Property Ventures Limited (in receivership and liquidation) v Gibbston Downs Wines Limited

[2013] NZHC 781

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2013-409-000170 [2013] NZHC 781

UNDER  the Companies Act 1993

BETWEEN  PROPERTY VENTURES LIMITED (IN RECEIVERSHIP AND LIQUIDATION) Plaintiff

ANDGIBBSTON DOWNS WINES LIMITED Defendant

Hearing:         11 April 2013

Appearances: K P Sullivan for Plaintiff /Respondent

K W Clay for Defendant/Applicant

Judgment:      16 April 2013

JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to application of stay of liquidation proceeding]

Introduction

[1]      Gibbston  Downs Wines  Limited  (“Gibbston”)  seeks  an  order staying  the liquidation proceeding commenced by Property Ventures Limited (in receivership and liquidation) (“Property Ventures”).

[2]      Gibbston failed in an application to set aside a statutory demand issued by Property Ventures for $1,520,123.03.[1]   Property Ventures then issued this proceeding relying  upon  the  presumption  of  insolvency created  through  the  still-unsatisfied

[1] Gibbston Downs Wines Ltd v Property Ventures Ltd (in receivership and liquidation) [2012] NZHC 3592.

demand.

PROPERTY VENTURES LIMITED (IN RECEIVERSHIP AND LIQUIDATION) V GIBBSTON DOWNS WINES LIMITED HC CHCH CIV-2013-409-000170 [16 April 2013]

[3]      Gibbston then filed an appeal in relation to the dismissal of the setting aside application.[2]

[2] Property Ventures Ltd (in receivership and liquidation) v Gibbston CA 82/2013.

[4]      It has subsequently made this application for stay on the primary ground that it has filed an appeal.

[5]      The Court of Appeal has allocated the appeal to its Fast Track.  The appeal is to be heard on 25 July 2013.

The debts owed by Gibbston

[6]      There are, in this proceeding, two sets of debts.

[7]      First is the debt which has given rise to the statutory demand, a debt of

$1,520,123.03 owed by Gibbston.

[8]      Secondly, there are the judgment debts which have arisen in relation to costs through the course of Gibbston’s unsuccessful application to set aside the statutory demand.   Two  orders  were  made.    Gibbston  was  first  ordered  to  pay Property Ventures  $2,149  at  a  preliminary  stage  of  the  proceeding.    After  the  hearing, Gibbston was ordered to pay $8,406.30.

[9]      None of these debts has been satisfied.  Neither the principal debt itself nor the costs judgments.

Principles

[10]     Rule 12 Court of Appeal (Civil) Rules 2005 is invoked. I refer particularly to sub-clauses (3) and (4) which provide:

(3)      Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on application,-

(a)       order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or

(b)      grant any interim relief.

(4)      An order or a grant under subclause (3) may-

(a)       relate to execution of the whole or part  of the decision  or to a particular form of execution:

(b)      be subject to any conditions that the court appealed from or the

Court thinks fit, including conditions relating to security for costs.

[11]     I adopt the following as applicable considerations and principles:

(a)      The Court is required to balance the competing right.  First, there is the party who obtained the judgment appealed from who has the right to the benefit of the judgment.  Secondly, there is the need to preserve the appellant’s position should the appeal succeed.

(b)The Court’s object, where it can be fairly achieved, is to arrange matters so that, when the appeal comes to be heard, the appeal Court may be able to do justice between the parties whatever the outcome of the appeal may be.

(c)      Factors  which may be  taken into account in the balancing of the competing interests include:

(i)Whether the appeal may be rendered nugatory by the lack of a stay. This is not a determinative factor;

(ii)Whether the successful party will be injuriously affected by the stay;

(iii)The bona fides of the applicant as to the prosecution of the appeal;

(iv)     The effect on third parties;

(v)      The novelty and importance of the questions involved;

(vi)     The public interest in the proceeding;

(vii)Issues of balance of convenience and the status quo are of modest relevance at most – to the extent they are relevant they will be covered by consideration of whether the appeal will be rendered nugatory and to the prejudice of the respondent: see

Avowal Administrative Attorneys Limited v District Court.[3]

[3] Avowal Administrative Attorneys Limited v District Court at North Shore HC Auckland CIV

2006-404-007264, 8 May 2009 per Venning J at [11].

