Link Business Broking Limited v Marvel Grill North Wharf Company Limited
[2019] NZHC 3051
•21 November 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-002062
[2019] NZHC 3051
BETWEEN LINK BUSINESS BROKING LIMITED
Plaintiff
AND
MARVEL GRILL NORTH WHARF COMPANY LIMITED
Defendant
CIV-2019-404-001481 BETWEEN
MARVEL GRILL NORTH WHARF COMPANY LIMITED
Applicant
AND
LINK BUSINESS BROKING LIMITED
Respondent
Hearing: 13 November 2019 Appearances:
J Zwi and K J Kim for Plaintiff/Respondent B Martelli for Defendant/Applicant
Judgment:
21 November 2019
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
LINK BUSINESS BROKING LTD v MARVEL GRILL NORTH WHARF CO LTD [2019] NZHC 3051 [21
November 2019]
Introduction
[1] This is a liquidation proceeding. The defendant company, Marvel Grill North Wharf Company Ltd (Marvel) has failed to comply with a statutory demand for the sum of $157,990.06. In accordance with s 287 of the Companies Act 1993, it is presumed to be insolvent.
[2] Marvel contends that it is not a creditor and that there is a genuine and substantial dispute about the debt, a business sales commission. Marvel says that it has no liability to Link Business Broking Ltd (Link) for the commission because Link made actionable misrepresentations to Marvel regarding a potential purchaser’s (Brett Larsen/Yachting Ltd) ability to buy Marvel’s business, which ultimately caused a
$1.07 million loss to Marvel.
[3] Thus, Marvel says that aside from having no liability to Link because of the misrepresentation, Marvel in fact has a claim against Link that substantially exceeds the alleged debt.
[4] There is a second proceeding before the Court (CIV-2019-404-1481), being an application by Marvel seeking to set aside an earlier statutory demand (the first statutory demand) served on it in July 2019. That proceeding is, in my view, now largely redundant, given that the liquidation proceeding proceeds on the basis of a second statutory demand in August 2019, which Marvel did not challenge within the statutory 10 working day period under s 290 of the Companies Act. However, I accept that the same debt is still at issue and that the evidence filed by Marvel and/or Link in relation to the set aside proceedings is relevant to the current liquidation proceedings.
Factual background
[5]Marvel operates the Marvel Grill Restaurant at 1 Jellicoe Street, Auckland.
[6] Link carries on business as a brokerage and agency for the sale of small and medium businesses in New Zealand.
[7] On 6 November 2017, Marvel and Link entered into an exclusive authority to act agreement in which Marvel appointed Link as its sole agent with exclusive selling rights of the Marvel Grill Restaurant business.
[8] Clause 1.1 of the agreement provided that Marvel would pay Link a success fee if Marvel entered into a contract for sale or exchange of the business to a purchaser during, or after, the agency period, provided the purchaser had been introduced to the business or had approached the business during the agency period.
[9] In accordance with cl 2.2, the amount of the commission payable would be calculated with reference to the total shown price on the sale and purchase agreement.
[10] Link introduced Marvel to Somerset Brewing Company Ltd (Somerset) during the agency period. In early 2018, Somerset made an offer for Marvel’s business of
$2.15 million.
[11] Link subsequently received correspondence from Marvel advising they had no desire to proceed with further negotiations and, in February 2018, Link received instructions to “conclude any sale of business activity concerning Marvel Grill North Wharf Company Ltd with Link and any other party”.
[12] On 22 March 2019, Crewcare Ltd filed liquidation proceedings against Marvel in this Court (CIV-2019-404-4503).
[13] In May or June 2019, Marvel, with the assistance of ABC Business Brokers, entered into a sale and purchase agreement for the business with Somerset, with the sale price being $1.6 million. The sale and purchase agreement then became unconditional and binding between Marvel and Somerset.
[14]Link says that under its 2017 agreement with Marvel, a commission of
$110,000 (before GST) became due and payable by Marvel to Link upon the sale and purchase agreement to Somerset becoming unconditional.
[15] Link also says that it has incurred $31,490.06 of debt collection and legal expenses in relation to recovering the commission, for which Marvel is said to be liable under the agreement.
[16] On 9 July 2019, Link served a statutory demand on Marvel claiming the unpaid commission and the associated debt collection and legal fees under the agency agreement.
[17] On 23 July 2019, Marvel filed and served an application to set aside the statutory demand (CIV-2019-404-1481).
[18] On 26 August 2019, Link served on Marvel a second statutory demand pursuant to s 289 of the Companies Act requiring payment of $157,990.06.1
[19] Marvel failed to comply with the statutory demand in that it did not, within 15 working days of being served with the demand, either pay the debt or enter into any compromise under Part 14 of the Companies Act.
