Grinberg v Galante
[2020] NZHC 800
•24 April 2020
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
CIV-2019-442-70
[2020] NZHC 800
UNDER the Companies Act 1993 IN THE MATTER
of an application to set aside a Statutory Demand
BETWEEN
GILAD GRINBERG
First Applicant
AND
ORINOCO ORGANICS LIMITED
Second Applicant
AND
DORIT GALANTE
Respondent
Hearing: 20 March 2020 Appearances:
E J Horner and A D Goble for First and Second Applicants A R Shaw for Respondent
Judgment:
24 April 2020
JUDGMENT OF ASSOCIATE JUDGE LESTER
This judgment was delivered by me on 24 April 2020 at 12pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 24 April 2020
GRINBERG v GALANTE [2020] NZHC 800 [24 April 2020]
[1] This application to set aside a statutory demand arises in an unfortunate context. The first applicant and the respondent were previously in a relationship but separated either in 2017 or 2018 – the exact date not being material to the application.
[2] Gilad (the first applicant) and Dorit (the respondent), are the shareholders and directors of the second applicant, Orinoco Organics Ltd (“Orinoco”). Orinoco owns a lifestyle block at 375 Orinoco Valley Road, Motueka which was the couples’ home.
[3]It is common ground that the 2018 financial accounts for Orinoco record a joint
current account debt owed to the parties of $97,469.
[4] As both Gilad and Dorit are directors of Orinoco, Gilad sought leave under s 165 of the Companies Act 1993 (“the Act”) to bring the application to set aside the demand in the name of the company.
[5] Dorit responsibly did not oppose leave but notes that under s 166 of the Companies Act the costs of a proceeding are to be borne by the company unless it would be unjust or inequitable for it to do so.
Severance of the joint debt
[6] On 2 October 2019, Dorit executed a deed of assignment transferring what she claims to be her half interest in the joint debt ($48,734.50) to herself and the other half to Gilad.
[7] The unusual feature of this case is that the statutory demand rather than giving 15 working days for payment as prescribed in s 289(2)(d) of the Act gives 90 calendar days. Dorit says 90 days was given to allow Gilad time to sell the Orinoco Road property to release cash to pay the debt.
[8] Gilad has been living in the property off and on and, it is claimed, is resisting a prompt sale of the property. Gilad’s view is that the final allocation of the Orinoco Road property between the parties is a matter that can be dealt with in the final distribution of relationship property (there being what are said to be substantial assets offshore).
Statutory context
[9]Sections 287 – 291 of the Act provide:
287Meaning of inability to pay debts
Unless the contrary is proved, and subject to section 288, a company is presumed to be unable to pay its debts if—
(a)the company has failed to comply with a statutory demand; or
(b)execution issued against the company in respect of a judgment debt has been returned unsatisfied in whole or in part; or
(c)a person entitled to a charge over all or substantially all of the property of the company has appointed a receiver under the instrument creating the charge; or
(d)a compromise between a company and its creditors has been put to a vote in accordance with Part 14 but has not been approved.
288Evidence and other matters
(1)On an application to the court for an order that a company be put into liquidation, evidence of failure to comply with a statutory demand is not admissible as evidence that a company is unable to pay its debts unless the application is made within 30 working days after the last date for compliance with the demand.
(2)Section 287 does not prevent proof by other means that a company is unable to pay its debts.
(3)Information or records acquired under section 178 or, if the court so orders, under section 179, may be received as evidence that a company is unable to pay its debts.
(4)In determining whether a company is unable to pay its debts, its contingent or prospective liabilities may be taken into account.
(5)An application to the court for an order that a company be put into liquidation on the ground that it is unable to pay its debts may be made by a contingent or prospective creditor only with the leave of the court; and the court may give such leave, with or without conditions, only if it is satisfied that a prima facie case has been made out that the company is unable to pay its debts.
