QBE Insurance (International) Ltd ACN 000 000 948 v Ley Marketing Ltd (in Rec and Voluntary Administration) HC Auckland CIV 2010-404-3205

[2010] NZHC 1311

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-003205

UNDER  the Companies Act 1993

BETWEEN  QBE INSURANCE (INTERNATIONAL) LTD ACN 000 000 948

Plaintiff

ANDLEY MARKETING LTD (IN RECEIVERSHIP AND VOLUNTARY ADMINISTRATION)

Defendant

Hearing:         16 July 2010

Appearances: M Kersey for Plaintiff

P Coleman, (Administrator) Judgment: 16 July 2010

ORAL JUDGMENT OF ASSOCIATE JUDGE BELL

Solicitors:

Russell McVeagh, PO Box 8, Auckland

And to:

Peter Coleman, PO Box 4107, Shortland Street, Auckland

QBE INSURANCE (INTERNATIONAL) LTD ACN 000 000 948 V LEY MARKETING LTD (IN RECEIVERSHIP AND VOLUNTARY ADMINISTRATION) HC AK CIV-2010-404-003205  16 July 2010

[1]      This case was called before me on 14 July 2010.  At that time, Mr Kersey and Ms Lowery appeared for the plaintiff and there was an appearance from Mr Peter Coleman, an insolvency practitioner.  I will describe Mr Coleman’s involvement but, in effect, he spoke for the defendant.

[2]      I heard the parties initially on the morning of 14 July and then adjourned the matter because it seemed to me that some communication between the parties might be useful.   When the matter was called again in the afternoon, I was told that the parties sought an adjournment on 16 July to see whether there was some way of resolving matters.

[3]      This morning, I was told that the parties had not been able to resolve matters and I accordingly need to make decision on the matter.

[4]      I heard submissions from the parties because the plaintiff has formally proved its case.  The defendant has filed a memorandum but has not filed any statement of defence or any evidence in opposition.  But Mr Coleman has put matters before me and I have accepted what he said on the basis that, if the matter were adduced in evidence, it would be matters I could take into account.

[5]      The plaintiff, QBE Insurance (International) Ltd, says it is a creditor of the defendant for the sum of A$73,500.   That is money payable under an indemnity dated 20 August 2007 which was for a deposit bond the plaintiff had given for the purchase of a property, Lot 67 in a development called the Elston Grandsturf Resort in Surfers Paradise, Queensland, Australia.   QBE Insurance provided a bond for payment of the deposit.  The developers called on QBE Insurance under the bond. The contractual arrangements gave QBE Insurance recourse against the defendant and they also have personal guarantees from the defendant’s director, Mr Moodie.

[6]      QBE Insurance served a statutory demand on 30 March 2010.  It began the present proceeding on 27 May 2010.  The defendant took no steps in response to the statutory demand and there is no dispute as to the validity of QBE Insurance Ltd’s debt.

[7]      The company was served on 9 June 2010.  On 22 June 2010, Ley Marketing Ltd purported to appoint Peter Coleman as an administrator.   This was the last possible day for the company to appoint an administrator once an application had been  started  in  court  for  the  appointment  of  a  liquidator  under  s  239(1)(4). Mr Coleman is an insolvency practitioner.

[8]      By way of further background, the shareholder and director of the defendant is Trevor Moodie.  Mr Moodie claims to hold a general security agreement over the assets of the defendant.  However, a search by QBE has shown that there is no such security registered under the Personal Property Securities Act.  Mr Moodie purported to appoint Mr Coleman as receiver.  That is in addition to Mr Coleman already being appointed as administrator.  That was a mistake.  A person who is receiver cannot be a liquidator, and correspondingly, a person who is a receiver cannot be an administrator.   That arises from the disqualification under s 281 against receivers being eligible to be appointed liquidators, and that disqualification also applies to administrators under s 239F of the Companies Act.

[9]      Another unfortunate development was that there was an irregularity in the calling of a creditors’ meeting.   QBE Insurance did not receive timely notice.   A creditors’ meeting should have been held within eight working days of the start of administration – that is under s 239AM2. It was in fact held 14 days later.   But written notice of the meeting has to be given no less than five working days before the meeting.  In fact, QBE was told only the day before and did not attend.

