Jaques v Official Assignee HC Wellington CIV-2006-485-973
[2007] NZHC 1948
•16 July 2007
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2006-485-973
BETWEEN DAVID ARTHUR JAQUES Applicant
ANDTHE OFFICIAL ASSIGNEE Respondent
Hearing: 11 July 2007
Appearances: Applicant D Jaques in person on behalf of the Jaques Family Trust
D Kerr for Respondent
Judgment: 16 July 2007 at 4.30 pm
In accordance with r540(4) I direct the Registrar to endorse this judgment with a delivery time of 4.30 pm on the 16th day of July 2007.
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
[1] This is an application made effectively under s 294(2) Companies Act 1993 that a transaction not be set aside.
[2] This transaction involved a $64,411.66 payment by or on behalf of Party Jukebox and Karaoke Limited (“the Company”) made on 10 May 2006 to David Arthur Jaques (“Mr Jaques”) and Deena Marie Jaques (Horne) (“Ms Horne”) as Trustees for the Jaques Family Trust (“the Trust”). The present application followed the issue of a notice to Mr Jaques and Ms Horne under s 292 Companies Act 1993 by the respondent (“the Official Assignee”) as liquidator of the Company to set aside the transaction.
[3] The application that the transaction not be set aside is opposed by the Official
Assignee.
JAQUES V THE OFFICIAL ASSIGNEE HC WN CIV-2006-485-973 16 July 2007
[4] Before me Mr Jaques appeared on behalf of the Trustees of the Trust notwithstanding that I understand he is an undischarged bankrupt.
[5] Although Mr Jaques as an undischarged bankrupt is not entitled to bring proceedings on his own behalf, without the consent of the Official Assignee, Mr Kerr for the Official Assignee in this proceeding confirmed that he had no objection to Mr Jaques appearing on behalf of the Trustees of the Trust.
[6] The hearing before me proceeded on that basis.
Background facts
[7] The company was placed into liquidation on 19 June 2006 and the Official
Assignee was appointed liquidator.
[8] On 8 March 2007 the Official Assignee issued the s 292 notice. The transaction in question was the payment on 10 May 2006 by the company’s solicitor J H West of $64,411.66 to the Trustees of the Trust, Mr Jaques and Ms Horne.
[9] On 12 April 2007, Mr Jaques, who is also previously a director of the company, filed the present application under s 294 seeking an order that the payment not be set aside. The background to this matter involved the sale of the company’s business. On 27 April 2006 the company entered into an agreement to sell its business for $225,000. Prior to settlement the company’s solicitor Mr West identified security interests held by other parties over the assets of the company which would need to be released on settlement. A first ranking security interest to Mascot Finance was outstanding under which about $137,000 was owing. A further registered general security agreement in favour of Party Jukebox & Karaoke Hire Limited (“Party Hire”) was in existence. I understand this security agreement related to a loan originally of $65,000 which Party Hire had made to the company. Mr Jaques contends that this $65,000 had been repaid by the Trust some time ago. Certainly it transpired at the time of settlement that there were no monies outstanding under the general security agreement to Party Hire.
[10] Upon settlement of the sale of the company’s business Mr West obtained releases of the security interests held by Mascot Finance Limited and by Party Hire. The release of the Party Hire general security agreement was obtained from that company’s solicitors and their legal fees on the release were paid.
[11] After repayment of the Mascot Finance Limited loan and payment of legal fees and costs on 10 May 2006 the balance settlement monies due to the company being $64,411.66 were paid by Mr West on behalf of the company to the Trust. Mr Jaques maintains that this payment was made in repayment of an advance which the Trust had made to the company some time earlier to repay the Party Hire general security agreement. There is however no contemporaneous documentation before the Court to record this earlier arrangement.
[12] And it is undisputed that prior to 10 May 2006 certain dealings took place involving Mr Jaques and Mr West which are recorded in a number of emails which are before the Court.
