquidation. I need not consider any of the other grounds advanced by the defendant company in defence of the claim.
Result
[31]The plaintiff’s application is dismissed.
[32] As far as costs are concerned, Mr Hodgins submits that if the plaintiff is unsuccessful costs should lie where they fall. I do not agree. The defendant company was successful and is entitled to costs, which I award on a 2B basis along with reasonable disbursements as fixed by the Registrar.
[33] I record for completeness there was no application by any creditors in support to be substituted as plaintiff. I am advised that the Commissioner of Inland Revenue was aware of the hearing today but there was no appearance on its behalf. I note there was an appearance in support filed on behalf of Forensic Recovery Specialists Ltd. Mr Riach advises there is no such company registered but as no application for substitution was made it is unnecessary to address any issues that might arise from that.
O G Paulsen Associate Judge
13 Maple Land International Ltd v Ping, above n 9, at [29].
Solicitors:
Hunwick Law Ltd, Hamilton Kearneys, Christchurch
Counsel:
G K Riach, Barrister, Christchurch D G Hayes, Barrister, Taupo
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