Reynolds as liquidator of Chaffers Properties Limited v Glaister Ennor HC Auckland CIV 2011-404-001380

[2011] NZHC 1584

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-001380

UNDER  The Companies Act 1993

IN THE MATTER OF     the liquidation of Chaffers Properties Limited and Warkworth Grant Property Investments Limited (both in liquidation)

BETWEEN  GRANT BRUCE REYNOLDS AS LIQUIDATOR OF CHAFFERS PROPERTIES LIMITED AND WARKWORTH GRANGE PROPERTY INVESTMENT LIMITED (BOTH IN LIQUIDATION)

Applicant Liquidator

ANDGLAISTER ENNOR Respondent Creditor

Hearing:         22 July 2011

Appearances: B Pamatatau for the Applicant Liquidator

H M McKee for the Respondent Creditor

Judgment:      1 August 2011

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

01.08.11 at 4:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors/Counsel:

B Pamatatau, Barrister, Auckland – [email protected]

H McKee, Glaister Ennor, Auckland –  [email protected]

GRANT BRUCE REYNOLDS AS LIQUIDATOR OF CHAFFERS PROPERTIES LIMITED AND WARKWORTH GRANGE PROPERTY INVESTMENT LIMITED (BOTH IN LIQUIDATION) V GLAISTER ENNOR HC AK CIV 2011-404-001380 1 August 2011

[1]      This is an application for orders that transactions be set aside as voidable under s 292 of the Companies Act 1993 (the Act), and for payment under s 295(a) of the Act.

[2]      On 1 September 2010 the applicant (Mr Reynolds) was appointed liquidator of Chaffers Properties Limited (Chaffers) and Warkworth Grange Property Investments Limited (Warkworth) (together called the Companies) by order of this Court.

[3]      Both  liquidation  applications  were  filed  on  24  November  2009  by  the respondent a firm of solicitors.  The respondent was owed fees for services rendered to the Companies.

[4]      Both liquidation applications were filed on 24 November 2009.  On 10 March

2010 the respondents withdrew both applications and in each case supporting creditors were substituted as plaintiffs.

[5]      In the case of Chaffers, Associate Judge Abbott recorded:

Defendant has paid debt due to plaintiff.  Plaintiff seeks leave to withdraw.

[6]      In the case of Warkworth Associate Judge Abbott recorded:

Plaintiff’s debt has been paid.  Seeks leave to withdraw.

[7]      A solicitor from the respondent’s firm appeared in Court on 10 March 2010 when these matters were dealt with.

[8]      On 11 March the respondent was paid in full the amount owed to it by Chaffers.  That same day a sum of $15,453.55 was paid on account of Warkworth’s debt. The balance of $12,363.61 was paid on 23 March 2010.

[9]      Payments  were  made  by  journal  entries  through  the  respondent’s  trust account.   The funds were transferred from the accounts of Pigeon Bay Trust and Barrier Trust to the accounts of Chaffers and Warkworth respectively.

[10]     Mr Reynolds’ position is that the payments in question were made on behalf of Chaffers and Warkworth by related parties and that therefore the respondent is liable to account for those because the payments were made at a time when the Companies were insolvent and they occurred within a period of six months before the Companies were placed into liquidation.

[11]     The respondent does not deny the Companies were insolvent or that the affect of s 292 would bind it to account save that it denies its invoices were paid by the Companies.

Background

[12]     Mr Robert Vincent was at all material times the director of the Companies. [13]     Pigeon Bay Barrier Limited (the Trustee) is the Trustee of two trusts: The

Pigeon Bay Trust and The Barrier Trust.  Mr Vincent is a beneficiary of the Pigeon

Bay Trust.

[14]     Prior to the liquidation of the Companies the sole director of the Trustee was

Mr Chamberlain of Martelli McKegg Wells and Cormack solicitors, Auckland.

[15]     The respondent firm of solicitors had previously undertaken work for Mr Vincent  and  a number  of  companies  of which  he was  a director,  including the Companies.

[16]     The respondent rendered invoices to the Companies in 2008 and 2009. Those invoices  remained  unpaid  and  the  creditor  filed  liquidation  proceedings  on  24

November 2009.

[17]     The Pigeon Bay and Barrier Trusts owned a property at Sullivans Road, Paihia.  A conditional agreement to sell that property was entered into on 5 February

2010.

[18]     On 26 February 2010 Mr Chamberlain signed a written irrevocable authority to the respondent in the following terms:

Pigeon Bay Barrier Limited, the sole Trustee of the Pigeon Bay Barrier Trust, does hereby irrevocably appoint you to act as solicitor for the Pigeon Bay Barrier Trust in relation to the sale of the property at ... Sullivans Road, Paihia, under which the trust is the vendor...

