Matthew Mini Coaches Limited (in liquidation) v S W Matthew Holdings Limited
[2020] NZHC 283
•26 February 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-001614
[2020] NZHC 283
BETWEEN MATTHEW MINI COACHES LIMITED (IN LIQUIDATION)
PlaintiffAND
S W MATTHEW HOLDINGS LIMITED
Defendant
Hearing: 17 February 2020 Appearances:
S L Hawksworth for the Plaintiff A W Johnson for the Defendant
Judgment:
26 February 2020
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 26 February 2020 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors / Counsel: Simpson Grierson, Auckland
MATTHEW MINI COACHES LTD v S W MATTHEW HOLDINGS LTD [2020] NZHC 283
[26 February 2020]
Introduction
[1] The plaintiff, Matthew Mini Coaches Ltd (in liq), served a statutory demand on the defendant, SW Matthew Holdings Ltd, under s 298 of the Companies Act 1993. The defendant failed to pay or challenge the statutory demand within the relevant timeframes. Accordingly, the plaintiff applied for the defendant to be put into liquidation.
[2] The defendant now applies (by interlocutory application) for orders staying and restraining advertising of the liquidation proceeding under r 31.11 of the High Court Rules 2016. It also seeks an order allowing it further time to adduce affidavit evidence in support of this application. At the hearing, after hearing brief oral submissions from both sides, I allowed the further evidence as it did not prejudice the plaintiff. I also made an interim order restraining advertising or any publication of the proceeding pending further order.
Factual background
[3] Stuart Matthew is the sole director and shareholder of the plaintiff company. The plaintiff was placed into liquidation on 23 March 2018. Vivian Fatupaito of KPMG was appointed liquidator. Mr Matthew is also the sole director and shareholder of the defendant company, a company related to the plaintiff.
[4] The defendant owned properties at 8 and 10 O’Rorke Street, Onehunga, Auckland. The plaintiff leased the 10 O’Rorke Street property from the defendant under a deed of lease. The deed required the plaintiff to contribute 80 per cent of the outgoings, including council and water rates. The lease ran its course. However, there was a holding over of the lease that continued up until the liquidation of the plaintiff.
[5] The liquidator identified numerous payments from the plaintiff to the defendant. Those payments totalled $67,178, being the “rounded-up figure” including
$42,813.06 for council rates, $9,259.56 for water rates and $15,105 for other transfers.
[6]On 5 July 2019, the plaintiff served a statutory demand on the defendant for
$67,178. The last day to file a challenge to the demand was 19 July 2019. The defendant failed to challenge the demand within that time frame. Mr Matthew explains that he was unable to contact his accountant, who was on an overseas trip at the relevant time. Following the expiry of the statutory demand on 26 July 2019, the plaintiff filed an application on 13 August 2019 for the liquidation of the defendant pursuant to s 241(2)(c) of the Act.
Legal framework
[7] Rule 31.11(2) provides that the Court must treat an application to stay liquidation proceedings as if it were an application for an interim injunction. If the Court makes the order sought, it may do so on whatever terms the Court thinks just.
[8]A summary of the relevant principles is as follows:1
(a)The Court has an inherent jurisdiction to stay winding up proceedings where the debt upon which such proceedings are found is the subject of a genuine dispute. In most circumstances the plaintiff cannot show it has the status of a creditor or there has been neglect by the company to pay.
(b)The jurisdiction is an inherent one to prevent abuse of process. There is no inflexible rule.
(c)The governing considering is whether the proceedings suggest unfairness or undue pressure.
(d)It is a serious matter to stay winding up proceedings, so the decision to do so is never made lightly. The onus is on the applicant and it is normally necessary to demonstrate “something more” than the balance of convenience considerations which are usually considered on an application for interim injunction. If the defendant company has had an opportunity to file appropriate affidavits, such defendant is required to establish a strong prima facie case of the existence of a genuine dispute on substantial grounds, or show that there are clear and persuasive grounds for a stay.
[9] Pursuant to r 31.11, the Court also has jurisdiction to restrain advertising of a liquidation proceeding.
1 Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 (HC) at 385.
Is there a genuinely disputed debt?
[10] The first issue for determination is: whether there is a genuine dispute that the payments were properly paid by the plaintiff under the deed of lease to contribute to the outgoings in relation to the 10 O’Rorke property or otherwise.
