McCORE GROUP NZ LIMITED AND KC SEAVIEW LIMITED
[2024] NZHC 2938
•10 October 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-250
[2024] NZHC 2938
UNDER the Companies Act 1993 IN THE MATTER
of the liquidation of KC Seaview Limited
BETWEEN
McCORE GROUP NZ LIMITED
Plaintiff
AND
KC SEAVIEW LIMITED
Defendant
Hearing: 3 October 2024 Appearances:
J D Turner and F Ryan for Plaintiff
G J Warren for Defendant and Non Parties
Judgment:
10 October 2024
JUDGMENT OF ASSOCIATE JUDGE LESTER
This judgment was delivered by me on 10 October 2024 at 11:30 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
………………………..
McCORE GROUP NZ LIMITED v KC SEAVIEW LIMITED [2024] NZHC 2938 [10 October 2024]
[1] McCore Group NZ Limited (McCore) asserts it validly served a statutory demand against KC Seaview Limited (Seaview) on 18 December 2023, which it followed up with liquidation proceedings it says were validly served on 8 February 2024. The first call of the liquidation application was on 24 April 2024, with the proceeding advertised on the sixth day prior to that call.
[2] Two non-parties, The DAI Investments Limited (DAI) and ZYJ Construction Group Limited (ZYJ) have applied for leave to file a statement of defence out of time and for the present proceeding to be stayed. DAI is a shareholder in Seaview and ZYJ claims to be a creditor of Seaview and so both are entitled to file a defence by virtue of r 31.16(2) of the High Court Rules 2016 (the Rules).
[3] When the proceeding was called on 24 April 2024, Mr Warren appeared as counsel for a Mr Chuxi Zheng, known as ‘Jason’. Mr Warren advised the Court that the proceeding was to be opposed and the application was adjourned for Mr Warren to file the appropriate application.
[4] There was a delay in the appropriate application being filed because Jason personally, as director of Seaview, did not have standing to apply to stay the proceeding under r 31.11 of the Rules. That was ultimately addressed (albeit after some delay) with DAI and ZYJ applying to file a defence out of time and for a stay. Jason is the director of ZYJ as is Mr Dai of DAI.
The relevant rules
[5] I have the advantage in preparing this part of the judgment in having Associate Judge Gardiner’s Minute of 26 June 2024 where she sets out the relevant Rules and the issue that has arisen. I adopt her Honour’s summary.
[6] Under r 3.11, a creditor or shareholder may, with the leave of the Court, apply within five working days after the date of service of the statement of claim on the defendant company for an order restraining publication of an advertisement of the proceeding, and an order staying the liquidation.
[7] Under rr 31.16 and 31.17, a person, being a defendant company or a creditor or shareholder of the company, who intends to defend the proceeding must file a statement of defence within 10 working days after the date on which the statement of claim is served on the person filing the statement of defence. This rule does not provide any time by which a creditor or shareholder of a company should file a statement of defence. McGechan suggests it is appropriate to rely on the time specified in r 31.19 for filing an appearance (that is, two working days before the date of the hearing).
[8] Rule 31.20 provides that a person entitled to file a statement of defence or appearance and who does not do so within the prescribed time must not, without an order for extension granted on an application made under r 31.22 or the special leave of the Court, be allowed to appear at the hearing.
The inter-relationships between the parties
McCore
[9] The directors of McCore are a Mr Gibson and Qiuye Wang (known as Michael). The registered office for McCore is Level 1, Building E, 42 Tawa Drive, Albany, Auckland.
Seaview
[10]The directors of Seaview are Mr Gibson, Jason and Michael.
[11] The registered office for Seaview is the same as the registered office for McCore. Seaview does not have staff at its registered office.
[12] The majority shareholder of Seaview is Gemland Trust Limited (Gemland), which also has the same registered office.
Gemland
[13] The directors of Gemland are Michael and Jason who are also the equal shareholders in Gemland.
Michael’s evidence as to service of the statutory demand and proceedings
[14]Michael says in relation to the statutory demand:
3.I confirm that on 18 December 2023 a process server who is unknown to me attended at Level 1 42E Tawa Drive, Albany and served a statutory demand dated 14 December 2023 on KC Seaview Limited, for the sum of $840,000 and I read that statutory demand as a director of the defendant. The affidavit of service for this Statutory Demand is annexed ‘A’.
[15]In respect of the service of the proceedings, Michael says:
6.… I confirm that on 8 February 2024, a process server of Secure Collections Investigations Limited who is unknown to me attended and served [the liquidation proceedings] …
7.Once again I subsequently received and read these documents as a director of the defendant. The affidavit of service for these documents is annexed ‘B’.
[16] This evidence means that Michael’s company, McCore, issued a statutory demand followed by a liquidation proceeding against Seaview, both served at the premises occupied by McCore and received by Michael — he says wearing his hat as a director of Seaview.
