Nutra Foods 2011 Limited (in liq) v Attitude Foods (2018) Limited
[2023] NZHC 2013
•31 July 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-0090
[2023] NZHC 2013
IN THE MATTER of the Companies Act 1993 BETWEEN
NUTRA FOODS 2011 LIMITED (in liq)
Plaintiff
AND
ATTITUDE FOODS (2018) LIMITED
Defendant
Hearing: 24 July 2023 Counsel:
LB Harrison for the Plaintiff
D Hayes for Mr Le Sueur and Defendant
Judgment:
31 July 2023
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 31 July 2023 at 12 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors/Counsel:
Simpson Grierson, Auckland Hunwick Law Ltd, Hamilton
D Hayes, Hamilton
NUTRA FOODS 2011 LIMITED (in liq) v ATTITUDE FOODS (2018) LIMITED [2023] NZHC 2013 [31 July
2023]
Introduction
[1] The plaintiff, Nutra Foods 2011 Ltd (in liquidation) (Nutra Foods), was put into liquidation by this Court on 4 February 2022. Prior to its liquidation, the director of Nutra Foods, Terry Le Sueur, procured a sale of Nutra Foods’ chattels and stock on hand to the defendant, Attitude Foods (2018) Ltd (Attitude Foods), a company incorporated by Mr Le Sueur.
[2] The transaction was executed pursuant to an agreement dated 25 August 2021 and titled “Bill of Sale” (the agreement). The purchase price was $250,000 plus GST (the purchase price), due by 1 September 2022. The agreement provided for the charging of penalty interest on any balance outstanding by that date.
[3] At some point between 25 August 2021 and the liquidation of Nutra Foods on 4 February 2022, Attitude Foods began to operate the business formerly operated by Nutra Foods. There were further transactions between Nutra Foods and Attitude Foods prior to the liquidation of Nutra Foods, however, the liquidator of Nutra Foods maintains that the purchase price due under the agreement was never paid in full.
[4] On 15 September 2022, Nutra Foods served a statutory demand on Attitude Foods under s 289 of the Companies Act 1993 (the Act), demanding payment of the outstanding purchase price, stated to be $279,000. Attitude Foods did not comply with the statutory demand. Nutra Foods now applies for an order putting Attitude Foods into liquidation. The application is opposed by Attitude Foods and by Mr Le Sueur in his capacity as a shareholder of Attitude Foods.
Background
[5] Shortly after the liquidation of Nutra Foods, the liquidator demanded payment of the full purchase price from Attitude Foods. That led to settlement negotiations between the liquidator and Mr Le Sueur.
[6] After the agreement and before the liquidation of Nutra Foods, there were transfers of funds between Nutra Foods and Attitude Foods that resulted in a net receipt
of funds by Nutra Foods, agreed by the liquidator to be $59,235. The liquidator accepts that this amount should be set off against the purchase price.
[7] At a meeting between the liquidator and Mr Le Sueur on 27 April 2022, Attitude Foods granted a security interest to Nutra Foods in all property owned by Attitude Foods, to secure the purchase price due under the agreement.
[8] At the meeting, it was agreed verbally and in principle that Attitude Foods would pay Nutra Foods $150,000 in full and final settlement of the purchase price. The liquidator says that she made it clear that the terms of settlement agreed in principle were subject to the parties entering into a written settlement deed.
[9] On 29 April 2022, Mr Le Sueur sent an email to the liquidator’s office seeking to record the terms of settlement. The written terms proposed included payment of
$150,000 by:
… prompt payment of not less than $100,000, (subject to Condition 4) and the balance of $50,000 paid off as soon as possible, but at any rate not later than 1 September 2022.
[10] Condition 4 was that a factoring company would agree to factor all unpaid invoices that had been rendered by Attitude Foods to its customers.
[11] A member of the liquidator’s staff responded by email that same day. The email records a varied proposal and refers to an earlier telephone conversation with Mr Le Sueur. The varied proposal was that Attitude Foods would pay the total amount that the factoring company was prepared to pay immediately, with the balance of the
$150,000 to be paid before 31 July 2022. The email advised that the liquidator’s office would draft a settlement deed to reflect the agreed terms.
[12] It appears that there were further negotiations between the parties, and on 9 May 2022, a member of the liquidator’s staff sent an email to Mr Le Sueur attaching a draft settlement deed. The email stated:
Your offer is acceptable to the Liquidators on the terms set out below. Please find a draft Deed attached.