[20] On 27 September 2019, Link filed and served an application to put Marvel into liquidation.
[21] On 9 October 2019, the Commissioner of Inland Revenue (the Commissioner) filed a notice in support of Link’s application to put Marvel into liquidation, claiming a debt of $953,774.47 from Marvel and requesting to be substituted in the event Link does not proceed with the application.
Relevant legal principles
[22] Section 241(4)(a) of the Companies Act provides that a court may appoint a liquidator if it is satisfied that the defendant company is unable to pay its debts.
1 Marvel Grill North Wharf Company Ltd v Link Business Broking Ltd HC Auckland CIV-2019- 404-1481, 9 August 2019 (minute of Associate Judge Sargisson) at [5], noting that Link might serve a fresh statutory demand in respect of the same debt.
[23] Section 287 provides that a company is presumed to be unable to pay its debts if the company has failed to comply with a statutory demand.
[24] There are three criteria to assess when considering an application for liquidation relying on inability to pay debts:2
(a)Is the plaintiff a creditor?
(b)Is the defendant insolvent?
(c)How should the court’s residual discretion be exercised?
[25] A company is not prevented from showing that indebtedness is disputed even if it has failed to apply to set aside a statutory demand under s 290.3 In such a case, the failure of the debtor to apply to set aside the statutory demand means that the creditor is entitled to rely on the presumption of insolvency under s 287(a) of the Companies Act, and the onus falls upon the debtor to establish that there is a genuine and substantial dispute as to its ability to pay.4
[26] The Court of Appeal, in Yan v Mainzeal Property and Construction Ltd (in rec and in liq), held cogent evidence, short of actual proof, that the debt is not payable is required; the mere assertion of a dispute is not sufficient to rebut the presumption.5
Analysis and decision
[27] I do not accept the submission of Link that, because Marvel has not sought to set aside the second statutory demand (the basis for the liquidation proceeding) and it is “hopelessly insolvent” (comprising the Link debt of $157,990.06 and the IRD debt of $953,774.47), the issue of whether there is a genuine and substantial dispute as to the debt, is largely irrelevant. The approach the court must take and the central issues
2 Cable Price (NZ) Ltd v Taimona Haulage Ltd [2016] NZHC 828 at [2].
3 Yan v Mainzeal Property and Construction Ltd (in rec and in liq) [2014] NZCA 190 at [63]. See also Grant v Lotus Gardens Ltd [2013] NZHC 1135, [2013] NZCCLR 16 at [92].
4 Yan v Mainzeal Property and Construction Ltd (in rec and in liq), above n 3, at [63].
5 At [63]. See also Duffill Watts Ltd v Mogans Homes Ltd [2010] NZCCLR 1 (HC) at [28]; Link Electrosystems Ltd v GPC Electronics (New Zealand) Ltd [2007] NZCA 501, [2008] NZCCLR 19 at [16]–[ 17].
to be addressed are clearly set out in Yan v Mainzeal Property and Construction Ltd (in rec and in liq).6 The relevant principles can be summarised as follows:7
(a)A winding-up order will not be made where there is a genuine and substantial dispute as to the existence of a debt such that it would be an abuse of the process of the court to order a winding-up;
(b)In such circumstances, the dispute, if genuine and substantially disputed, should be resolved through action commenced in the ordinary way and not in the Companies Court;
(c)The assessment of whether there is a genuine and substantial dispute is made on the material before the court at the time and not on the hypothesis that some other material, which has not been produced, might nonetheless be available; and
(d)A company is not prevented from showing that indebtedness is disputed even if it has failed to apply to set aside a statutory demand under s 290 of the Companies Act.
[28] There is, of course, no proof of the IRD debt before the Court; the Commissioner has simply filed an appearance in support of the application and seeking, in the event that the plaintiff does not proceed, to be substituted.
[29] In the circumstances, the critical issue I must address is whether Marvel has established that there is a genuine and substantial dispute as to its liability to pay the debt, the subject of the statutory demand. Has Marvel provided cogent evidence demonstrating that it has a real basis for the claimed set-off and/or counterclaim?
[30] Although no proceedings have yet been filed, the evidence for Marvel and the submissions of Mr Martelli, on its behalf, make it clear that Marvel contends that it has a set-off or counterclaim against Link on the basis of false and misleading
6 Yan v Mainzeal Property and Construction Ltd (in rec and in liq), above n 3.
7 At [61], [63], [68] and [69].
representations. Those misrepresentations are said to give rise to causes of action based on s 9 of the Fair Trading Act 1986, breach of contract and/or in negligent misstatement.
