Mandala Australasia Limited v Sara Inc Limited

[2012] NZHC 420

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-5836 [2012] NZHC 420

UNDER  the Companies Act 1993

BETWEEN  MANDALA AUSTRALASIA LIMITED Applicant

ANDSARA INC LIMITED Respondent

Hearing:         12 March 2012

Counsel:         No appearance for Applicant

J Hollyman for Respondent

Judgment:      14 March 2012

Reasons:        14 March 2012

REASONS FOR JUDGMENT

This judgment was delivered by me on 14 March 2011 at 11 am pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date ..........................

Solicitors:

Patel Nand Legal, PO Box 2671, Epsom, Auckland

MANDALA AUSTRALASIA LIMITED V SARA INC LIMITED HC AK CIV-2011-404-5836 [14 March 2012]

[1]      In this proceeding the applicant, Mandala Australasia Limited, seeks an order setting aside the statutory demand served on it by the respondent, Sara Inc Limited, on 8 September 2011.  Sara opposes the application.  It has maintained a consistent position that its demand for $99,792 (being $51,000 for stock credits and $48,792 for stock handed over to the applicant) was properly made and should stand.

[2]      The  hearing  before  me  was  allocated  for  a  defended  hearing  of  the application.   The applicant did not appear, and I made orders, sought by the respondent under s 291(1)(b) of the Companies Act 1993, dismissing the application and putting the applicant into liquidation under s 241(4).  As indicated at the hearing, I now set out my reasons for the orders.  The orders made are set out in the attached schedule.

[3]      I begin by referring to the applicant’s failure to appear and the compliance orders made against  it  at  a telephone conference held  on  7  March  2012.    The telephone conference was held because of the applicant’s failure to comply with timetable directions.   At the conference, counsel for the applicant was without instructions.    He was given leave to withdraw.  Associate Judge Abbott made the following orders:

(a)      The application will be struck out when it is called on Monday morning unless the applicant files and serves its synopsis of argument and other material required in accordance with r 73.9, by 5pm tomorrow;

(b)       The defended hearing will remain in place.  In the event that the applicant does not comply with the last order, the respondent may seek an order for liquidation at the commencement of the hearing; and

(c)       In  the event that the applicant does not meet the above order, and the respondent elects to seek an immediate order for liquidation, the respondent may also seek leave of the Judge for an order dispensing with advertising (having regard to the very clear evidence of the respondent’s director).

[4]      The  applicant  has  failed  to  comply with  the order  (a).    It  has  not  filed submissions or other documents as directed.  These factors, plus its failure to appear, lead to the inevitable conclusion that the applicant no longer intends to prosecute its application to set aside the respondent’s statutory demand.  The respondent therefore

sought an immediate order for liquidation.  It submitted that there are reasons in the public interest for such an order.

[5]      That brings me to my reasons for the orders I have made at the respondent’s

request.

[6]      Section 291(1)(b) provides:

(1)       If, on the hearing of an application under section 290 of this Act, the Court is satisfied that there is a debt due by the company to the creditor that is not the subject of a substantial dispute, or is not subject to a counterclaim, set- off, or cross-demand, the Court may-

(a)   Order the company to pay the debt within a specified period and that, in default of payment, the creditor may make an application to put the company into liquidation; or

(b)   Dismiss  the  application  and  forthwith  make  an  order  under section

241(4) of this Act putting the company into liquidation,- on the ground that the company is unable to pay its debts.

[7]      Relevantly, s 241(4) affords the Court the discretion to appoint a liquidator where it is satisfied the company is unable to pay its debts.

[8]      Before the Court may make an order under s 291(1)(b) it must be satisfied as to the circumstances set out in the opening words of the section.   It must also be satisfied  that  an  order  for immediate liquidation, as  opposed  to  an  order under s291(1)(a), is appropriate.

[9]      I am satisfied that there is a debt due by the applicant that is not the subject of a substantial dispute, or subject to any valid counterclaim.   This is the sum of

$51,000 claimed in the statutory demand for a stock credit.

