Kiwi Internet Marketing Limited v Trent

[2017] NZHC 1374

PUBLICATION OF THE NAMES OF MR TRENT, MRS TRENT AND KIWI INTERNET MARKETING LIMITED, OR OF PARTICULARS IDENTIFYING ANY OR ALL OF THEM, IS PROHIBITED UNTIL 10

AUGUST 2017.

ANY RIGHT OR PERMISSION TO ACCESS THE COURT FILE OF THIS PROCEEDING, OR ANY DOCUMENT ON IT, OR ANY PART OF THE FORMAL COURT RECORD CONFERRED BY THE HIGH COURT RULES, IS PROHIBITED UNTIL 10 AUGUST 2017.

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

CIV-2015-442-000067 [2017] NZHC 1374

BETWEEN

KIWI INTERNET MARKETING

LIMITED Applicant

AND

SHELLY MARIE TRENT Respondent

Hearing:	29 & 30 May, 8 & 9 June 2017
Appearances:	P B Churchman QC and J R Sumner (on 29 & 30 May) for Applicant J R Sumner and S Churstain (on 8 & 9 June) for Applicant A Butler, A R Shaw and M W McMenamin for Respondent
Judgment:	21 June 2017

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

Introduction

[1]      Kiwi  Internet  Marketing  Limited  (Kiwi)  is  a  privately  owned  company. Seventy-five per cent of its shares are owned by Mr A R Trent who is its sole director. The other 25 per cent of its shares are owned by the Petra Trust.  Mr Trent and the respondent, Mrs S M Trent, are the trustees.  Mr and Mrs Trent have been separated

since July 2014.

KIWI INTERNET MARKETING LTD v TRENT [2017] NZHC 1374 [21 June 2017]

[2]      Mr and Mrs Trent are each owed a significant sum by Kiwi.  In its accounts to March 2014 the sum shown as owing to them jointly was $16,920,253. In March 2015 the sum owing was recorded as $15,956,659 and at March 2016 it was $14,590,778.1

[3]      On 7 October 2015 Mrs Trent issued a statutory demand to Kiwi under s 289 of the Companies Act 1993 (the Act) requiring Kiwi to pay her the sum of $8,460,000 which represented a little less than half the balance of the joint advance which was said to then be owing. Kiwi applied to set aside the notice under s 290. It was common ground that the advance was initially a jointly-owned asset.  By a judgment dated 28

February 2017 the Court of Appeal determined that the joint tenancy in Mr and Mrs Trent’s advance to Kiwi had been severed by the course of the dealings between them, and  that  as  a  result  one  half  of  the  loan  was  owed  to  Mrs Trent  individually. Accordingly, the Court determined that her statutory demand should not be set aside. The Court remitted the case to the High Court to determine a reasonable time for compliance with the notice.

The nature of a statutory demand

[4]      Section 241 of the Act provides that a company may be put into liquidation by the appointment of a liquidator. A liquidator may be appointed by a special resolution of shareholders, by the board of the company on the occurrence of an event specified in the constitution, or by the Court on the application of one of a range of persons, including a creditor, whether present, contingent or prospective.   The Court may appoint a liquidator if it is satisfied that one or more of the grounds in s 241(4) has been established. One of these grounds is that the company is unable to pay its debts.

[5]      Establishing each of these requirements is a matter of proof.  In the present case it is established that Mrs Trent is a creditor.  If she is able to establish that Kiwi is unable to pay its debts she may be entitled, on application, to an order that Kiwi be placed  into  liquidation.    On  this  point,  a  creditor  may have  the  benefit  of  the presumption created by s 287(a), which provides that a company is presumed to be

unable to pay its debts if it has failed to comply with a statutory demand.

1      Mr and Mrs Trent have treated their current accounts with Kiwi as a source of money for their living expenses. The balance owing at any time has varied accordingly.

[6]      A statutory demand is defined in s 289.  It is a demand by a creditor in respect of a debt owing by a company, which complies with the requirements of the section. It must be in respect of a debt that is due, be in writing, and be served on the company. As well it must require the company to pay the debt, or enter into a compromise under Part 14 of the Act, 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 of the demand or such longer period as the Court may order.

[7]      Mrs Trent took steps to invoke this presumption by issuing a statutory demand to Kiwi, as noted.  This judgment determines, as directed by the Court of Appeal, the period within which the demand must be satisfied by one or other of the means allowed by s 289.

[8]      The use of the procedure provided by ss 287(a) and 289 does no more than set in place a means by which an evidentiary presumption may be established.  Section

288(2) provides that s 287 does not prevent proof by other means that a company is unable to pay its debts.  In this context it is established that this question invokes the cash flow test of solvency, not the balance sheet test.2   Thus, failing to comply with a statutory demand creates a presumption of inability to pay debts on a cash flow basis. The Act sets a standard period of 15 days for compliance, after which the presumption arises. The Court may order that a demand be met within a longer period, but the issue remains the same: can a debt which is due be met within a period which the Court specifies?

[9]      Thus on this application it is not relevant to assess the solvency of Kiwi on a balance sheet basis. Nonetheless extensive evidence was led on this point. Kiwi filed affidavits by Mr David Vance, a chartered accountant and experienced insolvency practitioner, and he was cross-examined. There was also extensive valuation evidence relating to the principal asset of Kiwi, a large block of land in respect of which Kiwi holds resource consents permitting subdivision.  Kiwi also owns a separate block of

land in Permin Road which is not part of the land to be subdivided.  Mr Vance, in

2      Re Tweeds Garages Ltd (1962) Ch 406.

cross-examination, applied the valuation of the subdivisible property (which had been undertaken by Mr Bennison of Duke & Cooke, a registered valuer), and the estimated value of the Permin Road property, to the 2016 balance sheet of Kiwi.  He concluded that Kiwi has an excess of liabilities over assets of $1,255,000.

[10]     Of greater present relevance, however, Mr Vance also undertook (twice) a detailed analyses of cash flow which will become available to Kiwi as it proceeds with its intended seven-stage subdivision of its property. I will refer to this evidence further because it forms the basis of the case for Kiwi that the Court should set a period for compliance with Mrs Trent’s notice which reflects its ability to meet her debt from cash flow created by proceeding with the subdivision.   As will be seen, it was necessary for Mr Vance to undertake this exercise twice.

[11]     The financial position now, however, is established on the evidence without reference to this analysis.  Mrs Trent has made it clear throughout this litigation that she does not wish her debt from Kiwi to remain outstanding while Kiwi undertakes its intended subdivision. She wanted to be repaid in full before Kiwi started to undertake this venture.  She unequivocally signalled this position as long ago as October 2015 by issuing her statutory demand.  Kiwi, under the directorship of Mr Trent, has not met the demand. In the meantime, however, it has pressed ahead with the subdivision, obtaining resource consent late in 2016 and undertaking physical works on site since. Again, I return to the evidence on this later in this judgment.

[12]     Kiwi has a financial facility with Westpac, presently limited to $3,000,000 and currently drawn to approximately $2,500,000.3    Mr Vance says in his evidence that should Westpac and the Trents not wish Kiwi to pursue the subdivision, and Kiwi be placed in liquidation, the liquidator would examine shorter term realisation options. These would include selling all the land on an as is where is basis, or selling the existing titles separately, but prior to subdivision into smaller lots. I need not look into the consequence of either scenario at this point.  Suffice it to say that it is clear that Kiwi can only meet Mrs Trent’s demand if its assets are sold or funds are borrowed.

Kiwi has not taken any material steps along either of these pathways in the 20 months

3      The Court did not receive a current bank statement.  Figures referred to were $2,200,000 and

$2,500,000. The difference is presently immaterial.

which have passed since the demand was issued.4   Rather, it has continued to utilise available funding from Westpac to proceed with Stages 1 and 2 of the subdivision. Mr Trent candidly stated in evidence that the only way to satisfy Mrs Trent’s statutory demand is by selling property, and immediate payment “has never been an option; not on inception of the loan, not now”.  Further, in cross-examination Mr Trent also said “I cannot pay her unless the subdivision continues so we can get the sales from the subdivision to pay her.”   Late in his cross-examination, however, he altered his position on this, as I will relate.

