Owens v Waka Management Holdings Limited
[2016] NZHC 2968
•9 December 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2016-404-000260 [2016] NZHC 2968
BETWEEN COLIN DAVID OWENS AND DAVID
STUART VANCE AS LIQUIDATORS OF HAGFISH NZ LIMITED (IN LIQUIDATION)
Plaintiffs
AND
WAKA MANAGEMENT HOLDINGS LIMITED
Defendant
CIV 2016-404-000261
BETWEEN COLIN DAVID OWENS AND DAVID STUART VANCE AS LIQUIDATORS OF HAGFISH NZ LIMITED (IN LIQUIDATION)
Plaintiffs
ANDBJ FISHING LIMITED Defendant
Hearing: 29 November 2016 Appearances:
J Sumner for the Plaintiffs
D Collecutt for the DefendantsJudgment:
9 December 2016
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
09.12.16 at 3:00pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
C D OWENS AND D S VANCE AS LIQUIDATORS OF HAGFISH NZ LIMITED (IN LIQUIDATION) v WAKA MANAGEMENT HOLDINGS LIMITED, BJ FISHING LIMITED, NZ MARINE SEAFOODS LIMITED AND [2016] NZHC 2968 [9 December 2016]
CIV 2016-404-000270
BETWEEN COLIN DAVID OWENS AND DAVID STUART VANCE AS LIQUIDATORS OF HAGFISH NZ LIMITED (IN LIQUIDATION)
Plaintiffs
ANDNZ MARINE SEAFOODS LIMITED Defendant
Liquidation applications
[1] The plaintiff liquidators have applied to place B J Fishing Limited (B J Fishing), NZ Marine Seafoods Limited (NZ Marine) and Waka Management Holdings Limited (Waka) (the companies) into liquidation. The companies are seafood industry related companies of which Mr Peter Coleman is the director.
[2] The plaintiffs are the liquidators of Hagfish NZ Limited (In liquidation) (Hagfish). Hagfish was also a company in the ownership and control of Mr Coleman.
[3] Hagfish was incorporated on 24 September 2012 and exported hagfish from New Zealand to Korea and Japan. The plaintiffs were appointment liquidators of Hagfish on 20 February 2015. In the outcome of their investigations, the liquidators concluded that funds had been advanced by Hagfish to the companies and to others, for no consideration. They issued demands to which were attached copies of a detailed analysis of transactions from various bank accounts belonging to Hagfish.
[4] There was no response to those demands. The issue of statutory demands followed. There was no response to those. Nor was any application filed to set aside the statutory demands. Those demands expired without liquidation applications being made within the required time period. Fresh demands issued. These too were not responded to and, shortly after, liquidation applications were filed.
[5] When first called in Court issues were raised regarding Mr Coleman’s wish to represent the defendants. Mr Coleman is an accountant and has experience as an insolvency practitioner. The Court would not grant that request. Counsel was then engaged to represent the defendants. There were issues regarding attempts to file statements of defence out of time.
[6] Eventually the Court granted leave for the filing of statements of defence and an affidavit by Mr Coleman. At about that time orders for costs were made in favour of the plaintiffs. The plaintiffs sought payment of those costs and when payment
was not forthcoming further statutory demands were issued. There has been no compliance with those demands.
[7] After the liquidators applications were set down for hearing, they filed and served a notice to cross-examine Mr Coleman per r 9.74 HCR.
Overview of issues
[8] The background of matters detailed herein provides instances including the failure to respond to the issue of statutory demands and the failure to pay costs orders, wherein a court could readily conclude the existence of presumptions of the defendants insolvency and of an inability to pay debts, that could provide a basis for the defendants to prove that each was solvent.
[9] It is the defendants’ evidence that the core debts which supported the statutory demands are not due, and further, that it is Hagfish who is indebted to the defendants.
[10] Accordingly what is required is an objective assessment of the evidence before the Court. In that regard the Court should not ignore the failure of the companies to respond appropriately to the issue of statutory demands.
[11] The defendants’ position is that no debts are due to Hagfish and therefore and
until the Court can be satisfied those debts exist, issues of solvency do not arise.