[11] In showing that there is a genuine and substantial dispute as to whether the debt is owing to the plaintiff, the defendant must rebut the initial presumption that where payments are made they are by way of loan.2 Chitty on Contracts says:3
If money is proved, or admitted, to have been paid by A to B, then in the absence of any circumstances suggesting a presumption of advancement, there is prima facie an obligation to repay the money; accordingly if B claims the money was intended as a gift, the onus is on him to prove this fact.
[12] As noted above, the payments making up the debt total $67,178, being for council rates, water rates and other transfers. I address each in turn.
Council rates
[13] The liquidator, Ms Fatupaito, has identified 19 payments from the plaintiff’s bank account to the defendant apparently in respect of council rates. The payments total $42,813.06. The bank statements also record a payment from the defendant to the plaintiff in the amount of $1,458.
[14] The defendant does not deny that these payments were made to it for its benefit. However, it says those payments were properly paid by the plaintiff under the deed of lease whereby the plaintiff was to contribute to outgoings of the 10 O’Rorke property.
[15]I am satisfied that there is a genuine dispute as to only three payments:
(a)First, a payment dated 24 May 2013 for $1,975.87. The details on the bank statement read, “DC Rates 10 O’Rorke ACC Rates”.
2 See Jackson v Wynyard Group Ltd (in liq) [2018] NZHC 1283 at [16].
3 Eva Lomnicka “Credit and Security” in H G Beale (ed) Chitty on Contracts (33rd ed, Sweet & Maxwell, London, 2018) vol 2 at [39-264], citing Seldon v Davidson [1968] 1 WLR 1083 (CA).
(b)Secondly, a payment dated 30 August 2017 for $3,780.29. The details record, “Pay Z Auckland City Rates- Auckland Council”. On its face, this notation does not refer to the 10 O’Rorke property. However, the Auckland Council transaction listing for the 10 O’Rorke property (attached to Mr Matthew’s further affidavit which I allowed to be adduced at the hearing) is of assistance. That document lists transactions in relation to the 10 O’Rorke property between 30 June 2017 and 25 March 2019. That document records an incoming payment of $3,780.29 on 30 August 2017, confirming the transfer recorded in the plaintiff’s bank statement as being for the 10 O’Rorke property.
(c)Thirdly, a payment dated 28 November 2017 for $2,356.03. The details record, “DC ACC Rates 8 10 O’Rorke”. Again, the Auckland Council transaction listing is of assistance. That document records an incoming payment of $1,730.32 in relation to the 10 O’Rorke property dated 28 November 2017. I am therefore satisfied that there is a genuine dispute as to $1,730.32 of the $2,356.03 (the remainder of that amount presumably going towards the 8 O’Rorke property).
[16] For the rest of the 19 payments appearing in the plaintiff’s bank statements, the details simply record that they were for Auckland Council rates generally, for both the
8 and 10 O’Rorke properties (without specifying how much went towards the 10 O’Rorke property) or otherwise omit reference to the 10 O’Rorke property. Two of the payments are detailed as relating to Manukau City Council rates: $437 on 25 May 2015 and $598 on 29 May 2016. Mr Matthew says these amounts were contributions made pursuant to an informal arrangement whereby the plaintiff would pay rates towards the defendant’s property at Wellesley Road, Mangere in exchange for use of some of its storage space. However, no invoices or other evidence was provided in support of Mr Matthew’s bare assertion.
Water rates
[17] The liquidator has further identified 50 payments, totalling $9,259.56, from the plaintiff’s bank statements in respect of water rates.
[18] Of the 50 payments, all but one are recorded as “0105191 01 SW Matthew 10 O’Rorke”. At the hearing counsel for the liquidator accepted that these payments were for the 10 O’Rorke property. However, she says that it is unclear whether the amounts paid are 100 per cent of the water rates or 80 per cent of the rates (as required under the deed of lease). The defendant has failed to put into evidence any invoices showing the amount due. If the amounts paid were for 100 per cent of the water rates, then 20 per cent of each payment will be owing to the plaintiff.
Transfers
[19] Finally, the liquidator has identified, from the plaintiff’s bank statements, eight transfers to the defendant totalling $15,105.
[20]The defendant disputes only two of those transfers:
(a)The first is a transfer dated 19 March 2008 for $6,000. The details record, “TB Loan Repay to SWMH 39420”. Mr Matthew says the transfer was to reimburse the defendant for a payment it made on 7 December 2007 to clear the plaintiff’s overdraft.