[12]     The  balancing  of  the  competing  rights  (the  benefit  of  judgment  to  the successful party and the preservation of the appellant’s position pending appeal) is often met by imposing upon a successful application for stay, a condition that the applicant give security for payment of any money judgment involved.   Such an approach is illustrated in Contributory Mortgage Nominees Ltd v Harris Road No.

10 Ltd.[4]   In that case, Associate Judge Faire indicated in an interim judgment that a

[4] Contributory Mortgage Nominees Ltd v Harris Road No. 10 Ltd (2006) 22 NZTC 19,752.

stay would be granted pending appeal on condition that the applicant provided an appropriate form of security.[5]

[5] At [22] - [23].

Considerations in this case

The balancing of competing interests

[13]     Property Ventures wishes to obtain the benefit  of the judgment appealed from, namely the right to rely on Gibbston’s failure to meet the statutory demand as evidence  of  Gibbston's  insolvency.    The  purpose  of  that  is  to  have  Gibbston liquidated so that a liquidator will set out to protect the interests of the creditors of Gibbston.

[14]     Gibbston's  interest  is  in  not  finding  itself  placed  in  liquidation,  with  its director consequently defunct of power.  Gibbston says this should not occur when it is the process of appealing from a decision as to the validity of the statutory demand

which would underlie any liquidation order.

[15]     The objective of the balancing exercise is to enable an appellate court to ensure so far as possible that justice may be done between the parties whatever the outcome of the appeal.  In the event that I grant a stay but the appeal is unsuccessful, a very significant creditor of Gibbston will have been deprived for a significant period of its entitlement to have a liquidator appointed to begin the investigation of Gibbston’s affairs.  There is no evidential basis at this point to determine the extent to which (if any) a delayed liquidation might prejudice the interests of creditors. Generally, it must be in the interests of creditors to have a liquidation commenced sooner rather than later.

[16]    If I refuse a stay, and Gibbston is put into liquidation, its director and shareholder will need to obtain the cooperation of the liquidator before the appeal can be pursued.   The liquidator may not agree to such a course.   Mr Clay, for Gibbston, notes that there is room for scepticism as to whether the very person appointed to liquidate Gibbston would agree to the continuation of a proceeding aimed at avoiding the liquidation of the company.  It may technically be open to the liquidator to abandon the appeal.

A nugatory appeal?

[17]     Mr Clay submitted that Gibbston's appeal would (if successful) be rendered nugatory by the lack of a stay.  A dispute as to who is entitled to recover the debt which is the subject of the statutory demand is the very matter which gives rise to the appeal.  He submits that if the liquidation of Gibbston is followed by a successful appeal, the liquidation process will have been pointless.

[18]   Mr Sullivan submitted that a liquidation would not strictly render the proceedings as a whole nugatory.  He pointed to the right of the director to seek to satisfy the liquidator (or the Court) that the appeal has merit, and then fund the continuing appeal in the name of the company.

[19]     Mr Sullivan went further and suggested that any attempt to save Gibbston from  liquidation  will  prove  ultimately  futile  as  the  company  is  “hopelessly insolvent”.  That proposition is based on the evidence of the liquidator, Mr Walker,

whose investigations of the “Henderson companies” to date has led him to conclude that Gibbston is clearly insolvent.   That conclusion is reinforced by the failure of Gibbston  to  satisfy the  two  relatively modest  costs  awards.   Mr Hyndman, the director of Gibbston who has given evidence on behalf of the company, has not filed any reply evidence to challenge Mr Hyndman’s conclusion as to the insolvency of Gibbston.