[10]     During the hearing on 14 July, QBE pointed out these deficiencies in process as matters of concern.  More significantly, it referred to s 239ABV of the Companies Act and said that it opposed any adjournment.  Section 239ABV of the Companies Act says:

The Court may adjourn an application under s 241(2)(c) for the appointment of a liquidator of a company in administration if the Court is satisfied that it is in the interests of the company’s creditors for the company to continue in administration rather than be placed in liquidation.

[11]     In the hearing on 14 July, Mr Coleman put these matters before me.  He said that the defendant is a property owning company.   Its only asset is a property on

Waiheke Island.   Westpac New Zealand Ltd holds a registered mortgage against the title.  Today, Mr Coleman told me that a recent valuation of the property shows that it is worth $340,000 and Westpac is owed $350,000.   Mr Coleman also says that Mr Moodie   has   put   approximately  $140,000   into   the   company  by  way  of shareholders’ advances.  The plaintiff put a search of the property before me and that shows a caveat registered against the title by the plaintiff.  The plaintiff says that its contractual arrangements enable it to claim an equitable mortgage.

[12]     Mr Coleman said that the company had been exploring the option of suing the Queensland developers for recovery of the deposit paid by QBE.   While the company had apparently told QBE not to pay the deposit, QBE nevertheless paid. The company believed that it might have a claim against the Australian developers because of alleged breaches of contract by the developers.   Apparently, there are other purchasers in a similar position and the company wants to explore the possibility of mounting collective proceedings to recover the sums.  That is against the background that this is a New Zealand entity wishing to take proceedings in Australia where the amount in issue is A$73,500.  Clearly, it would be difficult to run those proceedings economically if the defendant ran the proceeding alone but might be able to run it efficiently if it was able to combine forces with other people in a similar position. That information from Mr Coleman was new to the lawyers for QBE and I stood the matter down for further consideration.

[13]     Today, Mr Coleman has presented me with arguments as to the advantages of administration over liquidation.   He points to the dangers of a forced sale of the property on Waiheke Island and points also to the higher costs of liquidation against administration.

[14]     For me, the matter I have to consider is the exercise of the discretion given under s 239ABV of the Companies Act.  This provision is similar to provisions in Australia’s Corporations Act.  After all, our administration regime in our Companies Act has been derived substantially from Australia.

[15]     QBE referred me to Lubavitch Mazal Pty Ltd v Yeshiva Properties No. 1 Pty

Ltd and Others [2003] NSWSC 535, a decision of Austin J, but I have also derived

assistance from Deputy Commissioner of Taxation v Choice Design Homes Pty Ltd [1999] NSWSC 589, where Young J said that the matters the court needed to inquire into were:

a)        Whether the company is insolvent;

b)        Is the company salvageable;

c)        Was the proposed salvation in the interests of creditors;  and d)        Is the proposed salvation in the public interest.

[16]    I note that on these matters the burden is on the person proposing the adjournment to show that it is in the interests of the company’s creditors for the company to continue administration rather than be placed in liquidation.

[17]     The paradigm for a company to continue in administration is that, although it may be insolvent, there can be benefit for the company continuing trading because it may be for the overall benefit of creditors and for those with an interest in the company to salvage the company rather than proceed with liquidation.  Those are the factors that Young J seems to have had in mind in the Choice Design Homes case.

[18]     I see this case as being totally different.  Here, we have an entity which owns a property but there is no actual trading activity.  It is, in my view, a clear case for liquidation.   There is nothing to be gained by continuing the administration when there is a creditor saying that it wants to proceed to liquidation.   I note that the company has held up the prospect of recovery from Australia.  That is a matter that a liquidator can investigate. Liquidators tend to be experienced people who take a hard-nosed view of recovery prospects and they are likely to engage in recovery action only if the prospects look reasonably sound.  I am happy that the liquidators be left to make that decision.

[19]     As Mr Kersey pointed out, there are other options available. For example, Mr Moodie might take an assignment of the cause of action from the company so

that he can pursue it personally and if that is a matter of value to Mr Moodie, that would still be available to him under liquidation.

[20]     In these circumstances, I see no reason for adjourning the matter further under  s 239ABV  and  accordingly  I  make  an  order  putting  the  company  into liquidation.

[21]     The time of the order is 10:03 am.   The liquidators are  Brendon James

Gibson and Grant Robert Graham.  The plaintiff is awarded costs and disbursements of $3073.36.

R M Bell

Associate Judge