McCore Group NZ Limited v KC Seaview Limited
[2025] NZHC 163
•14 February 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-250
[2025] NZHC 163
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 February 2025 Counsel:
J D Turner / M J Corliss for the Plaintiff G J Warren for the Defendant
Date of Judgment:
14 February 2025
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 14 February 2025 at 2.30 pm.
Pursuant to Rule 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors/Counsel:
McVeagh Fleming, Auckland G J Warren, Auckland
McCORE GROUP NZ LTD v KC SEAVIEW LTD [2025] NZHC 163 [14 February 2025]
Introduction
[1] Chuxi (Jason) Zheng (Mr Zheng) and Qiuye (Michael) Wang (Mr Wang) engaged in business together, utilising various entities. At times they were joined by other investors. This proceeding is concerned with the proposed development of two residential properties (the venture).
[2] The properties were acquired by the defendant, KC Seaview Ltd (Seaview). The acquisition of the properties, and the initial steps towards development, were funded by bank finance, shareholder advances and advances from related parties. This included an advance of $840,000 from the plaintiff, McCore Group NZ Ltd (McCore) to Seaview (the McCore advance). Mr Zheng and Mr Wang had interests in both Seaview and McCore.
[3] In early 2023, Mr Zheng and Mr Wang became embroiled in a dispute. By agreement, Mr Wang acquired control of McCore. McCore served a statutory demand on Seaview demanding repayment of the McCore advance. Seaview did not comply with the demand, and McCore now seeks an order putting Seaview into liquidation. The liquidation is opposed by Mr Zheng’s interests, and by another shareholder of Seaview. The primary issue for determination is whether Seaview is unable to pay its debts.
The investments in Seaview
[4] The affidavit evidence on behalf of Seaview is that the original understanding between the investors in Seaview was that the venture would be funded by bank finance and shareholder advances, the latter made pro-rata according to shareholdings. The understandings and arrangements between the investors were not recorded in a formal written document and evolved over time. Some of the initial investors withdrew, with their investments returned to them.
[5] Mr Zheng and Mr Wang held their interests in Seaview via Gemland Trust Ltd (Gemland). Gemland holds 74 per cent of the shares in Seaview. The interests of Mr Wang and Mr Zheng in Gemland are equal.
[6]The other registered shareholders of Seaview are:
(a)The Dai Investment Ltd (TDI), representing the interests of Zhenning Dai (Mr Dai), holds 10%;
(b)Kava Group Ltd, representing the interests of Michael Gibson (Mr Gibson), holds 12%; and
(c)Tiri Palms Family Trustee Ltd, representing the interests of Matthew Borg (Mr Borg), holds 4%.
[7] At the time of the McCore advance, interests of Mr Wang, Mr Zheng, Mr Gibson and Mr Borg all held shares in McCore.
[8] Leaving to one side the bank finance, the investments in Seaview for the venture differed in form:
(a)some investors made shareholder advances direct to Seaview, including TDI;
(b)some investors made advances to Seaview via Gemland;
(c)the McCore advance was a related party advance; and
(d)ZYJ Construction Group Ltd (ZYJ), a company controlled by Mr Zheng and Mr Wang at the time, advanced $500,000 to Seaview (the ZYJ advance).
[9] The most recent financial statements of Seaview are for the year ended 31 March 2023. The financial statements record:
(a)a shareholder advance from TDI of $210,000;
(b)a shareholder advance from Gemland of $1,050,000;
(c)a loan from McCore of $840,000; and
(d)a loan from ZYJ of $400,000, $100,000 having been repaid.
The settlement between Mr Zheng and Mr Wang
[10] During 2023, the solicitors acting for Mr Zheng’s interests and the solicitors acting for Mr Wang’s interests corresponded, and there were meetings between the individual investors in various projects. Ultimately, this resulted in Mr Zheng, Mr Wang and Gemland executing a deed of settlement dated 14 September 2023 (the deed). No other investors in the various projects were parties.
[11] The deed was an attempt to settle all issues between Mr Zheng and Mr Wang arising from their various business interests, including the venture and the properties. Under the deed:
(a)Mr Wang was to acquire all of Mr Zheng’s interests in McCore;
(b)Mr Zheng was to acquire all of Mr Wang’s interests in ZYJ;
(c)the business interests were to be liquidated, including a sale of the properties; and
(d)clause 23 provided:
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 ZYJ GL and McCore, and any other existing debts and liabilities of those companies, prior to any distribution of the net sale proceeds back to GTL.
The current position
[12] Mr Wang has acquired Mr Zheng’s interests in McCore. Mr Zheng has acquired Mr Wang’s interests in ZYJ. The venture did not proceed, and the properties were sold by Seaview as contemplated by the deed. The bank finance has been repaid, and the net sale proceeds are now comprised in:
(a)a bank account of $388,451.01 with ASB, which is frozen by agreement; and
(b)a fund of $734,480.70 held on trust for Seaview by solicitors.