289Statutory demand
(1)A statutory demand is a demand by a creditor in respect of a debt owing by a company made in accordance with this section.
(2)A statutory demand must—
(a)be in respect of a debt that is due and is not less than the prescribed amount; and
(b)be in writing; and
(c)be served on the company; and
(d)require the company to pay the debt, or enter into a compromise under Part 14, or otherwise compound with the creditor, or give a charge over its property to secure payment of the debt, to the reasonable satisfaction of the creditor, within 15 working days of the date of service, or such longer period as the court may order.
290Court may set aside statutory demand
(1)The court may, on the application of the company, set aside a statutory demand.
(2)The application must be—
(a)made within 10 working days of the date of service of the demand; and
(b)served on the creditor within 10 working days of the date of service of the demand.
(3)No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the court may extend the time for compliance with the statutory demand.
(4)The court may grant an application to set aside a statutory demand if it is satisfied that—
(a)there is a substantial dispute whether or not the debt is owing or is due; or
(b)the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c)the demand ought to be set aside on other grounds.
(5)A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.
(6)In subsection (5), defect includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.
(7)An order under this section may be made subject to conditions.
291Additional powers of court on application to set aside statutory demand
(1)If, on the hearing of an application under section 290, the court is satisfied that there is a debt due by the company to the creditor that is not the subject of a substantial dispute, or is not subject to a counterclaim, set-off, or cross-demand, the court may—
(a)order the company to pay the debt within a specified period and that, in default of payment, the creditor may make an application to put the company into liquidation; or
(b)dismiss the application and forthwith make an order under section 241(4) putting the company into liquidation,—
on the ground that the company is unable to pay its debts.
(2)For the purposes of the hearing of an application to put the company into liquidation pursuant to an order made under subsection (1)(a), the company is presumed to be unable to pay its debts if it failed to pay the debt within the specified period.
[10] As its name suggests, a statutory demand is a creature of statute. Section 289(2) provides what a statutory demand must state. Accordingly, the requirements of a statutory demand are mandatory. One of those mandatory requirements is the giving of 15 working days or such longer period as the Court may order.
[11] It is common ground that the proviso “or such longer period as the court may order” has only ever previously been considered in the context of orders made where there has been an application to set aside a statutory demand and further time has been given to comply with the demand.
[12] In my opinion, it is not open to a creditor to extend the time to comply with a statutory demand from the 15 working days provided by the Act. The key timeframes in this context are the 10 working days to apply to set aside a demand and the 15 working days to meet the demand. “The fact that the time limits under s 290 are set at 10 days reflects the policy that where a defendant is of doubtful solvency, promptness is required in disposing of applications to liquidate.”1
1 Andrew Beck and others Morison’s Company Law (NZ) (online ed, Lexis Nexis) at [53.6]. Reinforcing the relatively short time frames is that the presumption of insolvency is only available to a creditor if they bring a liquidation application within 30 working days of the demand not being met.
[13] However, s 290(5) provides a defect or irregularity in a demand is not of itself grounds for the demand to be set aside unless such would cause substantial injustice.
[14] Section 290 normally applies where there is some error in the amount specified, a minor error in the naming of one of the parties, or the like.
[15] In my opinion, s 290(5) is not available to, in effect, validate a deliberate and substantial departure from the mandatory requirements for a statutory demand. If I found otherwise, that would be to invite creditors to re-draft not only the mandatory time frames in a statutory demand but the other mandatory elements. Recourse to s 290(5) to rectify typographical errors or mathematical errors in respect of quantum is one thing but allowing a slip rule type provision to empower creditors to deliberately change the mandatory requirements of a statutory demand is another.
[16] I decline to validate the statutory demand under s 290(5) as that section is not intended to protect deliberate and substantial changes from the mandatory requirements of the Act.
