New Y Trading Limited v ANZ Food Holding Limited

[2017] NZHC 2702

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-1966

[2017] NZHC 2702

UNDER

the Companies Act 1993

BETWEEN

NEW Y TRADING LIMITED

Plaintiff

AND

ANZ FOOD HOLDING LIMITED

Defendant

Hearing:

2 November 2017

Appearances:

B Norling for the Plaintiff

J van der Zanden for the Defendant

Judgment:

2 November 2017

JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Davies Law, Newmarket, Auckland, for the plaintiff
Simpson Lawyers (Simpson Tong), Epsom, Auckland, for the Defendant
Copy for:

Brent Norling, North Harbour, Auckland (instructed by Davies Law) for the plaintiff John van der Zanden, Barrister, Auckland, for the Defendant

NEW Y TRADING LIMITED v ANZ FOOD HOLDING LIMITED [2017] NZHC 2702 [2 November 2017]

[1]    New Y Trading Ltd applies for an order that ANZ Food Holding Ltd be put into liquidation on the ground that the company is unable to pay its debts. It relies on a statutory demand served on 28 July 2017 which says that it is a creditor of the company for $51,960.00. ANZ Food Holding Ltd did not challenge the statutory demand. The application was filed in court on 25 August 2017.

[2]    The case for New Y Trading Ltd is that on 4 April 2017 it paid ANZ Food Holding Ltd $84,960 as a pre-payment for a delivery of milk powder. No delivery was made. It demanded repayment. It dealt with a Mr Frank Xia, also known as Jin Fan Xia. About 1 May 2017 it received a payment of $33,000 as a partial refund, leaving the balance of $51,960.00 outstanding. It made demand. It served a written demand on Mr Xia at 17 Aberley Road, Snapper Rock, Auckland 0632. That is the residence of Ms Chong Zhang, the director of ANZ Food Holding Ltd.

[3]    On New Y Trading Ltd’s case, its evidence shows that it is a creditor of ANZ Food Holding Ltd. It can properly say that there was a complete failure of consideration for the payment of $84,960.00, such that there is a debt back to it, under a restitutionary obligation to repay. Such a restitutionary obligation may be considered a debt. Here, I rely on the Court of Appeal’s decision in OPC Managed Rehab Ltd v Accident Compensation Corporation.1 The Court of Appeal held that a restitutionary obligation could be a debt for a statutory demand under s 289 of the Companies Act. While the court indicated that not all restitutionary obligations might constitute debts, this one seems to be a straightforward case. The failure to perform, followed by a partial refund, is an adequate basis on which to assert that the party responsible for the repayment is a debtor of the plaintiff.

1      OPC Managed Rehab Ltd v Accident Compensation Corporation [2006] 1 NZLR 778 (CA).

[4]    The issue here is whether ANZ Food Holding Ltd is the party responsible for the repayment. The company says that it never dealt with New Y Trading Ltd. The director of ANZ Food Holding Ltd is Ms Chong Zhang. Frank Xia is not and was not a director of ANZ Food Holding Ltd, he is not and has not been a shareholder of the company. Chong Zhang’s case, through her evidence, is that Frank Xia must be the one who dealt with the business with New Y Trading Ltd, but those are not transactions which were authorised by ANZ Food Holding Ltd. In short it contests liability.

[5]    The failure to contest the statutory demand does not bar the company from disputing liability in the liquidation proceeding. A contention that a debt is subject to a genuine and substantial dispute is a recognised ground for resisting a liquidation application. The Court of Appeal restated this in Yan v Mainzeal Property and Construction Ltd (in rec and in liq):2

[61]It has long been established that, as a general rule, an order to put a company into liquidation will not be made where the application is founded upon a debt that is genuinely disputed. To apply to wind up a company in such circumstances is regarded as an abuse of the court’s process: Bateman Television Ltd (in liq) v Coleridge Finance Co Ltd. In such cases, the court has an inherent jurisdiction to prevent such an abuse of process. But the court also has power to consider disputed debts in the context of an opposed application for liquidation or upon applications for orders restraining advertising and staying proceedings. The relevant principles were recently summarised by Associate Judge Faire (now Faire J) in South Waikato Precision Engineering Ltd v Ahu Developments Ltd in these terms:

(a)A winding up order will not be made where there is a genuine and substantial dispute as to the existence of a debt such that it would be an abuse of the process of the Court to order a winding up;

(b)In such circumstances, the dispute, if genuine and substantially disputed, should be resolved through action commenced in the ordinary way and not in the Companies Court;

(c)The assessment of whether there is a genuine and substantial dispute is made on the material before the Court at the time and not on the hypothesis that some other material, which has not been produced might, nonetheless be available.