[13] Seaview’s liabilities to unrelated third parties are less than $1,000. However, once those liabilities are met there will be insufficient funds available to meet all claims by the related parties and shareholders. There is a dispute between the shareholders and investors regarding how Seaview’s remaining funds should be distributed:
(a)Mr Wang’s interests, supported by Mr Gibson’s interests, argue that the McCore advance is repayable on demand at face value.
(b)Mr Zheng’s interests argue that the McCore advance is to be treated as an “equity investment”, to be repaid pro-rata with the other shareholder advances to Seaview. That would result in McCore receiving less than 100 cents on the dollar. Further, Mr Zheng argues that the ZYJ advance is repayable at face value together with 10 per cent interest per annum.
(c)Mr Dai’s interests support Mr Zheng’s position in respect of the McCore advance.
[14] Mr Zheng, Mr Wang and Mr Gibson remain directors of Seaview. The shareholders of Seaview cannot complete a voluntary dissolution of the company because of the deadlock between Mr Wang and Mr Zheng, who control Gemland, which remains the majority shareholder of Seaview.
[15] There are other extant legal proceedings involving Mr Zheng’s interests and Mr Wang’s interests, including at least:
(a)McCore Group NZ Ltd v Spring Views Development Ltd, CIV-2024- 404-1069;
(b)Wang v Zheng, CIV-2024-404-256; and
(c)Wang v Zheng, CIV2024-404-1808.
Legal principles and the issue
[16] The shareholders of Seaview do not seek liquidation on just and equitable grounds or based on any alleged shareholder oppression. McCore seeks liquidation solely on the ground that Seaview is unable to pay its debts.
[17] The Court has a discretion to stay or dismiss a liquidation proceeding founded on a debt that is the subject of a genuine and substantial dispute. Enforcing a genuinely disputed debt by liquidation may constitute an abuse of process.1
[18] A defendant company may raise a dispute in a liquidation proceeding even though the company did not apply to set aside the statutory demand on the basis that the debt was disputed.2 The failure to apply to set aside a statutory demand is a factor that may be taken into account when the Court considers whether a dispute raised later by the defendant is genuine.3
[19] Where the relevant requirements under s 241 of the Companies Act 1993 for the appointment of a liquidator have been met, the applicant is generally entitled to an order putting a company into liquidation. The Court retains a discretion, exercised sparingly, not to place the company into liquidation.4
[20] The issue in this case is whether there is a genuine and substantial dispute regarding the terms of Seaview’s obligation to repay the McCore advance.
1 Cummins v Body Corporate 172108 [2021] NZCA 145, [2021] 3 NZLR 17 at [20], citing Re Bayoil SA [1999] 1 WLR 147 (CA) at 156. See also Yan v Mainzeal Property and Construction Ltd (in rec and in liq) [2014] NZCA 190 at [61].
2 Heron’s Flight Ltd v NZ Properties International Ltd [2012] 1 NZLR 424 (HC) at [23], [25] and [27].
3 National Finance 2000 Ltd v All Star Cars Ltd HC Auckland M703-IM02, 10 September 2002 at [37].
4 Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395 (CA) at [3];
Feltex Carpets Ltd (in rec) v N&I Investments Ltd (2006) 3 NZCCLR 714 (HC) at [38].
Analysis
[21] McCore is not, and has never been, a shareholder of Seaview. The McCore advance was not consideration for shares.
[22] The thrust of the affidavit evidence of Mr Zheng, Mr Dai and another original investor is, in broad terms, that the McCore advance was an “equity investment”, and the original intention of the parties was that McCore would be a shareholder of Seaview. The position that can be distilled from their evidence is that the McCore advance was to be subject to the same terms as their own shareholder and related party advances to Seaview — repayable together with a pro-rata share of the profit or loss from the venture.
[23] McCore argues that there is a presumption that a loan for an undefined term is repayable on demand,5 and the evidence supports a finding that the parties did not agree that repayment of the McCore advance was in any way contingent on the profitability of the venture. McCore relies on affidavit evidence from Mr Wang and Mr Gibson. Both assert that the McCore advance was always intended to be repayable on demand.
[24] There are differing accounts of what was discussed at the time of the investments, and these differing accounts cannot be resolved on affidavit evidence alone. There is limited documentary evidence to support the various assertions made regarding what was agreed between the parties.
[25] It is common ground that Seaview required approximately $2.5 million from its investors, which is broadly reflected in the total amount advanced by the shareholders and related parties. However, the individual advances cannot be reconciled with the current shareholdings in Seaview, McCore and ZYJ, and the affidavit evidence does not adequately explain the relationship between shareholdings and advances.
5 Relying on South Waikato Processing Facility Ltd v Hunter [2014] NZHC 222 at [37].
[26] Mr Wang prepared a spreadsheet recording advances to Seaview as at 9 March 2023, totalling $2.5 million. The McCore advance appears in a part of the spreadsheet entitled “Funder”, which also records contributions from Mr Dai, Mr Zheng, Mr Wang and another investor. Mr Wang and Mr Zheng are recorded as having provided
$725,000 each. The ZYJ advance does not appear in this part of the spreadsheet.
[27] However, a separate part of the spreadsheet records the ZYJ advance as part of the total advances of $2.5 million. This suggests that Mr Zheng and Mr Wang treated the ZYJ advance as comprising part of their own investments.