[13]     There is, therefore, evidence before the Court now, from Kiwi, that Kiwi is unable to pay its debts. If Mrs Trent were to apply now for appointment of a liquidator under s 241 it is questionable whether she would need to rely on a presumption of inability to pay debts which would be created by non-compliance with her notice under s 287.  Nonetheless she still seeks to establish that presumption.  At this point in the statutory process, save for one statement by Mr Trent, the evidence from Kiwi itself is that it cannot presently meet the demand, and will not be able to do so until the subdivision has been at least partly completed.   This forms the background to the respective positions of Kiwi and Mrs Trent on how long Kiwi should be given to meet the demand.

Principles to be applied when setting the period for an on demand debt to be met

[14]     The debt owing by Kiwi to Mrs Trent is payable on demand.5     The New Zealand authority on compliance with a demand for payment of an on demand debt is ANZ Banking Group (NZ) Ltd v Gibson.6   In this case the Court of Appeal considered a provision in a debenture requiring payment of secured monies on demand. A number of passages from the judgments of the Court are apposite.

[15]     First, Richardson J said:7

4      Liability to meet the demand was only established on 28 February 2017, when the Court of Appeal released the judgment finding that the joint tenancy of Mr and Mrs Trent in their current account had been severed.

5      Kiwi Internet Marketing Ltd v Trent [2016] NZHC 251 at [4].

6      ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556 (CA).

7      At 564.

The language of “demand” envisages a peremptory notice unaffected by any questions as to matters personal to the debtor or creditor such as are reflected in some of Linden J’s factors.  And while the potential risk in some circumstances of the disappearance of assets or their seizure by other creditors during any period of delay might well be a reason for the incorporation of an obligation to pay unqualified as to time, it does not follow that the parties ever contemplated that the presence or absence of any such risk at the time of demand or the subjective expectation of risk could then be used as a factor in determining when the otherwise unqualified demand was to be met.  But the parties must be taken to have accepted, particularly where the sums involved in the overdraft accommodation were likely to be substantial, that the company would not be expected to have the money immediately to hand. Any other conclusion would also frustrate the obvious object of overdrafts in providing credit for the operation of the business.

[16]     His honour then said:8

In my view the only proper justification for allowing any time for payment after the actual demand is made is the practical commercial consideration that the borrower is not expected to have large cash sums immediately at hand. However, he is expected to pay from resources which are presently accessible to him but have to be converted into immediate cash or utilised within the same time to obtain financial cover.   It is the time reasonably required to achieve that, always bearing in mind that it is a demand liability which must be met.   And further time to negotiate a loan with a third party is not comprehended within that reasonable time. The test is objective and produces the certainty which commercial parties require in order to be clear from the outset as to their rights and obligations. To allow the elasticity and subjectivity inherent in the Canadian approach appears with respect to be contrary to commercial reality in this country and to lead to undesirable uncertainty to borrower and lender alike.

[17]     To similar effect is a passage from the judgment of Somers J:9

It is well settled that the obligation to pay on demand does not arise eo instanti on the making of the demand. On any rational construction of such a promise the debtor must be allowed a reasonable opportunity to pay before he can be held to have failed to comply with the demand. And until that reasonable time has elapsed the creditor may not enforce his security.  What is a reasonable time must depend upon the circumstances.  This has been so stated in many cases. Thus Pigott B in Massey v Sladen said:

“It is not necessary to define what time ought to elapse between the notice and the seizure.   It must be a question of the circumstances and relations of the parties, and it would be difficult, perhaps impossible, to lay down any rule of law on the subject, except that the interval must be a reasonable one.”

And earlier still in Comyns’Digest title Condition:

8      At 565.

9      At 567.

“But  where  a  condition is  to  be  performed  immediately, he  shall  have  a reasonable time to perform it, according to the nature of the thing to be done. So, if it be to be performed on demand.”

(citations omitted)

[18]     The Court rejected the approach to this issue taken by Canadian Courts. Casey

J said:10

I also accept that the words “on demand” used in the debenture require that the company be given a reasonable time to comply.   I see the distinction between the English and Canadian cases as essentially that in some of the latter, the Court has embarked on an analysis of relevant factors to determine reasonableness in the particular circumstances, without perhaps recognising the limits imposed by the peremptory nature of an “on demand” obligation. Indeed, the factors mentioned by Linden J in Mister Broadloom Corp (1968) Ltd v Bank of Montreal and cited at pp 562-563 of Richardson J’s judgment virtually reduce the obligation to one of making payment on reasonable notice from the creditor.

On the other hand, those English cases limiting the time for compliance to that necessary for the physical transfer of funds to the creditor can be regarded as too restrictive in modern commercial conditions. However, they do recognise the peremptory nature of the obligation and I believe that this must always be borne in mind when determining the question of a reasonable time for compliance.

(citations omitted)

[19]     In my opinion there is no material difference between how a requirement for payment on demand in a debenture, and how a requirement to pay pursuant to a demand under s 289, should be interpreted.  Both arise in the context of monies owed by a company to a creditor.  The fact that one obligation exists under a security, and the other arises on service of a notice under the Act does not create a material distinction from a commercial perspective.  In the present case this is underscored by the fact that the demand was issued pursuant to an obligation to repay Mrs Trent’s debt

on demand, in the original loan contract.

10     At 569-570.

The respective positions of Kiwi and Mrs Trent

[20]     Section 289 stipulates a period of 15 working days for compliance with a demand. Mr Sumner accepts that it is for Kiwi to establish that the Court should fix a longer period for it to comply with Mrs Trent’s demand.  He submits that the Court should set a period of 24 months for compliance with the notice, from the date of judgment, with a condition imposed that Kiwi give to Mrs Trent a first registered mortgage security over  the titles  to  10  properties  valued  in  total  at  $6,770,000 according to Tasman District Council rating values completed some three years ago. In an affidavit sworn in November 2015 Mr Vance expressed the view that these values could now be considered to be some 37 per cent higher.  If that were so, the value of the securities  offered  would  be some  $9,274,000.    Mr Sumner notes  that  these properties now also have the benefit of the resource consents held by Kiwi for their subdivision and development, a factor likely to have increased their value.11

[21]     A term of 24 months is sought because the evidence given by Mr Vance in an affidavit dated 6 June 2017, presented to the Court between the first two days of this hearing, and the second two, is that there will be cash of $7,823,465 available to the shareholders of Kiwi by the time all the sections in Stages 1 and 2 of the subdivision have been sold.  This conclusion is predicated on assumed costs of development and assessed sale prices in a valuation of the subdivisible land prepared by Mr Bennison of Duke & Cooke.  Mr Sumner asks the Court to accept, as the most reliable and accurate estimate of the likely time for completion of these stages of the subdivision, a letter sent to Mr Vance on 6 June 2017 by Mr Jacobsen of Staig & Smith Limited, the consultants engaged by Kiwi to assist with the subdivision.   Mr Jacobsen is a licensed surveyor. He says in the letter that based on his previous experience, the time required to obtain new titles for the first 19 lots in the subdivision should be nine to

12 months from now, with title for the remaining 14 lots (thus the completion of Stages

1 and 2) expected to take a further six to nine months.12   Allowing for the longer of each of these periods to apply, this suggests that title should be available from the first

two Stages of the subdivision within 21 months. Mr Sumner rounded this to 24 months

11     See discussion in Kiwi Internet Marketing Ltd v Trent, above n 5, at [58].

12     Mr Jacobsen did not give evidence.

to allow for some slippage, a prudent position to take given recent developments to which I will refer later in this judgment.

[22]     In seeking to rely on Mr Jacobsen’s assessment of the likely time for titles to be issued, Kiwi moved away from the postulations of Mr Trent on this issue, which I also refer to below.

[23]     Whilst this view adds to the picture the Court has on this issue, Mr Jacobsen did not give evidence, and acts for Kiwi, so is not an expert witness.  And in giving the view he expresses in his letter, he acknowledges that the position may be affected by “a number of factors outside our control, including the performance of the parties.”

[24]     Mr Butler, for Mrs Trent, submits that the Court should make an order under s

291(1)(b) placing Kiwi into liquidation now, on the ground that it is already established that it is unable to pay its debts, irrespective of the demand under s 289 not having been met.