We further irrevocably authorise and instruct you to retain from the net proceeds of sale after repayment of monies owing to the ANZ National Bank sufficient to cover your conveyancing fees in relation to the sale and also to retain and pay the sum of $57,653.03 being fees owing to your firm as follows...

[19]    The authority went on to list several outstanding invoices owed by the Companies and another company, Waiheke Properties Limited.  A further sum owed to Mr Vincent personally was also listed.

[20]     It is clear that on the basis of that authority the respondent agreed to act for the Trustee in relation to the sale of the Paihia property.

[21]     On  3  March  2010  Mr  Chamberlain  signed  a  resolution  by  the  Trustee resolving that:

It being in the opinion of the Trustee of the Trust to be in the best interest of the Trust to do so, the Trust enter into and execute the documentation listed in the Schedule hereto for the purpose of selling the property situated at Sullivans Road, Paihia for the sum of $450,000.

[22]     The documents in the schedule were the sale and purchase agreement, the necessary Authority and Instruction form to effect settlement, and the irrevocable authority referred to above.

[23]     The respondent, in its capacity as solicitor for the Trustee as vendor, received the settlement funds from the purchaser’s solicitor on 9 March 2010.  From there the outstanding invoices of the respondent were paid as I have already described.

[24]     The respondent, in its capacity as solicitor for the Trustee issued settlement statements to the Trustee on 11 March 2010 and 30 March 2010 showing the deductions, specifically referring to the invoices paid and specifically stating that they were paid pursuant to the authority given by the Trustee.

[25]     The settlement statement dated 30 March 2010 records that the balance of the proceeds of sale of $18,109.01 was paid to Mr Vincent.

The journal entries

[26]     They show payment by the vendor’s solicitors to the account of Pigeon Bay

Barrier Trust in the respondent’s trust account.  From there the following transfers are recorded:

Date	Debit
11/03/2010	$15,453.55	Journal   to    Warkworth   Grange Property ... part payment of invoice #80614   pursuant    to    authority #18354 dated 22/2/2010 attached.
11/03/2010	$26,159.82	Journal   to    Chaffers   Properties Limited...   payment   of   invoices #805374,  #810335  and  #811558 pursuant  to  irrevocable  authority #18354 dated 26/2/10 attached.
25/03/2010	$8,630.48	Journal   to    Warkworth   Grange Property  ...  payment  of  invoice #806214   pursuant   to   authority dated  20/2/2010  (as  per  authority #18364) attached.
25/03/2010	$3,733.13	Journal   to    Warkworth   Grange Property  ...  payment  of  invoice #907154   pursuant   to   authority dated  20/2/2010  (as  per  authority #18364) attached.

Settlement statements

[27]     These were addressed to:

a)        Pigeon Bay Barrier Limited and to Pigeon Bay Barrier Trust.

Payments made by us on your behalf’ the following record is made:

Journal   to    509858-13   (Chaffers   Property

Limited)  pay  outstanding  invoice  and  no’s

805374,   810335   and   811558   pursuant   to irrevocable authority dated 26 February 2010.

$26,159.81

Journal to 495089-11 (Warkworth Grange Property Investments Limited) part pay outstanding invoice no 806214 pursuant to irrevocable authority dated 26 February 2010.

$15,453.55

b)In a statement to Pigeon Bay Barrier Trust the respondent notes under the heading:

Payments made by us on your behalf:

Warkworth    Grange    Property    Investments

Limited – payment of balance of invoice no.

806214 pursuant to irrevocable authority dated

20 February 2010.

$8,630.48

Warkworth    Grange    Property    Investments

Limited – payment of balance of invoice no.
907154 pursuant to irrevocable authority dated

20 February 2010.

$3,733.13

[28]     The references in the journal and in the settlement statements to the dates of

20 February 2010 and to 22 February 2010 were incorrect and should have referred to 26 February 2010.

Other evidence

[29]     On 8 October 2010 Mr Reynolds emailed Mr Vincent stating:

It is my understanding that Pigeon Barrier Limited advanced funds to both Warkworth Grange and Chaffers in order for them  to settle the Glaister Ennor account.  Could you please confirm?

[30]     Mr Vincent replied (within the hour) stating:

... confirming that is my understanding.

[31]     Before then Mr Vincent had been sent a copy of the respondent’s settlement

statements to the Trust.

[32]     On 11 October 2010 Mr Reynolds filed notices to set aside the payment as voidable transactions.  On 12 November 2010 the respondent served its notices of objection asserting that the payments were not transactions by the Companies in terms of s 292 of the Act.

[33]     On 16 November 2010 Mr Reynolds emailed Mr Vincent requesting:

... confirmation by way of Pigeon Bay accounts to verify the advances that Pigeon Bay made to Warkworth Grange and Chaffers Properties that settled the Glaister Ennor debt.

