Greer v Klavenes
[2018] NZHC 1504
•22 June 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-1812
[2018] NZHC 1504
UNDER Section 298 of the Companies Act 1993 IN THE MATTER
of the liquidation of KLAVENES CONSTRUCTION LIMITED (In
Liquidation)
BETWEEN
SCOTT WILLIAM GREER
Applicant
AND
KNUT JOHN KLAVENES
Respondent
Cont … /2
Hearing: 17 May 2018 Appearances:
S W Greer for Applicant
J van der Zanden for Respondent
Judgment:
22 June 2018
JUDGMENT OF PALMER J
This judgment is delivered by me on 22 June 2018 at 2.00 pm pursuant to r 11.5 of the High Court Rules.
.....................................................
Registrar / Deputy Registrar
Solicitors:
Solv Law Ltd, Auckland
J van der Zanden, Barrister, Auckland Castlefinn Law, Ltd, Manukau
GREER v KLAVENES [2018] NZHC 1504 [22 June 2018]
CIV-2017-404-2216
UNDER Section 298 of the Companies Act 1993
IN THE MATTER of the liquidation of KLAVENES
CONSTRUCTION LIMITED (In
Liquidation)
BETWEEN SCOTT WILLIAM GREER
Applicant
ANDKNUT KLAVENES & MELENAU KLAVENES
Respondents
Summary
[1] In these two proceedings Mr Scott Greer, the liquidator of Klavenes Construction Ltd (KCL), seeks recovery of dispositions made without adequate consideration under s 298 of the Companies Act 1993. Mr Greer claims $803,517.28 from director and shareholder Mr Klavenes Snr and his wife Mrs Klavenes, and
$16,030.26 from their son Mr Klavenes Jnr. I agree KCL made dispositions which exceeded the consideration it received from them and the s 296(3) good faith defence is not available. However, I do not agree dispositions by KCL to and on behalf of another company, KCL Tonga, can be recovered from Mr and Mrs Klavenes personally. I grant the applications in the amounts of $128,124.99 from the Klaveneses and $16,030.26 from Mr Klavenes Jnr, plus interest. I award costs to Mr Greer, even though he appeared personally, because he acted as liquidator.
What happened?
Who’s who
[2] Mr Knut Klavenes Snr is the sole director and shareholder in KCL, which was incorporated on 27 July 2011. It operated a labour hire business for construction in Auckland. On 7 October 2011 another company, Klavenes Construction (Tonga) Ltd (KCL Tonga), was incorporated in Tonga and operated a construction business. Mr Klavenes Snr and his wife, Mrs Melenau Klavenes, (the Klaveneses) are the directors and Mrs Klavenes is the sole shareholder of KCL Tonga. Mr Knut Klavenes Jnr is the Klaveneses’ adult son. Mr Scott Greer was appointed as liquidator of KCL on 16 December 2016.
The Klaveneses and KCL
[3] In the 2015 and 2016 financial years KCL turned over more than $2,000,000. A significant portion of that was paid into the Klaveneses’ personal bank accounts without formal records or accounting. From January 2014 to December 2016, funds from KCL were paid into the bank accounts of the Klaveneses and of Mr Klavenes Jnr. Payments were made back the other way as well. KCL funds were used for KCL Tonga expenditure.
[4] The Klaveneses say, while Mr Klavenes was in Tonga, their bank prevented him from making international financial transfers from the business account, so funds were transferred to Mrs Klavenes and Mr Klavenes Jnr to pay New Zealand creditors for KCL Tonga.
[5] Whatever the reason, the funds were mixed, without formal accounts or records aside from bank statements. Furthermore, KCL never filed tax returns or paid tax. It did not have an accountant or prepare any financial accounts. Mr Klavenes says he was going to engage an accountant when the time was right, “to help manage, align and account for past transactions in managing our books”.1
[6] In March 2015, Mr Klavenes Snr moved to Tonga to work on the KCL Tonga business. In September 2015, KCL ceased trading. It defaulted on payment of
$253,000 to Dayle Timber Ltd for building materials supplied for KCL Tonga’s building projects. Mrs Klavenes returned to New Zealand in February 2016 with their two young children. She became ill in July 2016 and Mr Klavenes returned to New Zealand.
