Glenvar Vault Capital Limited (in liquidation) v Foster Crescent Limited
[2020] NZHC 2432
•18 September 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-855
[2020] NZHC 2432
UNDER The Companies Act 1993 IN THE MATTER
of the liquidation of Glenvar Vault Capital Limited (in liquidation)
BETWEEN
GLENVAR VAULT CAPITAL LIMITED (IN LIQUIDATION)
First Plaintiff
KEVIN JOHN DAVIES as liquidator of Glenvar Vault Capital Limited (in liquidation)
Second PlaintiffAND
FOSTER CRESCENT LIMITED
Defendant
Hearing: 13 August 2020 Appearances:
K C Francis for the Plaintiffs
No appearance by or on behalf of the Defendant
Judgment:
18 September 2020
JUDGMENT OF POWELL J
This judgment was delivered by me on 18 September 2020 at 3.30 pm pursuant to R 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
GLENVAR VAULT CAPITAL LIMITED (IN LIQUIDATION) v FOSTER CRESCENT LIMITED [2020]
NZHC 2432 [18 September 2020]
[1] The plaintiffs, being Glenvar Vault Capital Limited (in liquidation) (“Glenvar”) and its liquidator, Kevin Davies, seek judgment against Foster Crescent Limited (“Foster Crescent”) in the sum of $110,000.
[2] The plaintiffs allege Foster Crescent acquired Glenvar’s interests in an agreement for sale and purchase at an undervalue in terms of s 297 of the Companies Act 1993. As Foster Crescent has taken no steps in the proceedings, the claim has proceeded by way of formal proof.
What happened?
[3] The evidence establishes that while Clark Valmont was at all times Glenvar’s sole director, Glenvar was in fact under the effective control of a Peter Lewis Chevin. On 14 November 2017 at Mr Chevin’s direction, Glenvar entered into a conditional sale and purchase agreement to purchase freehold property at 9B Whangaparāoa Road, Whangaparāoa (“the property”) from a Mr and Mrs Sheffield.
[4] The purchase price was $711,000.00, with a 10 per cent deposit ($71,100) payable when the agreement became unconditional on 19 December 2017. Settlement was intended to be 30 working days after the unconditional date but was subsequently extended by agreement between Glenvar and Mr and Mrs Sheffield to 2 April 2018.
[5] To enable payment of the deposit, Mr Chevin sought finance from a third party, Arthur Ramani, and on or about 22 December 2017 Glenvar entered into a loan agreement with Mr Ramani which recorded:
The Borrower or a related entity needs $71,000 in funds to be able to pay a 10 % deposit on the property a 9B Whangaparāoa Road, Stanmore Bay, Auckland that Peter Chevin has arranged the purchase for at $711,000, which he has also identified as being worth $950,000 with significant potential to add value.
[6] The loan agreement provided the loan was to be repaid to Mr Ramani on or before 31 March 2018. On or about 22 December 2017 Mr Ramani advanced $71,000
to Glenvar. As Glenvar had no bank account it was advanced to Mr Valmont who the same day arranged to pay the deposit to the vendors’ agent.1
[7] As the settlement date approached Glenvar, again at the instigation of Mr Chevin, borrowed a further $25,000 from Mr Ramani as it attempted to put itself in a position to complete settlement. To assist in raising funds in March 2018 Glenvar also obtained a registered valuation in respect of the property, completed by Lyons & Co Valuers Ltd. The resultant valuation was $730,000 (inclusive of GST if any). It then appears to have nominated Clear White Investments Limited (“Clear White”), a related entity of which Mr Valmont was also the sole director, to take title to the property, but neither Clear White or Glenvar was able to effect settlement on 2 April 2018.
[8] On 22 April 2018 a Martin Reece Cooper wrote to Mr Chevin offering to settle the property personally or through one of his companies as nominee. Mr Cooper suggested that Glenvar offer a further $20,000 deposit to the vendors in order to extend the settlement date by four weeks. In the course of these discussions Mr Cooper suggested to Mr Chevin that Glenvar could have a buy back option to re-purchase the property offered by 30 November 2018 for $911,000.
[9] Following these discussions, Glenvar’s solicitor wrote to the vendors’ solicitor confirming that Glenvar was unable to settle the purchase of the property on 24 April 2018, but had instructions that Mr Cooper or his nominee could settle the purchase of the property on 22 May 2018. The letter went on to advise that if the vendors agreed to defer action under the settlement notice until 22 May 2018, Glenvar would pay a further $20,000 non-refundable deposit towards the purchase of the property. The proposal was accepted by the vendors. As a result, Glenvar paid a further $20,000 as a non-refundable deposit to the vendors’ agents and proceeded to nominate Foster Crescent, whose sole director is Mr Cooper, as the assignee of Glenvar’s obligations under the agreement in place of Clear White, so as to enable Foster Crescent to complete settlement and take title to the property.