[17] In effect, I consider there has been an abuse of the statutory demand process through the deliberate departure from the 15 working days time period albeit with good intentions. The circumstances, in my view, justify the setting aside of the demand under s 290(4)(c) of the Act. Commissioner of Inland Revenue v Chester Trustee Services Ltd, permits a statutory demand to be set aside to prevent an abuse of the statutory demand process so that the Court may set aside the demand where a demand is being used for a purpose that is not contemplated by the Act.2
[18] Mr Shaw referred to Cooper Horticulture Ltd v Apollo Fruit Ltd, where the statutory demand rather than using the words “or give a charge over its property” to secure payment said there would be a default if the amount claimed was not “paid,
secured or compounded…”.3 Associate Judge D. I. Gendall, held that the word “secured” covered the requirement in s 289 to give the debtor an opportunity to give a charge over property.4
2 Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395 at [60].
3 Cooper Horticulture Ltd v Apollo Fruit Ltd HC Napier CIV-2006-441-18, 24 March 2006 at [21].
4 Cooper Horticulture Ltd v Apollo Fruit Ltd, above n 3 at [22].
[19] That is quite a different situation to the present case. The Judge held the statutory demand complied with the Act but in any event, he was prepared to invoke s 290(5) as the difference in wording was only a minor defect or irregularity; the mandatory requirements of s 289 were still met. The demand did not create confusion or uncertainty in respect of the s 289 requirements. The issue is not whether the departure from the statutory wording is clear but whether there has been compliance in substance with the Act.
[20] Section 288(2) provides the statutory demand process does not prevent proof by other means that a company is unable to pay its debts. Accordingly, here the demand could be relied on as evidence of non-payment – the argument being that if the debt remains unpaid after the granting of three months, an inference of an inability to pay can be drawn, but crucially the plaintiff would not have the benefit of the presumption created by s 287.
Was the debt due and payable?
[21] If I am wrong in that the departure from the 15 working days time frame can be saved under s 290(5), I would have set the statutory demand aside in any event. As I have said, the debt that is the subject of the statutory demand is said to arise under a severed joint current account.
[22] A statutory demand can only be issued in respect of a debt that is due and payable at the time the statutory demand is issued.
[23] The timing of events show that the deed of assignment of debt said to create the severance of the joint debt and the statutory demand were delivered at the same time.
[24] There is no evidence that prior to the issue of the statutory demand, Dorit required payment of her share of the current account created by the severance. I adopt Associate Judge Bell’s approach to this issue from All Safe Scaffold Ltd v Coghlan which is directly on point:5
5 All Safe Scaffold Ltd v Coghlan [2016] NZHC 3106 at [13].
Shareholders typically leave money in on the basis that the money will not be repayable unless demand is made. The debt is not payable until demand is made. The debt must have fallen due before the statutory demand was made. I refer to the decision of Master Kennedy-Grant in Keene v OKere Holdings Ltd and also my own decision in Twenty-First Century Investments Ltd v ANZ National Bank Ltd. A statutory demand can only be issued for a debt that already exists and is payable. Money left in a company on a current account basis is not due and payable until a demand has actually been made.
[25] There being no evidence of a prior demand in this case, the severed current account debt was not due and payable at the time the statutory demand was issued and so I would have set it aside on that basis.
[26]I have not overlooked para 11 of Dorit’s affidavit where she says:
On 27 September 2019 … my solicitor wrote to Gilad’s solicitor advising, amongst other things, that if I had not reached a satisfactory arrangement for the wind up of the Company and the repayment of monies owed that I would be issuing a statutory demand for my half share of the Joint Debt.
[27] This is not a call-up of the current account, it is a threat to issue a statutory demand if certain demands are not met.
[28] The email referred to is produced. The email is dated 27 September 2019. It says:
Our client through a deed of assignment has severed joint ownership of [the current account] by assigning her half interest to herself …
[29] However, the deed of assignment produced is dated 2 October 2019. There is no evidence of an assignment having occurred as at 27 September 2019 as claimed in the email. The email which forwarded the deed of assignment and statutory demand was dated 2 October 2019.
