Pearson Apiaries Limited (in liquidation) v Burley Attwood Trustees (no.7) Limited
[2022] NZHC 802
•14 April 2022
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV 2021-470-45
[2022] NZHC 802
BETWEEN PEARSON APIARIES LIMITED (IN LIQUIDATION)
First Plaintiff
MALCOLM GRANT HOLLIS and WENDY ANN SOMERVILLE (as
liquidators of Pearson Apiaries Limited) Second Plaintiffs
AND
BURLEY ATTWOOD TRUSTEES (NO. 7) LIMITED, KELLY JAYNE SNOWDEN
AND LEVI JOSEPH PEARSON as trustees of the Pearson Family Trust
First Defendants
LEVI JOSEPH PEARSON
Second Defendant
Hearing: 11 April 2022 (by VMR) Appearances:
J Hakaria for the plaintiffs
No appearance for the defendants
Judgment:
14 April 2022
JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 14 April 2022 at 3:15 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
PEARSON APIARIES LIMITED (IN LIQUIDATION) v BURLEY ATTWOOD TRUSTEES (NO. 7) LIMITED and OTHERS [2022] NZHC 802 [14 April 2022]
[1] The first plaintiff, Pearson Apiaries Ltd (Pearson Apiaries), carried on business as an apiarist. Pearson Apiaries was put into liquidation by the High Court on 23 June 2020. The second plaintiffs, Mr Hollis and Ms Somerville, were appointed liquidators.
[2] Pearson Apiaries had advanced significant sums to the defendants. Pearson Apiaries and the liquidators brought this proceeding to recover those advances.
[3] One of the defendants has already consented to judgment being entered. The other defendants have taken no steps. A formal proof hearing was scheduled to determine the plaintiffs’ claim against those other defendants.
Background
[4] Pearson Apiaries has two shareholders. Levi Pearson (the third-named first defendant and the second defendant) holds 95 shares. Kelly Snowden (the second- named first defendant) holds five shares. Mr Pearson is the company’s sole director.
[5] Once they were appointed liquidators, Mr Hollis and Ms Somerville reviewed various financial documents and accessed Pearson Apiaries’ accounts. They found that the most recent financial statements that had been prepared for the company were those for the year ending 31 March 2018. Mr Pearson signed these financial statements on 26 June 2018.
[6] The 31 March 2018 financial statements showed that the Pearson Family Trust was indebted to Pearson Apiaries in the sum of $2,198,772. Ms Somerville has made an affidavit, dated 17 March 2022, in support of the plaintiffs’ claim. Her affidavit annexes a copy of the trust deed establishing the Pearson Family Trust. The trust deed records that the trustees of that trust are the first defendants: Burley Attwood Trustees (No. 7) Ltd (Burley Attwood Trustees), Ms Snowden and Mr Pearson.
[7] The 31 March 2018 financial statements also showed that the shareholders’ current account was overdrawn by $516,002. The financial statements did not separate this amount as between Mr Pearson and Ms Snowden. The statements showed this as one current account and therefore as one amount owing by both of them.
[8] The liquidators analysed Pearson Apiaries’ bank statements for the period after 31 March 2018, the date of the last financial statements. They identified what they considered to be all withdrawals and deposits in respect of either the Pearson Family Trust or the shareholders. The liquidators prepared spreadsheets showing these withdrawals and deposits.
[9] The spreadsheet for the Pearson Family Trust shows a net withdrawal after 31 March 2018 of $46,319.72. It therefore shows that the Pearson Family Trust owes Pearson Apiaries $2,245,091.72.
[10] The spreadsheet for the shareholders shows a net withdrawal after 31 March 2018 of $366,291.21. It therefore shows that the shareholders owe Pearson Apiaries
$882,293.21.
[11] On 9 April 2021, the liquidators sent a letter of demand to the trustees of the Pearson Family Trust for the payment of $2,198,772. That was the amount that the 31 March 2018 financial statements showed the Trust owed to the company. The letter attached the spreadsheet that the liquidators had prepared showing the further withdrawals and deposits and showing the total amount owing by the Pearson Family Trust as $2,245,092.
