Limitless Construction Ltd (in liquidation) v McNeil

[2016] NZHC 3007

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV 2016-463-120 [2016] NZHC 3007

BETWEEN

LIMITLESS CONSTRUCTION LTD (IN

LIQUIDATION) Plaintiff

AND

PHILLIP MCNEIL First Defendant

PHILLIP McNEIL, LESLEY MCNEIL and CLIFFORD EARNEST TEASDALE Second Defendant

Hearing:	12 December 2016
Counsel:	D Fraundorfer and M Braddock for Plaintiff K Johnston QC for Defendants
Judgment:	12 December 2016

(ORAL) JUDGMENT OF HEATH J

Solicitors:

Holland Beckett, Tauranga
Ian McCulloch Max Tait Legal, Porirua
Counsel:

K Johnston QC, Wellington

LIMITLESS CONSTRUCTION LTD (IN LIQUIDATION) v MCNEIL [2016] NZHC 3007 [12 December 2016]

[1]      Limitless  Construction  Ltd  (Limitless)  was  incorporated  on  28  February

2013.    Mr  Phillip  McNeil  is  the  sole  director.    The  company  was  placed  in liquidation by order of the High Court on 11 July 2016.   Mr David Thomas was appointed liquidator.

[2]      During the course of Mr Thomas’ inquiries, he ascertained that Limitless had owned two properties.  One was situated at 47 Dalmore Way, Taupo; the other was located at 753 Acacia Bay Road, Taupo.  Those properties appear to have been both bought and sold by the company during its lifetime.  Mr McNeil’s wife acted as real estate agent in relation to those sales and purchases.

[3]      A further property at Sunset Street, Taupo is owned by the trustees of the McNeil Family Trust (the trust).  An independent trustee has since died leaving Mr and Mrs McNeil as trustees of that Trust.   The Sunset Street property was on the market for sale at a time when the liquidator was pursuing inquiries into the way in which Mr McNeil had dealt with company funds.

[4]      The liquidator formed the view that monies that ought properly to have been available in the company for the benefit of its creditors had been diverted to the Trust.  As a result he sought a freezing order to prevent disposition of the Sunset Street property, pending determination of the substantive proceeding filed at the same time.

[5]      The essence of the statement of claim is to allege that monies have been misappropriated by Mr McNeil from the company.  There are causes of action based on breaches of duties of directors to keep proper accounting records,1  not to trade

recklessly2 and not to incur liabilities without having a reasonable basis for a belief

that they will be paid.

[6]      So far as the Trust is concerned, it is alleged that the trustees received monies from  the  company  with  sufficient  knowledge  of  that  fact  to  clothe  them  with

knowledge Mr McNeil had disposed of company funds contrary to his fiduciary

1      Companies Act 1993, s 300.

funds misapplied in that way.

[7]      The  application  for  a  freezing  order  came  before  Toogood  J  in  early November 2016.  The Judge, after interim arrangements had been agreed, adjourned the application for a defended hearing today.   Further affidavits have since been filed.

[8]      Following some initial discussions in Court after the proceeding was called, counsel had fruitful discussions which have resolved a number of issues on an interim basis.  As a result is now possible to deal with issues arising on the freezing order application in a manner that will enable the parties to proceed to have their substantive dispute resolved.

[9]      The property at Sunset Street has been auctioned.  A bid was received.  The transaction is due to be settled later this week.  In round terms a net sum of $135,000 is expected from that sale.

[10]     It is agreed that, from the proceeds of sale, a sum of $39,000 will be paid to a firm of solicitors to be agreed between the parties to be held on interest bearing deposit in the joint names of the parties pending determination of the substantive proceeding.

[11]     The liquidator and Mr and Mrs McNeil have also agreed that the balance of their net proceeds of sale shall be available for use by Mrs McNeil to acquire another property, which she has legal obligations to settle before Christmas.  In return for the use of those funds Mrs McNeil will, on settlement, execute a mortgage in favour of the company in liquidation for that sum, on the basis that it will secure any judgment ultimately obtained in the substantive proceeding in favour of the company in liquidation.

[12]     The documents will need to record that no point will be taken about monies previously held by the Trust being used by Mrs McNeil for her personal benefit.  In short, those funds are to be treated as if they remained in the name of the Trust so

that the position of the company in liquidation is not prejudiced in respect of the claims made. The liquidator has agreed to those arrangements.

[13]     As  the  Court  having  supervision  over  the  conduct  of  liquidators,3   I  am prepared to endorse that approach as acceptable and in compliance with the liquidator’s obligations under the Companies Act 1993.

[14]     It has been agreed that the liquidator should have costs in relation to the freezing order application.   A global sum of $7,000 is awarded in favour of the company in liquidation, as against both defendants jointly and severally.

[15]     My final comment relates to the form of the existing proceeding.  A number of the claims brought by the liquidator should in fact be in his own name.  They are the claims in respect of which relief is sought under s 301 of the Companies Act

1993.  There are other claims involving knowing receipt which would need to be in the name of the company.  As a result the solicitors for the liquidator will need to consider how best to amend the proceedings to reflect those obligations.

[16]     I adjourn the proceeding for mention at a case management conference to be held by telephone at 9am on 3 February 2017.   The freezing order application is adjourned to the same time, so that the arrangements I have outlined can be put into place.

[17]     That  will  provide  an  opportunity  for  the  parties  to  discuss  how  best  to progress the substantive dispute.  Many of the issues are accounting in nature and there may be merit in the parties agreeing to appoint a forensic accountant acceptable to each to review the accounting information and for them to be bound by the result. That, however, is something for them to consider.

[18]     Leave is reserved for any party to apply for an urgent case management conference in case there are any difficulties in implementing the arrangements to which I have referred.  If any such application were made, it shall be referred to a Duty Judge in Auckland.

P R Heath J