[25]     Mr Butler says that if the Court is not prepared to make that order, it should set the period of time for compliance at 15 days, or 60 days, or 120 days for the following reasons.13  As to the first, Mr Butler says Mrs Trent recognises that the Court of Appeal has indicated that a period longer than 15 days should be allowed.  This recognition follows the discussion of this point in the judgment under appeal from this Court.14

Mr Butler says, however, that the Court of Appeal did not have before it the extensive evidence now before this Court.  He says the evidence now shows that Kiwi will not be able to meet the statutory demand at any point within the next two to three years, if not longer.  He says extending the time period beyond 15 working days is therefore simply putting off the inevitable.  He also notes that Kiwi has had the benefit of 20 months since the demand was issued, and that the evidence shows that it has not sought

to meet the demand during that period.

13     Mr Butler’s submissions do not specifically refer to working days but it is clear that the periods that he discussed are by reference to working days, because the first is 15 days, by reference to s 289 which refers to working days. As well, all his suggested periods are multiples of five days, not seven.

14     Kiwi Internet Marketing Ltd v Trent, above n 5.

[26]     Mr Butler says that if the Court does not agree to a period of 15 working days, a period of 30 to 60 working days could be sufficient for Kiwi to organise to raise substitute finance, as indicated in the evidence of Mr R H Strawbridge, a chartered accountant, or to reorganise the inter-entity advances between Kiwi, its 25 per cent shareholder the Petra Trust, the Cherry Hill Trust, and Cherry Hill Property Limited. These are all steps which could be undertaken in order to release sufficient funds to Kiwi to pay Mrs Trent’s demand.  Mr Butler notes that Mr Trent accepted that this restructuring could occur within a period of three weeks.

[27]     Mr Butler says that if this period were not acceptable to the Court, a period of

120 days would be sufficient to allow Kiwi not only to obtain substitute finance but also to proceed with an orderly sale.

[28]     Finally, Mr Butler rejects any longer period as this would expose Mrs Trent to the substantial risk, as he sees it, of not recovering all of her debt, or indeed any part of it, and it would be out of tune with the overriding fact that Mrs Trent’s debt is repayable on demand. It is for shareholders to leave their funds in a company while it conducts its business, not unwilling investors who have lent money on demand.

The issue in this case

[29]     The positions taken by the parties at the close of evidence define the parameters within which the single issue before the Court must be decided.  This issue was sent back to this Court by the Court of Appeal as a direction “to determine a reasonable time for compliance with the notice of statutory demand”.

[30]     Kiwi does not have cash in hand to meet the demand now. There is no question that if it is to be met Kiwi will need to either borrow money, or sell assets.  It has one asset available for immediate sale, a block of land in Permin Road in an area known as the Golf Block.  Sale of this is expected to realise approximately $1,200,000.15  As I understand it the property is not presently on the market. In closing submissions Mr

Butler said that Mrs Trent would accept a transfer of this property to her at the amount

15     This is an estimate derived from the valuation by Duke & Cooke, by applying a per square metre rate, not by a specific assessment of the market value of the property.

of a valuation established by Mr Bennison in partial satisfaction of her statutory demand.

[31]     The only other assets of significance are the properties which a are in the process of being subdivided.  In all, the seven intended stages of the subdivision will produce nearly 100 sections over a period of some years.  As noted, the evidence of Mr Vance, based on the propositions which I have recorded above, is that sufficient cash could be realised from the sales of all sections in Stages 1 and 2, once completed, to pay Mrs Trent in full.   Because this assessment relies in part on information provided by Mr Trent, and the control of the business venture in which Kiwi is engaged is in the hands of Mr Trent solely, it is necessary to consider his evidence in detail in order to make a decision on whether the time for compliance with Mrs Trent’s notice should be set as Mr Sumner submits.

The evidence of Mr Trent

[32]     As context for the evidence of Mr Trent I refer first to the expert evidence of Ms G P L Callaghan, a registered valuer of Wellington, and Mr C R Hamilton, a real estate agent with considerable experience in selling land within rural subdivisions in the Tasman region. Both were witnesses called for Kiwi. Ms Callaghan was asked to give evidence in respect of a number of matters, including the process of subdivision. The setting for the evidence of Mr Trent is given by her general discussion of the challenges facing entities embarking on subdivision of land, and the following summary:

Returning to basic principles, there are general fundamental aspects which we see contribute to successful subdivisions. These are as follows:

35.1Meticulous due diligence, planning, preparation, consultation and homework.

35.2     Accurate costings and upmost efforts to avoid surprises.16

35.3Funding  with  its  financial  implications  if  there  are  budgetary constraints (which there usually are).

35.4     The reputation and track record of the developer and their team.

16     Ms Callaghan went on to say that she had not seen any accurate costings or budgeting and that she would have expected, and it would be normal to expect, consultations with quantity surveyors, land surveyors and contractors in relation to the preparation of costings.

35.5Timing within the subdivision programme, of the commencement of marketing.

35.6A very careful and delicate strategy around the marketing of the venture including possible discounting of a first tranche to help get the ball rolling.

[33]     Kiwi did not produce to the Court a written business plan.  I am satisfied on the evidence that no such plan exists.  As Mr Vance said in cross-examination, “[i]n effect the business plans and forecasts are figures and plans that sit in Mr Trent’s head substantially”.  Carrying out a subdivision is conducting a business, the creation of a product to sell on completion.  The financial formula for success must show that the monies received for the finished product exceed the costs of creating the product, if a profit is to be derived.  Elements of this formula can be extracted from various parts of the evidence.  The only independent evidence on the costs of creating the sections in this subdivision are those relied on by Mr Bennison in his valuation.  He assessed the costs of development thus:17

The costs of completing the development work had been based on development expenses incurred on similar developments on rolling hill country and in consultation with Staig & Smith surveyors who prepared the development plans and had provided comparable contract rates for the various elements of the development.

[34]     This information has been carried forward into the assessment by Mr Vance of cash flow to which I refer below.   Significantly, no quotations from suppliers or contractors were provided, and the workings and information of Staig & Smith relied on by Mr Bennison were not produced in evidence by a witness from Staig & Smith.

[35]     Mr Bennison also gave independent evidence on the projected sale prices of the sections in the subdivision which, again, Mr Vance carried forward into his cash flow analysis.

[36]     Some information on the timing of possible receipt of the proceeds of sale of completed sections was also given by Mr Jacobsen of Kiwi’s surveyors, Staig & Smith. As I have said, he estimated completion of Stages 1 and 2 in up to 21 months.

Evidence from Mr Hamilton is that:18

17     Valuation of Duke & Cooke at 9.10.

18     Affidavit dated 31 March 2017 at 33.

No more than 11 sections should be released each year over a period of three years (for Stages 1 and 2) to ensure that the properties in this subdivision are sold at a good market price and within a reasonable timeframe.

[37]     Mr Hamilton said that putting all 33 sections in these Stages on the market at one time would flood the market and would result in significantly discounted sale prices, given that only 20 to 30 allotments have been sold each year in Rural 3 areas in recent years.  Mr Hamilton backed this up by reference to specific subdivisions.

[38]     Mr Hamilton also said that based on his experience it would take 12 to 18 months for physical completion of the works in Stage 1, with a further four months for the Council to issue certificates under ss 223 and 224 of the Resource Management Act 1991. His estimates are based on marketing not occurring until the release of titles is approaching, and he sees the likely period from now until title is available to be around 22 months.19  This broadly accords with the estimate of Staig & Smith.

[39]     If Mr Hamilton’s view is correct, that no more than 11 sections should be offered for sale per annum, with marketing to start nearer to title, a period of three years from then seems necessary for all sections in Stages 1 and 2 to be completed. Putting this evidence together leads to a period of four to five years before all sections in Stages 1 and 2 are developed and sold.

[40]     I now turn to consider key elements of Mr Trent’s evidence in the context of the evidence of these experts whom he called in support of Kiwi’s case. I refer first to the three aspects of this subdivision to which I have just referred: the cost of creating the sections, the time to completion, and sale prices.

The cost of creating the sections

[41]     Mr Trent gave evidence on this in evidence-in-chief on 30 May 2017. At that point the Court had before it a cash flow chart prepared by Mr Vance which was referred to as exhibit DSV1. That exhibit was prepared from the costings used by Mr

Bennison, and showed expenses for Stages 1 and 2 totalling $2,345,634.20   Mr Trent

19     Ms Callaghan also supports the view that the subdivision, or Stages of it, should be completed before being released to the market.