[13] These undisputed emails include the following:
a) An email sent 4 May 2006 4.58 pm from Mr Jaques to Kaye Butler of
Mr West’s office:
Subject: Re: Sale business
I have left a message for Rohan Cooper to ring me as I’m pretty sure he is the lawyer that gave the undertaking when Tom was in the country –I’m wanting that GSA (General Security Agreement to Party Hire) assigned to my family trust and we will authorise the sale to go through but the GSA to remain etc as I want priority over that Murray Allott chap etc – ha….
b)An email sent 5 May 2006 11.38 am from Kaye Butler of Mr West’s office to Mr Jaques:
Subject: Re: Sale business
Hi Dave – there’s no need to assign the GSA as we have received a facsimile from Rohan Cooper who has confirmed that there is no money owing at all and that he is authorised to remove the charge.
Regards Kaye
c) An email sent 6 May 2006 3.21 pm from Mr Jaques to Kaye Butler:
Subject: Re: Sale business
I need to assign it as the family trust settled Tom’s line [line to Party Hire] so now needs to be repaid out of the proceeds and need priority over general creditors etc.
I’ll ring John Monday morning to get this sorted. Cheers
Dave
[14] And, significantly, on 10 May 2006, Mr West wrote a letter to Mr Rohan
Cooper the solicitor acting for Party Hire to the following effect:
Re: Party Jukebox & Karoke Hire Limited – Party Jukebox & Karaoke
Limited
We refer to earlier fax correspondence and our undertaking of 9 May 2006. A cheque for $168.75 being your release fee in (sic) closed and we would be grateful to receive a GST tax invoice by return.
We have been advised that the Jaques Family Trust repaid the loan to your client company on behalf of Party Jukebox & Karoke Limited. Rather than assign the GSA we have been instructed to repay the Jaques Family Trust, thereby enabling the GSA to be removed.
Fund have therefore been journalled to Cooper and Co and applied to the
Jaques Family Trust in repayment of advance made by the Trust.
Please confirm that the GSA will be removed. Yours faithfully,
J H West.
[15] As I have noted above on the 10 May 2006 settlement of the business sale a release of the general security agreement to Party Hire was provided under the name of that company.
[16] In the meantime Mr West had suggested to Mr Jaques that Party Hire’s solicitor Mr Cooper provide a settlement statement for the money that the Jaques Family Trust indicated it had paid to the company and that Mr West then pay the Jaques Family Trust on settlement. This did not occur. Instead Mr Jaques personally purported to provide a settlement statement for the Jaques Family Trust.
Party Hire’s solicitor merely required payment of their release fee of $168.75 for release of the Party Hire general security agreement.
Parties’ arguments and my decision
[17] The present application relates to the provisions of s 292(2) Companies Act
1993 which under the heading “Voidable Transactions” in part provides as follows:
(2)A transaction by a company is voidable on the application of the liquidator if the transaction –
(a) Was made –
(i) At a time when the company was unable to pay its due debts;
(ii) Within the specified period; and
(b) Enabled another person to receive more towards satisfaction of a debt than the person would otherwise have received or be likely to have received in the liquidation –
unless the transaction took place in the ordinary course of business. (3) Unless the contrary is proved, for the purposes of subsection (2) of
this section, a transaction that took place within the restricted period
is presumed to have been made –
(a) At a time when the company was unable to pay its debts; and
(b) Otherwise than in the ordinary course of business.
……
(6) For the purposes of subsection (3) of this section, ‘restricted period’
means –
(a) The period of 6 months before the date of commencement of the liquidation, together with the period commencing on that date and ending at the time at which the liquidator is appointed;…
[18] From s 292, it is clear that a payment is voidable if:
b) It is a “transaction”; and
c) It is made at a time when the company is insolvent; and
d)It is made within two years of the date of the application to place the company into liquidation; and
e) It preferred the recipient over other creditors of the company; and f) It did not take place in the ordinary course of business.
[19] Unless the applicant Mr Jaques is able to satisfy the Court that one or more of the above criteria are not made out then the payment must be regarded as voidable and set aside. I turn now to consider each of these matters.
Was the payment a “transaction”?
[20] “Transaction” is defined in s 292(1) and includes:
(e) the payment of money by the company……
[21] Here, it is clear that the $64,411.66 payment in question was made by Mr West as solicitor for the company to the Trustees of the Trust. It represented the balance sale proceeds due to the company after settlement of the sale of its business. Whether the payment may be said to have been made by the company depends upon whether Mr West was acting as agent of the company – re: Lakeview Farm Fresh Ltd (in receivership and liquidation) [2006] 1 NZLR 238 para (11).