[31]There are two principal breaches of duty/misrepresentations contended for:
(a)That, in December 2017, Link did not disclose to Marvel a letter from Brian McKenzie of Auckland Commercial Mortgage Brokers Ltd that supported an offer for the business by a company called Yachting Ltd (Mr Larsen as director); and
(b)That Hamish Aitcheson, a business broker acting as agent for Link, told Marvel not to accept Yachting Ltd’s offer of $2 million because Yachting Ltd did not have the financial resources to settle its offer.
[32] A critical element of Marvel’s claim to a set-off and/or counterclaim is the contention that in early 2018, Mr Larsen of Yachting Ltd advised Marvel that he could have offered an increased purchase price of up to $2.4 to 2.5 million (which would have included a Queenstown property) and questioned why Marvel had not made a counter-offer to Yachting Ltd’s offer of $2 million. On that basis, Marvel says it has an arguable claim against Link that Link’s breach of duty caused it to lose the opportunity to sell the business for approximately $1 million more than the actual sale price of $1.6 million.
[33] Link disputes the alleged misrepresentations. Mr Aitcheson says that he did disclose the letter from Auckland Commercial Mortgage Brokers Ltd and at no stage did he tell Marvel not to accept Yachting Ltd’s offer because it did not have the financial resources. Mr Aitcheson, who dealt directly with Mr Larsen, says that he received an offer from Yachting Ltd for $1.9 million and presented that to Marvel. At a meeting in December 2017, Mr Aitcheson says that he discussed both an offer from Somerset and the Yachting Ltd offer with Marvel. Marvel asked Mr Aitcheson which offer they thought they should proceed with. Mr Aitcheson says that in accordance with his standard practice, he told Marvel it was ultimately their decision but that, in his opinion, proceeding with the offer from Somerset (with a view to negotiating a
higher price) was the best course of action. Mr Aitcheson says (and this is contested) that the key reason for this was that Mr Larsen of Yachting Ltd had zero prior hospitality experience.
[34] I accept the submission of Mr Zwi, for Link, that the differences in the evidence between Mr Aitcheson, the agent for Link, and Alisdair Gribben, director of Marvel, are confined to two essential matters:
(a)Whether Mr Aitcheson handed over the letter from Auckland Commercial Mortgage Brokers Ltd; and
(b)The reason for Mr Aitcheson recommending not to proceed with Yachting Ltd’s offer of $1.9 million.
[35] It is important to place the claim of breach of duty by Link in its context. Mr Aitcheson is alleged to have recommended not to proceed with Yachting Ltd’s offer (a particular buyer) but recommended instead another buyer, Somerset, which ultimately, and as a result of further negotiation, made a substantially higher offer of
$2.15 million. That offer was $150,000 more than the $2 million Yachting Ltd was prepared to pay at that stage. The listing price at the time was $1.9 million and Mr Aitcheson, as the agent, did of course have a financial incentive to obtain the best possible price for his client. Marvel then rejected the Somerset offer of $2.15 million. However, it subsequently did sell to the same buyer, namely Somerset, for the substantially lesser sum of $1.6 million (and through a different agent).
[36] According to Mr Aitcheson, Mr Larsen initially instructed him to make an offer to Marvel for $1.5 million. The courier pack he says he subsequently received from Mr Larsen’s lawyers contained a completed sale and purchase agreement with a purchase price of $2 million – that offer was subject to due diligence clauses. It is now claimed by Marvel that Yachting Ltd/Mr Larsen would have been prepared to increase his offer by yet a further $500,000.
[37] I find that the proposed set-off and/or counterclaim to be essentially a speculative one lacking in real merit (loss of a chance) and that Marvel has failed to
provide cogent evidence to demonstrate that there is a genuine and substantial dispute as to its liability to pay the debt. I reach that conclusion for the following reasons:
(a)Construed in context, the claims Marvel makes will need to confront considerable legal hurdles, including issues of causation, proof, contributory negligence and/or failure to mitigate loss (that is, the failure to accept the original Somerset offer of $2.15 million).
(b)There is no documentary evidence to support the critical misrepresentation at issue, namely that Mr Aitcheson recommended that the Yachting Ltd offer not be pursued because it did not have the necessary financial resources. Proof of that allegation would be wholly dependent on the Court at trial accepting evidence from Mr Gribben that that is what Mr Aitcheson said. The allegation of a substantial loss of $1 million is, of course, a serious one and Mr Gribben essentially challenges Mr Aitcheson’s reputation and integrity.
(c)The letter from Auckland Commercial Mortgage Brokers Ltd (which Mr Aitcheson is alleged not to have handed over to Marvel) says very little and falls well short of establishing that Yachting Ltd would have made an offer for more than $1.9 million although it might be said to provide some context for the claims that Marvel makes. I note that Mr Martelli properly accepted the limited relevance of the document.