Why there is no substantial dispute as to the debt of $50,000

[10]     There is clear evidence that the respondent was entitled to demand a refund for a stock credit upon handing back its business and franchise to the applicant, and that this is what has occurred.

[11]     Key to the applicant’s denial that the respondent is entitled to the particular refund claimed of $50,000 is the assertion that the respondent has not pre-paid for stock and that under the terms of the franchise agreement it has no entitlement to a stock credit.   The assertion is demonstrably untenable.   It flies in the face of the evidence of Mr Spencer, whom the applicant engaged to assist with establishing its franchise business in New Zealand.   He was involved in the negotiations with the respondent and has produced correspondence that clearly shows it was a term of the parties’ contractual arrangements (or that the applicant made a representation amounting to such a term) that $100,000 plus GST of the purchase price was for a stock credit.  Mr Spencer also deposes to the agreement between the parties that if the respondent ceased trading or decided to sell its business the applicant would refund any advance payment held against future stock purchases.  I am satisfied this provides clear corroboration of the respondent’s position and that a robust view of the evidence is appropriate.  On this basis I find that there is no substantial dispute as to the respondent’s contention that there is a debt of $50,000 and that it is due.

Why there is no counterclaim

[12]     I  am  satisfied  there  is  no  basis  for  the  purported  counter-claim.    The applicant’s key contention is that the proceeds of sale of the respondent’s stock in hand were set off against the cost of running the business when the respondent handed back the business to the applicant.   There is however clear documentary evidence to the contrary.  When the applicant agreed to take back the respondent’s business  they  both  signed  a  memorandum  of  understanding.  The  memorandum makes quite clear that any costs that the applicant incurs in running the business belong to the applicant.

[13]     The applicant also contends that it incurred marketing costs.  The contention lacks a proper evidential basis.   Furthermore, for reasons just discussed, any marketing costs must, under the terms of the memorandum, belong to the applicant.

Is there a further debt of $48,792 due?

[14]     As I have already found there is a debt due of $50,000, and as the applicant does not prosecute its application, it is unnecessary to decide this point.

[15]     It is sufficient to note that the respondents case in respect of this debt is:

a)       The memorandum of understanding contemplates that the applicant would sell the business and account to the respondent for the proceeds of sale.  The applicant did not in fact sell the business.  It closed the business and kept the stock that was handed over to it;

b)It is implicit in the memorandum that, should the applicant close the business, it would pay for the stock that was handed over to it, at value at the time of hand-over;

c)       There is no dispute that the returned stock was valued at the time of hand-over at $48,79; and

d)As such stock has been paid for by the respondent, there can be no real dispute, on the evidence, that the respondent is entitled to be re- paid $48,792.

Why there should be an order for liquidation now

[16]     I am satisfied that it is appropriate to dismiss the application to set aside the statutory demand and that an order putting the company into liquidation is appropriate.   My reasons can be stated briefly.   Firstly, the respondent has demonstrated that there is clear evidence that the applicant is unable to pay its debts.

[17]     Secondly, the fact that the applicant is unable to pay its debts is amply reinforced by its own failure to prosecute its application to set aside the statutory demand.

[18]     Thirdly,  the  affidavit  of  the  respondent’s  director  dated  5  March  2012 provides clear, uncontroverted evidence that the applicant has shut down its flag ship store in Ponsonby after a one-day “fire sale” of all of the stock at prices reduced by some 75%.  The respondent’s website has also been shut down.  These occurrences raise the clear inference that the applicant is in the process of liquidating its business.

[19]     I  accept  that  in  these  circumstances  there  is  little  merit  in  allowing  the applicant time to pay the amount claimed in the statutory demand.  I also accept that the public interest weighs in favour of the immediate appointment of a liquidator for the protection of all of the applicant’s creditors.

[20]     I also bear in mind that if, contrary to the inferences that must be drawn from the evidence that is before the Court, the applicant is indeed able to pay its debts, it may make an application to have the order for liquidation set aside.

Conclusion

[21]     It is for the above reasons that I am satisfied that orders for dismissal and liquidation are appropriate.   As costs follow the event under the statutory costs

regime, the orders I have made for costs are also appropriate.

Associate Judge Sargisson