[20]     Mr Clay, for Gibbston, responsibly did not seek to assert that Gibbston is solvent.   Rather, he submitted that insolvency does not inevitably mean that the company in question will be put into liquidation.  He pointed to the evidence of the fate of other “Henderson companies” where apparently insolvent companies were able to survive through broader settlement arrangements concluded with a creditor or creditors.  He invited the Court to treat that as a remaining possibility in this case.

Discussion

[21]     I recognise that a refusal to stay the liquidation proceeding, if followed by liquidation, will make it very difficult if not impossible for Gibbston's shareholder and director to have Gibbston properly represented at the Court of Appeal hearing in July.   It may well also impact on whether Gibbston even brings the appeal to a hearing.

[22]     I must give weight to that impact in consideration of this application for a stay.

[23]     On the other hand, there is no dispute at this point as to the fact that Gibbston owes the debt of $1,520,123.03 to Property Ventures.  The dispute to be reasserted on appeal is as to whether the entitlement to call for payment of that sum lies only with Property Ventures’ secured creditor or receiver.   In these circumstances, Gibbston's ultimate liquidation may reasonably be viewed as likely, even if not “inevitable” as submitted by Mr Sullivan.  But it would only be the inevitability of liquidation which would justify the Court’s essentially ignoring the consequences of a nugatory appeal.  On the other hand, there is no reason for the Court to place much weight on any hope that Gibbston's director might have in compromising the debt

and avoiding liquidation in this case.  The debt stands at over $1.5m.  Mr Hyndman has chosen not to given any evidence as to plans, let alone attempts, to resolve the debt (with whomever he considers the appropriate negotiating party).

Effect on plaintiff?

[24]     Mr Clay submitted that a stay will cause no prejudice to Property Ventures. [25]     Mr Sullivan submitted to the contrary.   He noted that if the Court grants

Gibbston a stay that will deprive Property Ventures of the fruits of its judgment by which the statutory demand was not set aside.  Further, to the extent that costs have been ordered in the refusal of the setting aside application, Mr Sullivan noted that the benefit of those orders would also be denied to Property Ventures by a full stay.

[26]     Mr  Sullivan  submitted  that,  by  refusing  a  stay,  the  Court  would  be maintaining the status quo.  Mr Sullivan suggested that the status quo involved an expired statutory demand with the subsisting right for Property Ventures to bring this liquidation proceeding.   He submitted that that status quo should be preserved by allowing the proceeding to continue.

[27]     In reply, Mr Clay submitted that Mr Sullivan’s definition of status quo is wrong.  Mr Clay submitted that the status quo instead involves Gibbston not being in liquidation.   To the extent that the judgment appealed from involves two orders, namely the order dismissing the setting aside application and the order granting Property Ventures’ costs, Mr Clay accepted that it was open to the Court to deal with that by staying this proceeding on  condition.    One condition might be that the existing costs orders be paid.

Discussion

[28]     I recognise a degree of likely prejudice to Property Ventures, as a creditor, if it cannot proceed with its liquidation application.  Investigations by a liquidator will be deferred.  That said, I do not consider Mr Sullivan’s characterisation of the “status

quo” in this case is correct.  The Court would be allowing an alteration of the status quo if liquidation proceeds.

Bona fides of Gibbston?

[29]     Gibbston has filed its appeal and the appeal has been fast-tracked towards a hearing in July.  Mr Sullivan has noted that it was not Gibbston which applied in the Court of Appeal for fast-tracking.  To the contrary, Gibbston apparently refused to apply for fast-tracking so that Property Ventures’ liquidator made the application.

Discussion

[30]     I do not find anything by way of evidence to establish that Gibbston is not serious about pursuing its appeal.  The fact that it did not itself seek fast-tracking is consistent with a realisation that additional time for negotiation may be valuable to Gibbston.  That does mean that there is any reluctance to test the substantive issue at an appeal hearing.  I therefore do not treat a lack of bona fides as an issue on this application.