[12] Usually if there is a dispute regarding claims of a debt due then these are dealt with by the proceedings process (i.e. the filing of a statement of claim) when relevant evidence in dispute can be heard. However, and as is available to the plaintiffs, they have applied for Mr Coleman to be cross-examined upon his affidavit evidence filed.
[13] The responsibility borne by the plaintiffs in this case is to prove that each of the defendant companies cannot pay their due debts. Those, in this Court’s view include the unpaid costs orders for which demand has been made and to-date no payment has been forthcoming.
[14] The Court’s focus is upon the “cash flow” test of solvency, rather than the “balance sheet” test of solvency. A realistic commercial approach to any assessment of solvency is required. An overall perspective of a debtor’s entire financial position needs to be taken.1
[15] The plaintiffs rely upon the presumption that arises due to the failure to comply with the statutory demand and which gives rise, the plaintiffs submit, to an obligation on the defendants to provide cogent evidence, short of actual proof that the debt is not payable. This requires, submits counsel, the defendants to provide reasonably detailed information supported by documentation. In the absence of such Mr Sumner for the plaintiffs submits it will be difficult for the defendants to displace
the burden of proof that rests on them.2
[16] Mr Sumner submits that this case demonstrates a history of failing to pay statutory demands and court ordered costs which continues.
[17] In the Court’s view this case is nevertheless of the kind ruled upon by Associate Judge Faire in South Waikato Precision Engineering Limited v Ahu Developments Limited3 wherein His Honour noted:
(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 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.
[18] The approach to be taken here is whether upon an objective assessment of all the evidence before the Court, there is a genuine or substantial dispute in relation to
1 Yan v Mainzeal Property and Construction Limited (In Receivership and Liquidation) 2014 NZCA
190.
2 Concept Manufacturing Limited v Concept Lighting Limited [2000] BCL 699.
3 CIV 2008-404-970, HC Auckland, 10 December 2008.
claims of an indebtedness of the defendants to Hagfish or of their ability to satisfy those debts.
[19] Regarding the issue of a notice requiring Mr Coleman to be available for a cross-examination Mr Collecutt for the defendants submits this adds weight to the defendants’ arguments that the plaintiffs have failed to discharge the burden of proof that they are creditors of the defendants.
[20] As Mr Collecutt notes and as the Court indeed can confirm, cross- examination in the context of a winding up application seldom occurs.
[21] The burden of proof remains throughout upon the plaintiffs although the evidential onus of proof may shift as evidence is provided.
[22] The issue of statutory demands adds to a presumption of insolvency but otherwise may add little at all.
[23] Issues may arise in this case regarding the admissibility or weight to be given to the evidence given in relation to the steps and position taken by the Inland Revenue Department (Inland Revenue) - it having in our about May 2015, exercised a warrant, and uplifted all documentation in relation to Hagfish and the companies and then having issued a Notice Of Proposed Adjustment (NOPA). As is well understood the NOPA process is not a determination but is about offering the opportunity for evidence to be provided in opposition to the Inland Revenue’s position about liability for payment of tax – albeit that there is a presumption that the Inland Revenue’s position is correct.
The evidence
[24] Mr Coleman has provided evidence on behalf of the companies by way of affidavits dated 12 May 2016 whereby he denies the liability of any of the companies to repay advances or debt to Hagfish; and wherein he offers reasons for his delay in responding to the liquidators’ requests for information, and their demands for payment, albeit he rejects any responsibility for those on behalf of the companies.
[25] Evidence of the plaintiffs in opposition has been provided by the affidavit of Ms Craig dated 27 May 2016. Ms Craig is a manager employed by Deloitte of which the liquidators are principals.
[26] Ms Craig deposes, inter alia, that having been asked to manage the liquidation of Hagfish, it became clear from her investigations that funds had been advanced by Hagfish to the defendants and other companies. Ms Craig provided the liquidators’ analysis of records of transactions between Hagfish and the companies. For present purposes the Courts focus is upon Mr Coleman’s evidence by his affidavit dated 12 May 2016 and in reply the evidence provided by Ms Craig’s affidavit dated 27 May 2016 on behalf of the liquidators; and as well the evidence of Mr Coleman’s by his affidavit dated 15 June 2016, and Ms Craig’s reply to that by her affidavit dated 15 July 2016.