[28] There is no evidence that Mr Gibson’s interests or Mr Borg’s interests made direct investments in Seaview. Their investments may comprise part of the McCore advance.
[29] On 25 August 2023, McCore’s solicitors sent a letter to Seaview demanding repayment of the McCore advance. Mr Zheng responded the next day by email, sending various attachments and stating his view that the attachments did not record the McCore advance as a loan. The attachments are not in evidence.
[30] Mr Zheng, Mr Wang and Mr Gibson had a meeting on 30 August 2023. The minutes prepared by Mr Wang record that Seaview had an “intercompany loan of approximately $840,000 owed to McCore”. However, the minutes record that there was discussion regarding whether the McCore advance is a loan or an investment, and Mr Zheng voted that it was an investment. The minutes go on to record that Mr Zheng was taking legal advice.
[31] Mr Zheng and Mr Wang had a telephone discussion on 13 September 2023. The conversation was recorded and has been transcribed. During the conversation, Mr Wang stated that McCore had a loan of $840,000 and that ZYJ had a loan of
$400,000. Mr Zheng confirmed that position. However, there was no discussion about the terms of repayment.
[32] Clause 23 of the deed confirms the loans, but is silent on the intention of the parties if there was insufficient net sale proceeds to repay all advances in full.
[33] There was an exchange of emails between some of the investors in May 2024. Mr Zheng, Mr Wang, Mr Dai, Mr Gibson, Mr Borg, Gemland, McCore and ZYJ were also involved in a project undertaken by a related company, Spring Views Development Ltd (Spring Views). McCore and ZYJ also made advances to Spring Views, and issues arose regarding the terms of those advances and the effect of cl 23 of the deed, similar to the issues that arise in the present case.
[34] On 25 May 2024, one of the investors in Spring Views sent an email to Mr Wang, Mr Zheng, Mr Dai, Mr Gibson, Mr Borg and an accountant, asserting that the advances by McCore and ZYJ to Spring Views should be treated as “shareholder funds”, rather than “associated loans”.
[35]As part of a subsequent email exchange, Mr Wang sent an email stating:
I believe Derek has valid points below, there is a tide up for things post the settlement between Jason and me which SVDL is one of the companies.
I personally do not want to see a result of our settlement that potentially jeopardises any shareholders’ benefits.
In my view, if it is a loan (respectively same for both companies), as per signed documentations, then shares might need to be reconciled to reflect what shareholders’ actual investment, given all directors and shareholders’ approval. If not a loan (respectively same for both companies), as per the original intention was to a development project, not stuck with a locked asset, then we might need to re-consider the overall deal of settlement, required to apply an amendment to the settlement, and change previous years’ financial reports through, companies’ tax implications and liabilities, also how shares can be re-allocated as the companies’ shareholdings have been materially changed, again given all directors’ and shareholders’ approval.
[36] Although the email exchange related to Spring Views, that project was undertaken at the same time as Seaview’s venture and involved largely the same investors. There is evidence that suggests that investments in Seaview were made by the interests of Mr Wang and Mr Zheng, and perhaps also by the interests of Mr Gibson and Mr Borg, by utilising McCore as the lender.
[37] I find that there is a genuine and substantial dispute as to the agreed terms of repayment of the McCore advance. It is reasonably arguable that repayment of the McCore advance was to be made pro-rata with repayment of the investments made by
other shareholders in Seaview, irrespective of whether those investments took the form of shareholder advances or related party advances.
[38] If the interests of Mr Zheng and Mr Dai are successful in establishing that position, then Seaview is not insolvent. The net funds on hand, after payment of liabilities to unrelated parties, will be available to meet Seaview’s obligations in respect of its related party advances and shareholder advances, on a pro-rata basis.
Other factors relevant to the Court’s exercise of its discretion on liquidation
[39] A liquidator of Seaview would face the unenviable task of dealing with the competing claims by McCore, ZYJ and Seaview’s shareholders for repayment of advances. Litigation would be inevitable to determine priorities. Appointment of a liquidator will result in significant additional costs of the liquidator, which are not justified.
[40] There are already other proceedings on foot that involve the interests of Mr Zheng and Mr Wang. The most efficient way to resolve the issues that arise regarding the terms of repayment of the McCore advance is by addition of a claim to the other litigation.
[41] There is no prejudice to Mr Wang’s interests if Seaview is not liquidated. The company no longer trades, and its only assets are the funds that are frozen in the bank account and held on trust by solicitors. The status quo will remain until the dispute regarding the terms of repayment of the McCore advance, and the other advances, are resolved by other litigation.
Result
[42]The application for an order putting the defendant into liquidation is declined.
[43] My preliminary view is that costs should follow the event, on a 2B basis. If the parties are unable to agree on costs, then:
(a)the defendant may file and serve written submissions on costs, of no more than five pages by 28 February 2025;
(b)the plaintiff may file and serve written submissions on costs, of no more than five pages, by 14 March 2025;
(c)I will then determine costs on the papers.
Associate Judge Brittain
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