[30] In a much earlier letter (25 February 2019), the following appears under the heading “Orinoco Organics Limited”:
Our client instructs us that she wishes for the repayment of debts owed by Orinoco Organics Ltd and the orderly wind up of the company.
[31] Again, this is not the calling up of the sole debt claimed by Dorit which only became capable of being called up following severance (assuming the severance was valid) on 2 October 2019.
Was severance valid to create independent debt?
[32] The applicants do not dispute that it is possible to convert a jointly held debt to individual debts held by the people who had previously been joint tenants. Gilad says that in this case, the steps taken by Dorit were insufficient to achieve severance.
[33]Both counsel referred to the classic passage on severance from
Williams v Hensman as follows:6
A joint-tenancy may be severed in three ways: in the first place, an act of any one of the persons interested operating upon his own share may create a severance [of] that share … Secondly, a joint tenancy may be severed by mutual agreement. And, in the third place, there may be a severance by any course of dealing sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common. When the severance depends on an inference of this kind without any express act of severance, it will not suffice to rely on an intention, with respect to the particular share, declared only behind the backs of the other persons interested. You must find in this class of case a course of dealing by which the shares of all the parties in the contest have been effected (sic).
[34] In Kiwi Internet Marketing Ltd v Trent, Associate Judge Matthews said with reference to the above passage:7
Assessing the first method of severance, Austin J stated that it seemed to “envisage some form of irrevocable step being taken by the joint tenant, such as a transfer to a third party or trustee, a declaration of trust, a transfer of the interest to oneself, or any other form of alienation”. His Honour did not consider the method allowed severance merely by a declaration of intent or by “some other revocable step such as the filing or serving of a summons or application”.
[35] In Kiwi Internet, Associate Judge Matthews held that the joint tenancy in respect of the debt, the subject of the statutory demand in that case, had not been
6 Williams v Hensman (1861) 1 J & H 546 (Ch), 70 ER 862 at 557-558.
7 Kiwi Internet Marketing Ltd v Trent [2016] NZHC 251 at [27].
severed by a unilateral notice – in that case being the issue of the statutory demand itself.8
[36] On appeal, a different basis for severance was argued with the appellant successfully arguing severance by course of conduct.9 The Court of Appeal, however, confirmed that mere manifestation of an individual intention to sever is insufficient to sever a joint tenancy.10
[37] Ms Horner, counsel for the applicants, submitted that the unilateral action of completing the deed of assignment was in the same category as severance by way of a unilateral notice.
[38] Mr Shaw, counsel for Dorit, submitted in reply, which I accept, that this case does not involve a mere declaration of intention to sever. Here, the deed of assignment represented a formal and irrevocable step taken by Dorit to sever the joint tenancy.
[39]Mr Shaw said that s 56 of the Property Law Act 2007 provides:
56 Person may dispose of property to himself, herself, or itself
(1)A person may dispose of an estate or interest in property to himself, herself, or itself, alone or jointly with some other person.
(2)A disposition to which subsection (1) applies is enforceable in the same manner as a disposition to another person.
It was submitted that this confirms his client’s ability to take the step of assigning her interest in the joint debt to herself. I accept the submission. Ms Horner submitted that there was no authority that s 56 applied to assignments. Section 56 is expressed in general terms and there is no reason to assume that assignments which are a common method of transferring interests are outside the scope of s 56.
8 Associate Judge Matthews in Kiwi Internet Marketing Ltd v Trent, declined to follow Delaney Transport Ltd v Steel HC Nelson CIV-2009-442-404, 10 December 2009 which had proceeded on the basis that service of a demand was sufficient to sever a joint debt because it evinced a clear intention to do so.