20     The aggregate of the expenses shown in the columns for Coastal A and Coastal B.

was asked how the actual development costs for the work that had been completed and paid for to date compared with these notional estimates.  Mr Trent said this:

The estimates look like around two million. When Duke & Cooke did the, the valuation they took into account that a normal developer would be doing the development work, not that I would be doing it, in this particular case I’m the developer and the contractor, so the, the estimates are too high basically. So I can do that for about 1.6 million and not, not two million, not 2.1 so I have about 600, $700,000 left to complete stage 1.  I’m doing all the work myself on the project.

This estimate must be compared to the figure for Stage 1 used by Duke & Cooke of

$1,213,484.  It is roughly half that sum.

[42]     Mr Trent went on to explain that he owns all the equipment needed to undertake the subdivision with the exception of machinery needed to do asphalting.

[43]     When asked how much cash would be needed to completely finish Stage 1 to the point of getting titles, Mr Trent said $500,000 to $600,000, with a further $300,000 likely to be needed to complete Stage 2. He told the Court that around $1,000,000 had been spent so far, thus implying a total outlay of $1,800,000 to $1,900,000.

[44]     Mr Trent was cross-examined on this when the Court reconvened on 8 June. He was taken through the figures that he had given, and he confirmed them: “that’s what I said and that’s true”.  Mr Trent was then taken to the affidavit of Mr Vance which had also been filed between the two periods of the hearing, to which was annexed an email Mr Trent sent to Ms Parkes, the office manager of Kiwi, on 1 June

2017.  In this email he informed Ms Parkes, evidently to enable her to respond to an inquiry from Kiwi’s legal advisors, of the following:

Rough projection: cash needed for the next 6 months.

●     Roading = 350K

●     Power = 150K

●     Fibre = 40K

●     Equipment/Mark/extras = 150K

●     *Plus legal and other expenses = ? ? … but let’s say 200K

This gets us to Title on 10 sections and then another 200K gets us another 9 sections a few months later (takes us to March of next year).

[45]     These figures add to $890,000 for the first six months and a total of $1,090,000 up until March 2019.21   Mr Butler in cross-examination drew attention to the way in which these figures differ from those which Mr Trent had given in evidence just three days before this email was sent.  His explanations varied.  The first was that in the earlier figures he had not included legal expenses of $200,000.   If that is so, it is extraordinary, because his earlier evidence was that Stages 1 and 2 could be completely finished for $900,000.  He describes the obvious difficulty these figures created thus: “it’s not apples and apples is my answer”.

[46]     Nothing in the subsequent passages of Mr Trent’s evidence, where he was taken through these figures a number of times, gives me any confidence at all that he has made a detailed assessment of the likely costs of completing Stages 1 and 2 of the subdivision.    He  confirmed  that  the  Court  should  see  the  cash  commitment  of

$1,090,000 as a maximum, but then said:

I believe in my evidence I do have kind of a higher number of around a million I think in my affidavit and may be a low of – by 600,000 for kind of some costs to get the subdivision finished, not counting some overhead costs but. So depending on how I’m looking at the budgeting and what I’m including would be different numbers.  I would be giving probably in different places. So the five or 600,000 from a week ago was basically that’s what it’s going to cost me to do the subdivision.   I’m not thinking of all the other possible expenses.  For cash flow, when she asked me I’m like, “Hey look there is possible of other cash flow situations.  Calculate the million dollars of cash flow possible so we can have that as a budget.  If we only use 600,000 or

700,000 of it that’s great but if we don’t do I have access to one million dollars, that’s what this email was for I thought.  It was a cash flow projection on a

maximum amount that we might need to run the company.

[47]     As Mr Trent gave this evidence I gained a clear impression that the figures were not based on any detailed analysis of cost from any advisors or other external sources, or even his own calculations.  His evidence on this point was completely unconvincing.   Whilst I accept the proposition that there may be some saving of expense for Kiwi by Mr Trent physically undertaking earthworks on site, there was no

analysis of the extent of these savings beyond the most general descriptions which Mr

21     Statements in evidence of the number of sections in Stage 1 varied, either 21 or 19; it seems that in this passage Mr Trent thinks there will be 19 in Stage 1. There are to be 33 altogether in Stages

1 and 2.

Trent gave.   Further, Mr Jacobsen’s letter refers to construction of a stormwater detention basin, which is not mentioned in Mr Trent’s emailed list of expenses.  Nor does he say whether his list of expenses is inclusive or exclusive of GST.  I find that Kiwi does not have a competently calculated assessment of the projected costs of completing Stages 1 and 2 of the subdivision.  The Court can place little reliance on Mr Trent’s varying assertions.

Time to completion of Stages 1 and 2

[48]     I start by looking at how far advanced work on the subdivision is now.  On

30 May 2017 Mr Trent was asked by his counsel how much of the development work in relation to Stage 1 (21 sections) had already been completed.  His answer was that Stage 1 is approximately 80 per cent finished.  Shortly after that he elaborated by saying that:

… most of the work’s already been completed, I’ve done that over the course of the last 10 years, all the waterways, the deep water bores, the lakes, the landscaping all been completed, so right now we’re building the road.  The road is the last thing, the road and the power, so besides putting the power cable itself in and doing the asphalt every other job I’m doing physically with my own crew.

[49]     When the hearing reconvened on 8 June, Mr Butler cross-examined Mr Trent in relation to the conditions on Kiwi’s resource consent.   He was asked about a condition requiring that a construction management plan be submitted by Kiwi before work commences.  Mr Butler informed him that the construction management plan Kiwi had submitted had been rejected. Mr Trent said he did not know of this, and that he had been in contact with the Council that morning.  I return to the question of the construction management plan later in this judgment.

[50]     After this reference to it Mr Trent was asked whether Kiwi had breached any conditions of the resource consent, to his knowledge.  The Court’s notes of evidence record the following exchange:

A.    Not to my knowledge, no. I haven’t started the subdivision yet. Q.     Has KIML [Kiwi] conducted works on the subdivision?

A.   No.

Q.    So works have not commenced on the subdivision?

A.   Not earthworks, no. Testing, landscaping, all the pre-stuff has been done, it’s all ready.  But road and power in, done.

Q.   So putting a question another way, you have not been advised by the council have you that any construction management plan has been accepted by it in respect of the subdivision have you?

A.   As of this morning they are reviewing the plan and they were supposed to let me know next week and we were going to have a meeting onsite to start the subdivision. That’s what I know from this morning.

[51]     Mr Trent continued to describe a possible issue with the storm water plan, but then continued:

A.  ...  But as far as I know it’s being completely finished in the next week and then I’ve got 20 working days and then I can start working. That’s all I know.  I know nothing about a rejection at all.

[52]     Mr Trent was asked about the self-evident disparity between these portions of his evidence on the issue of works completed on the subdivision.   The following passage appears in the notes of evidence:

Q.   Well what you then go on to say is that most of the work has already been completed?

A.    That’s correct.

Q.   So is His Honour to understand that you haven’t started the subdivision but most of the work is already completed?

A.    That’s correct.

Q.   You go on to say that all the waterways, the deep water bores, the lakes, the landscaping have all been completed, is that correct?

A.   The landscaping still needs some grass and things so that’s probably part of the 70 and 70% I was saying.

Q.   Well let’s just be clear.  That’s not what you told His Honour.  You said to His Honour did you not, that among other things the landscaping had all been completed, correct?

A.   I don’t remember saying all the landscaping’s been completed. Where is it so I can look at that.

Q.    Well line 12?

A.    Line 12. Yes that’s what I said but there’s still some grass and things.

Q.   But  it’s  not  – so it’s  not true  to  say that all landscaping has  been completed?

A.   That’s not 100% true.  I mean all the landscaping is not done.  All the contouring is done.  It’s just the grass and few trees that’s true.

[53]     Again, it is impossible to reconcile on any sensible basis the two passages of evidence given by Mr Trent on the extent to which subdivision work has been completed. His explanation given in the second passage of evidence cannot plausibly be reconciled with his evidence recorded in the first passage.  I find that I am left without any reliable understanding of the extent of progress on the physical works required for Stages 1 and 2 of the subdivision. The position is further obscured by the following passage:

A.  I haven’t started the earthworks.  The subdivision had been started 10 years ago.  So it depends on again what angle you’re looking at it from. From the (inaudible) angle I have not started the subdivision.  From my angle it is 10 years old.