(b)The second is a transfer dated 30 June 2009 for $500. The detail records, “IB Visa SWM Holding INTERNET XFR”. Mr Matthew says the transfer was to reimburse the defendant for a visa transaction it made on behalf of the plaintiff.
[21] However, the defendant has not filed any documentary evidence in support of Mr Matthew’s assertions. Accordingly, I am not satisfied that the defendant has established a strong prima facie case of a genuine dispute, as required, for the transfers.
Conclusion
[22] To conclude on this issue, the defendant has demonstrated a genuine dispute as to the amount owing to the liquidator. However, I am not satisfied that there is a genuine dispute as to the existence of a debt. Accordingly, I do not consider that the liquidation proceedings should be stayed on this ground.
Is the defendant company otherwise solvent?
[23] As the defendant has failed to comply with the statutory demand, under s 287, it is presumed to be unable to pay its debts. This presumption of insolvency can be rebutted, but “[b]land claims that the company is solvent will not suffice”.4 The Court has therefore previously stated that it is “advisable for a party wishing to obtain stay and restraint orders on the ground of solvency to exhibit up-to-date or, at least, recent accounts substantiating the claim of solvency”.5
[24]Section 4(1) sets out the “solvency test”:
For the purposes of this Act, a company satisfies the solvency test if—
(a)the company is able to pay its debts as they become due in the normal course of business; and
(b)the value of the company’s assets is greater than the value of its liabilities, including contingent liabilities.
[25] Section 4(2)(a) provides that, in assessing a company’s balance sheet solvency, the Court “must” have regard to:
(i)the most recent financial statements of the company that are prepared under this Act or any other enactment (if any); and
(ia) the accounting records of the company; and
(ii)all other circumstances that the directors know or ought to know affect, or may affect, the value of the company’s assets and the value of the company’s liabilities, including its contingent liabilities.
4 Commissioner of Inland Revenue v Volcanic Investments Ltd HC Auckland CIV-2006-404-5253, 14 February 2007 at [24].
5 At [23].
[26] The defendant relies on the following as proof of solvency: a sum of $332,600 currently held in a trust account of Bruce Dell Law, pending further court orders, in relation to another disputed claim between the plaintiff and defendant; a sum of approximately $240,000 in cash reserves that Mr Matthew deposes the defendant has with the ANZ Bank; and a sum of $852,346.31 (including interest accrued as at 4 February 2020) held in the trust account of Bruce Dell Law as proceeds from the sale of the defendant’s property at Wellesley Road, Mangere.
[27] However, no evidence has been provided as to the cash reserves. Furthermore, the $332,600 is held in trust in relation to another dispute and is not readily available to meet the defendant’s debts/liabilities. That leaves only the proceeds of the Wellesley Road property. However, fatally, the defendant has not provided the Court with any financial statements or account records, despite having Chartered Accountants. Therefore, the Court cannot be satisfied as to the defendant’s solvency.
[28]I therefore decline to stay the liquidation proceedings.
Should the Court restrain advertising?
[29] The power to restrain advertising of the statement of claim may be exercised separately from the power to stay the liquidation proceeding. Advertising may be restrained where there appears to be is a genuine dispute as to whether there is a debt owing.6 The Court will then fix a date to finally determine the issue of whether there is in fact a genuine dispute. But the Court retains a discretion. In some circumstances, it may be appropriate to give notice by advertisement to potentially interested persons, since such persons may be aware of potential difficulties within the company. In the circumstances of the present case, I am not satisfied that advertising should be restrained.
Result
[30] In the absence of financial statements or accountancy records, I decline to grant the application to stay the liquidation proceeding and to restrain advertising. The
6 Walls v Arbor Real Ltd (1994) 8 PRNZ 61 (HC) at 62 as cited in Omid Construction Management Group Ltd v Target Painters & Decorators Ltd [2019] NZHC 3189 at [14].
interim orders made on 17 February 2020 are vacated. The matter is adjourned until the Liquidation List on Friday, 20 March 2020 at 11.45 am.
Costs
[31] As costs follow the event under the statutory costs regime, the plaintiff (in liquidation) is entitled to costs in relation to the defendant’s application on a 2B basis, plus disbursements as fixed by the Registrar. I order accordingly against the defendant.7
Associate Judge Sargisson
7 Gresson Grayson & Calver v Commercial Management Ltd (1996) 10 PRNZ 44 (HC) as cited in
McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR31.11.10(2)].
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