Link Technology 2000 Ltd v Peterland Limited

[2021] NZHC 2550

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2018-485-000432

[2021] NZHC 2550

BETWEEN

LINK TECHNOLOGY 2000 LTD

First Plaintiff

HARRY MEMELINK
Second Plaintiff

AND

PETERLAND LIMITED

First Defendant

PETER JEREMY DAWSON GOODSON

Second Defendant

Hearing:	2 July and 9 August 2021
Appearances:	D Livingston for the Plaintiffs P Barrett for the Defendants
Judgment:	28 September 2021

JUDGMENT OF GRICE J

Introduction

[1]    Mr Memelink was declared bankrupt on 28 August 2018. The first plaintiff, Link Technology 2000 Ltd, in which Mr Memelink was a 100 per cent shareholder, was placed into liquidation on 23 May 2020. The Official Assignee was appointed liquidator  and  has  disclaimed  any  interest  he  has  in  these  proceedings  on     19 June 2020.1

[2]    The Official Assignee, as administrator of Mr Memelink’s bankrupt estate, has also disclaimed any interest in this litigation.

1      The liquidator disclaimed any interest in the litigation under s 269 of the Companies Act 1993.

LINK TECHNOLOGY 2000 LTD v PETERLAND LIMITED [2021] NZHC 2550 [28 September 2021]

[3]    Mr Memelink had earlier sought an order that this action be vested in him under s 119 of the Insolvency Act 2006. That application was unsuccessful.2

[4]    At the same time as Mr Memelink made an application under s 119 of the Insolvency Act he made an application under s 269 of the Companies Act 1993 that the disclaimed property, being the present action, be vested in him. The Court, at the hearing of the s 119 application, had been under the impression that the application under s 269 of the Companies Act had been abandoned. It was not referred to in written submissions nor in oral submissions and Mr Livingston, for Mr Memelink, indicated he did not intend to address it. In that regard the Court said:3

[3] The intituling of the application refers to s 269 of the Companies Act, which allows a person “suffering loss or damage as a result of a disclaimer” to apply to the Court for an order that the disclaimed property be delivered or vested in that person. However, Mr Memelink seeks to rely on s 119 of the Insolvency Act 2006, which allows a person “suffering loss or damage as a result of a disclaimer” by the Official Assignee in bankruptcy to apply for an order that the disclaimed property be delivered to or vested in the bankrupt.

[5]    Therefore, the s 269 application was not addressed in the judgment, nor was it specifically dismissed.

[6]    Subsequently, Mr Memelink made an application for leave to appeal the s 119 judgment and it became apparent that, despite the impression the Court and the defendant were under, Mr Memelink had not abandoned the s 269 claim and it remained extant. Therefore, counsel agreed that the application should be properly heard and dealt with before any further steps were taken.

[7]This judgment deals with the application under s 269 of the Companies Act.

Background

[8]    The background to these proceedings is set out in the s 119 judgment as follows:

[4]        The following general background is largely based on the statement of claim.

2      Link Technology v Memelink [2021] NZHC 428 [“The s 119 Judgment”].

3      At [3] (footnotes omitted).

[5]        Link leased premises from GPI (2002) Ltd (GPI) being a unit in Hutt Park Road, Lower Hutt. The deed of lease was dated 18 February 2008. The term was for six years with a commencement  date  of  18 August  2008. Two further  terms  of  renewal  of  three  years  each  were  available  on   18 August 2014 and 18 August 2017. The final expiry date of the lease was 17 August 2020.

[6]        The statement of claim pleads that Mr Memelink, on behalf of Link, provided notice to GPI that Link was exercising its right to extend the lease in July 2014.

[7]        GPI sold the lease premises to the first defendant, Peterland Ltd (Peterland), with settlement in September 2015.

[8]        Peterland issued Link with a notice to quit on 14 March 2017. On  27 July 2017, the second defendant, Mr Goodson, on behalf of Peterland removed various items of stock, components, dyes, tools and other items used in the manufacturing process belonging to Link.