Liquidation
[7] On 14 October 2016, KCL Tonga was placed in liquidation. On 16 December 2016, KCL was placed in liquidation on application by Dayle Timber Ltd. Creditors filed claims totalling $272,378. This was reduced by the Klavenes Family Trust paying $120,000 to Dayle Timber Ltd and settling their claims. Estimated liability to Inland Revenue is $128,000.
[8] Mr Greer has undertaken a “wash-up analysis” of the funds paid into and out of the accounts of KCL, the Klaveneses and Mr Klavenes Jnr.
Payments to and from Mr and Mrs Klavenes
[9]Mr Greer has analysed the relevant payments. Mr Greer calculates:
(a)KCL paid Mr and Mrs Klavenes $256,686.70.
1 Affidavit of Knut Klavenes Snr dated 27 October 2017 at [19].
(b)KCL customers paid Mr and Mrs Klavenes $1,282,966.54.
(c)Mr and Mrs Klavenes paid KCL $1,337,962.00.
[10] On those figures, the Klaveneses withdrew $201,691.24 more from KCL than they paid to KCL.
[11] In addition, Mr Klavenes claims to have made payments on behalf of KCL for contract labour, suppliers and petrol and running costs from his and Mrs Klavenes’ joint account. Mr Greer calculates that only 12 invoices supplied by Mr Klavenes, totalling $73,566.25, related to payment of KCL expenses from the Klaveneses’ personal bank accounts. He has adjusted his analysis accordingly, resulting in the Klaveneses having withdrawn $128,124.99 more from KCL than they paid to or on behalf of KCL.
[12] Mr Greer says he accepts the Klaveneses’ position that payments they received from KCL Tonga customers “must be left out of the Washup Analysis as these belonged to KCL Tonga and had nothing to do with KCL”.2 KCL also paid some KCL Tonga expenses, apparently directly to third parties. On Mr Greer’s figures the amount of these payments was $439,096.85. In addition, Mr Klavenes Jr paid $236,295.44 towards KCL Tonga expenses, from money he and Mr Greer say he received from KCL. Mr Greer treats this as payments made by KCL of KCL Tonga expenses, made through Mr Klavenes Jnr. Putting the two amounts together, Mr Greer submits:3
The liquidator has identified KCL-Tonga expenses paid for by KCL in the Washup Analysis totalling $675,392.29 and deducted this sum from the total funds introduced by Mr & Mrs Klavenes to KCL, effectively treating this expenditure as drawings by Mr & Mrs Klavenes. This treatment has allowed Mr & Mrs Klavenes to retain the benefit of the larger KCL-Tonga customer payments they received.
[13] Accordingly, overall, Mr Greer adds the $675,392.29 to the $128,124.99 deficit the Klaveneses had with KCL, leaving a net amount of $803,517.28 he says they received without consideration.
2 Synopsis of Submissions of Applicant dated 3 May 2018 at [26].
3 Synopsis of Submissions of Applicant dated 3 May 2018 at [34] (footnotes omitted).
Payments to and from Mr Klavenes Jnr
[14] From 22 April 2014 to 14 January 2016, KCL paid $252,325.70 into the personal bank account of Mr Klavenes Jnr. In their affidavits, Mr Klavenes Snr and Mr Klavenes Jnr say he provided consideration because he paid for building supplies sent to Tonga for the purposes of KCL Tonga’s business and for expenses on a project in Hamilton.
[15] As noted above, Mr Greer accepts Mr Klavenes Jnr made payments on behalf of KCL to various suppliers for goods supplied to KCL Tonga of $236,295.44. That leaves $16,030.26, which Mr Greer submits is the amount KCL paid to Mr Klavenes Jnr for no consideration.
These proceedings
[16] Mr Greer applies by originating application to recover “Excess Consideration”, under s 298 of the Companies Act 1993 (the Act). He seeks $803,517.28 from the Klaveneses and $16,030.26 from Mr Klavenes Jnr.
[17] At the hearing, Mr Greer objected to admission of without prejudice correspondence about settlement referred to in affidavits of Mr Klavenes Snr. Mr van der Zanden, for the Klavenes, responsibly did not oppose the objection. The correspondence, and references to it, were not admitted into evidence. Redacted versions of the relevant documents were provided in Mr Greer’s reply affidavit.