The effect on third parties?

[31]     Counsel agree that there is no known effect on third parties to be taken into account in this case.

Public interest or novelty?

[32]     Mr  Clay  submitted  that  the  (now  appealed)  issue  on  the  setting  aside application (as to whether the liquidator has power to pursue a statutory demand for a debt covered by a secured charge) was novel and of some importance.

Discussion

[33]     It appears, at least from the relative lack of authority which counsel were able to provide for the hearing of the strike out application, that there is novelty in the

point to be pursued in the appeal by Gibbston.   It is a point of some practical importance in commercial law where the debts of companies subsequently placed in liquidation and in receivership will often be the subject of a security.   It is not surprising, given that the judgment on the strike out application is recent, that there has been no particular evidence of interest in the issue from that sector of the public involved in commercial and insolvency law.  There remains the potential for some legitimate interest in that regard, although not in any sense a wide public interest.

A balancing or rights through a condition as to payment of money?

[34]     Counsel addressed submissions as to conditions which might attach if the Court orders a stay.   The submissions particularly had regard to  an example in Contributory Mortgage Nominees Ltd v Harris Road No. 10 Ltd to which I have referred.[6]    One possibility is that there be a condition as to security for payment of any money judgment involved.

[6] Contributory Mortgage Nominees Ltd v Harris Road No. 10 Ltd, above n 4.

[35]     The Court has made two orders as to costs against Gibbston.  The first was at a preliminary, interlocutory point of the setting aside application. The second order followed the hearing of the setting aside application itself.

[36]     Mr Clay submitted that the Court should not impose a condition as to the payment of the costs.  He observed that the costs were ordered in the setting aside proceeding. This liquidation proceeding is a separate proceeding.

[37]     I do not find Mr Clay’s focus on the separate proceedings to be decisive.  The Court’s focus, in considering conditions as to a stay, should be upon the substance of what is involved and the fairness of the conditions in ordering matters as between the parties.  The liquidator in this case has recognised his personal responsibility to have any costs payments restored to Gibbston if Gibbston's appeal is successful, so as to require an undoing of the costs position.  For now, the two costs orders made against Gibbston have been made in the context of the preliminary steps taken by Property

Ventures to obtain the liquidation of Gibbston.  If Gibbston obtains the benefit of the

stay of the liquidation proceeding itself, it is just that Property Ventures receives for the time being the benefit of the costs judgments.

[38]     The more significant issue, as to the conditions to attach to any stay which is ordered, is as to the debt of $1,520,123.03.

[39]     Mr Sullivan, for Property Ventures, submits that there should be a condition of any stay that Gibbston provides an acceptable form of security in relation to payment of that debt.   He submits that, without such condition, Property Ventures will effectively be denied the fruits of its judgment (namely the right to proceed on a liquidation proceeding) while Gibbston remains free to conduct its affairs and to utilise such assets or other money as it has in an unimpeded manner.

[40]     For Gibbston, Mr Clay submitted that the Court ought not to impose in relation to any stay a condition requiring Gibbston to provide security for some or all of the debt.  He submitted that to do so would potentially constitute, at the behest of Property Ventures, a continuing misuse of the Court’s process by the liquidator.  Mr Clay noted that if the statutory demand is found on appeal to have been issued by the liquidator without legal authority, then a condition requiring security for the debt (as a condition before any stay becomes effective) compounds an unfairness upon Gibbston.

[41]     Mr Clay noted that the present situation is not one in which a judgment debt exists.   No Court  has had  to  rule on  the balance of probabilities  that  Property Ventures (in liquidation) is the creditor in relation to this debt.

Discussion

[42]     The Court of Appeal has allocated for the appeal a July hearing upon its fast- track procedure.  While it is unlikely that the Court of Appeal will be in a position to deliver an immediate judgment, it may well be (in relation to the specific point involved on this appeal) that a judgment will become available soon after hearing.  I therefore do not anticipate that any stay imposed will operate for a lengthy period.