[54]     My clear recollection of the inaudible passage is that this was a reference to the position of the Tasman District Council.  Mr Trent seems to be saying that as far as the Council is concerned work has not started, but that as far as he is concerned it has.22

[55]     Against this background I turn to Mr Trent’s estimates of how long it will take to complete Stages 1 and 2 of the subdivision.  When asked about Mr Hamilton’s estimate of time,23 he advised that he totally disagreed with Mr Hamilton.  One issue he disagreed on was Mr Hamilton’s estimate that it would take around four months for titles to be issued after completion of works.  Mr Trent’s response was:

… in reality it does not take 4 months to get a title for me. Maybe for everyone else. It takes me 3 weeks. So yes, in reality, what they say is true, but I mean, in what they think is reality is true, but in reality reality it’s not true, but they don’t know that.

[56]     So far as the time required to complete the physical works is concerned, the thrust of Mr Trent’s evidence is that he believes that Kiwi can complete the subdivision

in time periods considerably less than those estimated by his expert advisors.

22     In relation to the Council’s view, see [68]-[72] below.

23 Above, at [38].

[57]     The passage of evidence in relation to timing, which I have just quoted, is unintelligible and of no assistance to the Court in accepting Mr Trent’s estimate of the likely duration for completing the subdivision.  To the contrary, it strongly suggests that Mr Trent has a profound level of determination but little if any understanding of the true time it takes for matters of that kind to be completed.

[58]    In this context, the evidence contains a further attempt by Mr Trent to circumvent evidence which he had given previously. As I have said Mr Hamilton was called as an expert to support Kiwi’s case.  In an affidavit sworn on 11 April 2017 Mr Trent stated that he had read the sworn affidavit of Mr Hamilton dated 31 March 2017 and agreed with it in its entirety. Aspects of Mr Hamilton’s evidence were put to Mr Trent.   In relation to Mr Trent’s estimate of the likely time for the subdivision completed, Mr Trent was asked whether he was now saying to the Court that he did not agree with the opinion expressed by Mr Hamilton.   The evidence records the following exchange:

A.   I believe Mr Hamilton wrote down what he felt.  I think he was honest and he wrote down what he thought.  It’s not my job to argue with him but I do believe, yes that he wrote down what he believes is honest and true. I don’t know all the facts, I don’t know how long these subdivisions took, but I believe what he wrote down is true. Am I missing something?

Q.   What you told his Honour is that you agree with the affidavit in its entirety.

A.    Meaning that I agree with everything he said? Q.      That’s what I’m putting to you yes.

A.   Yeah, I, I do agree, but I believe he believe – that Greg Hamilton believes what he wrote and he was not lying. I don’t agree with everything he has in here as far as timing because it’s subjective.  It’s weather dependent; it’s a lot of depending. He wouldn’t know that I can do things faster than this. What he says is correct but reality is something different.

[59]     It was later pointed out to Mr Trent that, contrary to the evidence he had given about Kiwi’s plan being processed through the council Stages, after completion of physical works, in some four weeks, he had also said that it would take “a few extra months”.  He responded:

Like I said, the council supposedly takes four months to give titles. They told me they wouldn’t do that, so I put in here well maybe they, maybe they

changed their mind in six months, so I tried to be honest and say it might take a few extra months.

[60]     Mr Trent has completed two subdivisions previously, one creating five separate allotments and one creating four.   He maintains that completing the present subdivision is no different:

So they’re really the same size and scope of engineering work. There’s a little bit more dirt work involved. But the roads and the power are the same size of one.  So 33 equals one of the other ones.  The same roading and work.  So that’s why I can do 21 sections right now at the same time as I can do four, because the infrastructure is exact same, so I can easily do 21 or four. That’s the same thing.  It’s just you put more driveways in.

[61]     Without any evidence  from an independent and reliable source,  giving a comparison of the physical works on the former two subdivisions and the subdivision presently underway, I cannot definitively assess whether this evidence is soundly based.  It seems reasonable to draw an inference, however, that it is not.  The present subdivision involves seven Stages, to create nearly 100 sections.  Appendix 2 to the resource consent contains 55 pages of conditions.  It is a substantial project. As well, although assessment of compliance with these conditions will be undertaken at various times during the course of completing subdivision work, compliance will also be finally assessed at the end of the process, before the Council issues its certificate of compliance, which is required before the District Land Registrar will proceed with the final Stages of the work required to issue titles.  I think it extremely unlikely that the expert assessment of likely time for these steps is wrong, and note that there is no given basis for Mr Trent’s personal assessment.

[62]     I find Mr Trent’s evidence on the time it is likely to take to complete the physical work to create the sections in Stages 1 and 2, and to have titles issued for them to be unreliable.

Sale prices

[63]     When giving supplementary evidence-in-chief Mr Trent informed the Court that he had sold 10 sections from Stage 1 of the subdivision.  When pressed on the point, and ordered to produce the contracts for sale and purchase, he produced just three.  The Court was then informed that there are seven other interested buyers who

hold drafted written contracts, which they have not yet signed.  The three contracts produced to the Court all contain a number of conditions.   Two are from a close personal friend of Mr Trent.  The third is from the parents of his present partner.  The prices shown in the contracts bear little relation to the prices assessed by Kiwi’s valuer, Mr Bennison.  As an average, they are eight to nine per cent less.  Whilst Mr Trent says that these are enforceable contracts, and that Kiwi would not hesitate to enforce them if necessary, there is an element of doubt over how valid they are.  Assuming they are valid, though, for present purposes, they show that Kiwi is prepared to sell its sections below the valuations provided by its own expert, thus directly impacting negatively on the cash flow analysis of Mr Vance on which it relies to show that Mrs Trent may be paid in full from cash generated from completion of sales of all sections in Stages 1 and 2.  Mr Trent told the Court he had not taken any account of Mr Bennison’s valuations when setting the prices for these three sections.

Consequence of the evidence on these three issues

[64]     The consequence of the findings just recorded in relation to the costs of creating the sections, the time to completion of the subdivision, and the sale prices, is that the Court does not have a clear picture of how long this subdivision will take to complete, what it will cost to complete, and how much the sale of sections in Stages 1 and 2 will realise.

[65]     Mr Vance produced a schedule which was referred to in evidence as DSV1, which showed that cash would be available from Stages 1 and 2 in a total sum of

$7,840,981.  In the second phase of the hearing he produced an amended schedule, which was referred to as DSV3, into which he had fed the figures given by Mr Trent to his office manager, Ms Parkes, referred to above.24   He also added, as an expense, a salary for Mr Trent of $180,000, as this is the annual sum he is being paid by Kiwi for the work he is undertaking in relation to the subdivision. He allowed for this figure once, though recognised that the actual cost of Mr Trent’s services may be more if Stages 1 and 2 of the subdivision take longer than one year to complete.  He also confirmed that he had not made any allowance for interest either to Westpac, or to Mrs

Trent whose loan is bearing interest at nine per cent per annum. Nor had he made any

24 Above, at [43].

allowance for cash payments by Kiwi to Mrs Trent in accordance with an order of the

Family Court.25

[66]     Leaving out these costs, the schedule shows likely cash receipts at the end of Stage 2 of $7,823,465, much the same as in DSV1.  But putting them in makes a substantial difference.  If Stages 1 and 2 of the subdivision take two years, another

$180,000 will be incurred for Mr Trent’s salary.  There will also be two years interest at nine per cent on Mrs Trent’s advance and two years interest at bank rates on the present advance from Westpac of (say) $2,200,000. There will be interest at bank rates on borrowing from either Westpac or another source of a further $1,600,000 (using the development costs in Mr Vance’s schedule DVS3) for varying periods as funds are drawn down to pay expenses incurred.  Mr Vance did not calculate the precise effect of these additional expenses.  Approximate figures can be readily calculated.  Two years interest on Mrs Trent’s advance alone is approximately $1,260,000, and interest on the present Westpac loan at, say, six per cent is another $300,000.  Thus, it is not unreasonable to add an interest cost of at least $1,500,000 on present borrowing over two years, as well as another year’s salary for Mr Trent, $180,000.  Deducting these sums from the net forecast cash return of $7,823,000, reduces it to a little over

$6,100,000, insufficient to pay Mrs Trent her advance in full.