Waka
[27] Mr Coleman acknowledges there may have been a deficiency in the quality of records provided to the liquidators. His focus was he says on getting a fishing vessel repaired and resurveyed. The Inland Revenue, he said, took all of the records and returned them “without… semblance or order. The registered office of the companies was his former home and he resided in Whangarei when the demands were served. He was experiencing personal relationship issues at that time.
[28] Concerning claims of advances to Waka, Mr Coleman deposed that the payments in question were not an advance but were for management services provided to Hagfish, for his time spent managing the business. He had said Waka invoiced Hagfish for those services at the rate of $15,000 plus GST per month; and that Hagfish paid some of those invoices and included the amounts invoiced as an expense in its GST returns, but also that Hagfish was unable to pay a number of those invoices.
[29] Mr Coleman says Hagfish owes Waka $155,000 for unpaid management fees. He claims Waka was currently trading profitably and currently manages the business of the other two defendants B J Fishing and NZ Marine; and that Waka had no
employees apart from Mr Coleman and its only material expenses are its office and
motor vehicle operating costs, and Mr Coleman’s remuneration.
B J Fishing
[30] On behalf of B J Fishing Mr Coleman states he is unsure of the basis of the liquidators’ claims of an advance of $88,820.34 from Hagfish. He believes it may relate to claims made against Hagfish by two creditors for work carried out on the fishing vessel which B J Fishing owns.
[31] Mr Coleman responds that between December 2013 and February 2014
B J Fishing provided approximately $24,748 (including GST) of fish products to Hagfish which was paid for by Hagfish. Mr Coleman said he prepared GST returns at the time and claimed the GST on those purchases. He believes the amounts in question were not for advances to B J Fishing but were payment for the supply by them of fish products.
[32] Also, Mr Coleman asserts Hagfish has not paid others in relation to work carried out on the vessel. He says there was no agreement between B J Fishing and Hagfish to reimburse Hagfish for any amount it may have paid for those repairs for such claims arose out of events which occurred prior to B J Fishing purchasing the vessel; and that while B J Fishing agreed to and did pay for some of the costs in relation to work carried out on the vessel, it did not agree with Hagfish to pay the disputed claims made by the relevant Inland Revenue parties. Mr Coleman has named the Inland Revenue parties in question, and provides details of the works carried out and the issues raised in relation to those works, and what sums were paid, and what compromise was achieved by those payments.
[33] Regarding the fishing vessel Mr Coleman notes that in 2015 its purpose was changed from fishing for hagfish to squid and tuna and as a result substantial work was carried out on the vessel and it was not until February 2016 that it recommenced fishing. Mr Coleman says the fishing vessel was now covering its operating costs and that it appears from the company’s statement of financial position as at 31 March
2016 that it had a net equity of $139,031 – a sum he says that does not include any goodwill factor.
[34] It is Mr Coleman’s view that B J Fishing is currently trading profitably.
N Z Marine
[35] Mr Coleman offers evidence concerning claims of a debt due to Hagfish by
NZ Marine. Mr Coleman says he believes that claim is based on a payment of
$5,250 made to NZ Marine’s bank account on or about 17 October 2012. That payment was he says made to settle a debt owed by Hagfish to Pacific Explorer Fishing Limited (Pacific Explorer) for fish packaging and transport costs.
[36] Mr Coleman deposes that at that time Pacific Explorer and NZ Marine were looking to enter into a joint venture involving the charter of a fishing vessel; that to assist in funding a deposit to charter the vessel, Pacific Explorer requested Hagfish to pay the amount owed to Pacific Explorer by NZ Marine and having made that payment Hagfish recorded it as being payment of the amount owed to Pacific Explorer. The amount paid by Hagfish was therefore in settlement of a debt and not a loan to NZ Marine.
Mr Coleman states NZ Marine is currently trading profitably; that it has no employees presently; and its only material expenses are running costs for a vehicle and management fees based on Mr Coleman’s time and attendances.