1 Although the deposit was technically $71,100 it appears only $71,000 was in fact paid.
[10] Although no nomination agreement signed by Foster Crescent is available, it is clear that agreement must have been reached as Foster Crescent went ahead and completed settlement with the vendors on 18 May 2019, by paying the balance of the funds owing on the purchase of the property, ($620,000), and receiving title to the property.
[11] Glenvar subsequently went into liquidation on 13 November 2019, with the principal creditor being Mr Ramani.
The plaintiffs’ claims
[12] The plaintiffs argue that Foster Crescent obtained the property at an undervalue, having provided no consideration to Glenvar for the deposits paid by Glenvar towards the purchase of the property totalling $91,000.
[13] The plaintiffs also contend that Foster Crescent received an additional benefit as the result of the fact that a registered valuation obtained by Glenvar in March 2018 valued the property at $730,000 (inclusive of GST), and therefore even on the nominal purchase price of $711,000 Foster Crescent had acquired the property at an undervalue and therefore Foster Crescent should pay a further $19,000 to the plaintiffs.
Discussion
[14]Section 297 of The Companies Act 1993 (“the Act”) relevantly provides:
297 Transactions at undervalue
(1)Under subsection (2) the liquidator may recover from a person (X) the amount C in the formula A − B = C, where—
(a)A is the value that X received from a company under a transaction to which the company was or is a party; and
(b)B is the value (if any) that the company received from X under the transaction.
(2)The liquidator may recover the difference in value (that is, C in the formula in subsection (1)) from X if—
(a)the company entered into the transaction within the specified period; and
(b)either—
(i)the company was unable to pay its due debts when it entered into the transaction; or
(ii)the company became unable to pay its due debts as a result of entering into the transaction.
For the purposes of this section,—
(a)transaction has the same meaning as in section 292(3):
(b)specified period means—
(i)the period of 2 years before the date of commencement of the liquidation together with the period commencing on that date and ending at the time at which the liquidator is appointed; and
(ii)in the case of a company that was put into liquidation by the court, the period of 2 years before the making of the application to the court together with the period commencing on the date of the making of that application and ending on the date on which, and at the time at which, the order of the court was made; and
(iii)if—
(A)an application was made to the court to put a company into liquidation; and
(B)after the making of the application to the court a liquidator was appointed under paragraph (a) or paragraph (b) of section 241(2),—
the period of 2 years before the making of the application to the court together with the period commencing on the date of the making of that application and ending on the date and at the time of the commencement of the liquidation.
[15]For the plaintiffs to succeed they must establish:
(a)Glenvar entered into a “transaction” within the meaning of that term in s 292(3) of the Act.
(b)That transaction was during the period specified in s 297(3)(b) of the Act.
(c)Glenvar was either insolvent at the time of the transaction or became insolvent because of the transaction.
(d)Foster Crescent received more from Glenvar under the transaction (to which Glenvar was a party) than Glenvar did.
[16]I address these matters in turn.
Was there a transaction?
[17] A transaction for the purposes of s 292(3) of the Act includes “conveyancing or transferring the company’s property”.2 The nomination of Foster Crescent so as to enable the company to complete the purchase of the property is clearly a transaction for the purposes of s 292(3)(a). As Downs J noted in almost identical circumstances in Glenvar Property Holding Limited v 153 Holdings Limited.3
Section 292(3)(a) provides for a transaction as including any conveyance or transfer of the company’s property. A “conveyance or transfer” of property has been given the widest possible meaning by the courts, and includes “every means by which property may be passed from one person to another.”4 For example, an assignment transferring a chose in action can be transaction under s 292(3)(a).5
The deed of nomination assigned the defendant the right to purchase the Platts’ property under the agreement for sale and purchase earlier entered into by Glenvar.6 The deed made the defendant liable for the obligations attaching to
2 Section 292(3)(a) of the Companies Act 1993.
3 Glenvar Property Holding Limited v 153 Holdings Limited [2016] NZHC 2272 at [30]-[31]. Somewhat surprisingly there appears to be no connection between Glenvar in this case and Glenvar Property Holdings Limited notwithstanding the similar circumstances.
4 Gathercole v Smith (1881) 17 Ch D 1 at 9, cited in Insolvency Law and Practice (online looseleaf edition, Westlaw) at [CA292.03(3)].