[43]     I find in relation to this liquidation proceeding, in the circumstances of the debt involved, that it would not be just to order Gibbston to provide security for the debt.  Property Ventures’ very right to sue is in issue on the appeal.  I have regard also to the likelihood that Gibbston would not have access to the substantial funds required to provide security for a debt of the size involved.

[44]     There is an alternative condition reasonably available which may be regarded as something of a half-way house. A legitimate concern of creditors in the context of a liquidation proceeding is to have a sense of assurance that the debtor’s financial position will not deteriorate to the disadvantage of unsecured creditors.  Some degree of security can be provided in that regard by a condition relating to the operation of the company during the period before the appeal is determined.

Conclusion

[45]     It is important to the outcome of this stay application that the Court of Appeal has been able to grant a fast-track hearing for July.   The early availability of that hearing would compound the difficulties for the director of Gibbston were Gibbston to be placed in liquidation before the scheduled hearing – an early hearing means less time for the director to obtain the liquidator’s co-operation.  This is a case where the right of appeal may be rendered nugatory.  While that is not a decisive factor, it must be given substantial weight in this case.

[46]     I find that there should be a stay of the liquidation proceeding.

[47]     It is just that Gibbston, as a condition of that stay, pays the two costs awards, so that Property Ventures has the fruits of the judgments to that extent.

[48]     It is also just that the Court protect Property Ventures and other creditors by imposing a requirement upon Gibbston's director which will protect any assets of Gibbston and will also ensure that the stay does not remain in place in the event of delay by Gibbston.

Order

[49]     I order:

(a)      This proceeding is stayed until delivery of the judgment of the Court of Appeal in the appeal filed under CA 82-2013, or until the earlier abandonment or dismissal of the appeal, upon condition that –

(i)Neither  Gibbston  Downs  Wines  Ltd  (“Gibbston”)  nor  any director of Gibbston shall during the period of the stay enter into  any  transaction  or  disposition  which  would  affect  the assets of Gibbston or their value, but with leave reserved to Gibbston to request by memorandum on three days’ notice an amendment  of this  condition  if  reasonably required,  and  if such amendment would not be detrimental to the interests of Gibbston’s creditors;

(ii)Gibbston shall, through its director, cause to be filed in this proceeding within five working days under cover of counsel’s memorandum a statement of its  financial position as at 31

March  2013  together  with  confirmation  that  the  financial position has not materially altered since 31 March 2013;

(iii)Gibbston shall pay to Property Ventures Ltd (in receivership and  liquidation)  by  23  April  2013,  on  account  of  costs awarded, the sums of $2,149 and $8,406.30, together with in each case judgment interest from the date of the costs award to the date of payment;

(iv)The stay will come to an immediate end if Gibbston fails to effect any of the following, namely –

The filing of its memorandum as to financial position in terms of the above condition;

The  payment  of  costs  awards  in  terms  of  the  above condition;

The provision to the Court of Appeal by 10 May 2013 of the   sum  ordered  by  way  of  security  on  the  appeal

proceeding CA 82/2013; and

Attendance  at  the  Court  of Appeal’s  substantive  appeal

hearing on 25 April 2013.

(b)The  costs  of  the  application  are  fixed  on  a  2B  basis  and  their incidence is reserved pending the outcome of the appeal.

(c)       There is no order as to the costs of this application.

(d)Leave is reserved to the parties to apply on three days’ notice if any further directions are required in relation to the stay so ordered.

Associate Judge Osborne

Solicitors:

DLA Phillips Fox, PO Box 2791, Wellington 6140

K P Sullivan, PO Box 5817, Lambton Quay, Wellington 6145

Canterbury Legal Services, PO Box 22115, Christchurch 8140
Mr K W Clay, PO Box 2217, Christchurch 8140