If the Deed is acceptable, please advise and we will issue a final version for signatures.
[13] The draft deed recorded the agreed set-off of $59,235, and that the outstanding balance of the purchase price was $219,379.75 including GST.
[14]The draft deed provided for a compromise, with Attitude Foods to pay
$150,000 including GST in two instalments: $100,000 by 13 May 2022 and $50,000 by 31 July 2022.
[15] Clause 6.1 of the draft deed provided that if Attitude Foods defaulted in making the payments, then Nutra Foods and the liquidator had the right to recover the outstanding balance of the purchase price due under the agreement.
[16]Attitude Foods did not sign or return the draft deed or make the payments of
$100,000 and $50,000. Instead, between 15 July 2022 and 18 August 2022, Attitude Foods made small payments to the liquidator, which totalled $8,500.
[17] In addition, customers of Attitude Foods mistakenly made payments due to Attitude Foods to Nutra Foods’ bank account, which totalled $4,832.29. The liquidator and Mr Le Sueur have agreed that these payments can be applied to the purchase price.
The grounds of opposition
[18] In the written submissions on behalf of Attitude Foods and Mr Le Sueur, the following grounds were raised in opposition to an order placing Attitude Foods into liquidation:
(a)there is a dispute as to the quantum of the debt;
(b)the security interest granted by Attitude Foods on 27 April 2022 amounts to a compounding by Attitude Foods with Nutra Foods under s 289(2)(d) of the Act; and
(c)if there is a balance due, the Court should exercise its discretion to allow Attitude Foods a further opportunity to pay.
[19] In his oral submissions on behalf of Attitude Foods and Mr Le Sueur, Mr Hayes refined the grounds of opposition. He submitted that the Court should exercise its discretion and not liquidate Attitude Foods on the grounds that Nutra Foods has security for the debt and Attitude Foods should be allowed a further opportunity to pay any amount that is outstanding to Nutra Foods.
Legal principles
[20] 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
[21] 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
[22] 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
[23] Where the relevant requirements under s 241 of the Act for the appointment of a liquidator have been met, the applicant is generally entitled to an order putting a company into liquidation. That said, the Court retains a discretion, exercised sparingly, not to place the company into liquidation.4
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 See National Finance 2000 Ltd v All Star Cars Ltd HC Auckland M703-IM02, 10 September 2002 at [37].
4 See Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395 (CA) at
[3] and Feltex Carpets Ltd (in rec) v N&I Investments Ltd (2006) 3 NZCCLR 714 (HC) at [38].
Discussion
Does Attitude Foods owe an undisputed debt to Nutra Foods?
[24] The liquidator’s position is that a binding compromise in respect of the outstanding purchase price was not reached because the draft settlement deed was not executed by the parties, and in any event, Attitude Foods failed to make payment of the reduced price of $150,000.
[25] On 31 May 2022, the liquidator sent an email to Commercial Factors Limited seeking confirmation that it was going to factor debts owed to Attitude Foods, so that Attitude Foods would be able to pay the reduced purchase price of $150,000. The email referred to the draft deed:
The Liquidator has agreed to settle the Balance with [Attitude Foods] as set out below
a) $100,000 will be paid on or before 13 May 2022
b) $50,000 will be paid on or before 31 July 2022 Together the “Settlement Sum”
The Settlement Sum is in full and final settlement of any claims that the Liquidator or Company may identify against Terry and/or [Attitude Foods] in the liquidation.
[26] It is reasonably arguable that the terms of settlement set out in the draft deed became binding on the parties despite the deed never being signed. The letter from the liquidator’s office to Commercial Factors Ltd on 31 May 2022 referred to a binding agreement, rather than an agreement in principle or an agreement that was subject to contract.
[27] If so, then Attitude Foods was due to make a payment of $100,000 by 13 May 2022, and a final payment of $50,000 by 31 July 2022. Attitude Foods defaulted in respect of both obligations.
[28] Furthermore, if the draft deed was binding, the default by Attitude Foods entitled Nutra Foods to recover the full amount of the outstanding purchase price
under the agreement. This appears to be $206,047.46, being $219,379.75 less the part payments totalling $8,500 and the further set-offs of $4,832.29.
[29] On 3 October 2022, after the statutory demand was served, Mr Le Sueur wrote to the liquidator acknowledging that Attitude Foods was in breach of the terms in the draft deed, advising that Attitude Foods was no longer able to pay the price of
$150,000. The letter stated that “we estimate [the debt] to be around $200k — not
$279k” and acknowledged that penalty interest was payable under the agreement. Mr Le Sueur stated that paying off the balance was a “very high priority” and offered to meet to discuss a restructured payment plan.
