Foresters Buildings Limited v Gormack - [2013] NZHC 1882

IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY

CIV-2013-476-000176 [2013] NZHC 1882

BETWEEN FORESTERS BUILDINGS LIMITED Applicant

AND

AMANDA JANE GORMACK, NIGEL JAMES GORMACK and ANTHONY THOMAS MCCLEARY as trustees of the STRATHEYRE TRUST

Respondent

Hearing: 15 July 2013

Appearances:

A R McRae for Applicants
H C Matthews for Respondents

Judgment:

26 July 2013

JUDGMENT OF ASSOCIATE JUDGE OSBORNE
as to application to set aside statutory demand

Introduction

[1] This case concerns a statutory demand served upon a property-owning company by one of its shareholders. The demand relates to an undisputed shareholder advance.

[2] The applicant says that the demand should be set aside as an abuse of process, as injustice would result if the demand was followed by a liquidation of the applicant.

[3] The application requires a consideration of the Court’s jurisdiction to set aside a statutory demand on the residual grounds available under, firstly, the particular circumstances surrounding the shareholder advance and, secondly,
s 290(4)(c) Companies Act 1993.

FORESTERS BUILDINGS LIMITED v GORMACK & Ors [2013] NZHC 1882 [26 July 2013]

The background

An accounting partnership arranges its premises

[4] HC Partners LP (“HC”) is the present form of a long-established Timaru firm of chartered accountants.

[5] At some point, the then partners agreed upon a not uncommon arrangement in relation to business premises from which they would operate. They arranged the formation of the applicant, Foresters Buildings Limited (“Foresters”). Foresters acquired a number of properties, both in Timaru and Waimate. The family trusts of the partners became the equal shareholders in Foresters. Relations of the partners became the directors of Foresters.

[6] The properties purchased by Foresters were funded by bank debt, an advance from HC and shareholder advances by the seven shareholders.

[7] The second named respondent, Nigel Gormack, was until 31 January 2012 a partner of HC. His family trust is a shareholder in Foresters and a creditor of Foresters through a shareholders advance of $191,315 (precisely the same amount as the other six shareholder advances).

The financial position of Foresters

[8] It is common ground that Foresters’ revenue is sufficient to enable it to meet

its outgoings, Foresters having generated an after tax profit of $67,841 in the year to

31 March 2012.

[9] Foresters would therefore pass a cash flow test of solvency.

[10] The same clarity does not apply to solvency tested on a balance sheet approach. For the reasons which follow, the evidence adduced does not satisfy me either that Foresters is solvent or that it is insolvent on a balance sheet basis. There is simply insufficient evidence in a summary context to be satisfied either way on the balance of probabilities.

[11] The primary evidence for Foresters was from Paul Wolffenbuttel, a partner in HC, and a trustee of one of the family trusts which is a shareholder in Foresters. Mr Wolffenbuttel does not depose in direct terms either that Foresters is solvent or insolvent in a balance sheet sense. He expressly deals with the cash flow sense,…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Keep reading for free

Create a free CaseChat account to read Foresters Buildings Limited v Gormack and more:

Read every judgment in full
Ask AI and get answers linked to paragraphs
See how each paragraph was cited in later cases
Download judgments as PDF or Word

Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details

Case: [2013] NZHC 1882
Decision Date: 26 July 2013

CaseChat Overview and Summary

Foresters Buildings Limited, a property-owning company, applied to the High Court of New Zealand to set aside a statutory demand issued by one of its shareholders, Nigel Gormack, trustee for the Stratheyre Trust. The demand related to an undisputed shareholder advance. Foresters argued that the demand should be set aside as an abuse of process, as injustice would result if the demand was followed by a liquidation of the company. The application required the Court to consider the jurisdiction to set aside a statutory demand on the residual grounds available under the Companies Act 1993. The Court dismissed the application and extended the period specified for payment of the debt to 15 August 2013. The Court found that Foresters had not established either that it was insolvent or that it was solvent, and that the statutory demand did not constitute an abuse of process. The Court also found that the constitutional process for the sale of shares was not an appropriate way to bring repayment of the debt to Stratheyre to a conclusion. The Court ordered Foresters to pay the respondents' costs of the application on a 2B basis, together with disbursements to be fixed by the Registrar.

Orders