[9]        Link was only able to operate at about 5 per cent of its pre 27 July 2017 rate from that date, due to the loss of the stock and product.

[10]      On 19 March 2018, Peterland removed all of Link’s machinery, plant, equipment and stock from the premises. Machines were destroyed by the elements when left outside. It is alleged that Peterland still holds a range of chattels belonging to Link such as cranes, water reticulation equipment and electrical wiring.

[11]      The statement of claim alleges that Mr Memelink has now had a new dye made. It is held by a Hamilton manufacturer who is now manufacturing on a subcontracting basis to Mr Memelink and Link.

…

[9]    In the case of s 119 of the Insolvency Act a person “suffering loss or damage as a result of disclaimer” may apply to the court for an order that the disclaimed property be vested in them.4 The bankrupt may also apply for an order that the disclaimed property be delivered to, or vested in, the bankrupt. The court may only make an order for the vesting if it is satisfied that it is fair that the property should be delivered to, or vested in, the applicant.

[10]   I found that first, Mr Memelink was not a person suffering loss or damage as a result of a disclaimer by the Official Assignee. Also, I was not satisfied that it was fair that the property be delivered to the applicant.

4      Insolvency Act 2006, s 119(1)(b).

[11]   In relation to the “loss or damage” I found that Mr Memelink could not establish loss or damage as three of the causes of action were causes of action that could only be brought by the first plaintiff. Mr Memelink as a shareholder did not establish that he would suffer loss or damage as a shareholder as a result of the disclaimer. In addition, the fourth cause of action, being the only cause of action that Mr Memelink could bring personally, was without merit.

[12]The particular factors I considered were:

(a)The merits of the proceedings: I found that the cause of action brought by Mr Memelink personally was without merit. The other causes of action, which were based on the breach of lease, brought by the first plaintiff I said were not entirely without merit, but I noted they were not strong.

(b)Funding: Mr Memelink said that the Link Trust would fund the proceedings and they would be brought in a timely manner. I indicated that the proceedings had not been progressed in a timely way despite the fact the first plaintiff did not go into liquidation until May 2020 and there was no evidence of funding being put in place by Link Trust. I noted that at its highest there were assurances through counsel that that would be the case and that the trust had sufficient liquidity to do so. I noted that was very different from specific arrangements concerning funding to enable the matter to be properly progressed by counsel.5

(c)In relation to Mr Memelink’s claim that he had invested a substantial amount of time and money in the proceedings: there was no evidence of this. Mr Memelink referred to a bill of costs rendered by his former solicitor for $1.5 million which was presently the subject of professional disciplinary proceedings. That had not been paid in the circumstances. However, there was no indication of exactly how much, if any, of the invoiced legal fees had been incurred in relation to this proceeding, nor was there any other evidence as to legal costs incurred

5      The s 119 Judgment, above n 2, at [72].

in relation to the proceedings. In any event, I do not consider that costs already paid can be regarded by the court as an “investment”.

(d)Delay: I considered this was a factor that weighed in favour of the respondent. I noted Link had dragged its feet in the proceedings, which it had commenced and been in default of its obligations from the outset. Even taking into account the fact that Mr Memelink went bankrupt in August 2018, which may have interfered with the first plaintiff’s ability to conduct the proceedings, the lack of progress continued until the first plaintiff was placed in liquidation on 23 May 2020. The liquidator disclaimed the interest in this litigation on 19 June 2020. This application was made after that disclaimer. While Mr Memelink may point to his difficulties with the liquidator, that would not have prevented the director of Link from progressing the litigation during what was a lengthy period. That director would have been free to take steps to conduct the proceedings if funding was to be provided by the Link Trust. In any event, the delay has caused prejudice to the defendant. The delay relates not only to the conduct of the proceedings but to the earlier delay in taking steps  to  put  in  place a lease that  Mr Memelink says he had renewed. As I noted in the s 119 judgment:

[45]      Mr Barrett for the respondents points out that nothing was ever done to formalise any new lease pursuant to the exercise of renewal (if indeed it was exercised). Mr Barrett said when Link was given 28 working days’ notice of the lease’s termination on 17 March 2017, it did not immediately respond saying it had renewed the lease in 2014. Its initial response was that it was too difficult and expensive to relocate. It was not until 13 July 2017 that claimed that it had renewed the lease in April 2014. Mr Barrett says the previous registered owner and the landlord at the time deny the lease was renewed.

[46]       Mr Barrett said that from the respondent’s point of view, Link had continued to occupy the premises under the holding over provisions in the deed of lease after the lease expired on 18 August 2014. That holding over was terminable by at least 20 working days’ notice, which was given on 17 March 2017 by the first defendant to Link.

[13]   In the argument concerning s 119 of the Insolvency Act, Mr Livingston, counsel for Mr Memelink, also argued that Mr Memelink might suffer loss or damage as a result of the disclaimer by the Official Assignee because Mr Memelink had been a guarantor of the lease. He did not pursue that argument in relation to the present application. It is difficult to see how a guarantor suffered loss or damage as a result of the disclaimer.

[14]   Mr Livingston also expressly abandoned, at this hearing, his argument concerning Mr Memelink’s right to apply for leave to bring a derivative action under s 165 of the Companies Act. Mr Livingston, in relation to the s 119 application, had argued that a right to bring a derivative action gave Mr Memelink the sufficient interest in the proceedings was relevant to whether it would be fair that the chose in action was vested in Mr Memelink. Mr Livingston did not pursue that because he said the Official Assignee has not given consent to the bringing of a derivative action by    Mr Memelink. In fact, the Official Assignee expressly indicated that he will not disclaim the shares in the first plaintiff, nor any other rights which the first plaintiff may have, according to Mr Livingston. I therefore do not consider the derivative action argument.

[15]   The application under s 119 of the Insolvency Act was dismissed on the basis that no loss or damage had been suffered, as required by s 119(1)(b) of the Insolvency Act, nor was I was not satisfied that it was fair that the property, being the chose in action, should be vested in Mr Memelink as required by s 119(1) and (2).6

Considerations under s 269 of the Companies Act 1993

[16]Insofar as is relevant, s 269 of the Companies Act provides:

269     Power to disclaim onerous property

(1)Subject to section 270, a liquidator may disclaim onerous property even though the liquidator has taken possession of it, tried to sell it, or otherwise exercised rights of ownership in relation to it.

(2)For the purposes of this section, onerous property—

(a)means—

6      The s 119 Judgment, above n 2, at [68] and [70]–[72].

(i)an unprofitable contract; or

(ii)property of the company that is unsaleable, or not readily saleable, or that may give rise to a liability to pay money or perform an onerous act; or

(iii)a litigation right that, in the opinion of the liquidator, has no reasonable prospect of success or cannot reasonably be funded from the assets of the company; but

(b)  does not include—

…

(3)A disclaimer under this section—

(a)brings to an end on and from the date of the disclaimer the rights, interests, and liabilities of the company in relation to the property disclaimed:

(b)does not, except so far as necessary to release the company from a liability, affect the rights or liabilities of any other person.

(4)A liquidator who disclaims onerous property must, within 10 working days of the disclaimer, give notice in writing of the disclaimer to every person whose rights are, to the knowledge of the liquidator, affected by the disclaimer.

(5)A person suffering loss or damage as a result of a disclaimer under this section may—

(a)claim as a creditor of the company for the amount of the loss or damage, taking account of the effect of an order made by the court under paragraph (b):

(b)apply to the court for an order that the disclaimed property be delivered to or vested in that person.

(6)The court may make an order under subsection (5)(b) if it is satisfied that it is just that the property should be vested in the applicant.