Evidence in reply for the liquidator
[37] By her affidavit dated 27 May 2016, Ms Craig comments that Mr Coleman fails to provide any documentary evidence to back up his allegations of payments to the defendants; and that, as a director of Hagfish he was and is required to provide the liquidators with all information, books, records and documents and despite repeated requests has failed to do so. Ms Craig comments that on 26 March 2015 and due to a lack of cooperation by Mr Coleman a notice under s 261 of the
Companies Act 1993 was served on him, requiring his attendance at a meeting and to deliver all books, records, or documents of the company.
[38] Ms Craig said Mr Coleman attended a meeting on 16 April 2015 but did not provide any records. He was then advised that electronic records were to be forwarded by the following day and remaining records within a week. When nothing arrived he was sent follow up requests on 21 April 2015 and on 28 April 2015. By letter dated 31 July 2015 the liquidators wrote to Mr Coleman stating that all previous requests for books, records and documents had not been responded to. The liquidators stated at that time they had therefore investigated the affairs of Hagfish and had identified seven claims against Mr Coleman and his entities.
[39] On 19 May 2016 the liquidators’ solicitors emailed (then) counsel for Hagfish requesting Mr Coleman to provide all company records so that consideration could be given to the merits of Mr Coleman’s comments. Ms Craig reports that no company records were received in accordance with the request. She comments that in her view a prudent director would have retained and have been able to provide evidence in support of the claims made.
[40] She recalls Mr Coleman stating at a meeting on 16 April 2015 that Hagfish had advanced funds to B J Fishing for the vessel refit and berthing costs and that a Inland Revenue party loan from a Mr Pandaram for the purpose of reinstatement of the fishing vessel was advanced to B J Fishing and at the meeting he confirmed that B J Fishing had not repaid Hagfish. Their account was recorded by the meeting notes prepared in relation to that meeting, which notes Ms Craig has annexed to her affidavit.
[41] Ms Craig notes that a financial statement is still registered against Hagfish by
Mr Pandaram.
[42] Ms Craig challenges Mr Coleman’s claims that he was unaware the defendants were required to set aside the statutory demands. She notes that Mr Coleman formerly operated a business by the name of NZ Insolvency and Debt
Management Services under which he accepted appointments as administrator, receiver and liquidator of at least four companies of which Ms Craig is aware of.
[43] Ms Craig comments:
41. Given that Mr Coleman is an Accountant and Insolvency Practitioner who accepts appointments as an administrator, receiver and liquidator, I find it difficult to accept that Mr Coleman was unaware that the defendants were required to set aside the statutory demands before the relevant time period had expired, or of the ensuing process.
Waka
[44] She says it was not until Mr Coleman’s reply affidavit dated 15 June 2016 that he provided evidence of claims of Hagfish’s indebtedness to Waka by reference to a general ledger transaction record and an ‘Accounts Payable Account Detail’.
[45] It was, Ms Craig comments, the first time documents relating to Hagfish were provided by Mr Coleman, notwithstanding several previous requests having been made.
[46] Ms Craig submits the documents provided by Mr Coleman do not support the allegation that the company is indebted to Waka. Concerning exhibits attached to Mr Coleman’s affidavit, Ms Craig said that in relation to Guyon Holdings Limited (GHL), it should be noted GHL was removed from the Companies Register on
13 September 2005 but, continued to have a bank account from which payments were received and deposits made including those from Mr Coleman of $5,955, and advances totalling $116,056.26. Ms Craig states these transactions cannot be used to set off debt owed by Waka to Hagfish.
[47] Ms Craig acknowledges however that additional transactions totalling $9,178 were accepted by the liquidators as funds paid to Hagfish by Waka and therefore this reduced the amount payable by Waka to Hagfish to $57,977. Further, and notwithstanding that concession, the liquidators claim Waka’s indebtedness had increased by $19,700 to $77,677 because of the liquidators identifying the GST refund due to the company having been credited to Waka in order to reduce GST payable by them.
[48] Ms Craig explains that the identification of this GST refund and transfer came about following the audit by Inland Revenue Department which resulted in a Notice of Proposed Adjustment (the NOPA) being issued. A copy of the NOPA notes that it states Hagfish transferred $19,700 to offset GST payable to Waka. It follows, Ms Craig notes, that this amount should therefore be included as an advance which is repayable by Waka to Hagfish increasing the indebtedness to $77,677.
