New Gate Limited v Dem Home Limited
[2023] NZHC 3789
•20 December 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-2971
[2023] NZHC 3789
UNDER the Companies Act 1993, section 246. BETWEEN
NEW GATE LIMITED
Plaintiff
AND
DEM HOME LIMITED
Defendant
On the papers: 19 December 2023 Appearances:
Karl Robinson for the Interim Liquidator
Judgment:
20 December 2023
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
Appointment of Interim Liquidator
This judgment was delivered by me on 20 December 2023 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Wynyard Wood (Karl Robinson), Auckland, for the Interim Liquidator
NEW GATE LIMITED v DEM HOME LIMITED [2023] NZHC 3789 [20 December 2023]
Introduction
[1] The plaintiff, New Gate Limited (New Gate), is applying to put the defendant company, Dem Home Limited (Dem Home), into liquidation. That application is accompanied by an application without notice to appoint an interim liquidator to Dem Home.
[2] Dem Home has failed to comply with the statutory demand issued by New Gate, seeking payment of $242,500.50 owed under a construction contract, and that is the basis on which New Gate applies for an order putting Dem Home into liquidation. Dem Home failed in an application to set aside the statutory demand and a judgment by Associate Judge Gardiner was delivered on 4 October 2023 (the Judgment).1 The Judgment has not been appealed by Dem Home, and Dem Home failed to pay the statutory demand. New Gate has filed a statement of claim seeking an order that Dem Home is put into liquidation on the basis of the unsatisfied statutory demand.
[3] New Gate also applies for the appointment of an interim liquidator under s 246 of the Companies Act 1993 (the Companies Act) on the basis that it is necessary and expedient for the purpose of maintaining the value of the assets owned or managed by Dem Home.
Background and material facts
Construction agreement
[4] New Gate is a building and construction company registered in 2015. The shareholders are Bella Wang (Ms Wang) and her husband Qiang Li (Mr Li), who each own a 50 per cent shareholding.
[5] Dem Home is a property development company and its sole director is Chien Chuan Liao (Mr Liao) and 100 per cent shares in the company are owned by Mr Liao and another company, Oaklands Trustees Limited (Oaklands). Oaklands is a 100 per
1 Dem Home Ltd v New Gate Ltd [2023] NZHC 2709.
cent owned by its sole director, Amy Aein Feng (Ms Feng). Oaklands and Mr Liao are trustees of the Josh Liao Family Trust (the Family Trust).
[6] New Gate and Dem Home were parties to a housing, alterations and small buildings contract (NZS 3902:2004) dated 15 March 2022 (the Construction Agreement) for the construction of five two-storey residential dwellings (the Development) at 7 Taratoa Street, Point England, Auckland (Taratoa Street).
[7] The Construction Agreement provided for payment of a deposit and then staged payment claims at specified construction milestones. The deposit was paid by Dem Home, although late, and not in strict accordance with the Construction Agreement. Construction commenced around October 2022. In December 2022, New Gate issued payment claim 1 for substantial completion of the foundation and floor structure, and that was paid by Dem Home, although again late and not in accordance with the Construction Agreement. New Gate proceeded with the next stage of construction – the wall and roof framing.
Dispute
[8] On 24 February 2023, Dem Home purported to cancel the Construction Agreement pursuant to cl 15.2(1)(e) of the Construction Agreement and s 37 of the Contract and Commercial Law Act 2017, on the basis that New Gate was in breach of the Construction Agreement in various ways, including various building defects.
[9] New Gate denied both that it was in breach of the Construction Agreement and that any breach gave rise to a right to cancel the Construction Agreement even if all the allegations Dem Home raised were true, because the Construction Agreement contained specific dispute resolution provisions addressing the parties’ rights of cancellation.
[10] The dispute was unable to be resolved, and New Gate ceased work on the Development after completing significant work in respect of the next stage of the Development, the wall and roof framing. On 9 March 2023 New Gate issued a payment claim for substantial completion of the wall and roof framing for the sum of
$242,500.50 (Payment Claim 2). Payment Claim 2 was a payment claim pursuant to the Construction Contracts Act 2002 (the CCA) and it was anticipated that Dem Home would file a payment schedule in accordance with the CCA, indicating whether it agreed or disputed Payment Claim 2. If any dispute could not be resolved then adjudication pursuant to the CCA would follow. Dem Home did not either make payment of the payment claim or issue a payment schedule in compliance with the CCA. New Gate argues that pursuant to s 23(2)(a) of the CCA, Payment Claim 2 became a debt due and owing to New Gate, and New Gate issued the statutory demand.