[17]In comparison, s 119 of the Insolvency Act 2006 provides:

119     Position of person who suffers loss as result of disclaimer

(1)A person suffering loss or damage as a result of disclaimer by the Assignee may—

(a)claim as a creditor in the bankruptcy for the amount of the loss or damage, taking account of the effect of an order made by the court under paragraph (b):

(b)apply to the court for an order that the disclaimed property be delivered to, or vested in, that person.

(2)The bankrupt may also apply for an order that the disclaimed property be delivered to, or vested in, the bankrupt.

(3)The court may make an order under subsection (1)(b) or (2) if it is satisfied that it is fair that the property should be delivered to, or vested in, the applicant.

[18]   Two  clear differences  are apparent between the sections.  The first is that in s 119 of the Insolvency Act express provision is made for the bankrupt to apply,7 whereas in s 269 of the Companies Act there is no express provision for a director or shareholder to apply for an order for vesting in the case of a disclaimer by the liquidator. Therefore, under s 269 a director or shareholder must establish loss or damage as a result of the disclaimer as a prerequisite. In addition, the claimant must satisfy the court that it is “just” that the property should be vested in that person.

[19]   The use of the word “fair” in s 119 of the Insolvency Act compares to the use of “just” in s 269 of the Companies Act. Counsel for both parties were of the view that the words were similar in meaning. Mr Livingston pointed to the dictionary meaning of fair and just as follows:

8.        The Oxford English Dictionary defines “just” and “fair” as:8

Just, adj.

Honest and impartial in dealing with people; that gives everyone his or her due; administering justice fairly; fair-minded.

Fair, adj.

Of conduct, actions, methods, arguments, etc.: free from bias, fraud, or injustice; equitable; legitimate, valid, sound.

[20]   I agree there is little significance in the difference for the purposes of this application. Both “fair” and “just” require an evaluation of the situation and consideration of all the circumstances including the effect on all parties.

7      Insolvency Act 2006, s 119(2).

8      Oxford English Dictionary (accessed on 7 July 2021) < Mr Livingston’s primary submission was that it was apparent without any additional proof that a 100 per cent shareholder would suffer loss or damage if proceedings  were  not  pursued  where   those   proceedings   have   some   merit.  Mr Livingston said even where a company is in liquidation if it receives funds from a successful claim, that means that the company is worth more. Therefore, even if the debts of the company in liquidation exceed its assets resulting in a net deficit for the company, the company would be better off. This is because even if it was still in deficit in the liquidation, that deficit would be less than without the funds from the litigation. Therefore, he argued that the vesting of the proceedings would ultimately benefit the shareholder.

[22]   Therefore, Mr Livingston argued that evidence on the financial position of the company in liquidation was not required in order to establish that a 100 per cent shareholder would suffer loss or damage as a result of the disclaimer. He indicated that Mr Memelink expected to be discharged from bankruptcy in February 2022 due to the expiration of three years from his adjudication. He would then have the benefit of the funds personally. Mr Livingston noted that the Official Assignee retained the beneficial owner of the shares, therefore, he agreed that any success in the proceedings now in  favour  of  the  company  would  not  benefit  Mr Memelink  but  the  Official Assignee.

[23]   Mr Livingston says that Link Trust will fund the litigation. He says the earlier delay in the proceedings was caused by the intervention of the Official Assignee.   Mr Memelink’s interests were unable to pursue the proceedings because  the  Official Assignee had prevented the director from doing so. No evidence of this was produced. I do not consider that the delay in the proceedings can be entirely laid at the feet of the Official Assignee. There was an independent director who was in control of the company until it went into liquidation. There appears no reason why the director did not pursue the proceedings rather than leaving them in limbo for such a long time.

[24]   Mr Barrett, for the defendants, submitted that Mr Memelink could not establish that he was suffering loss or damage. He said that three of the causes of action in the

s 119 application were only able to be brought by the company, while the fourth cause of action, which Mr Memelink was entitled to bring personally, was meritless.