[49] Of the Accounts Payable Account Detail provided by Mr Coleman’s affidavit Ms Craig comments they show monthly management fees of $17,250. Mr Coleman alleges those were payable by Hagfish to Waka under a management agreement dated 24 September 2012 (the management agreement). Ms Craig adds that it was only by Mr Coleman’s reply affidavit of 15 June 2016 that he disclosed documents which allegedly supported a claim of management fees by Waka, notwithstanding the liquidators’ numerous requests. Nor to date has a copy of the management agreement been disclosed.
[50] Further, Ms Craig notes that the NOPA confirmed that Inland Revenue disallowed the input tax credits claimed regarding the management fees of Waka as Inland Revenue had found no evidence to substantiate those fees despite a request for those having been made to Mr Coleman by them and despite the execution of a search warrant under s 16 of the Tax Administration Act 1994.
[51] In summary it is the plaintiffs’ position in reply that Mr Coleman did not provide Inland Revenue with documentation to verify the supply of management services by Waka to Hagfish. Nor, did he provide the required documents to substantiate the nature of expenditure incurred in providing management services (work papers, timesheets, and full particulars of the alleged services provided).
[52] For the plaintiffs it is submitted Mr Coleman’s documentation fails to meet the minimum threshold required for the liquidators to accept that Hagfish is indebted to Waka for management fees.
[53] Following the service upon him of a further s 261 notice, Mr Coleman on
25 July 2016 delivered additional information including the management agreement
for Waka’s management services to Hagfish, and the monthly invoices for the period
28 October 2012 – 31 March 2014.
[54] Ms Craig notes the management agreement allegedly provided that Hagfish would engage Waka to enable Mr Coleman to provide day-to-day management and administrative services for an indefinite period, unless otherwise agreed to in writing. Ms Craig notes that whilst the management agreement provided for the parties’ signatures to be witnessed it was only signed by Mr Coleman in his capacity as a director of both Hagfish and Waka.
[55] Ms Craig comments that the sudden production of these documents is suspicious given they did not come to light either because of the various requests (including the s 261 request) made by the liquidators, or when Inland Revenue executed its search warrant.
[56] The liquidators have requested Mr Coleman to provide the originals of the documents in question for their inspection. Ms Craig says the information has not to-date been provided.
[57] Ms Craig comments that given that the management fee transactions have not been transacted and the existence of the management agreement has not been supported by contemporaneous records or evidence such as timesheets, accounting records and company resolutions, therefore there is no genuine dispute in relation to the amount claimed by Hagfish while the set off claim cannot be sustained.
B J Fishing
[58] The liquidators claimed Hagfish advanced to B J Fishing (less funds advanced by B J Fishing to the company) sums totalling $88,820.34. Hagfish alleges it has a set off and counterclaim of $155,033.26.
[59] By his reply affidavit Mr Coleman deposed that Hagfish’s indebtedness to B J Fishing is evidenced by a general ledger transaction record and accounts payable details and that B J Fishing is repaying a loan from Mr Pandaram advanced to
Hagfish, as guarantor of the loan. Mr Coleman’s position is that B J Fishing should
not be held responsible for the Inland Revenue party debts that Hagfish has incurred.
[60] Regarding Mr Coleman’s affidavit exhibits, referring to invoices totalling
$33,430.50 in relation to the supply of fish by B J Fishing to Hagfish, Ms Craig comments there is no other evidence “than these self-automated invoices to support the claim”. Ms Craig notes that these were provided some 16 months after the first request.
[61] Of the term loan agreement and guarantee documents evidencing a loan from Mr Pandaram, Ms Craig notes it has not been executed by Mr Pandaram and therefore, questions the validity of that document, when the alleged loan funds were apportioned to the refurbishment of the fishing vessel which was an asset of B J Fishing.
[62] Ms Craig recalls that the liquidators’ analysis of company accounts identified transactions between Hagfish and B J Fishing and on behalf of B J Fishing – a number of which served no commercial purpose for Hagfish and were for B J Fishing’s sole benefit. The liquidators submit therefore Hagfish was used as a credit line for B J Fishing and that it is those funds that were transacted for no commercial purpose or benefit to Hagfish and have correctly sought repayment of. Particulars of those payments required were provided to Mr Coleman by a letter dated 31 July
2015 from the liquidators.