[11] Dem Home applied to set aside the statutory demand on the basis that the debt was disputed, and relying on other grounds challenging validity of Payment Claim 2 itself, including that New Gate was not entitled to issue Payment Claim 2 and that Payment Claim 2 was defective. Dem Home’s argument were dismissed in the Judgment and Associate Judge Gardiner provided Dem Home a further 20 working days to pay the statutory demand, which expired on 2 November 2023. Dem Home has not paid the statutory demand and New Gate is applying to put Dem Home into liquidation on the basis of the unpaid statutory demand.
Grounds on which the orders are sought
Application for liquidation
[12] New Gate applies for an order putting Dem Home into liquidation on the basis that Dem Home is unable to pay its debts under s 241(4)(a) of the Companies Act, based on Dem Home’s failure to pay the statutory demand for $242,500.50.
[13] Counsel for New Gate submits that while Dem Home could potentially raise some issues in defence, it is highly unlikely to prevent Dem Home from being liquidated. He submits that Dem Home has had the opportunity to litigate those issues, primarily through the adjudication process under the CCA and has filed to do so.
Application for an interim liquidator on a without notice basis
[14] New Gate applies for an order that an interim liquidator is appointed to Dem Home pursuant to s 246 of the Companies Act, on the grounds that it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by Dem Home.
Legal Principles
[15]Section 246(1) of the Companies Act provides:
246 Interim liquidator
(1)If an application has been made to the court for an order that a company be put into liquidation, the court may, if it is satisfied that it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company, appoint a named person, or an Official Assignee for a named district, as interim liquidator.
(2)Subject to subsection (3), an interim liquidator has the rights and powers of a liquidator to the extent necessary or desirable to maintain the value of assets owned or managed by the company.
(3)The court may limit the rights and powers of an interim liquidator in such manner as it thinks fit.
(4)The appointment of an interim liquidator takes effect on the date on which, and at the time at which, the order appointing that interim liquidator is made.
(5)The court must record in the order appointing the interim liquidator the date on which, and the time at which, the order was made.
(6)If any question arises as to whether on the date on which an interim liquidator was appointed an act was done or a transaction was entered into or effected before or after the time at which the interim liquidator was appointed, that act or transaction is, in the absence of proof to the contrary, deemed to have been done or entered into or effected, as the case may be, after that time.
[16] Rule 31.23 of the High Court Rules 2016 provides that an application to appoint an interim liquidator may be made by anyone who is entitled to apply for the appointment of a liquidator under s 241(2)(c) of the Companies Act. This includes a creditor of the company.
[17] To appoint an interim liquidator, there must first be an application for an order that the company be put into liquidated; that application must be likely to succeed; and the other circumstances of the case must justify the appointment of an interim liquidator.2 This latter requirement has been described as establishing a “relatively low threshold”.3
[18] In determining whether an interim liquidator should be appointed, the Court will ask whether the company’s assets are in jeopardy, whether the status quo should be maintained and whether the interests of creditors are safeguarded.4 But this is not an exhaustive list of factors — it is only a “useful litmus test”.5 The controlling principle is that interim liquidators will be appointed if thought necessary to protect private interests of creditors or where the public interest requires an appointment.6
New Gate’s submissions
[19] Counsel for New Gate submits that Dem Home has demonstrated a pattern of behaviour of transferring the assets in response to various aspects of the dispute and that the value of any remaining assets is a risk, requiring protection. Counsel details the steps taken by Dem Home which indicate that the assets of the company are at risk as recorded in the paragraphs below.
Dem Home’s actions
[20] Counsel submits that as at 24 February 2023, when Dem Home initially raised disputes regarding the Construction Agreement and attempted to cancel it, to the best of New Gate’s knowledge Dem Home owned at least the following properties, unencumbered with no mortgage:
2 Eden Crescent Ltd (in liq) v First City Trust No 2 Ltd (2006) 3 NZCCLR 456 (HC) at [26]; and
Landbank Ltd v NZ Catering Supplies Ltd (2006) 3 NZCCLR 936 (HC) at [4].
3 Carter Holt Harvey v Timbalok New Zealand Ltd (1998) 11 PRNZ 435 (HC) at 438.
4 Robert Bryce & Co Ltd v Chicken & Food Distributors Ltd (1990) 5 NZCLC 66,648.
5 Shen v An Ying International Financial Ltd HC Auckland CIV-2006-404-3088, 28 July 2006 at [15].
6 At [13].
(a)The Taratoa Street property which was the subject of the Construction Agreement and the Development, which had been purchased on 2 July 2021.