(d)The governing consideration is whether proceeding with an application savours of unfairness or undue pressure.

2Yan v Mainzeal Property and Construction Ltd (in rec and in liq)  [2014] NZCA 190 at [61]. See also Link Electrosystems Ltd v GPC Electronics (NZ) Ltd [2007] NZCA 501, (2007) 18 PRNZ 946 at [16]-[17].

[6]    The short point here is that I am not required to make a final determination as to liability. So long as I am satisfied that there is a genuine and substantial dispute as to liability, I should not make an order for liquidation. I bear in mind that if a debt is genuinely disputed, the company may have good reason not to pay the debt. The absence of payment therefore does not give rise to an inference as to the solvency.

[7]    Mr van der Zanden reminded me of familiar principles as to authority of agents. He relevantly referred to s 18 of the Companies Act which governs the methods by which companies may enter into a contract. Any agent of a company must have the company’s express or implied authority. He also reminded me of the familiar principles as to apparent or ostensible authority.

[8]    The evidence for the plaintiff is that it had earlier dealt with ANZ Food Holding Ltd. In March 2017, it had purchased milk powder costing $70,020.00. That also was a payment in advance. That time, the delivery of the milk powder was made. The plaintiff points out that Chong Zhang and Frank Xia were in a domestic relationship. When it served its demand on 17 July 2017 it handed its document to Frank Xia at the residential address of Chong Zhang. It has also put in evidence a Companies Office search of another company – ANZ Food Group Ltd. That company has the same registered office as ANZ Food Holding Ltd. There are two directors – one of them is Frank Xia. There are three shareholders – one of them is Chong Zhang. Based on that evidence, it invites me to infer that the Frank Xia must have been acting as an agent for ANZ Food Holding Ltd.

[9]    Chong Zhang on the other hand disputes that ANZ Food Holding Ltd dealt with New Y Trading Ltd. She contends that any dealings by Frank Xia with the plaintiff were not in the name of the company and were unauthorised. She says that the invoices issued in the name of ANZ Food Holding Ltd contain incorrect information. She notes that copies of two invoices show the address of the company as 185 Queen Street instead of level 5, 187 Queen Street. She says that the GST number of the invoices is not the GST number of the company, and the bank account number is not the bank account used by ANZ Food Holding Ltd. She has reported Frank Xia’s conduct to the Police. It appears from an email by Frank Xia that he is now in Australia.

[10]   Faced with those matters, it would be bold for me to reject Chong Zhang’s evidence in its entirety. Indeed, to reject her evidence I would have to make findings of the sort referred to in Eng Mee Yong v Letchumanan:3 statements that are so implausible that they can be rejected on their face and do not need to be taken seriously. I cannot make those findings about the evidence of Chong Zhang. Her evidence is somewhat skimpy but there is enough in it to suggest that there is a genuine dispute as to the company’s liability. On that basis, I dismiss the application for liquidation because the debt is subject to a genuine and substantial dispute. The merits of the plaintiff’s claim ought to be determined by a court of ordinary civil jurisdiction

– in this case the District Court.

[11]   I note two procedural matters. There is an affidavit dealing with service of the statutory demand on the registered office of ANZ Food Holding Ltd. The registered office is on the fifth floor of 187 Queen Street, Auckland. The process server says that he was unable to get access to level 5, and accordingly he affixed the document in the foyer, by the lift at the entrance of the building on the ground floor at 187 Queen Street. While it was on prominent display, it is doubtful that that would necessarily be seen as coming to the notice of an officer of the company at level 5, 187 Queen Street. Service on the ground floor does not necessarily equate to service at level 5. That service may explain why the company did not take any steps to challenge the statutory demand. The circumstances of this case suggest that service on the director ought to have been tried. If the creditor was in doubt, it might have sought directions from the court as to how the statutory demand was to be served. I am loathe to draw any inference against the company because it did not respond to the statutory demand.

[12]   The other matter is this: during the hearing I offered hearing status to Chong Zhang. That was to allow effective appeal rights if I were to make a liquidation decision. Mr van der Zanden took instructions and in the event Chong Zhang did not wish to take up that invitation.

3      Eng Mee Yong v Letchumanan [1980] AC 331.

[13]   I order New Y Trading Ltd to pay to ANZ Food Holding Ltd costs on a category 2 basis. I encourage counsel to confer as to costs. If they cannot agree, memoranda may be filed and I will decide costs on the papers. I record that the hearing took a quarter of a day.

Associate Judge R M Bell