(d)Marvel’s claim is wholly dependent on its contention that Yachting Ltd/Mr Larsen would have purchased for $2.4 to 2.5 million, or at least in excess of $2.15 million, being the original offer made by Somerset. The evidence before the Court on that critical issue is in the form of hearsay evidence from Mr Gribben (referring to what Mr Larsen said to him) and from a draft and unsworn affidavit of Mr Larsen intended to confirm details of a conversation between Mr Larsen and counsel for Marvel and recorded by counsel in a file note.
(e)I doubt that in the circumstances here, there is a proper basis for accepting as admissible, and pursuant to s 18 of the Evidence Act 2006, the hearsay statements at issue. The circumstances do not provide reasonable assurance that the statements are reliable (they are not supported by any documentation) and there is no evidence that Mr Larsen confirmed that he approved the draft affidavit or that it accurately reflects what his position was.8 Even if the hearsay statements are admissible, I find that no real weight could be given to them. Furthermore, as Associate Judge Faire held in South Waikato Precision Engineering Ltd v Ahu Developments Ltd, the assessment of whether there is a genuine and substantial dispute is made on the material before the court at the time and not on the hypothesis that some other material, which has not been produced might nonetheless be available.9 I find that Marvel cannot properly rely on what it hopes Mr Larsen might say at trial, if, presumably, he were to give evidence.
(f)I reject the submission of Mr Martelli that this somehow gives rise to a substantial injustice and denies Marvel the opportunity of calling Mr Larsen to say under oath what happened. These sorts of proceedings are routinely determined on the papers and Marvel, as the defendant company, carries the evidential burden of demonstrating a genuine and substantial dispute. That test, while not requiring actual proof, is a filtering mechanism for ensuring that, where a presumption of insolvency arises (and thus there is a good basis for placing a company into liquidation), an insolvent company cannot avoid liquidation by raising spurious and meritless claims.
(g)The offer made by Mr Larsen and Yachting Ltd in December 2017 ($2 million) was subject to due diligence clauses. There is no evidence
8 Mr Larsen’s email to counsel (dated 25 July 2019) states: “Thanks but I’m going to pass on this. I don’t want to get involved as I didn’t end up having any form of a contract with Marvel or Link Business, I’m not involved.”
9 South Waikato Precision Engineering Ltd v Ahu Developments Ltd HC Auckland CIV-2008-404- 970, 10 December 2008 at [22], and approved by the Court of Appeal in Yan v Mainzeal Property and Construction Ltd (in rec and in liq), above n 3, at [61] and [62].
before the Court that due diligence was ever carried out by Yachting Ltd/Mr Larsen (presumably not).
(h)I accept that Marvel has taken a consistent position in challenging both the first statutory demand and now contesting the liquidation proceedings on the same basis. However, the fundamental problems with the evidence and the weak nature of the claims remains.
Conclusion
[38] I find that the plaintiff, Link, has established all of the grounds necessary for the making of an order for liquidation. Link is a creditor; the defendant, Marvel, is insolvent; and, as a matter of discretion, there is no good reason to decline to make an order for liquidation.
[39] As to insolvency, Marvel has not refuted the presumption of insolvency under s 287 of the Companies Act and, indeed, has put no evidence at all before the Court on the question of whether it is solvent. A lack of evidence before the Court as to the current financial position is an additional factor supporting the inference of the company’s inability to pay its debts.10
[40] I further note that Marvel’s defence to the application was that it had a genuine and substantial dispute as to the debt. Marvel has not sought to argue that it would be unjust and/or inequitable to make an order for winding up.
Result
[41] I order, pursuant to s 241 of the Companies Act 1993, that the defendant, Marvel Grill North Wharf Company Ltd be placed into liquidation.
[42] I note that Lang J has already concluded that advertising has been properly carried out.11
10 See Commissioner of Inland Revenue v Property Ventures Ltd (in rec) HC Christchurch CIV-2010- 409-123, 27 July 2010.
11 Link Business Broking Ltd v Marvel Grill North Wharf Company Ltd HC Auckland CIV-2019- 404-2062, 22 October 2019 (minute of Lang J) at [5].
[43] I appoint Mr Boris van Delden and Ms Peri Michaela Finnigan of Auckland, accredited insolvency practitioners, as the liquidators.
[44] The terms and conditions of the liquidators’ appointments and their rates of remuneration are as set out in their consent to act dated 16 October 2019.
[45] I also direct that the defendant is to pay costs to the plaintiff, plus disbursements, on a 2B basis.
[46]My orders are timed at 3.00 pm on 21 November 2019.
Associate Judge P J Andrew
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