(b)The property at 13 Court Crescent, Panmure, which had been purchased on 30 July 2021 (the Court Crescent property).
[21] Counsel submits that on 29 March 2023, the fourth working day after service of the statutory demand, Dem Home transferred ownership of both Taratoa Street and the Court Crescent properties from Dem Home to Mr Liao and Oaklands, the trustees of the Family Trust. Payment details, such as the amount of the consideration, are unknown to New Gate.
[22] Counsel submits that the following day, on 30 March 2023 the same day as Dem Home filed its application to set aside the statutory demand, Dem Home granted a general security agreement over all Dem Home’s property in favour of the Family Trust, which appears to be coincidentally registered as security for the loan owed by Dem Home to the Family Trust.
[23] Counsel submits that both properties were then transferred again from the Family Trust to third parties, as follows:
(a)On 21 July 2023, the same day Dem Home filed its fourth and last affidavit in support of its application to set aside the statutory demand, the Taratoa Street property was transferred to Feng Li and Sophia Guo.
(b)On 5 October 2023, the day after the Judgment was released dismissing Dem Home’s application to set aside the statutory demand, a caveat was registered against the Court Crescent property by Helen Leenoh. On 17 October 2023 that property was transferred by Helen Bo Kyung Leenoh and Alflex Dong Chan Leenoh.
[24] Counsel submits that Dem Home’s actions show a deliberate pattern of reacting to issues in the dispute by transferring assets from Dem Home’s ownership. Counsel
points to transfers of property, registration of general security agreement over Dem Home in favour of the Family Trust, which appears to coincidentally be registered as security for a loan owed by Dem Home to the Family Trust. He submits that this pattern of behaviour places the value of Dem Home’s assets at risk and that the value of whatever consideration was received for those transfers is at risk and an interim liquidator is necessary and expedient to maintain whatever value remains in the assets owned or maintained by Dem Home.
[25] Counsel for New Gate submits that the criteria for appointment of an interim liquidator to Dem Home are satisfied as follows:
(a)there is a valid winding-up proceeding filed with the application for appointment of the interim liquidator;
(b)the liquidation proceeding will in all likelihood probably succeed, based on an unsatisfied statutory demand;
(c)an interim liquidator is necessary. Given the pattern of behaviour of transferring assets from Dem Home, there is evidence to show that the value of any assets still owned by Dem Home is in jeopardy and that the status quo should be preserved to protect creditors;
(d)the proposed interim liquidator, Mr Reynolds, is a licensed insolvency practitioner with obligations to the Court, including to protect the interests of creditors;
(e)New Gate has provided an undertaking as to damages.
Information relevant to the application
[26] Pursuant to r 7.23(3)(d), counsel has addressed all information known to New Gate that is relevant to the application, including any known grounds of opposition or defence that Dem Home might rely on, or any facts that would support opposition to the application or defence of the proceeding.
Building defects
[27] Counsel refers to Dem Home’s allegations that New Gate was in breach of the Construction Agreement by “repeated and negligent actions” substantially reducing the benefit of the Construction Agreement to Dem Home and entitling Dem Home to cancel. The allegations include unauthorised works, failure to comply with Health and Safety law and regulations, and failing to exercise reasonable skill and care in carrying out the building works. Dem Home alleges that those alleged building defects mean that it is not liable to New Gate for the amount claimed under the statutory demand and/or that it has a counterclaim that meets or exceeds any amount owed to New Gate.
[28] Counsel submits New Gate’s response is that it denies the allegations as follows:
(a)New Gate denies there were any unauthorised variations, breaches of Health and Safety obligations, or that building work was carried out in breach of any standards, and New Gate answered those allegations in a detailed response to Dem Home.
(b)Even if the building defects were proved to be entirely correct, they do not entitle Dem Home to cancel the Construction Agreement which included specific dispute resolution clauses dealing with disputes and the ability of either party to cancel. The Construction Agreement required consent of both parties to cancel for building defects and, in the absence of consent, provided a dispute resolution process. By cancelling the Construction Agreement, Dem Home was in breach and is liable to New Gate for damages as a result.
(c)Dem Home has had the opportunity to pursue those alleged building defects and has failed or refused to do so. Dem Home could have brought a claim for adjudication under the CCA, or a civil claim in the Court, but has not done so.