[12] On the same date, the liquidators sent a letter of demand to Mr Pearson for the sum of $516,002. Once again, that was the amount that the 31 March 2018 financial statements showed the shareholders owed to the company. Attached to the letter was the spreadsheet that the liquidators had prepared showing the further withdrawals and deposits and showing the total amount owing by the shareholders as $882,293.21. It is not clear whether a letter of demand was sent to the other shareholder, Ms Snowden.
[13] No payments were made in response to the letters of demand. The plaintiffs started this proceeding on 12 May 2021. The defendants were served between 14 and 21 May 2021.
[14] Prior to the letters of demand being sent, it appears there were communications between the liquidators and the plaintiffs about the outstanding debts. In her affidavit
Ms Somerville explains that, in February 2021, Sutcliffe Graham + Co, a firm of accountants, provided a quote to the Pearson Family Trust to prepare financial statements for Pearson Apiaries for the periods beyond 31 March 2018. The solicitors for the Trust forwarded the quote to the liquidators and asked for approval to disburse funds (which the solicitors were holding pursuant to an undertaking) to pay for the preparation of the financial statements. The solicitors said that preparation of the financial statements would form part of further discussions as to any settlement options. The liquidators gave their approval.
[15] Ms Somerville annexes to her affidavit some email communications between Sutcliffe Graham + Co and the defendants. It is clear from these emails that Ms Snowden and Mr Pearson appreciated that the purpose of Sutcliffe Graham + Co preparing financial statements for Pearson Apiaries was to allow the defendants to confirm or challenge the analysis that the liquidators had undertaken of the amounts owing to the company by the Pearson Family Trust and by the shareholders.
[16] Sutcliffe Graham + Co prepared draft financial statements but they were not finalised. On 20 October 2021, the liquidators chased Sutcliffe Graham + Co for finalised financial statements. Sutcliffe Graham + Co responded that they had had a meeting scheduled with Ms Snowden and Mr Pearson but that they did not turn up. The liquidators have heard nothing further from Sutcliffe Graham + Co.
[17] No payment has been made by any of the defendants in response to the letters of demand. Nor has there been any challenge by any of the defendants to the amounts demanded or to the analysis by the liquidators of the amounts now owing.
The plaintiffs’ claim
[18] The plaintiffs have one cause of action against the first defendants (the trustees of the Pearson Family Trust). The plaintiffs seek judgment for the amount owing by the Trust. The statement of claim estimated that amount to be around $2,198,772 and said that the sum would be quantified prior to trial. The plaintiffs now quantify the amount owing by the Trust as $2,245,092.
[19] The plaintiffs bring two causes of action against the second defendant, Mr Pearson. The first cause of action is for the amount owing by Mr Pearson under the shareholders’ current account. The statement of claim estimated that to be around
$516,002. The plaintiffs now quantify the amount owing as $882,293.21.
[20] The plaintiffs’ second cause of action against Mr Pearson is for breach of his duties as a director.
Judgment by consent against Burley Attwood Trustees
[21] The first-named first defendant, Burley Attwood Trustees, initially defended the claim. Subsequently, the plaintiffs and Burley Attwood Trustees sought, by consent, that judgment be entered against Burley Attwood Trustees for the sum of
$2,245,092. Judgment was entered on those terms on 9 March 2022.
Formal proof hearing for claim against Ms Snowden and Mr Pearson
[22] Neither Ms Snowden nor Mr Pearson filed a defence to the claim. A formal proof hearing was scheduled for the plaintiffs’ claim against them.
[23] In advance of the formal proof hearing, the plaintiffs filed Ms Somerville’s affidavit dated 17 March 2022. That affidavit addressed the basis of the claim against the defendants insofar as the claim is for the debts said to be owing by Ms Snowden and Mr Pearson to the company. The affidavit did not address the plaintiffs’ cause of action against Mr Pearson for breach of his duties as director.