[67]     If the estimate of expenses relied on by Mr Bennison, and used by Mr Vance in preparation of DSV1 instead of those in DSV3 (the projections by Mr Trent given to  his  office manager),  expenses  for Stages  1  and  2  increase by approximately

$750,000, further reducing the cash which may be produced at the conclusion of Stage

2. As I consider Mr Trent’s evidence to be unreliable I prefer to use the assessments given by independent experts called on Kiwi’s behalf, and to consider the resulting cash flow assessment DSV3 to be reduced by another $750,000 as a result. This means that the projected yield from these two Stages should be reduced to approximately

$5,400,000. If sales continue at below the valuation figures used in the cash flows the net cash produced will reduce further.  I have not attempted to calculate interest costs on future borrowing to complete the subdivision, but it will be incurred and will also

reduce the cash return.

25     Mrs Trent receives $14,000 per month as maintenance and $10,000 per month on account of her advance.

Position of the Tasman District Council

[68]     I have set out above the evidence Mr Trent gave about his recent contact with the Tasman District Council.26    On 9 June Mr J L Hancock, a registered valuer in Nelson, was called for cross-examination.  Before cross-examination started, he gave further evidence-in-chief.  Part of this related to material Mr Hancock had obtained from the Tasman District Council.   He produced an email he had received from Mr C Cheeseman, the coordinator of monitoring and compliance at the Council, at

10.07 that morning. This referred to a request Mr Hancock had made for information about the subdivision.  He provided information pursuant to the Official Information Act 1982, and advised that an abatement notice had been issued on 7 June, and forwarded to Kiwi with copies to Mr Trent and Mr Jacobsen of Staig & Smith.  The email had the abatement notice attached, and was produced in court.

[69]     The notice begins by referring to conditions of the resource consent held by Kiwi, requiring notice in writing at least three days in advance of commencement of works on site, and the submission of a construction management plan at least 20 days prior to the intended commencement date of activities authorised by the consent, addressing matters such as dust, erosion and sediment control. The notice then advises that an inspection on 6 June had indicated that an area of approximately 20 ha had been disturbed, including the stripping of topsoil, the formation of a number of building platforms, disturbance of stream beds and excavation of soft ground.  Some of the disturbed ground falls within areas identified on the Council’s hazardous activities or industries list, which are identified on a plan attached to Kiwi’s resource consent. The notice goes on to advise that the construction management plan required by condition 11 had not been received at the Council, so had not been certified by the coordinator of compliance monitoring as required by the condition. It notes receipt of a complaint from a member of the public in relation to sediment-laden runoff entering a stream adjacent to Aporo Road from the subdivision site, and sections of the Resource Management Act 1991 which make failure to comply with conditions of a consent, and uncontrolled discharge of sediment to surface water, a breach of that Act

and an offence, respectively.  The notice further states that it has been issued as it is

26     Above, at [49]-[54].

necessary to avoid, remedy, or mitigate any actual or likely adverse effects on the environment as a result of the earthworks that are occurring on the property.

[70]     The abatement notice requires Kiwi to cease all mechanical land disturbance on the land to which the notice relates until such time as the construction management plan required by condition 11 of its resource consent has been submitted for approval and certified as being adequate.  It applies to some, only, of the land owned by Kiwi.

[71]     There is no further evidence before the Court on the present application on how this affects the timing of completion of the necessary physical works onsite. However, it is an obvious inference that works will be held up until such time as an acceptable construction management plan has been certified by the Council’s monitoring and compliance manager.

[72]     Given that this document was sent to Kiwi via its advisor, Landmark Lile Limited, and also to Mr Trent and to Mr Jacobsen of Staig & Smith on 7 June, the day before Mr Trent gave extensive evidence including evidence in relation to works onsite,  the  likely  time  to  completion,  and  the  construction  management  plan, Mr Trent’s lack of reference to this document is surprising, and unsatisfactory. Whilst the extent to which it casts doubt on timing and cost issues cannot be assessed on the evidence the Court has, it is clear evidence of Kiwi proceeding with work over 20 ha of land without complying with a condition of its resource consent, and this demonstrates that Kiwi is undertaking its business of subdividing its land irresponsibly and unlawfully.

Funding for the subdivision works

[73]     As noted, the present financial facility held by Kiwi is with Westpac.  It is limited to $3,000,000. Although the exact extent to which it is presently drawn on is unclear, with both $2,200,000 and $2,500,000 being mentioned in evidence, it is plain that there is no more than $800,000 available under the present facility.

[74]     The total costs estimated by Mr Bennison for the completion of Stages 1 and 2 amount to $2,345,634. It is difficult, on the evidence presented by Mr Trent and other witnesses, to estimate how much money remains to be spent.   This is discussed

above.27  The only point which, in my opinion, is clear is that it will be more than the first estimates given by Mr Trent of $500,000-$600,000 to complete Stage 1. Even he accepted that it could cost $1,090,000 as a maximum.28   Further, when this evidence was being given in court no mention had been made of the abatement notice, no description therefore given of the works which will be required to comply with it, and thus no estimate of the cost of so doing.

[75]     Mr Trent’s estimates are therefore unreliable.  Mr Vance accepted in evidence that allowing for the expenses estimated by Mr Bennison, two years of drawings for Mr and Mrs Trent, and $800,000 remaining in the Westpac facility, Kiwi needs another

$2,000,000 to be available on top of the present facility of $3,000,000 to complete Stages 1 and 2. There is therefore sufficient evidence before the Court to find that the existing Westpac  facility  is  inadequate  by a  significant  margin  for  the  costs  of completing Stages 1 and 2.

[76]     Mr Trent has applied to Westpac to lift the cap on the facility to $4,000,000. Mr Vance produced an email dated 31 May 2017 from a Mr R Christensen who is described as a private advisor, private wealth management with Westpac.  This email says that in a recent discussion with Mr Trent they had discussed confirmation of a facility at $4,000,000, and removal from their security of the family home situated at

90 Aporo Road owned by the Petra Trust, provided it is replaced by three sections owned by Cherry Hill, and all the land included in Stage 1 of the development. Mr Christensen says that this proposal represents a commercial development, and as such will be subject to slightly different pricing and structure terms. He says the bank will provide more detail around this once approval is in place.  Mr Christensen says that he has had a preliminary discussion with the credit manager who has indicated his support for the proposal.

[77]     The email records that the next step in the process is for an application to the credit team to be put together in order to formalise approval.  Mr Christensen advises that the bank will need confirmation that the “matrimonial property relationship

settlement that is currently underway” will not impinge adversely on Westpac’s

27     At [41]-[46].

28 At [45].

security position, and an understanding of Mr Trent’s obligations as part of the matrimonial property relationship settlement.

[78]     There are evident difficulties in the way of Kiwi being in a position to satisfy these requirements.  Relationship property issues between Mr and Mrs Trent are not resolved, so Mr Trent is not in a position to provide Westpac with an understanding of his obligations under a relationship property settlement.  Nor does it seem that it can yet be stated, either way, whether any settlement that might be achieved will impinge adversely on Westpac’s security position.

[79]     A further requirement noted by Westpac is confirmation that all existing and proposed security is offered on a first and exclusive basis, that is, not subject to any matrimonial claim. It is not clear what Westpac may require in this regard. Certainly, Kiwi is subject to a claim by way of the notice presently under consideration, which has arisen as a result of severance of the previously jointly held advances of Mr and Mrs Trent, consequent on their separation.  Whether it can be said that this condition can be met is at best moot.

[80]     I also note, in this context, that Mrs Trent is a guarantor of the Westpac facility. It is by no means clear that her guarantee will be available on an ongoing basis, for further advances, as her position in relation to the debt she is owed clearly enunciates an intention not to be involved in the subdivision in any way at all.

[81]     In cross-examination Mr Trent was as confident of arranging a $4,000,000 facility with Westpac as he was on all other topics raised with him.  Notwithstanding that he knows that matrimonial property issues are not resolved with Mrs Trent, and indeed that the Family Court has not yet allocated a fixture for the proceedings before that court, he told the Court, in relation to the facility, “I assume right now it is

$4,000,000”.   Pressed on this opinion not being reflected by the Westpac letter, Mr Trent’s responses ranged from the letter not being entirely true, to his not being worried about getting the credit from Westpac, to the letter representing one proposal from the bank but there being multiple proposals from the bank (none of which he sought to describe), to the Westpac cap “in theory” being lifted to $4,000,000.  He concluded by telling the Court that he has plenty of cash to last until “these guys figure

out the way they want to set it up”, and reiterated that he was not worried about getting the credit.