Work not complete/no entitlement to Payment Claim 2
[29] While New Gate issued Payment Claim 2 for substantial completion of the wall framing and roof, counsel acknowledges that the wall framing and roof were not complete and there is an argument that New Gate was not entitled to issue Payment Claim 2. Counsel submits the issue would be whether the wall and roof framing was all or substantially complete, and acknowledges that there is a risk that New Gate will not be able to show that the wall and roof framing were substantially complete and that risk is appreciable. Counsel acknowledges that at the time Dem Home cancelled the Construction Agreement, the wall framing had arguably been substantially completed but that the roof framing had not yet been commenced.
[30]Counsel submits New Gate’s response to this issue is:
(a)there is no doubt that a significant amount of work on the framing was complete (even if there was to be a finding that the work overall was not substantially complete), and Dem Home had not been paid for any of that work or for a significant amount of materials specifically sourced and pre-ordered by New Gate on behalf of Dem Home for the Development;
(b)Dem Home has had the opportunity to dispute that in the context of the CCA by serving a payment schedule, and failed to do so;
(c)Dem Home has also had the opportunity to pursue that issue in a substantive manner, through an adjudication under the CCA or pursuing the matter through the Courts, but has failed to do so.
Pay now and argue later
[31] Counsel submits that notwithstanding Dem Home failed to comply with the CCA when it was served with Payment Claim 2 (and the amount sought became a debt due and owing to New Gate under s 23 of the CCA), Dem Home still has the ability to dispute the amount claimed under Payment Claim 2 and accordingly there is no
final determination or judgment that the amount claimed in the statutory demand is due and owing. Counsel submits that the pay now/argue later nature of the CCA régime means that Dem Home must pay the amount claimed, but it is still able to pursue the dispute through adjudication under the CCA or the civil courts.
[32] Counsel submits that New Gate’s response to that issue is that Dem Home has not taken any steps to dispute the amounts owing in a substantive manner, other than applying to set aside the statutory demand.
Result
[33] I am of the view that New Gate is entitled to have its application to have an interim liquidator appointed to Dem Home granted. The reasons for this are as follows:
(a)Because of the pay now/argue later régime under the CCA and Dem Home’s failure to issue a payment schedule in response to Payment Claim 2, Dem Home owes a debt to New Gate which justified New Gate issuing the statutory demand. Dem Home can ultimately dispute the amount owing, but because of the provisions of the CCA, the debt is due and owing to New Gate and accordingly the statutory demand is a basis for the application for the liquidation of Dem Home.
(b)The arguments that Dem Home might raise in defence of the proceeding, as set out by counsel and summarised at [27] to [32], have been comprehensively dealt with by the Judgment and in particular by the application by Associate Judge Gardiner of the principles set out by the Court of Appeal in the decision of Demasol Ltd v South Pacific Industrial Ltd.7
(c)In my view there is sufficient evidence that assets of Dem Home are at risk of being dissipated. The transactions detailed by counsel for New Gate in the submissions of transfers of the two properties from Dem
7 Demasol Ltd v South Pacific Industrial Ltd [2022] NZCA 480.
Home to the Family Trust and then to the third parties and the granting of the general security agreement in favour of the Family Trust, suggests steps may be being taken by Dem Home to deprive creditors of access to these assets, or the proceeds of sale of the assets. The pattern of transfers of properties, and the granting of the general security agreement in favour of the Family Trust during the progress of the dispute with New Gate, raises a reasonable suspicion that Dem Home was preparing to defeat creditors by removing assets from Dem Home against the possibility that it lost the dispute and was required to make payment or go into liquidation.
(d)New Gate has provided an undertaking as to damages if Dem Home sustains damages as a result of appointment of the interim liquidator.
(e)Mr Grant Reynolds is qualified to be appointed as liquidator, and has duties to the Court and creditors in his role as liquidator, and has consented to be appointed as interim liquidator.
Orders
[34]I make the following orders:
(a)Mr Grant Reynolds be appointed liquidator of Dem Home Ltd, with effect from the time and date of issue of this judgment.
(b)The rates of remuneration of the liquidator and staff working under his supervision and control are approved as set out in Mr Reynolds’ consent, dated 4 December 2023.
(c)That Mr Reynolds as interim liquidator take possession of all the property of Dem Home Ltd for the purposes of maintaining the value of any assets including 7 Taratoa Street and 13 Court Crescent properties including:
(i)the proceeds of sale of the properties located at 7 Taratoa Street and 13 Court Crescent; and
(ii)any other property belonging to Dem Home Limited.
[35]Costs are reserved.
…………………………….. Associate Judge Taylor
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