Hogs Breath Cafe Wellington 2006 Limited (in liquidation) v Vance
[2013] NZHC 37
•4 February 2013
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2012-485-2559 [2013] NZHC 37
BETWEEN HOGS BREATH CAFE WELLINGTON
2006 LIMITED (IN LIQUIDATION) First Plaintiff
ANDDAVID STUART VANCE AND BARRY PHILLIP JORDAN OF HOGS BREATH CAFE WELLINGTON 2006 LIMITED (IN LIQUIDATION)
Second Plaintiffs
ANDSIMON MARK BAKER Defendant
Hearing: 28 January 2013 (Heard at Wellington)
Counsel: K. Berry - Counsel for Plaintiff
No appearance for the Defendant
Judgment: 4 February 2013
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
Under r 11.5 of the High Court Rules I direct the Registrar to deliver this judgment at 3.00 pm on 4 February 2013.
Solicitors: Ford Sumner, Lawyers, PO Box 25299, Wellington
HOGS BREATH CAFE WELLINGTON 2006 LIMITED (IN LIQUIDATION) & ORS V SM BAKER HC WN CIV-2012-485-2559 [4 February 2013]
Introduction
[1] In this action the first plaintiff, Hog’s Breath Cafe Wellington 2006 Ltd (in liquidation) (the company) and the second plaintiffs, who are the liquidators of the company, have applied for summary judgment against the defendant (Mr Baker) who was a shareholder and director of the company, for repayment of a debt and compensation for wrongfully retaining/misapplying a company asset. The application is unopposed.
[2] These proceedings and the summary judgment application were filed in this
Court on 26 November 2012 and personally served on Mr Baker on 10 December
2012. No notice of opposition to the present application or statement of defence to the plaintiffs’ claims has been filed. Nor was there any appearance by or for Mr Baker before me at the hearing on 28 January 2013.
Background
[3] The company was incorporated on 29 August 2006. It operated a bar and restaurant in Wellington under the “Hog’s Breath” Franchise. The company was placed into liquidation on 18 June 2012 by order of this Court and the second plaintiffs were appointed liquidators. Mr Baker was the company’s sole director and a 50% shareholder in the company, his wife at the time holding the other 50% shareholding. It is Mr Baker’s dealings with the company that have given rise to the present applications for summary judgment by the plaintiffs.
[4] When the company was placed into liquidation it had creditors in all totalling claims of $784,166.79 including preferential debt owing first, to the Inland Revenue Department of $355,237.51, and secondly, to employees totalling $6,727.41, and unsecured creditors claims of $422,201.87.
[5] Turning now to the background to the first claim against Mr Baker noted at [1] above, the company’s financial statements for the year ending 31 March 2010 showed a debit balance in Mr Baker’s shareholder’s current account of $157,596.00. Likewise, the financial statements for the following year to 31 March 2011 showed a
debit balance of $247,908.00. These financial statements were both signed by Mr Baker and adopted by way of shareholders resolution and are consistent with the company’s Inland Revenue Department IR4 Form for the 31 March 2011 year filed by the company at the time with the Department. As at May 2012, Mr Baker’s shareholder’s outstanding current account had grown (presumably through increased drawings in addition to his allocated company salary) and had a debit balance of
$315,817.22. This current account loan was effectively repayable upon demand as
is the case with most shareholders’ loans of this type.
[6] On 25 July 2012 and 10 September 2012 demand was made by the liquidators on Mr Baker for repayment of what they thought then was the outstanding loan account, with no response on either occasion. On 18 October 2012, demand was again made this time specifically for the $315,817.22 due. Mr Baker refused to pay, claiming that he did not owe the company any money, but he provided no reasons for this claim.
[7] The company now applies for summary judgment for this $315,817.22 amount plus interest thereon at 5% per annum and costs.
[8] The second claim the subject of the present summary judgment application relates to the purchase of a BMW X5 motor vehicle BGF633 (the vehicle) on 17 July
2008. The second plaintiff liquidators allege the company purchased this vehicle and to do so it obtained a loan from UDC Finance Ltd. The loan was for $42,737.89, plus interest, to be paid in 48 instalments. The loan agreement however which is before the Court states that it is made between UDC and the defendant as “the customer” personally. The security agreement states the vehicle was for personal use. However, the company paid all instalments under the UDC loan until 13 July 2012 amounting to $37,510.36. And the vehicle is clearly listed in the company’s financial statements (signed off by Mr Baker) as a company asset and the loan as a company liability.
[9] On 13 July 2012, nearly one month after the company had been placed into liquidation. Mr Baker traded in the vehicle for a replacement one and from sale
proceeds paid the $5,310.11 balance of the loan then owing to UDC Finance. The new vehicle, an Audi was purchased and registered in his own name.
[10] On 9 August 2012, the liquidators requested that the defendant deliver the Audi vehicle to the company and provide details of the transaction involving it. Initially, Mr Baker refused and stated that this vehicle was purchased for him personally and the payments made earlier by the company to UDC were part of his salary package. No evidence of this was provided to the Court however.
[11] The plaintiffs have now been told by Mr Baker that he has sold the Audi vehicle at a loss and there is “nothing left”.