[82]     In the end, Mr Trent’s confidence on this point may be justified, but it is not at the present time. The best evidence before the Court is that there is no facility in place beyond $3,000,000, that there are major hurdles standing in the way of Westpac lifting its credit which may not be able to be surmounted before the Family Court has finally resolved relationship property issues (and any appeals are also decided) and that the amount of money required to proceed to the end of Stages 1 and 2, whatever the final figure may be, is not presently available from Westpac.

[83]     I record that I expressly asked Mr Trent whether Westpac was aware that Kiwi had been served with a demand for payment of over $8,000,000 by Mrs Trent, and he informed me that it is.  If Westpac was made aware of this prior to the email of 31

May,  which  was  issued  the day after the first  two  days  of the hearing on  this application, I would have expected there to have been reference to it in the email, given that Mr Trent’s issues with Mrs Trent are expressly mentioned in the list of the bank’s requirements. As Kiwi does not have either cash, or an agreed facility from Westpac or any other identified source available to meet the notice, an element of doubt hangs over whether the significance of the notice had been realised by Mr Christensen at the time he wrote the email.  I have little doubt that its significance will be recognised by the credit team when it turns its mind to Kiwi’s application to increase the facility.

Conclusions in relation to the subdivision

[84]     For the reasons given, the evidence presented by Kiwi in relation to the cost of creating the subdivision, the time to elapse before title is issued, and the likely sums to be achieved from Stages 1 and 2 and funding to complete these Stages are all issues on  which  there  is  considerable  material  doubt.    Mr Trent  gave  misleading  and frequently contradictory evidence in relation to estimated costs of creating the sections, estimated time for completion, estimated time for processing of the application by the Council and Lands & Survey after completion of the subdivision, Kiwi’s compliance with its resource consent conditions, and in relation to what Mr Trent described as sales, three of which were highly conditioned agreements

signed on the same day with close associates, and seven of which are not sales at all. Not only is Mr Trent’s evidence unreliable on all these issues, but the evidence of the experts on the costs of creating the sections, and on the time to likely completion, is cast into further doubt by the recent issue of the abatement notice.  This will cause delays, as will works to be undertaken to remedy the adverse environmental effects identified by the Council, at a cost which is also unknown.

[85]     Mr Trent presented in evidence as a man of enormous self confidence. Whilst his other activities in life may give him sound reasons to be confident in his own ability, the evidence29  and the knowledge of the Court show that undertaking a substantial subdivision over seven Stages pursuant to a complex resource consent is a business project on which expertise is required, and if not held by the developer as here, advice must be taken and followed.

[86]     The combined effect of Mr Trent’s inexperience with undertaking subdivisions of this size, his evident disregard of the conditions of the resource consent, his lack of a structured business plan, the lack of any evident source of additional finance for the works that must be completed for Stages 1 and 2, his misleading evidence to the Court, his lack of regard as a company director to the pressing imperative of a notice issued under s 289, his continuing to trade the company whilst insolvent both on a cash flow basis and on an assets and liabilities basis, and his disregard of professionally-assessed valuation evidence to establish sale prices for sections, give the Court no confidence that this subdivision can be completed by Kiwi at all, under the direction of Mr Trent, let alone at the cost which has been used as the basis for Mr Vance’s assessment of available funds to meet Mrs Trent’s notice, or within the time Kiwi seeks to do so.

[87]     I find that there is not a sound evidentiary basis on which the Court can conclude that funds will become available to Mrs Trent to meet her statutory demand

within two years, the period requested by Kiwi.

29     See [32] in relation to evidence given for Kiwi on this issue.

The sum which is to be paid if the demand is to be satisfied in cash

[88]     In paragraph [2] I have recorded that in the March 2016 accounts for Kiwi the jointly owned debt to Mr and Mrs Trent was recorded as $14,590,778.

[89]     Draft accounts to March 2017 have been prepared.   Mrs Trent has a draft showing a total debt to Mr and Mrs Trent of $14,310,946.77.30  Now the debt is owned severally, the accounts should show a separate debt to Mrs Trent of $7,155,473.39. Mrs Trent does not accept that this is accurate as she has not had any input into the accounts.  For the purposes of assessing the amount to be paid in order to satisfy her statutory demand, however, she accepts this as a starting point.  She also accepts a deduction, for present purposes, of a loan made to her and shown in the 2017 draft financial statements of $74,322.21.  Thus, she says that as at 31 March 2017, and assuming for present purposes that the figures I have just quoted are correct, her loan has a net value at that date of $7,081,151.18.

[90]     To that, Mrs Trent has added interest at nine per cent for each of April and May

2017, and deducted monthly loan withdrawals as approved by the Family Court of

$10,000 for each of those months. This alters the balance of her loan as at 31 May to

$7,167,691.76.

[91]     From this, Mrs Trent has deducted a monthly withdrawal for June of $10,000. She therefore says that as at 2 June 2017 the sum she is owed is $7,157,691.76, assuming the opening figures to be correct.  She says this is the sum to which her statutory demand now relates.

[92]     Mr Sumner says that Mr Trent does not accept that this is the correct amount owing to her. This must mean that he does not accept Kiwi’s draft financial statements, as the figures which lead to Mrs Trent’s assessment stem from that document, and interest calculations are based on it.  Both the rate of interest and the amount of the

monthly withdrawals are beyond argument.

30     Two sets of draft accounts exist. Mrs Trent used a set in her possession. Another produced as an exhibit, shows a debt of $14,590,778.25. For present purposes the lower figure used by Mrs Trent may be adopted.

[93]     The  best  evidence  the  Court  has  on  the  amount  now  owing  is  the  sum calculated by Mrs Trent.  I find that for the notice to be satisfied, the figure to which Kiwi must respond is $7,157,691.76.  This does not mean that this is the correct sum which Kiwi actually owes to Mrs Trent.   This figure will emerge when the final accounts have been struck by Kiwi’s accountants, and any challenge to their accuracy has been resolved.

Can Kiwi arrange to pay Mrs Trent in a shorter period?

[94]     As on other significant issues, Mr Trent’s evidence on whether Kiwi can arrange to pay Mrs Trent before completion of Stages 1 and 2 of the subdivision altered as the case proceeded.31

[95]     It was not until Mr Sumner presented his closing submissions that  Kiwi disclosed the length of time that it asked the Court to give it to meet Mrs Trent’s notice. Both the cash flow analyses by Mr Vance (DSV1 and DSV3) disclosed sums of around

$7,800,000 available in cash at the conclusion of sales of all of the sections in Stages

1 and 2, but as I have discussed, the facts that will dictate when and whether that might come about are issues on which various views are held, all by way of conjecture. Consistent with Kiwi’s position that this must be the source of funding, Mr Sumner understandably adopted a period which he maintained would allow payment from this source to be achievable. As I have said, I do not agree.  Mr Butler says that delaying liquidation of Kiwi for any period is delaying the inevitable. There is, however, some evidence before the Court that Kiwi may be able to arrange monies in comparatively short order to pay Mrs Trent’s demand.

[96]     First, there may be a prospect of the financial affairs of not only Kiwi but also the Petra Trust and other Trent-owned or operated companies being rearranged in order to release funds.   In Mrs Trent’s affidavit dated 7 June 2017 she undertook an assessment of the present quantum of the debt owed to her, and then set out a method involving other entities by which this might be met. This included transfers of various

properties, and rearrangement of inter-entity advances. Mrs Trent plainly believes that

31 See [12] above.

her debt could be met by this method, or largely so. This would depend on the actual values of certain properties which might be transferred to her in partial satisfaction.

[97]     Secondly, as I have recorded, Mr Trent did not entirely exclude there being a means by which Mrs Trent’s debt might be met.  Most of this evidence was difficult to place any meaning on, for example:

Q.   But to get her money out she needs to be repaid by the company does she not?

A.   Not necessarily.  She could be paid from someone else outside for her assets that she owns which is her share in the company. Not shares but – so the question is the timing of when to pay, when she gets paid, not that she’s gonna get paid or not.  So the spirit behind that was that there’s no way to pay her.   I cannot pay her the money unless the subdivision continues so we can get the sales from the subdivision to pay her.

Q.   So therefore her leaving her money in the company is crucial to the success of the subdivision as of today, correct?

A.   Yes, if she demanded her money today and I had to pay it today we’d have a problem.  Doesn’t mean it’s insurmountable but it is a problem yes.

[98]     In response to a question I then asked, Mr Trent clarified the position in this way: “It’s a surmountable problem but it’s not impossible is what I meant. That there’s assets there.  It’s just a matter of how to do it”.