[22] In my view it is unquestionable here that the payment was made by Mr West the solicitor acting for the company on behalf of and as agent for the company. It was made no doubt from his solicitor’s trust account from a ledger account held in the name of the company. The payment was therefore a payment of money by the company and a “transaction” for the purposes of s 292.
Was the payment made at a time when the company was insolvent?
[23] Section 292(3)(a) provides that unless the contrary is proved a transaction which took place within six months of the date of an application to place the
company into liquidation is presumed to have been made at a time when the company is unable to pay its debts.
[24] The payment here was made on 10 May 2006 which was only six days before the application to place the company into liquidation was made. The company therefore is presumed to have been unable to pay its debts at the time it made the payment.
[25] And before me Mr Jaques specifically accepted that the company was insolvent at the time the payment was made. This requirement therefore is satisfied.
Was the payment made within two years of the date of the liquidation application?
[26] For the reasons outlined in the preceding paragraphs, there is no doubt that the payment was made well within two years of the date of the liquidation application. In addition, before me Mr Jaques again accepted that this was the case.
Did the payment prefer the recipient over other creditors of the company?
[27] In order to be voidable the payment must have enabled the recipient to receive more towards satisfaction of a debt than it would otherwise been likely to receive in the liquidation.
[28] If the $64,411.66 payment had not been made to the Trust and the Trustees of the Trust had filed a claim in the company’s liquidation, then the Official Assignee contends they would have ranked below preferential claims by the Inland Revenue Department and by the receiver of DDJ Rentals Ltd (the plaintiff on the liquidation proceedings) for costs on the liquidation applications. Those preferential claims as I understand it total $19,800. Unsecured debts other than the debt owed to the Trust total $23,643.
[29] Had the Trustees not been paid there would have been $64,411.66 in the liquidation for distribution to all creditors both secured and unsecured. After
payment of $19,880 to secured creditors $44,631.66 would have been left to be distributed between the unsecured creditors including the Trust.
[30] The Trust therefore would have received only a reduced and pro rata portion of the debt claimed. The actual payment made to the Trustees clearly enabled them to receive far more towards satisfaction of the debt claimed to be owing to them by the company than they would have received or been likely to receive in the liquidation.
[31] I am satisfied that the answer to this question is also therefore yes.
Did the payment take place in the ordinary course of business?
[32] Section 292(3)(b) provides that unless the contrary is proved a transaction which took place within six months of the date of the application to place the company into liquidation is presumed to have been made otherwise than in the ordinary course of business.
[33] As I have already noted the payment on 10 May 2006 was made within six months of 16 May 2006 the date of the application to place the company into liquidation. There is no question therefore that the payment here is presumed to have been made other than in the ordinary course of the company’s business.
[34] In addition, in my view the evidence which is before the Court tends to reinforce this presumption.
[35] The leading authorities in relation to payment made in the ordinary course of business are well known and include the decisions of the Privy Council in Countrywide Banking Corporation Ltd v Dean [1998] 1 NZLR 385 and the Court of Appeal in Waikato Freight & Storage (1998) Ltd v Meltzer [2001] 2 NZLR 541 and Carter Holt Harvey Ltd v Fatupaito [2003] 9 NZCLC 263, 285.
[36] The general position is that the Court as an outside observer is required to determine whether the impugned transaction when viewed objectively in its
commercial setting is an ordinary or out of the ordinary transaction for the parties to have entered into – see Waikato Freight & Storage at pg 550.
[37] Where the recipient of a payment knew that the intent or purpose of the company was to prefer that recipient over the company’s other creditors s 292(4) entitles the Court to take that into account in determining whether the transaction was made in the ordinary course of business.
[38] In the present case, Mr Jaques was both the sole director of the company and one of the Trustees who received the payment on 10 May 2006. There can be no question in my view that Mr Jaques knew that his trust would be preferred to other creditors when the payment was made. The 4 May 2006 email from Mr Jaques to Kaye Butler referred to at para [13][a] above stating as it does that:
…I’m wanting that GSA assigned to my family trust and we will authorise the sale to go through but the GSA to remain as I want priority over that Murray Allott chap [the liquidating creditor DDJ Rentals Limited receiver] etc – ha…
(emphasis added)
makes this abundantly clear.