[12] The second plaintiff liquidators thus claim now a contribution from Mr Baker to the company for these UDC loan payments made by the company of some
$37,510.36, although their statement of claim did initially seek orders for return of the full proceeds of sale of the vehicle or appropriate compensation under s 301
Companies Act 1993.
Summary judgment principles
[13] Rule 12.2(1) of the High Court Rules governs the present application and provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[14] The principles of summary judgment have been summarised by the Court of Appeal in Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26]:
The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1; (1986) 1 PRNZ 183 (CA), at p 3; p 185. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve
material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331; [1979] 3 WLR 373 (PC), at p 341; p 381. In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
Decision
[15] Regarding the company’s claim for the overdrawn shareholders current account, as such I am satisfied this is a debt repayable to the company on demand. Demand has been made and Mr Baker has not repaid the debt.
[16] No defence of any kind has been advanced. Judgment must therefore follow and it is granted for the claimed amount of $315,817.22, with costs. I will outline below. As to the claim for interest on this loan account, this is sought by the plaintiffs at 5% per annum from 26 November 2012 when these proceedings were filed down to the date of final payment. In terms of s 87 Judicature Act 1908, I am satisfied that interest should be payable on this sum as recovery of a simple debt due in the terms sought by the plaintiffs. Interest therefore is to be awarded at 5% p.a. on this $315,817.22 as pleaded from 26 November 2012 down to the date of final payment of this sum.
[17] The second plaintiff’s application was originally somewhat more complicated however. Although the vehicle on its face was bought and registered in the name of Mr Baker personally, it was effectively paid for by the company in large measure and was certainly listed as a company asset. Furthermore, at the time Mr Baker was already receiving from the company a reasonably substantial salary, making it less likely the vehicle repayments were part of his salary package, as he now alleges. There is also nothing before the court as evidence of such a salary package agreement. Faced with the unchallenged evidence of the plaintiff, I consider either the vehicle was a company asset and thus property of the company, or that at the very least, the $37,510.36 loan repayments made by the company to UDC Finance were made on behalf of and thus advances to Mr Baker. But, given Mr Baker has now confirmed to the second plaintiffs that he has sold the vehicle and no longer has
possession of it, they confirm they no longer seek its return as alternatively pleaded in the statement of claim.
[18] That leaves the question of how to remedy the situation. Section 301 of the
Companies Act 1993 provides:
301 Power of court to require persons to repay money or return property
(1) If, in the course of the liquidation of a company, it appears to the court that a person who has taken part in the formation or promotion of the company, or a past or present director, manager, administrator, liquidator, or receiver of the company, has misapplied, or retained, or become liable or accountable for, money or property of the company, or been guilty of negligence, default, or breach of duty or trust in relation to the company, the court may, on the application of the liquidator or a creditor or shareholder,—
(a) inquire into the conduct of the promoter, director, manager, administrator, liquidator, or receiver; and
(b) order that person—
(i) to repay or restore the money or property or any part of it with interest at a rate the court thinks just; or
(ii) to contribute such sum to the assets of the company by way of compensation as the court thinks just; or
(c) where the application is made by a creditor, order that person to pay or transfer the money or property or any part of it with interest at a rate the court thinks just to the creditor.
(2) This section has effect even though the conduct may constitute an offence.
(3) An order for payment of money under this section is deemed to be a final judgment within the meaning of section 17(1)(a) of the Insolvency Act 2006.
(4) In making an order under subsection (1) against a past or present director, the court must, where relevant, take into account any action that person took for the appointment of an administrator to the company under Part 15A.
[19] I remind myself here that the application before me is one for summary judgment on which I must be satisfied that Mr Baker has no defence to this claim against him. That said, I find that the second plaintiffs have established in terms of s
301 Companies Act 1993 that Mr Baker has “retained money or property of the company” at least in so far as the UDC repayments made by the company are concerned, payments made on the vehicle he has personally had the entire benefit of.
[20] That said, in my view it is appropriate here to grant the summary judgment now sought by the second plaintiffs here for an equivalent sum to that which the
company paid to UDC Finance, being $37,510.36, plus interest thereon as sought at the 5% p.a. rate sought in the plaintiffs’ statement of claim.
Conclusion
[21] For the reasons outlined above, the present application which is unopposed succeeds. Accordingly I order that summary judgment be entered in favour of the respective plaintiffs against Mr Baker for:
(a) The sum of $315,817.22 plus interest thereon at 5% per annum from
26 November 2012 down to the date of final payment thereof, payable to the first plaintiff company in terms of the first cause of action in the plaintiff’s statement of claim; and
(b) The sum of $37,510.36 plus interest thereon at 5% per annum from
26 November 2012 down to the date of final payment thereof, these sums being payable to the second plaintiff liquidators in terms of the second cause of action in the plaintiff’s statement of claim.
Costs
[22] The plaintiffs having succeeded here, I see no reason why they should not be entitled to an award of costs on the basis they seek. Those costs sought are unchallenged. Costs are therefore awarded to the first plaintiff company and the second plaintiff liquidators against Mr Baker on a solicitor client indemnity basis as outlined in the memorandum of quantum filed by counsel for the plaintiffs totalling
$8,159.00 together with disbursements being a service fee of $276.00.
‘Associate Judge D.I. Gendall’
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