Idl the Source Limited v Team Kiwi Racing Limited HC Auckland CIV-2010-404-007302

[2011] NZHC 282

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-007302

BETWEEN  IDL THE SOURCE LIMITED Plaintiff

ANDTEAM KIWI RACING LIMITED Defendant

Hearing:         1 April 2011

Appearances: Mr S J Tee for plaintiff

Mr E Telle for defendant

Judgment:      1 April 2011

(ORAL) JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

IDL THE SOURCE LTD V TEAM KIWI RACING LTD HC AK CIV-2010-404-007302 1 April 2011

[1]      The plaintiff has filed a statement of claim seeking an order winding up the defendant.  The claim was filed on 15 October 2010 alleging an outstanding debt of

$45,963.73 in respect of which a statutory demand had been issued.  The demand was neither satisfied nor the subject of an application to set aside.

[2]      The company filed an  application  to  stay the  proceeding  and  to  restrain advertising.  It also filed a statement of defence and a counterclaim.  The grounds upon which the defendant seeks to stay the proceeding and to restrain advertising are that the defendant is not insolvent, that there are genuine disputes that exist and/or that have arisen between the parties, that there has been an abuse of process, and as a result of these matters the defendant has various defences, set-offs and/or counterclaims.

[3]      At the beginning of the hearing counsel for the defendant sought leave to file, late, affidavits from Mr John, a director of the defendant company, and from the company’s accountant, Mr McDonald.   After hearing argument I ruled that both affidavits will be admitted late.   It is in the interests of justice that all matters of relevance be before the Court and there is no prejudice alleged by the respondent apart from the need to prepare and obtain execution of an affidavit in reply, in haste and without the deponent having access to some records of the plaintiff’s business, as he was in Sydney at the time of having to prepare the affidavit.  Counsel for the plaintiff did not seek an adjournment but was prepared to proceed with the matter today.  Correspondingly, I gave leave to him to file and serve an affidavit in reply from Mr Muh, a director of the plaintiff company.

The sum claimed in the statutory demand

[4]      There was considerable debate in the affidavits and in Court about whether or not the amount now claimed by the plaintiff as unpaid, in the statutory demand, is in fact legally owing.   Quite apart from the counterclaims the defendant maintains it wishes to pursue, there were issues about how the plaintiff’s claim was made up. The defendant took issue with claims for interest and enforcement costs which it maintained were included in the total.  Various figures were drawn to my attention

on the basis of which it was maintained that there were discrepancies and overcharging, or the inclusion of amounts that were not properly claimable.

[5]      The starting point is a tax invoice from the plaintiff to the defendant dated 14

April 2008 in the sum of $42,024.79.   This invoice is for products supplied and allows a credit of $35,195.21 stated to have been a deposit paid on account of the invoice. As various charges were made by the plaintiff after that date for interest and costs, the sum claimed rose.  By the time the matter became the subject of the last statutory demand the plaintiff had removed all charges for interest and enforcement and sought payment only of the net amount of invoices which it maintained were unpaid.  Reference was made to a statement prepared by the plaintiff showing a total amount due, including interest and enforcement charges in the sum of $64,553.92. From that, the plaintiff deducted interest and enforcement charges of $13,090.00 arriving at a net balance of $51,463.92.  The difference between the statement and the invoice of 8 April represents further invoices for goods supplied, and a lesser sum credited to the April invoice as the deposit initially shown had not been paid in full.   By letter dated 31 July 2009 the solicitors acting for the defendant acknowledged that this was the indebtedness of the defendant to the plaintiff.  The letter, which was open, contained a proposal to make monthly payments.   Three payments were made totalling $5,500.00.  This reduced the debt to $45,963.92.  That is the sum for which, ultimately, a statutory demand was issued, and which the plaintiff maintains remains entirely unpaid at present.  I am satisfied on the evidence this is the correct sum payable, apart from disputed interest and enforcement fees which are not now claimed.

The grounds of the application

[6]      The  defendant  presented  argument  on  three  principal  grounds  that  the proceeding should be stayed and that advertising of it should be restrained.   First, reference was made to an entry in the records of a firm called Veda Advantage, a company which evidently makes available records of unpaid debts.   The plaintiff maintained a notice at Veda Advantage that the defendant was indebted to it in the sum  of  $65,000.00  which  the  defendant  said  was  excessive,  and  had  caused  it

considerable problems including inhibiting it from raising finance and conducting its financial affairs in such a way that it could pay the plaintiff the sum properly owing.

[7]      However, examination of the figures shows that the amount advised to Veda was reasonably accurate.  At the time, the net debt, excluding interest and fees, was

$51,463.00.  Adding back interest and fees (which at that time were claimed) raised this sum to $64,500.00, which is within $500 of the sum notified to Veda. Accordingly on the evidence this ground of complaint about the conduct of the plaintiff is not substantiated.