[63] Ms Craig notes Mr Coleman deposed that B J Fishing has only owned the fishing vessel since November 2013 and therefore it could not be liable for the loan and Inland Revenue party debt incurred for them.
[64] As Ms Craig notes by its statement of defence B J Fishing pleaded it accepted liability for the loan on 26 August 2014. Also before then Mr Coleman took the fishing vessel in lieu of administration fees owed by the vessel’s previous owner and that until it was transferred to B J Fishing, it had remained in the ownership of that previous owner and therefore Hagfish had never owned the fishing vessel.
[65] It is the liquidators’ position that it would be inappropriate to enable B J Fishing to escape liability for the refurbishment of the vessel which it is responsible for and has had the benefit of, simply because Mr Coleman failed to transfer the vessel to B J Fishing in a timely manner.
NZ Marine
[66] Regarding Mr Coleman’s claims that the $5,300 in question was owed by Hagfish to Pacific Explorer for fish packaging and transport costs, Hagfish was requested by Pacific Explorer to pay those funds to NZ Marine.
[67] Mr Coleman has provided copies of pages from Hagfish’s Transaction Report and Accounts Payable Account Detail evidencing this advance. Of that evidence Ms Craig comments that the transaction report notes the payment in question was made by Hagfish to Pacific Explorer and therefore was of no relevance in relation to the amount claimed from NZ Marine; and regarding the advances that were made to NZ Marine the liquidators claim these were made on 17 October 2012 and
25 October 2013.
[68] Ms Craig submits NZ Marine has failed to provide any evidence that those advances were made for consideration.
Mr Coleman’s cross-examination
[69] In the Court’s view there was little that emerged from this that has added anything further to the extensive evidence already provided by affidavit. Mr Coleman remains adamant regarding his intention to review any proposal by Inland Revenue to change his perception of the companies’ indebtedness for tax. It is of course within the means and rights of the companies to maintain their position and to pursue avenues of review. In that outcome the claims of the liquidators may be affected.
[70] Mr Coleman was forthright and resolute by the position he maintains by the records he has kept even though questions arise concerning their accuracy. It is not
the Court’s impression having heard Mr Coleman that these records have been
manufactured for some improper or unlawful purpose.
[71] Mr Coleman has accepted responsibility for his failure to respond appropriately to the notices and demands served, and he details a number of personal background reasons for these lapses.
Considerations
[72] The position of the liquidators and as explained by the evidence of Ms Craig is supported by assumptions and analysis.
[73] Mr Sumner for the liquidators submits:
(a) Orders for liquidation ought to be made because debts are owed and the defendant companies are unable to pay those; and while the Court retains a discretion not to order liquidation, the clear evidence is the defendants are without the means to meet those payments.
(b)The defendants failed to show in their evidence before the Court that there are genuine and substantial disputes to support claims that those amounts are not owed and therefore that the defendants are “cash flow” solvent.
(c) The defendants have failed to take these proceedings seriously and have taken minimum steps in response and, it is to be inferred, that this has been a deliberate tactic of Mr Coleman who has considerable background in financial and insolvency practice; and
(d)There is no cogent evidence to establish claims that the debts, the subject of statutory demand are not owed.
[74] The defendants accept that the plaintiffs issued statutory demands which they failed to apply to set aside. Their position is that they have produced the only witness with firsthand knowledge of all the relevant events; and that the plaintiffs’
evidence is supported by assumptions that are inconsistent with the plaintiffs’
accounting records.
[75] Mr Collecutt submits that the plaintiffs’ evidence in relation to NZ Marine and B J Fishing does not verify that any amount is owed to them and that their original evidence contained only assertions that various amounts were owed because demands for payment had not been responded to – as opposed to there being direct evidence verifying those claims of sums owed.
[76] Mr Collecutt says the request to cross-examine Mr Coleman was made because of the liquidators’ inability to prove that they were creditors of the defendant companies. Mr Collecutt is critical that the cross-examination process was utilised because it seldom is when there is a genuine dispute about the existence of a debt when there is another proceeding process for dealing with such disputes.