[39] This and the other emails and correspondence between the parties noted above at paras [13] and [14] as I see it demonstrate a clear intention on the part of the company to prefer the Trust here and to ensure that the Trustees receive more money from the company as a result of this transaction than they would have received as unsecured creditors in the liquidation.
[40] It is clear that the general security agreement held by Party Hire was not effectively assigned to the company and indeed the release and discharge of this security agreement was completed by Party Hire. There is no evidence of any documentation being completed for the assignment which Mr Jaques has suggested was to take place. The Trust was at best an unsecured creditor of the company at the time the payment was made.
[41] The correspondence I have referred to in paragraph [39] above clearly demonstrated an intention on the part of the company to ensure that the Trustees of the Trust received more money from the company through the 10 May 2006 transaction than they would have received from the liquidation. In my view that supports a finding that the payment was not made in the ordinary course of business.
[42] Although this is not determinative another factor relevant to whether a transaction was in the ordinary course of business is the fact that it was made when the company was realising its assets – re: Saunders & Co v Fageilund HC Christchurch M486/00 21 June 2001 Master Venning at para 55. Here, the payment made on 10 May 2006 was part of the distribution of the proceeds of sale of the company’s business.
[43] Under all the circumstances here and taking an objective view on the evidence before the Court, at the time the payment was made on 10 May 2006 in my view there can be no doubt that the payment was an extraordinary transaction for the parties to have entered into and therefore it did not take place in the ordinary course of business.
[44] I conclude therefore that all the section 292 tests required to establish that a payment and transaction is voidable have been met in this case. And although it was not argued before me, I am satisfied that section 296(3) does not assist Mr Jaques here. The Trust did not receive the payment in question in good faith. The equities in the present case also clearly lie with the Official Assignee as liquidator of the Company. The whole purpose of the voidable payments regime is to prevent one creditor “stealing a march” over others, which in my view is precisely what the Trust is endeavouring to do here. So far as is possible all creditors should share equally in the assets of a company in liquidation: see Re Modern Terrazzo Limited (In Liquidation) [1998] 1 NZLR 160 at p 174 per Fisher J.
[45] The present application brought by Mr Jaques in his capacity as a Trustee of the Trust therefore fails. The order he seeks setting aside the transaction is refused.
Status of transaction
[46] One further matter requires mention. Section 294(4) Companies Act 1993 provides that when more than one person has applied for an order that a transaction not be set aside the transaction is set aside on the day on which the last application is finally determined unless the Court orders otherwise.
[47] Here the application before me has been brought by Mr Jaques alone. Ms Horne is clearly the other Trustee of the Trust. She was an original Trustee who signed the Deed to establish the Trust. Mr Jaques has suggested in his affidavit that Ms Horne however resigned as a Trustee of the Trust in 2005 and that she was not therefore one of the recipients of the payment. He does not however tender any evidence in support of that proposition. All the evidence before the Court clearly supports the position that Ms Horne remains a Trustee of the Family Trust. The payment was made jointly to her and Mr Jaques as Trustees of the Trust.
[48] That said, before me Mr Kerr for the Official Assignee went on to note that Ms Horne has only been served with the setting aside notice on 5 July 2007. This was pursuant to an order for substituted service. He noted that Ms Horne has until 2
August 2007 to file any application she may wish to for an order that the transaction not be set aside.
[49] Mr Kerr noted also that once Ms Horne has had this opportunity to file any application she may wish to then the Official Assignee will be considering his position. Mr Kerr stated that it is likely an order pursuant to s 295 Companies Act
1995 will be sought by the Official Assignee to require both Mr Jaques and Ms Horne as Trustees to repay the $64,411.66 to the Official Assignee. At this point, this is noted.
Conclusion
[50] Mr Jaques’s application for an order that the transaction not be set aside has failed.
[51] In my view costs should follow the event in the usual way and the Official Assignee therefore is entitled to an order for costs which should be awarded against the Trust, Mr Jaques being an undischarged bankrupt.
[52] An order is now made awarding costs on the present application on a 2B basis to the Official Assignee together with disbursements as approved by the Registrar. This costs order is to be met by the Jaques Family Trust.
“Associate Judge D.I. Gendall”
Solicitors: Elvidge & Partners for Respondent
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