[30] Despite this admission, Mr Le Sueur’s position in his notice of opposition and affidavit was that the reduced purchase price of $150,000 remained binding and was paid by the set-offs and part payments that are accepted by the liquidator, together with further payments made by Attitude Foods direct to the creditors of Nutra Foods.
[31] This position is unsustainable. First, as discussed above, the liquidator was entitled to enforce payment of the full amount due under the agreement.
[32] Secondly, Attitude Foods offered insufficient evidence that it made payments to Nutra Food’s creditors that would exceed the outstanding purchase price. Some supporting invoices were produced by Mr Le Sueur. But as the liquidator points out, some of those invoices relate to the supply of packaging products after the sale of the Nutra Foods’s assets to Attitude Foods and others are made out to Attitude Foods, and one to Mr Le Sueur. Mr Le Sueur produced a handwritten ledger, but there is no adequate explanation of its relevance, or what it purports to evidence.
[33] Thirdly, there is no evidence that the liquidator agreed to satisfaction of the outstanding purchase price by means of payment to Nutra Food’s creditors. The draft deed required payment to be made to “the Company”, being Nutra Foods, not its creditors.
[34] A debtor cannot discharge a debt owed to a creditor by unilaterally making payment to a third party, without the consent of the creditor. The liquidator says that
she would never agree to such means of payment because it would amount to a preference of some creditors of Nutra Foods over others. Mr Le Sueur’s letter of 3 October 2022 did not mention any claimed right to set-off payments made by Attitude Foods to Nutra Food’s creditors.
[35] At the hearing, Mr Hayes responsibly conceded that any payments by Attitude Foods direct to creditors of Nutra Foods could not amount to payments towards the purchase price without the liquidator’s consent.
[36] I find that Attitude Foods is indebted to Nutra Foods for the outstanding purchase price of $206,047.46, and there is no genuine dispute about that.
The security interest
[37] The security interest was granted to Nutra Foods over the assets of Attitude Foods on 27 April 2022, before the statutory demand was served. The security interest cannot therefore amount to a compounding with Nutra Foods, or a charging of Attitude Food’s property to secure payment of the debt, so as to satisfy the statutory demand under s 289(2)(d) of the Act.
Should the Court exercise its discretion not to liquidate Attitude Foods?
[38] As a secured creditor, Nutra Foods has standing to apply for an order putting Attitude Foods into liquidation under s 241(2)(c)(iv) of the Act. Nutra Foods has satisfied the statutory requirements for obtaining an order putting Attitude Foods into liquidation, subject to the Court’s residual discretion as to whether a liquidation order should be made.
[39] Mr Hayes submitted that the existence of the security interest was a factor in favour of the Court exercising its discretion not to put Attitude Foods into liquidation. In effect, Mr Hayes submitted that Nutra Foods should be content to exercise its rights as a secured party, including by the appointment of a receiver if necessary. Attitude Foods has not adduced any evidence of the value of the secured assets. Nutra Foods is entitled to elect to put Attitude Foods into liquidation.
[40] The liquidator of Attitude Foods will have the power to deal with the charged property under s 254(a) of the Act, but subject to the charge.
[41] Attitude Foods has not adduced any evidence to support its assertion that it is solvent. Furthermore, it has consistently failed to meet its obligations owed to Nutra Foods as they have fallen due.
[42] Attitude Foods has failed to establish any grounds to justify the Court exercising its residual discretion to decline to put the company into liquidation.
[43] Nutra Foods seeks that the liquidator of Nutra Foods, Janet Sprosen, also be appointed as one of the liquidators of Attitude Foods. Ms Sprosen is not disqualified from appointment under s 280 of the Act, and there is nothing unusual in the appointment of one liquidator to two companies that are related, or that have transacted with one another.
Result
[44]The defendant company is put into liquidation.
[45]Janet Sprosen and Leon Francis Bowker are appointed liquidators.
[46] The rates of remuneration of the liquidators and staff working under their supervision and control are fixed at the rates set out in the liquidators’ consent dated 4 April 2023. The liquidators are to apply at the conclusion of the liquidation for approval of their overall remuneration.
[47] The plaintiff is entitled to costs against the defendant and Terry Le Sueur, jointly and severally, on a 2B basis, together with disbursements as fixed by the Registrar.
Associate Judge Brittain
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