Conclusions
[77] This proceeding was embarked upon because of the companies’ and Mr Coleman’s failure to respond to statutory demands and the assumptions that arose out of this. There are elements of those assumptions and conclusions which give cause for concern. In the Court’s view little has been added to those by the evidence of steps taken by Inland Revenue in its commencement of a proceeding to resolve claims of a tax debt due. Presently the Inland Revenue’s actions do not provide a final and binding determination of responsibility for the payment of tax.
[78] Effectively it is the plaintiffs’ case that Hagfish’s affairs were managed by Waka for free; and that the various payments allocated to the Waka ledger should be reallocated despite Mr Coleman saying that they are due to Waka and not to anyone else.
[79] There needs to be caution about the evidence provided regarding the steps taken by Inland Revenue. The NOPA process is not a final determination. Rather it contemplates a process whereby a proposed adjustment may be opposed. Furthermore the NOPA evidence was provided after Mr Coleman’s reply evidence
was filed and at a time when it was no longer open to the companies to respond to the matters attempted to be raised in reliance upon the NOPA.
[80] The NOPA process will in effect require Waka to prove that the tax debt was not owed, before the Inland Revenue mades its final decision on the matter. No such burden is borne on behalf of the companies upon these applications.
[81] For a number of reasons it is this Court’s view that it is difficult to adopt the position of a debt being due to Hagfish. Rather it is the Court’s impression from Mr Coleman’s evidence of reasons why the alleged debts may not be owing at all.
[82] The liquidators claim a payment was made to NZ Marine and therefore it is the debtor of the plaintiffs. Mr Coleman’s explanation was that the relevant payment was made to South Pacific and that no payment was made to NZ Marine and therefore there was no debt due to Hagfish by NZ Marine.
[83] Claims of a debt owed by B J Fishing relate to the liquidators’ assessment that those should be repaid to Hagfish because B J Fishing ended up owning the fishing vessel. However the Court agrees with Mr Collecutt’s submission that it is reasonably arguable on B J Fishing’s behalf that it is common for a party to contract with suppliers for goods or services to improve an asset in anticipation of obtaining or having purchased that asset and that if that asset is subsequently acquired by another party that other party does not automatically assume liability for all previous costs incurred.
[84] Issues are raised about the lack of a signature to a guarantee. However in this case the only signature required was that of the guarantor and that was in place.
[85] Finally and with regard to Waka, Mr Collecutt submits and the Court accepts that Waka needed someone to manage its business and that it had no employees, and therefore it was consistent with Mr Coleman’s evidence that Hagfish agreed to pay management fees to Waka. Mr Coleman’s evidence of Hagfish agreeing to pay Waka’s management fees is consistent with the recording of those fees as a cost in
the accounts, and of payments being made to Waka during the period of time that it
managed Hagfish’s affairs.
[86] The Court has been invited to draw a number of conclusions concerning the quality of assessments made in support of the liquidators’ claims. What is clear is that without the advantage of hearing expert evidence the Court nevertheless is invited to reject the evidence offered to provide doubt of those conclusions. The liquidators blame the lack of cooperation and the provision of adequate documentation by Mr Coleman. But the fact remains that those conclusions were drawn without sufficient material being available.
[87] The plaintiffs’ application proceeded on the basis of assumptions entitled to be drawn from a lack of response to the statutory demands. The liquidators have been strongly critical regarding their perceptions of willful and deliberate delay by Mr Coleman in providing the information requested. However, there has been sufficient evidence provided by Mr Coleman by affidavits and orally to persuade the Court now that the process adopted by the liquidators was inappropriate; that, and after Mr Coleman’s affidavit of 15 June 2016 had been filed, the issues ought to have been pursued in the usual way by ordinary proceedings whereby a proper analysis of all issues would have been available following full discovery and inspection being obtained. When required, further particulars could have been sought. Instead, and with the course of time, allegations concerning Mr Coleman’s lack of action have bordered upon implications of fraud. Perhaps that analysis is unduly critical but it serves to highlight that these disputes are best left for resolution by the ordinary proceeding process.
Result
[88] The applications for liquidation are dismissed.
[89] Costs are reserved for consideration on the papers once submissions have been filed, first on behalf of the defendant companies and then in response from the
liquidators. In that regard it is the Court’s present view that 2B costs are appropriate.
Associate Judge Christiansen
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