Heat Pump Cleaning Company Limited (in liquidation) v Taylor

[2019] NZHC 2057

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV 2018-409-0628

[2019] NZHC 2057

IN THE MATTER

of the liquidation of Heat Pump Cleaning Company Limited (in Liquidation)

BETWEEN

HEAT PUMP CLEANING COMPANY LIMITED (IN LIQUIDATION)

First Plaintiff

AND

VIVIEN JUDITH MADSEN-RIES and

HENRY DAVID LEVIN as liquidators of Heat Pump Cleaning Company Limited (in liquidation)
Second Plaintiffs

AND

JEFFREY PAUL TAYLOR

First Defendant

AND

LEATRICE MARIE TAYLOR

Second Defendant

Hearing:

21 August 2019

Appearances:

P V Shackleton for the Plaintiffs

No appearance for or on behalf of the Defendants

Judgment:

21 August 2019

JUDGMENT OF JAGOSE J

The judgment was delivered by me on 21 August 2019 at 4.00pm.

Pursuant to Rule 11.5 of the High Court Rules

……………………………… Registrar/Deputy Registrar

Counsel:

Meredith Connell, Auckland Copy to: Defendants

HEAT PUMP CLEANING COMPANY LTD v TAYLOR [2019] NZHC 2057 [21 August 2019]

[1]                 The first plaintiff (the “Company”) and its liquidators seeks judgment by default on their claims – to recover some $130,000 in advances from the Company to the defendant shareholders and directors (“Mr and Mrs Taylor”), plus compensatory or other relief under the Companies Act 1993 in relation to creditors’ accepted claims in the amount of some $140,000 – which were listed for formal proof before me as Duty Judge.1 Mr and Mrs Taylor have not responded to the claims in any way.

Background

[2]                 The Company was put into liquidation on 17 November 2017 on the application of the Commissioner of Inland Revenue. By that time, the Company had ceased trading, and had no material assets. The Commissioner claimed some $130,000 in unpaid taxes (plus interest and penalties, and costs), dating from 31 May 2015. The liquidators additionally admit claims of some $2,500 by two other creditors, totalling nearly $140,000, for roughly half of which the Commissioner is a preferential creditor.

[3]                 The liquidators assert the Company was unable to pay its debts (primarily, to the Commissioner) by 31 May 2015. It had been in breach of its banking facility for some five months by that time. Thus the Company should be regarded as insolvent from at least 31 May 2015.

[4]                 Lacking any financial statements for the Company, the liquidators reconstructed Mr Taylor’s current account (Mrs Taylor having ceased being a director on 12 September 2016) for the subsequent period until liquidation, to identify a net

$130,000 of the Company’s money disbursed on personal expenditure, and demanded its repayment by 21 June 2018. Nothing has been received.

Discussion

[5]                 It is trite law advances made by a company to its shareholders are debts owed by the shareholder to the company, repayable on demand.2

1      High Court Rules 2016, r 15.9.

2      Thom Contractors Ltd (in liquidation) v Thom HC Auckland, CIV-2008-404-6829, 28 April 2009 at [16].

[6]                 I am satisfied from the affidavit evidence the plaintiffs have established the Company’s entitlement to such recovery from the first defendant, including of interest under the Interest on Money Claims Act 2016.

[7]                 I therefore need not decide the plaintiffs’ alternative claims under s 348 of the Property Law Act 2007 (setting aside prejudicial dispositions), or s 298 of the Companies Act 1993 (recovering transactions for inadequate consideration).

[8]                 The plaintiffs also seek to recover the approximately $140,000 in accepted claims from the defendants, as compensation under s 301 of the Companies Act 1993 (breach of directors’ duties in permitting the Company to incur those losses).3 Again, I am satisfied from the affidavit evidence the plaintiffs have established their entitlement to such relief from the defendants, including of interest under the Interest on Money Claims Act 2016. In particular, the directors enabled the Company to continue trading while insolvent, accruing substantial losses to its creditors.

[9]                 The plaintiffs’ counsel, Philip Shackleton, advised the liquidators presently do not pursue the fifth cause of action, contending for the directors’ liability to them under s 300 of the Companies Act 1993 (failing to keep adequate accounting records), as personally responsible for the Company’s liability for the liquidators’ fees and expenses in reconstructing Mr Taylor’s current account. I therefore do not address it.

Result

[10]              I give judgment by default on the plaintiffs’ asserted claims, and make orders in terms of Mr Shackleton’s helpful memorandum of quantum and judgment of today.

—Jagose J

3      The liquidators expressly rely on the defendants’ duties under ss 131(1) (best interests), 135 (reckless trading), and 137 (care) of the Companies Act 1993. They as expressly reserve their position in relation to duties under s 136, pending determination of the appeal from Cooper v Debut Homes Limited (in liq) [2019] NZCA 39 at [67], holding s 136 to be focused “on the incurring of a particular obligation, rather than the carrying on of the business as a whole” (leave to appeal granted: Madsen-Ries v Cooper [2019] NZSC 59).