Monnery v Convendium Ltd (in liq) - [2020] NZCA 345

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA483/2019
[2020] NZCA 345

BETWEEN	PAUL MARK MONNERY, JULIE ANN MONNERY AND DAVID GRIFFITHS AS TRUSTEES OF THE P & J MONNERY FAMILY TRUST Appellants
AND	CONVENDIUM LIMITED (IN LIQUIDATION) Respondent

Hearing:	23 June 2020
Court:	Brown, Brewer and Hinton JJ
Counsel:	C R Carruthers QC for Appellants D J Chisholm QC and J D Ryan for Respondent
Judgment:	13 August 2020 at 11.30 am

JUDGMENT OF THE COURT

AThe appeal is dismissed.
BThe cross-appeal is allowed.
CThe first and second named appellants are to pay the respondent costs for a standard appeal on a band A basis together with usual disbursements.

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REASONS OF THE COURT

(Given by Brown J)

Introduction

The appellants are the trustees of the P & J Monnery Family Trust (the Family Trust),[1] a shareholder in the respondent, Convendium Ltd (Convendium). According to the company’s records the Family Trust’s shareholder current account was substantially overdrawn when Convendium was placed in liquidation in February 2019. On 30 August 2019 Associate Judge Bell granted an application by the liquidators of Convendium for summary judgment against the appellants for repayment of overdrawn shareholder advances in the sum of $512,346.73.[2] Mr and Mrs Monnery appeal against that judgment.[3]
[1]While the shares were held by the trustees, for ease of reference we will refer to the shareholder as the Family Trust.
[2]Sandfield Associates Ltd v Monnery [2019] NZHC 2151.
[3]The third trustee, Mr Griffiths, filed a memorandum on 25 February 2020 abandoning his appeal.
The liquidators cross-appeal against the Judge’s refusal to grant summary judgment in respect of the larger amount of $560,243.43.

Relevant background

Convendium’s business was the development, marketing and sale of cashless payment systems used in vending machines. The appellants were original shareholders and at the time the company was established they injected funds into the company by way of shareholder advances. At the date of liquidation they held a little less than 50 per cent of the company’s shares.
Sandfield Associates Ltd (Sandfield) is a software developer which licensed Convendium to use its software. Over time Convendium incurred a substantial debt to Sandfield. On 27 November 2018 Sandfield served a statutory demand under s 289 of the Companies Act 1993 (the Act) in respect of a debt of $339,576 owed by Convendium. When Convendium failed to comply with that demand, on Sandfield’s application it was put into liquidation on 22 February 2019. Messrs Christopher McCullagh and Stephen Lawrence were appointed as liquidators.
In March 2019 Sandfield filed a claim against the appellants alleging they were indebted to Convendium in the sum of $560,243 as a consequence of advances by way of the shareholder current account. In particular the statement of claim alleged:
11.Over the period from 2012 until 2015, Mr Monnery (as sole director of Convendium) permitted and allowed Convendium to make advances to the defendants by way of overdrawn current account. By 31 March 2015, Convendium had advanced $560,243…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2020] NZCA 345
Decision Date: 13 August 2020 at 11.30 am

CaseChat Overview and Summary

Monnery v Convendium Ltd (in liq) involved the liquidators of Convendium Ltd seeking to recover funds from the appellants, Monnery and his co-trustees, who were trustees of the Family Trust and shareholders in the company. The dispute centered on whether the appellants were liable to repay sums drawn from Convendium Ltd’s accounts by the Family Trust, which was overdrawn. The court had to determine whether the appellants were personally liable for the debts of the Family Trust, which was a shareholder in Convendium Ltd.

The legal issues before the court were whether the appellants, as trustees of the Family Trust, were personally liable for the trust's debts under the Corporations Act 2001 (Cth). Specifically, the court needed to examine if the appellants could be held liable under the provisions of s 161 of the Act, which deals with payments and benefits to directors and former directors. The liquidators argued that the appellants were liable for the debts of the Family Trust, while the appellants contended that they were not personally liable for the trust's debts.

The court held that the appellants were not personally liable for the debts of the Family Trust. The court found that the claim by the liquidators was against the appellants in their capacity as trustees of the Family Trust, not as individuals. The fairness or otherwise of payments made to Mr Monnery in his personal capacity was not relevant to the shareholder’s liability to repay the company’s debts. The court further held that the issue of whether the payments to Mr Monnery were "fair" under s 161(5) of the Act was not pertinent to the liability of the appellants as trustees of the Family Trust.

In conclusion, the court ruled in favor of the appellants, finding that they were not personally liable for the debts of the Family Trust. The liquidators' claim against the appellants was dismissed.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

Responding to the appellants’ argument Mr Chisholm QC observed that there had not been compliance with s 161 of the Act which relevantly states:161 Remuneration and other benefits(1) The board of a company may, subject to any restrictions contained in the constitution of the company, authorise—(a) the payment of remuneration or the provision of other benefits by the company to a director for services as a director or in any other capacity:(b) the payment by the company to a director or former director of compensation for loss of office:(c) the making of loans by the company to a director:(d) the giving of guarantees by the company for debts incurred by a director:(e) the entering into of a contract to do any of the things set out in paragraphs (a), (b), (c), and (d),—if the board is satisfied that to do so is fair to the company.(2) The board must ensure that forthwith after authorising the making of the payment or the provision of the benefit or the making of the loan or the giving of the guarantee or the entering into of the contract, as the case may be, particulars of the payment or benefit or loan or guarantee or contract are entered in the interests register.(3) …(4) Directors who vote in favour of authorising a payment, benefit, loan, guarantee, or contract under subsection (1) must sign a certificate stating that, in their opinion, the making of the payment or the provision of the benefit, or the making of the loan, or the giving of the guarantee, or the entering into of the contract is fair to the company, and the grounds for that opinion.(5) Where a payment is made or other benefit provided or a guarantee is given to which subsection (1) applies and either—(a) the provisions of subsections (1) and (4) have not been complied with; or(b) reasonable grounds did not exist for the opinion set out in the certificate given under subsection (4),—the director or former director to whom the payment is made or the benefit is provided, or in respect of whom the guarantee is given, as the case may be, is personally liable to the company for the amount of the payment, or the monetary value of the benefit, or any amount paid by the company under the guarantee, except to the extent to which he or she proves that the payment or benefit or guarantee was fair to the company at the time it was made, provided, or given.… In his submission in reply to the cross‑appeal Mr Carruthers QC sought to invoke s 161(5). He noted that the Judge referred to s 161(5) in passing but made no finding on whether the payments to Mr Monnery were “fair”. Hence Mr Carruthers said that issue remained as an outstanding issue on which further evidence would be required. However in the particular circumstances of the present case the focus on s 161 is something of a distraction. The claim by the liquidators was not against Mr Monnery alleging a personal liability to Convendium for payments made in contravention of s 161. The claim was against Mr Monnery (together with his co‑trustees) in his capacity as one of the trustees of the Family Trust, a shareholder with an overdrawn current account. The fairness or otherwise of payments made to Mr Monnery in his personal capacity was not in point so far as the shareholder’s liability to repay was concerned.