Law of recovering company funds without adequate consideration
[18]Mr Greer claims under s 298(2) of the Act which, relevantly, provides:
(2)Where, within the specified period, a company has disposed of … property … to—
(a)a person who was, at the time of the disposition … a director of the company, or a … relative of … a director of the company; or
(b)a person, or a relative of a person, who, at the time of the disposition … had control of the company; or
(c)another company that was, at the time of the disposition, … controlled by a director of the company, … or relative of … a director of the company; or
…
the liquidator may recover from the person, relative [or] company, … as the case may be, any amount by which the value of the … property,
… at the time of the disposition, … exceeded the value of any consideration received by the company.
(4) For the purposes of subsections (1) and (2), specified period means—
…
(b) in the case of a company that was put into liquidation by the court, the period of 3 years before the making of the application to the court together with the period commencing on the date of the making of the application and ending on the date on which, and at the time at which, the order of the court was made;
…
[19]Section 2 contains the following definitions:
property means property of every kind whether tangible or intangible, real or personal, corporeal or incorporeal, and includes rights, interests, and claims of every kind in relation to property however they arise
relative, in relation to any person, means—
(a)any parent, child, brother, or sister of that person; or
(b) any spouse, civil union partner, or de facto partner of that person; or (ba) any parent, child, brother, or sister of a spouse, civil union partner, or
de facto partner of that person; or
…
[20] The onus is on the liquidator to establish the elements of s 298 are met, including the true and proper value of the consideration given and received.4 If those from whom recovery is sought have a different view as to that value, they bear an evidential onus to point to material supporting their view.5 The Court of Appeal in Re Burgess Homes Ltd stated the predecessor of s 298 “has a wide scope” and “[t]he Court
4 Re Whiting Yachts (1984) Ltd (in liq) (1992) 6 NZCLC 67,680 (HC) at 67,684.
5 Francis v Kenah HC Napier M100/93, 15 August 1997 at 9.
should be slow to condemn under it a bona fide commercial or family bargain negotiated at arm’s length and with no intention of defeating creditors”.6
[21] Section 296, entitled “Additional provisions relating to setting aside transactions and charges” provides a defence to recovery by a liquidator. As the Supreme Court observed in Allied Concrete Ltd v Meltzer, that includes an application under s 298.7 Relevantly s 296(3) provides:
A court must not order the recovery of property of a company (or its equivalent value) by a liquidator, whether under this Act, any other enactment, or in law or in equity, if the person from whom recovery is sought (A) proves that when A received the property—
(a)A acted in good faith; and
(b)a reasonable person in A’s position would not have suspected, and A did not have reasonable grounds for suspecting, that the company was, or would become, insolvent; and
(c)A gave value for the property or altered A’s position in the reasonably held belief that the transfer of the property to A was valid and would not be set aside.
Submissions
[22] Mr Greer submits the elements of s 298 are all satisfied. In particular he submits there was a clear disposition of property by transfer of funds from KCL’s bank account to the Klaveneses’ bank accounts. He submits the contemporaneous evidence demonstrates Mr Klavenes was in control of KCL, though that is not required under s 298(2)(a). And he submits s 296(3) does not apply.
[23] As best as I can understand, Mr van der Zanden, for the Klaveneses, submits there was no disposition of property because KCL Tonga did not intend to transfer any interest in its property and the Klaveneses and Mr Klavenes Jnr did not intend to accept such a transfer. He makes a submission based on incorrect grammatical analyses of sentences in Vance v Bradbury.8 He submits Mr Klavenes was not in control of KCL when any disposition was made because he gave authority to manage KCL Tonga to
6 Re Burgess Homes Ltd [1989] 1 NZLR 692 (CA) at 696.
7 Allied Concrete Ltd v Meltzer [2015] NZSC 7, (2015) 13 TCLR 833 at [25].
8 Vance v Bradbury (2009) 10 NZCLC 264,469 at [26].
Mr Paula Vi on 16 September 2016. He may also dispute the value of any disposition. And he submits the defence under s 296(3) applies.
Should the funds be recovered?
Mr Klavenes Snr and Mrs Klavenes
[24] The analysis prepared by Mr Greer clearly shows Mr Klavenes has never been in credit in respect of KCL. He has always been a debtor. Funds were consistently withdrawn from the KCL account by cash withdrawals or transfers to the Klavenes’ accounts. In 2015 KCL receipts were directed to the Klaveneses’ personal account and they made transfers back to KCL to allow expenditure. From June 2015, KCL debts were not being paid when they fell due. In providing information to the liquidator on 24 March 2017, Mr Klavenes Snr acknowledged that was occurring by August or September 2015.9
[25] I have to say I find Mr van der Zanden’s submissions about the legal implications of Vance v Bradbury incomprehensible. Neither do KCL Tonga’s intentions matter. And whether Mr Klavenes Snr was in control of KCL Tonga from September 2016 is irrelevant because control is not required and I am concerned with what KCL did, not what KCL Tonga did.