[24] Shortly before the hearing, the plaintiffs filed a second affidavit by Ms Somerville, dated 7 April 2022. This affidavit explained that from March 2018 to June 2020 Pearson Apiaries’ debt to the Commissioner of Inland Revenue increased from about $300,000 to about $1,300,000. Over that period, net withdrawals from the company by the Pearson Family Trust, Mr Pearson and Ms Snowden totalled about
$412,000.
Should judgment be entered against Ms Snowden and Mr Pearson?
The claim in debt
[25] For the most part, this is a straightforward claim in debt against two debtors who have a close relationship with the creditor company.
[26] Having read Ms Somerville’s affidavits, I am satisfied that the three trustees of the Pearson Family Trust owe the amount of $2,245,092 to Pearson Apiaries. The financial statements of 31 March 2018 provide strong evidence that as at that date the Pearson Family Trust was indebted to the company in the sum of $2,198,772. Mr Pearson signed those financial statements. No challenge has been made to the accuracy of the amount showing in those financial statements. Nor has any challenge been made by any of the trustees to the liquidators’ analysis of the subsequent transactions. That analysis shows that the amount owing by the trustees is $2,245,092. One of the trustees, Burley Attwood Trustees, has already consented to judgment being entered against it in that amount.
[27] For much the same reasons, I am also satisfied that the amount that the shareholders, Ms Snowden and Mr Pearson, owe to Pearson Apiaries is $882,293.21. That is again based on the 31 March 2018 financial statements and the liquidators’ analysis of subsequent transactions. Mr Pearson, who is the only one of the two shareholders sued for that debt, has had ample opportunity to contest the amount that the liquidators say is owing. He has not raised any challenge.
[28] Judgment should therefore be entered against Ms Snowden and Mr Pearson for the amounts claim by the plaintiffs. However, judgment should be entered only in favour of the first plaintiff, Pearson Apiaries. The debts are owed to the company, not to the liquidators. The liquidators can cause the company to bring a proceeding to recover such debts, but the liquidators have no right to enforce company debts in their own names.1
1 Waller v Paul (1997) 8 NZCLC 261,351.
[29] The first plaintiff is also entitled to interest on the debts, from the date of the demands on 9 April 2021.
[30] The first plaintiff is also entitled to be paid costs and disbursements by Ms Snowden and Mr Pearson. The first plaintiff seeks costs of $7,170 and disbursements of $1,838.75. I approve both amounts.
The claim against Mr Pearson for breach of duty as director
[31] The plaintiffs claim that Mr Pearson breached various of his directors’ duties and these breaches caused loss to Pearson Apiaries by causing it to incur further debt. This claim did not receive any attention in Ms Somerville’s first affidavit and was the subject of limited submissions. This was understandable, given that success on this claim was of no moment if Pearson Apiaries succeeded on its debt claim, which was highly likely once Ms Snowden and Mr Pearson took no steps to defend.
[32] Where a breach of director’s duty consists in allowing an insolvent company to continue to trade, compensation for that breach will usually be assessed by reference to the net deterioration in the company’s financial position over that period (the “net deterioration” approach).2 There was no evidence on this matter. I do not know what Pearson Apiaries’ financial position was at the date of liquidation, or what its financial position is now.
[33] In those circumstances I decline to enter judgment in favour of the plaintiffs on the claim for breach of director’s duty.
Result
[34]I enter judgment in favour of the first plaintiff against:
(a)Ms Snowden and Mr Pearson in the sum of $2,245,092.
(b)Mr Pearson in the sum of $882,293.21.
2 For example, see Mason v Lewis [2006] 3 NZLR 225 (CA) at [109], approved in Madsen-Ries v Cooper [2020] NZSC 100 at [164].
[35] The first plaintiff is also entitled to interest on those amounts, under the Interest on Money Claims Act 2016, from 9 April 2021.
[36] Ms Snowden and Mr Pearson are also to pay to the first plaintiff costs of $7,170 and disbursements of $1,838.75.
Campbell J
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