The breakdown of the relationship between Michael and Jason
[17] Michael, in his affidavit in opposition to this application, refers to a settlement agreement of disputes between him and Jason in relation to Gemland and other issues. That settlement agreement is dated 14 September 2023. The background to that deed records:
B. Since thestart of 2023, [Jason and Michael] have fallen out to the point where it is impossible for them to trade on in their current capacity.
[18] The Background in the settlement agreement then refers to the fact that Jason and Michael have been corresponding through solicitors to negotiate the terms of their separation.
[19] What is conspicuously missing from Michael’s evidence when he says he accepted the documents on behalf of Seaview is any suggestion that he brought the documents to Jason’s attention.
The application for leave
[20] Essentially, the application for leave to file the defence out of time is based on the proposition that Michael as director of McCore commenced proceedings against Seaview but as well as instigating those proceedings he accepted service of this proceeding on Seaview but kept it and the statutory demand from Jason. The application puts it as follows:
2(g)(v) This is simply a case of interested parties merely serving themselves to the deliberate exclusion and detriment of any other interested and/or entitled party to facilitate a “double dipping” by the plaintiff and its respective directors into the defendant’s assets to … defeat the defendant’s remaining shareholders and legitimate creditor.
[21] I recognise here that non-party applicants were not entitled to be served. However, had the proceedings been brought to Jason’s attention, ZYJ could have defended as of right, as could Mr Dai, no doubt upon being informed of the proceedings by Jason. It was procedurally much more straightforward to Jason to seek to defend the liquidation proceeding via ZYJ as given the deadlock in Seaview, Jason would have had to have sought leave to defend in the name of Seaview. The practical reality is that this is a dispute between Jason and Michael.
[22] Michael would have known that Jason had no way of knowing that the statutory demand and proceedings had been served. The irresistible inference is that Michael deliberately chose not to inform Jason of the proceedings in order to try and obtain the liquidation of Seaview without any input from Jason. That the advertising took place on the sixth working day before the first call of the liquidation application adds to the appearance that McCore (that is, Michael) wanted to liquidate Seaview without Jason having a chance to respond.
[23] The real issue in this application is the request for an extension of time to file the statement of defence. I am satisfied that the application should be granted.
[24] There is no need for an independent application to stay the proceeding. Advertising has already occurred. The proceeding cannot proceed once a statement of defence has been filed until the opposed liquidation application is determined. Mr Warren essentially accepted that the stay application was redundant.
[25] The submissions on behalf of McCore, emphasise that service was made in accordance with the Rules. Mr Turner, counsel for McCore, submits:
27. [Jason] and the non-party applicants were not entitled to any heightened obligation of service of the Demand or Proceedings over and above the requirements of the Act.
[26] Mr Turner submits that by the time of the first call on 24 April 2024, when counsel appeared for Jason, the non-parties must have been aware of the proceedings. Mr Turner submits that even if time was taken to run from then, there was still a failure to file a defence in time. Mr Turner notes there is no draft statement of defence presented to the Court showing the grounds for a defence or any tenable grounds to oppose the liquidation.
[27] I find the submissions on behalf of McCore unconvincing. They do not address the core issue in this case which is, in plain terms, that Michael set out to have the liquidation go through ‘on the quiet’. Again, being blunt, Michael concealed the liquidation application from Jason.
[28] While it is not in dispute that the letter of s 387(1) of the Companies Act 1993 was complied with, Mr Warren submitted it could not be said that service was “effective” as there was no reasonable prospect of service actually bringing the statutory demand or the proceedings to the attention of the only person who had a real interest in learning of them, that is, Jason. As to whether service has been effective, the Court can take into account whether any shortcoming in the efficacy of service is attributable to sharp or otherwise deliberate conduct on the part of the party giving notice.1
1 See the discussion of the two-stage approach in relation to the validity of service in Denize Trustee Company Ltd v Waimauri Ltd [2020] NZHC 1718 (2020) 21 NZCPR 247 at [21]-[37]. It is also relevant whether the party claiming ineffective service contributed to them not receiving notice, for example, by not changing the registered office. Here, Michael as director of Seaview, had a
[29] This Court will not condone what, in my view, amounts to sharp practice by McCore — service here was not effective. The statutory demand issued by McCore is for a debt allegedly owed by Seaview of $840,000. Mr Turner drew my attention to a letter of demand sent to all the directors of Seaview by the solicitors acting for McCore, calling up the advance. Mr Turner submitted there was nothing sharp about Michael’s actions upon receiving the statutory demand and proceedings because Jason was aware of the obligation to repay by virtue of the letter of demand and by virtue of an agreement, which I will refer to below. Mr Turner went so far as to say that the letter of demand dated 25 August 2023 meant that both service of the statutory demand and the liquidation proceedings were effective.