[25]   Mr Barrett said that first, there was no evidence establishing that Mr Memelink was suffering any loss or damage at all.  Secondly,  he  pointed  out  that  the  Official Assignee was presently entitled to the shares and so even if there was an indirect benefit it would be to the estate in bankruptcy, not Mr Memelink. Mr Barrett said the issue of “loss or damage” needed to be assessed at the time of the disclaimer, 19 June 2020.

Analysis

[26]   Mr Memelink must establish that he is “suffering loss or damage” as a result of the disclaimer. In addition, he must satisfy the Court that it is “just” that the proceeding should be vested in him.

[27]   In my view the loss or damage must be current, tangible, and sufficiently identified. It may not be necessary to establish the exact quantum of such loss or damage, in fact that will be dependent on the outcome of the proceedings, but evidence of the likely extent of the loss or damage must be before the Court.

[28]   In this case the loss or damage pointed to is vague and indirect. At present, Mr Memelink  cannot  be  said  to  be  suffering  any  loss  or   damage.   The Official Assignee owns the shares as administrator of Mr Memelink’s bankrupt estate. In addition, there is no evidence of the likely financial position of the first plaintiff in liquidation. Mr Memelink was the previous director, before he went into bankruptcy, and should have been able to provide evidence of earlier statements of final position and performance. However, nothing was produced.

[29]   Mr Livingston submitted that Mr Memelink’s personal affairs were so entwined with the Link Trust that it had resulted in the Official Assignee taking caveats out over the property of Link Trust. Mr Livingston submitted the net asset worth of Link Trust far exceeded the debts. However, there is no specific evidence as to the present liquidity of the Link Trust as opposed to general assertions as to the value of its assets. There is no evidence of any resolutions that the trust has made to

fund these proceedings, nor is there evidence of any specific steps taken such as placing money in trust to ensure there were funds to properly progress the proceedings.

[30]   There has been substantial delay in prosecuting these proceedings in court. The lease was said to be renewed in 2014 and notice to terminate the lease was given in 2017. Proceedings were not issued until June 2018. When they were initiated there was no initial disclosure. While, as Mr Livingston pointed out, that was remedied, further steps were not taken as directed by the court. In fact no steps were taken until after the proceedings were disclaimed by the liquidator in May 2020. While there may be some excuse for delay in the proceedings given Mr Memelink’s bankruptcy, the delay has amounted to over four years since the notice of termination of lease was issued and considerably more since the purported renewal. The delay has prejudiced the defendant. As I noted in the s 119 judgment, a key witness in the proceedings has since died.

[31]   When looking at whether vesting the disclaimed property is “just”, it is not only from the point of view of the applicant but must also take into account the defendants’ position.

[32]   In this case I consider that given the delay and given that the case, while not without merit, is not strong, the lack of evidence concerning funding, and the prejudice due to the effluxion of time, I am not satisfied that it is just that the proceedings should be vested in Mr Memelink.

[33]   I have already found that Mr Memelink is not “suffering loss or damage as a result  of the disclaimer”  therefore, the  application fails under s 269(5), as well  as  s 269(6) of the Act.

Conclusion

[34]   Mr Memelink has not satisfied me that he is “suffering loss or damage as a result of a disclaimer”, nor am I satisfied that it is “just” that the property should be vested in the applicant. Therefore, the application for an order vesting the proceedings in Mr Memelink is dismissed.

Costs

1. If the parties are unable to agree costs memoranda should be filed as follows:

(a)by the respondents/defendants on or before seven days of the date of this judgment;

(b)by the applicant/second plaintiff on or before a further seven days; and

(c)any reply on or before a further three days.

Grice J

Solicitors:

Livingston & Livingston, Wellington for the Second Plaintiff Morrison Kent, Wellington for Defendants