[26] What matters to the application of s 298 here is whether KCL made dispositions to the Klaveneses and whether those dispositions exceeded the value of any consideration they provided. I find there were dispositions of property from KCL to the Klaveneses which exceeded the value of consideration it received from them.
[27] However, I do not consider Mr Greer has satisfied the onus on him for the full amount he claims from the Klaveneses under s 298. I agree with Mr Greer’s submissions up to and including the point at which he submits KCL disposed of
$128,124.99 to the Klaveneses without adequate consideration.
[28] But the further dispositions of $439,096.85 were made by KCL to KCL Tonga’s suppliers. These were not dispositions to the Klaveneses. They were, and are
9 Affidavit of Scott William Greer dated 3 August 2017, Exhibit B at [14].
identified by Mr Greer as, dispositions by KCL to or on behalf of KCL Tonga. A disposition to a company controlled by a director of that company falls under s 298(2)(c) of the Act. But under that subss, the liquidator can recover the disposition from the company to whom the disposition was made, not from the Klaveneses. In seeking to recover these funds from the Klaveneses, Mr Greer is effectively submitting the dispositions to KCL Tonga, or third-party suppliers, were dispositions to, or drawings by, the Klaveneses. They were not.
[29] In his submissions Mr Greer says his proposed treatment of these dispositions by KCL to KCL Tonga allows the Klavenes to “retain the benefit of the larger” KCL Tonga customer payments they received”.10 But what the Klaveneses received from KCL Tonga is irrelevant to what dispositions they received from KCL or what consideration they returned. It might be relevant to what KCL Tonga owes KCL, or it might be relevant to some other sort of legal action against Mr Klavenes as director. But it is beyond the scope of the application under s 298 Mr Greer makes here.
[30] Similarly, the $236,295.44 Mr Klavenes Jnr received from KCL and paid to KCL Tonga, for which Mr Greer says there was no consideration, was not a disposition from KCL to the Klaveneses. It was a disposition to Mr Klavenes Jnr whom Mr Greer submits was an intermediary for KCL Tonga. Again, the liquidator might be able to recover that money from KCL Tonga under s 298(2)(c). Or the liquidator might be able to recover such a payment from Mr Klavenes Jnr. But he cannot recover it from the Klaveneses personally under s 298(2)(a). They did not receive these dispositions.
[31] I consider the total dispositions by KCL to the Klaveneses, in excess of the value of consideration it received from them, amounted to $128,124.99.
[32] In respect of that amount, a s 296(3) defence is not available to the Klaveneses on the facts. None of the elements of the defence are made out. The evidence does not support payments by KCL to Mr and Mrs Klavenes having been made in good faith, when they were withdrawing funds as a matter of course, they were personally receiving payments meant for KCL and, from June 2015, creditors were going unpaid. Mr Klavenes’ suggestion there was difficulty with his bank in making payments while
10 Synopsis of Submissions of Application, above n 3 at [34].
he was in Tonga is not supported by the evidence. There were reasonable grounds to suspect KCL would become insolvent. And the Klaveneses could not have reasonably believed the transfer of KCL property to them was valid and would not be set aside. They themselves acknowledged there would have to be an accounting.
Mr Klavenes Jnr
[33] In his written submissions, Mr Greer sought only $16,030.26 from Mr Klavenes Jnr. That is the difference between the amount Mr Klavenes Jr received from KCL and the amount he paid out to cover KCL Tonga’s expenses. Mr Klavenes Jnr did not file a notice of opposition to the application.11 He swore a one-page affidavit attesting to his understanding that funds were transferred into his bank account to pay for building supplies which were subsequently sent to Tonga.12 Mr van der Zanden submitted the evidence of the bank accounts is that the money transferred to Mr Klavenes Jnr’s account went out again. But that is clearly incorrect, to the amount of $16,030.26. Neither that, nor the other affidavit evidence suggest any good reason why he should not repay the amount sought.