[99]     That was the first time that Mr Trent had given any indication that he may be able to arrange to pay Mrs Trent’s debt without completing Stages 1 and 2 of the subdivision, even though it flatly contradicted what he had said a few sentences earlier, as quoted.

[100]   Mr Trent himself accepted, later in cross-examination, that it might be possible to arrange for the transfer of properties owned by the Petra Trust to Mrs Trent, in satisfaction of her statutory demand, through a means of restructuring.   Mr Trent agreed this could be done within a relatively short space of time and agreed that this might be three weeks, when that period was suggested by counsel.

[101]   Based on the evidence of both Mr and Mrs Trent, there does seem to be some prospect that Kiwi could meet the demand by rearrangement of assets within the wider

Trent family portfolio, and a level of acceptance by Mr Trent that this could be achieved within three weeks.

[102]   Thirdly, there is evidence from a Mr Strawbridge, indicating that “a major national financial institution that is regularly involved in the financing of property developments” would give serious consideration to lending Kiwi up to $7,500,000, with a decision on an application for such finance generally to be expected within 30 to 60 days of application.

[103]   This evidence is of little assistance.   The financier was not named and the information Mr Strawbridge gave was based on a conversation, and was hearsay.  It conflicts with evidence given by Mr Trent that he had attempted to arrange finance and the most he had been able to arrange was $5,000,000 from a personal friend (as it happens, the named purchaser on two of the agreements for sale and purchase, referred to earlier).  Adding the present Westpac facility ($3,000,000) to the amount required to pay out Mrs Trent at her revised estimate of liability ($7,100,000) means Kiwi requires a financial facility of $10,100,000. Duke & Cooke values the entire property at $15,460,000. The lending ratio for total advances of $10,100,000 would be around

65 per cent. Whilst that might not, of itself, seem to be an unacceptable lending ratio, no evidence was presented to show whether any specific lender might in fact favourably entertain an application, an exercise which would no doubt involve consideration of numerous financial issues other than the security ratio.   Debt servicing is an obvious issue as Kiwi does not have any inward cash flow.  On the evidence before me I am not prepared to give any weight to the prospect of Kiwi being able to raise funding promptly from an external lender.

[104]   Finally, there was evidence before the Court that there are major institutions interested in investing in subdivisions. The evidence was not given by a representative of any such institution and does not materially advance the position.   On the evidence before me  there is  no sound  basis  upon  which  to  find that  Kiwi  could  sell  its subdivision, or sufficient a share in it, to meet Mrs Trent’s demand, in the reasonably near future.

Decision

[105]   I decline Kiwi’s request that it be given a period of two years to meet the demand, for the reasons set out in this judgment.

[106]   I decline Mrs Trent’s submission that the Court should make an order placing Kiwi into liquidation now.   Section 291(1)(b) empowers the Court to dismiss an application to set aside a statutory demand, “and forthwith make an order under s 241(4) of this Act putting the company into liquidation”.   The application was dismissed by the Court of Appeal: in para [49] of its judgment dated 28 February the Court recorded that it allowed the appeal, and specifically reinstated the notice of statutory demand.  That in effect dismissed the application, if not in so many words. The Court did not make a further order placing the company into liquidation.   It expressly referred the issue of the time within which the notice should be met to this Court.  That direction is inconsistent with it being in prospect that this Court would then make an order putting the company into liquidation without allowing time for the notice to be met.

[107]   The evidence directs me to a conclusion that Kiwi should have a period of time to meet the notice within which it can, as Mr Trent accepts, rearrange its financial affairs and those of other Trent family entities or interests to put it in a position to satisfy the notice in cash or by transfer of assets to Mrs Trent at valuation. These steps would likely require one or more properties to be valued and would require documentation. Mr Trent accepts that three weeks would be sufficient for this to occur. That may be a little optimistic in the absence of any indication of time from professionals who would be involved.   I consider that the requisite work could be concluded within 30 working days.

[108]   As noted earlier in this judgment there is some evidence that a buyer may be available for all, or a major share, of the subdivisible land. There is also evidence that a new financier may be prepared to step in and lend sufficient to pay out Mrs Trent’s debt, as assessed in accordance with the amended sum required to satisfy her notice.

[109]   Both of these steps would take longer than 30 working days.  The evidence was largely hearsay, and was very general.  I am also mindful that Mr Trent criticises

the evidence on these two prospects, and was adamant in his own evidence that he has made endeavours to achieve outside funding and an equity partner, without success beyond a level of $5,000,000.  Kiwi has also had nearly four months to rearrange its financial affairs by one or other of these methods since the decision of the Court of Appeal was released on 28 February 2017.  For these reasons I am not prepared to allow a longer period for these possibilities to be explored.

[110]   Based on the evidence, I consider the greatest prospect of Kiwi being able to meet the demand lies in rearranging Trent family affairs. A period of 30 working days will allow Kiwi ample time to meet the demand by whichever means it finds possible, without Mrs Trent being required to wait until the completion of any stage of the subdivision, or while Kiwi tries again to find funding by borrowing or selling all or part of the subdivision.  In terms of the principle enunciated in ANZ Banking Group (NZ) Ltd v Gibson,32  I find this to be a period which, in this case, gives Kiwi a reasonable opportunity to meet the demand.

[111]   I fix the period of time within which Mrs Trent’s statutory demand is to be met as 30 working days as from the date of this judgment.

Costs

[112]   Costs will be paid by Kiwi to Mrs Trent in accordance with the result in this case.  Mr Butler dealt briefly with costs in his submissions and produced a schedule of costs which he seeks, which include assessments of costs on the basis of Category

2, Schedules B and C, together with an uplift of 100 per cent in relation to the hearing on 29 and 30 May, though not on 8 and 9 June.

[113]   Mr Sumner did not cover costs in any detail, and only received Mr Butler’s assessment of costs during the last day of the hearing when Mr Butler produced his submissions.  I do not consider that Mr Sumner has had an adequate opportunity to

address this issue.

32     ANZ Banking Group (NZ) Ltd v Gibson, above n 6.

[114]  The issue of quantum of costs is therefore reserved.   I ask for a brief memorandum from Mr Butler, first, outlining the reasons he seeks an uplift of costs, and briefly, his reasons for seeking costs in band C. This should be limited to no more than five pages and filed and served within seven working days.

[115]   Mr Sumner may then file a memorandum in response dealing with Mr Butler’s schedule, already produced, and his memorandum.  This is also to be limited to five pages, plus a schedule of one page if he elects to produce one, and is to be filed and served within a further seven working days of the date of judgment.

Publication

[116]   To date, both the High Court and the Court of Appeal have made orders restricting publication of their judgments in relation to Kiwi’s application to set aside Mrs Trent’s statutory demand.  I did not hear argument on this point, and accordingly I am issuing this judgment with the same restrictions on publication in place as have been imposed to date.

[117]   I have, however, some misgivings about this course.  Although dispute over repayment of the debt has its origins in a relationship property context, the point has now been reached where Kiwi faces a statutory demand which it has failed to meet for nearly four months, and a period has been set for it to be satisfied.  This is an issue under the Act, and as noted earlier in this judgment the intention of the notice is to create a presumption of inability to pay a current debt, if the notice is not met.  There is an issue of wider public interest in a company facing such a notice, and certainly there is a wider public interest in any proceedings for liquidation that seek to establish that a company is unable to pay its debts.   Apart from anything else, there is a mandatory requirement that such a proceeding be advertised.33     Kiwi is currently engaged in a substantial business.  Although Mr Trent says he is carrying out the greater part of the physical works on site, either personally or with the assistance of an employee of Kiwi, it is clear that Kiwi is already contracting the services of a firm of surveyors, and will need the services of other parties for laying of cables and other

services, and as Mr Trent accepted, asphalting.  In addition Kiwi is offering sections

33     Rule 31.9(1) High Court Rules.

for sale. Its activities, therefore, involve other persons and entities within the financial community, including its banker, Westpac.

[118]   For these reasons the restrictions on publication of this judgment apply only for a period of 30 working days to coincide with the deadline for Mrs Trent’s notice to be met.

[119]   As this issue was not the subject of submissions I reserve leave to Kiwi and Mr

Trent to apply to the Court by memorandum to extend this period.

J G Matthews

Associate Judge

Solicitors:

Ford Sumner Lawyers, Wellington
C & F Legal Limited, Nelson