[30] I cannot accept that submission. McCore’s solicitors, when calling up what McCore says was an on demand advance, recognised the need to email all of the directors of Seaview and sent their email to Jason. This was recognition that all directors of Seaview needed to be notified of the demand, not just Michael.
[31] I am satisfied that service was not effective in respect of either the statutory demand or the proceeding.
[32] Whether the foreshadowed defence has merit will be a matter for the opposed liquidation proceeding. The evidence filed shows there are issues that warrant being dealt with at an opposed liquidation hearing. Mr Turner referred to the settlement agreement reached between Jason and Michael on 14 September 2023 (that I referred to earlier). It is clear from the settlement agreement that Jason and Michael’s commercial dealings were involved. Mr Turner relied on the following clause under the heading “Intercompany loans”:
23. Jason and Michael, in their capacity as directors of Spring View Development Ltd and KC Seaview Ltd, agree to authorise each company to apply all net sale proceeds to the repayment of the intercompany loans owing to each of ZYGL and McCore, and any other existing debts and liabilities of those companies, prior to any distribution of the net sale proceeds back to GTL.
duty to advise Jason of the served documents — Michael cannot be heard to say Seaview contributed to the documents not coming to Jason’s attention.
[33] Mr Turner submitted with it being acknowledged that McCore made $840,000 available to Seaview, the above cl 23 of the settlement agreement amounts to an acknowledgment by Jason that the funds were an advance. Jason says the funds were in the nature of an equity contribution to the development project which only fall to be repaid once all creditors are repaid.
[34] The difficulty for both parties is that there are no contemporary documents as to the basis upon which the $840,000 was made available. This is a case where oral evidence will be significant. The non-parties are entitled to have that oral evidence tested rather than their right to defend the liquidation being dismissed without that opportunity.
[35] In short, Michael cannot deprive the non-parties of that opportunity by concealing the proceedings from Jason.
[36] Mr Turner submits that the settlement deed that I have referred to above, is an answer to the dispute raised by the non-parties in respect of the alleged debt. Mr Turner submits the issues that Jason raises with the debt are without substance and self-serving. That submission to some extent begs the question of why Michael set out to conceal these proceedings from Jason.
[37] Mr Turner then complains of delay in the liquidation proceeding but responsibility for that rests with the way Michael has acted. Had he informed Jason of the statutory demand or the proceedings from the outset any challenge to the proceedings could have been filed within time and the opposed liquidation determined by now.
[38] In short, once the non-parties wished to oppose the liquidation, if Michael wanted this matter to proceed promptly, then he should have agreed to the defences coming in out of time rather than relying on the frankly, indefensible position of accepting service of proceedings he had instigated, which he had no intention of defending and which he kept from Jason the only person with a real interest in learning of them.
[39]The application for leave to file the defence out of time is granted.
[40] The application for a stay is declined because the question of a stay is essentially redundant as the liquidation proceeding will proceed on an opposed basis. In any event, no undertaking of damages has been provided in respect of the stay application.
Costs
[41] The non-parties are entitled to costs on a 2B basis against McCore in respect of this application save in respect of the need for the matter to have been called in the Duty Judge List on 25 September 2024, for which costs are awarded to the plaintiff as that appearance was brought about by the default of the defendant. I so order along with disbursements as fixed by the Registrar.
[42] Any statement of defence is to be filed and served within 10 working days of the date of this Judgment. The parties may re-use evidence filed in this application. Any further evidence relied on by the non-parties is to be filed and served along with their statement of defence. Any reply evidence is to be filed and served within a further 10 working days. Any reply, strictly in reply, from the non-parties is to be filed and served within a further five working days.
[43] The Registrar is requested to allocate a one-day hearing of the opposed liquidation application. Submissions in support of the liquidation application are to be filed and served 10 working days prior to the hearing and in opposition, filed and served five working days prior to the hearing.
[44] I noted during the hearing that the verifying affidavit filed pursuant to r 31.5 of the Rules was sworn by counsel, Mr Turner. Mr Turner cannot be both witness and
counsel. As Mr Turner is not an officer of the company, if he is to give evidence on behalf of the plaintiff, then he is required to establish that he has knowledge of the matters in the affidavit.2 If Mr Turner is to remain as counsel, then the verifying affidavit will need to be sworn by someone else.
Associate Judge Lester
Solicitors:
McVeagh Fleming, Auckland (for Plaintiff) Octagon Law, Auckland (for Defendant)
Copy to counsel:
G J Warren, Barrister, Auckland (for Defendant)
2 See, Jessica Gorman and others McGechan on Procedure (on line ed, Thomson Reuters) at [HR 9.82.04].
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