[8]      Secondly, it was  stated  that there was no  lawful basis for interest  being charged, or for fees being debited.  That argument is tenuous because there are terms set out on the front of the plaintiff’s invoices which cover these matters.   In the event, however, the point is irrelevant because I am satisfied on the figures presented to me that all charges for interest and fees have been credited back and do not constitute any part of the sum contained within the statutory demand.

[9]      Thirdly, it was broadly argued that the statutory demand was inaccurate on the figures, but as I have said, I am satisfied that the statutory demand is accurate.  I have not overlooked the fact that the defendant asked the plaintiff to provide a full breakdown of the alleged debt by reference to invoices, some months ago, and did not, evidently, receive a response.  However, that does not alter the fact that the debt has been substantiated to the satisfaction of the Court.

[10]     Accordingly I am satisfied that there has not been an abuse of process by the plaintiff by filing proceedings for winding up of the defendant company.

Solvency

[11]     It was argued by the defendant that it is in fact solvent, notwithstanding the fact that it has not met the statutory demand.  On this issue there are a number of points to be considered.   First, the fact that the statutory demand has not been satisfied, notwithstanding the fact that it expired some months ago.   This raises a presumption of insolvency: s 287.

[12]     Secondly, there is at least an indication before me that some assets of the company have been changed in the last six months.   Reference was made to a statement  of  assets  prepared  by  the  company’s  accountants  and  attached  to  an affidavit at another proceeding last September.  No up to date statement of assets and liabilities was produced, nor any valuations of assets.  No explanation was given on the financial consequences of changes in assets listed.  As at September 2010, the company’s accountant considered it to be solvent.

[13]     Thirdly, I take into account the public interest in an insolvent company not being permitted to continue to trade.

[14]     The evidence is not entirely clear that the company has an excess of liabilities over assets, but on the material before me it appears possible that that is the case, though there is a real element of doubt.

Prospects for payment of the debt

[15]     I was informed that there is a prospect of some motor vehicles owned by the company being sold.  Evidently, some vehicles have been listed for sale on TradeMe and I was told from the bar that one has been sold and a deposit paid with settlement due next week.   No  concrete  evidence was  given to me about this transaction, However, it raises the possibility of some cash being available in relatively short order.  Additionally, it was pointed out to me that within the next two weeks there will be one of the larger motor vehicle racing meetings in the New Zealand calendar, the V8 Supercars events at Hamilton.  The plaintiff is hopeful of selling merchandise and/or vehicles for reasonably substantial sums before and at that event.   Again, there was no definite evidence about how much, if anything, this might release to the plaintiff, but it cannot be ruled out as a possible source of funds.

Discussion

[16]     Unless advertising of this proceeding is stayed the circumstances  of this company will come into the public domain.  Whilst that is appropriate where there is a statutory demand that has not been met, there does, in my view, remain a slim

prospect of payment being made.  That chance may lessen if publication takes place now.  I do not think there is any specific prejudice to the defendant from a further short delay in taking this application for winding up further.   There is, just, an arguable case that the defendant may have an excess of assets over liabilities and a prospect of paying the plaintiff within a short time.   There are no other creditors presently seeking to wind the company up.  The balance of convenience favours a limited order being made in favour of the defendant.

Prior publication

[17]     Before turning to the terms of that order I mention one further matter.  There has been some publication of this application for winding up on a website.   The defendant maintained that there is a reasonable basis for the Court to infer that the plaintiff was responsible for this form of advertising.  It is a matter of concern to the Court that there has been any publication of this proceeding.   The process of the Court under this part of the Companies Act 1993 is to be adhered to by those who choose to invoke it.  The Court cannot, however, speculate on who may have been responsible.   It can only act on the evidence before it and the complaint of the defendant against the plaintiff on this issue is not made out.

Outcome

[18]     The application for stay of the proceeding is dismissed.

[19]     The plaintiff is restrained from publishing an advertisement or any other information  relating  to  the  statement  of  claim,  and  from  taking  any  further proceeding in relation to the liquidation until 4 pm on Wednesday 20 April 2011.  At that time the restraint will lapse unless before then the defendant has paid to the plaintiff in cleared funds the sum of $45,963.73 plus costs on a 2B basis and disbursements.  If payment is made the stay is permanent.  Payment is to be made to the solicitors for the plaintiff Morton Tee & Co, Takapuna.

[20]     No later than 4 pm on Wednesday 6 April 2011 the solicitors for the plaintiff are to inform the solicitors for the defendant of the exact sum payable for costs and

disbursements as awarded by the Court.

J G Matthews

Associate Judge

Solicitors:

Morton Tee & Co, Takapuna
Neilsons Lawyers, Onehunga