[34] At the hearing, Mr van der Zanden initially indicated the application was not opposed. But later in the hearing he stated that had been an error and Mr Klavenes Jnr opposed the application on the basis he acted in good faith, under the s 296(3) defence. I do not consider he could establish the defence for the $16,030.26 Mr Greer seeks. He has not discharged the evidential onus to show there was consideration for this amount. It is possible such a defence might be available to Mr Klavenes Jnr if Mr Greer were to seek the $236,295.44 that he paid for goods supplied to KCL Tonga. But I make no finding about that. After all, Mr Greer appears to accept Mr Klavenes Jnr was merely a conduit for KCL Tonga in respect of those payments and he does not seek that larger amount from Mr Klavenes Jnr.
11 But the Court must still assess any application on its merits. See Mihinui v Attorney-General for the Ministry of Education [2017] NZHC 654 at [13].
12 Affidavit of Knut John Klavenes dated 1 February 2018.
Interest
[35] Mr Greer seeks interest on the amounts sought under each application, from 27 and 29 July 2017, the dates of filing the applications against Mr Klavenes Jnr and Mr and Mrs Klavenes respectively.13 He is entitled to interest at the prescribed rate.
Costs
[36] Finally, Mr Greer seeks costs on a 2B basis plus disbursements, on both applications. The costs of a liquidator and legal costs are a first charge on KCL.14 Mr Greer is acting for himself as liquidator of KCL. He will invoice KCL for his time. So the effect would be that costs would be paid to the creditors of KCL.
[37] At the hearing I asked Mr Greer about whether his application was affected by the decision of Associate Judge Matthews in Commissioner of Inland Revenue v New Orleans Hotel.15 The Judge departed from the long-standing entitlement to costs of parties using in-house counsel under Henderson Borough Council v Auckland Regional Authority.16 But he considered the recent Court of Appeal decision in Joint Action Funding Ltd v Eichelbaum, further considered by a full Court of Appeal in McGuire v Secretary for Justice, changed that position in finding a lawyer acting for himself was not entitled to costs.17 Associate Judge Matthews found there were no “costs actually incurred” by an Inland Revenue solicitor representing the Commissioner, for the purposes of costs under r 14.2(1) of the High Court Rules 2016.
[38] Mr Greer submitted the High Court Rules recognise a liquidator does not have to pay filing fees personally. So, by analogy, he submitted a liquidator’s personal resources in appearing in litigation are separate from those of the liquidated company. In substance, he submitted, the application is made by KCL. Costs, if awarded to Mr Greer, would effectively benefit KCL by satisfying the claim he would otherwise make on it. He submitted they should do so.
13 Judicature Act 1908, s 87.
14 Companies Act 1993, sch 7 cl 1(a).
15 Commissioner of Inland Revenue v New Orleans Hotel (2011) Ltd [2018] NZHC 971, (2018) 28 NZTC 23-058.
16 Henderson Borough Council v Auckland Regional Authority [1984] 1 NZLR 16 (CA) at 23.
17 Joint Action Funding Ltd v Eichelbaum [2017] NZCA 249, [2018] NZCA 2 NZLR 70; McGuire v The Secretary for Justice [2018] NZCA 37.
[39] The Court’s finding in New Orleans Hotel is likely to be further tested on appeal. And the Supreme Court has granted leave to appeal McGuire.18 But, in any case, I consider the same considerations do not apply in the context here, of a liquidator appearing for himself. As Mr Greer submits, in substance, a liquidator is already acting in a representative capacity. There is no sense in which the costs of his appearance would not be incurred. It is inevitable they would be the subject of an invoice to the liquidated company, reflecting the opportunity cost of the liquidator’s time. If the liquidated company’s success is not reflected in an award of costs, the company, and its creditors in whose interests the liquidator acts, will be out of pocket. Fulfilling the purpose of the costs regime in relation to liquidators requires that their successful litigation on behalf of the company should be the subject of a costs award, even where they act personally. Such a result recognises the reality of the situation. Costs on a 2B basis, plus disbursements, is appropriate here.
Result
[40]I order:
(a)Mr Knut Klavenes Snr and Mrs Melenau Klavenes must pay KCL
$128,124.99 plus interest from 29 July 2017 and costs on a 2B basis and disbursements.
(b)Mr Knut Klavenes Jnr must pay KCL $16,030.26 plus interest from 27 July 2017 and costs on a 2B basis and disbursements.
………………………….
Palmer J
18 McGuire v The Secretary for Justice [2018] NZSC 50.
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