5 Levin v West City Construction Ltd [2014] NZCA 98, [2014] 3 NZLR 1 at [20]. The findings in this judgment were reversed on appeal (see West City Construction Ltd v Levin [2014] NZSC 183, [2015] 1 NZLR 362) but the view that an assignment was a transaction was not disputed.
6 Although a deed of nomination is not necessarily an assignment, it can constitute an assignment if it complies with the requirements of an assignment: see Broughton v Wyatt Family Trust Holdings Ltd (2011) 12 NZCPR 368 (HC), leave to appeal refused by Wyatt Family Trust Holdings Ltd v Broughton [2011] NZCA 87, (2011) 12 NZCPR 381. Section 50 of the Property Law Act 2007 provides:
(1)The absolute assignment in writing of a legal or equitable thing in action, signed by the assignor, passes to the assignee—
(a) all the rights of the assignor in relation to the thing in action; and
(b) all the remedies of the assignor in relation to the thing in action; and
(c) the power to give a good discharge to the debtor.
(2)Subsection (1) applies whether or not the assignment is given for valuable consideration.
…
that agreement, including payment of the purchase price. The indemnity provision tends to confirm Glenvar’s legal obligations were to become those of the defendant.
(citations included)
Within the specified period?
[18] In this case the nomination of Foster Crescent must have occurred after 16 March 2018 when a briefing paper noted that a nominee had not yet been identified, and 18 May 2019, when title to the property was transferred to Foster Crescent upon payment of the balance of the amount of the monies owing under the agreement for sale and purchase. As Glenvar was placed in liquidation on 13 November 2019 there can be no dispute the transaction occurred within the relevant two-year period.
Was Glenvar insolvent at the time or because of the transaction?
[19] As liquidator of Glenvar Mr Davies has confirmed that at all relevant times the company was insolvent. It had no funds of its own, or indeed even a bank account, and it had to seek third party funding to first pay the deposit and then to attempt to settle the purchase of the property.
[20] As a result of the nomination, Glenvar not only transferred its right to purchase the property, but lost any ability to repay the $96,000 borrowed from Mr Ramani for the deposit, noting Mr Ramani’s original advance of $71,000 was repayable by 31 March 2018.
[21] It is therefore clear that Glenvar was already insolvent at the date of the transaction but even if it had not been it would have become insolvent as a consequence of the transaction, thereby meeting the test in s 297(2).
Was there a difference in value?
[22] There is no evidence to suggest that Glenvar received any benefit from nominating Foster Crescent as the purchaser despite having paid a total deposit of
$91,000. Foster Crescent was therefore able to acquire the property for $620,000
rather than the $711,000 specified in the agreement for sale and purchase. In the absence of any matters raised in defence by Foster Crescent,7 this difference, the amount of the total deposit paid ($91,000), amounts to an undervalue for the purposes of s 297(1) and is therefore recoverable from Foster Crescent.
[23] The position is different with regard to the balance of the monies claimed by the plaintiffs, the difference in value between the actual nominal sale price ($711,000) and the value as per the registered valuation obtained in March 2018 ($730,000).
[24] On this issue, there is no direct evidence that either Foster Crescent or Mr Cooper were provided with a copy of the valuation. Even if they had been it is difficult to see on what basis the registered valuation should be preferred as a more accurate assessment of the market value of the property as compared to the actual price agreed between Glenvar and the Sheffields, given that there is no suggestion on the evidence that this transaction was conducted on anything other than an arm’s length basis on the open market. Given this position, I am not prepared to conclude that the sale price negotiated between Glenvar and the vendors was an undervalue, and as a result this part of the plaintiffs’ claim fails.
Decision
[25] The plaintiffs are entitled to judgment in the sum of $91,000 together with interest from 18 May 2018 to the date of judgment, a total of $6,808.50.
[26] The plaintiffs are also entitled to costs on a 2B basis in the sum of $18,761.50, together with disbursements in the sum of $165.00, a total of $18,926.50.8
7 In Glenvar Property Holdings Ltd v 153 Holding Ltd, Downs J noted at [38]-[39] that the defences set out in s 296(3) were potentially applicable where the person from whom recovery is sought proves (a) they acted in good faith; (b) would not have suspected the company was insolvent; or
(c)gave value for the property or altered their position on the basis the transaction was valid.
8 The plaintiffs sought costs in the sum of $19,956.50, however, this included 2.5 days for the preparation of affidavits where the schedule allows for only two days. There was also no common bundle produced by the plaintiffs that would justify the extra half a day. Accordingly, the plaintiffs were entitled to recover costs for a total of 7.85 days as opposed to the 8.35 days claimed.
Powell J
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