9 A v B [2017] NZCA 25 at [39].
10 At [21].
[40] The short point is there is nothing stopping a joint tenant unilaterally severing a joint tenancy provided the manner in which it is done destroys either the unity of interest or unity of possession. Upon one of those unities being destroyed, the joint tenancy is converted into a tenancy in common.11
[41] While my finding on this issue may strictly be obiter, I consider that a valid severance of the joint tenancy in respect of the current account debt occurred.
Intervention of equity
[42] Ms Horner relied on the Australian case of Goyal v Chandra & Anor, and in particular the following passage:12
In my view, the true explanation of the statement that while the husband had, and had exercised, the legal right to sever the joint tenancy he was not entitled to commit a breach of his contract with the wife in that the husband was entitled to sever the joint tenancy at law, but not in equity. In other words, while the legal joint tenancy might be severed so that they thereafter held as tenants-in-common at law, they remained, pursuant to the original underlying agreement, joint tenants in equity.
[43] In Goyle, there was an agreement between the parties which was breached by the severance. In those circumstances, it is not surprising that equity would intervene.
[44] I asked Ms Horner to identify the foundation upon which equity would act in this case. Her response was twofold. Firstly, the existence of the broader dispute in respect of relationship property and secondly, a dispute put in her client’s affidavit as follows:
In short, the debt is jointly held and appropriate apportionments are yet to be determined. Therefore the debt is disputed.
[45] The fact that there are wider relationship property issues between the parties, in my view, is not of itself a basis for holding that Dorit is estopped from exercising the right of severance open to any joint owner. Mr Shaw pointed out that a claim of estoppel or other reliance on equity was not pleaded. He submitted there was no evidence of a contract or an agreement not to sever the joint tenancy. I would add
11 A v B, above n 9 at [20].
12 Goyal v Chandra & Anor [2006] NSWSC 239 at [19].
there is no evidence of any representation by Dorit that the joint tenancy would not be severed.
[46] Mr Shaw also points out there was no evidence of either party acting in reliance on the joint tenancy to their detriment or as to why it would be unconscionable.
[47] The point is that the fact of a relationship property dispute does not mean without more that a joint tenant is somehow restrained from severing a joint tenancy. As Mr Shaw points out, the breakdown in a relationship generally means the original purpose of the joint tenancy is at an end.13
[48] As to the passage in Gilad’s affidavit set out at [44] above, this does not take matters any further. I am not sure what the reference to “appropriate apportionments” means. While there are relationship property issues to be worked out between the former joint creditors, such does not impact on the obligation owed by Orinoco to each of them.
The future of this dispute
[49] It follows from what I have said about the validity of the severance and that there is no equitable barrier to severance, that Dorit would be free to issue a statutory demand with a time limit of 15 working days. The granting of 90 days in the statutory demand was for a proper purpose – to allow the orderly sale of what had been a relationship home. The evidence is that Gilad is not dependent on the home as a residence.
[50] As Associate Judge Matthews held in Kiwi Internet, that a debt may arise in the context of a relationship property dispute does not of itself exclude the use of a statutory demand.14 The question is always whether it is appropriate to use a statutory demand in the particular context. There was no evidence before the Court
13 Abela v Public Trustee [1983] 1 NSWLR 308 (SC), (1983) 8 Fam LR 951 at 957 and
Harvey v Gateshead Investments Ltd [2013] NZHC 2253, [2014] 2 NZLR 79 at [53].
14 Kiwi Internet Marketing Ltd v Trent, above n 7, at [71].
as to how the joint current account debt came about or whether it had any particular terms.
[51] Whether the Orinoco Road property can be subject to some interim relationship property settlement, I do not know, but the parties would be well served by attempting to resolve the issue of the relationship property.
Costs
[52] Given the national circumstances applying in which this judgment is released, I simply reserve costs, including under s 166 of the Act. Any application for costs is to await the ending of the Level 4 COVID-19 alert in New Zealand.
Associate Judge Lester
Solicitors:
Mahony Horner Lawyers, Wellington C & F Legal Limited, Nelson
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