[34]     Mr Vincent forwarded the email on to the Trust’s accountants stating:

Do we have a set of accounts?  I suspect not but can you please confirm?

[35]     The accountant replied:

You are correct – we do not have a set of financial accounts at this point for the Barrier and Pigeon Bay Trusts for the 2010 year.   Any journals we processed would be a direct reflection of these transactions from the settlement statements.

[36]     In his email of 16 November 2010 to Mr Vincent Mr Reynolds also suggested to Mr Vincent that Pigeon Bay Barrier Limited was a creditor in the liquidations of the Companies for the alleged advances and asked Mr Vincent to complete and return creditors’ claim forms in respect of the liquidation of each company.

[37]     Mr Reynolds wrote to Mr Vincent again on 10 December 2010 asking him to complete and return the claim forms.  The Trustee has not lodged a creditors’ claim form for the liquidation of either of the Companies.

[38]     Mr  Chamberlain  did  not  agree  at  any  stage  that  the  deduction  of  the outstanding fees from the proceeds of sale would be loan advances by the Trustee to Chaffers or Warkworth or Mr Vincent.  He said that was never suggested to him by Mr Vincent or anyone else on behalf of the Companies at the time, nor did he ever discuss it with Mr Vincent or anyone else.  For that reason he did not record in any way that the transactions were to be loan advances.  He did not enter into any loan agreement on behalf of the Trustee or record any Trustees’ resolution to that affect.

[39]     Mr Chamberlain  says  the authority given  by him  to  the  respondent  was provided at the request of Mr Vincent who was a beneficiary of the Pigeon Bay Trust.  Mr Chamberlain was aware that the liquidation of Chaffers and Warkworth would detrimentally affect Mr Vincent’s financial position.  He understood that the

arrangement between the Trustee and the respondent was a payment from the Trustee to the respondent for the benefit of Mr Vincent.

[40]     Therefore it appears from the evidence of Mr Chamberlain that the payment

of the respondent’s fees was a gift from Mr Vincent.

Were the payments “transactions by the Companies”?

[41]     Mr Reynolds’ position was that none of the documentation before the Courts supports a claim that the payments to the respondent could be treated as being on Mr Vincent’s behalf as a beneficiary of the Trusts, and even if it could, it would not change the position as between the Companies and the respondent.  It only changes the entity from which the Companies received the funds before making the payments to the respondent.  Mr Reynolds relies upon Mr Vincent’s response to his request for confirmation that funds has been advanced to the Companies in order for them to settle the respondent’s outstanding accounts.  He suggests also that his request of Mr Vincent for a copy of the Trust’s accounts prompted a reply that those would verify the payment of advances by the Trust to the Companies to pay the respondent.

[42]     Mr Reynolds’ position is that the transactions recorded in the respondent’s trust records confirm the transfer from the Trusts to the Companies and then on to the respondent.  Further, it is asserted that by his response dated 10 December 2010

Mr Vincent confirmed to Mr Reynolds that the Trusts will be filing a proof of debt in

Warkworth’s liquidation.

[43]     Mr  Reynolds  submits  that  the  payments  were  transactions  made  by  the

Companies because:

a)       They were made within the restricted period i.e. within that prescribed by the Act following Chaffers and Warkworth having been placed into liquidation.

b)        They involve the payment of money to the respondent in satisfaction

of the Companies’ debts due to them.

c)        The respondent received payment in full of its debts owing by the

Companies.

d)That the respondent knew or ought to have known the Companies were insolvent.

e)        The respondent has not altered its position in the reasonable belief that the payments were valid and would not be set aside.

Considerations

[44]     Arguably,  indeed  likely,  the  payment  of  the  respondent’s  outstanding accounts has been contrived in the process by which the respondent’s liquidation applications were advanced.   Arguably also it was done in the knowledge of the respondent that any payment they were to receive in satisfaction of their accounts would provide them with a preference over the claims of other creditors.  Indeed the very process by which creditors are substituted as plaintiffs for another that has been paid will likely give rise to that situation.   The satisfaction of a claim by an originating  creditor  will  always  likely  be  subject  to  the  claims  of  succeeding creditors.   Succeeding creditors will pursue their claims in the knowledge that the satisfaction  of  a  debt  of  an  earlier  creditor  may  be  subject  to  the  claw  back provisions of s 292.

[45]     That event may well have inspired the process which has occurred in this case in an attempt to avoid claims of a voidable transaction.

[46]     In essence the respondent’s submission is that there was no transaction by which the payment by the Trust amounted to a payment on behalf of the Companies. Therefore the respondent submits that there could not have been a “voidable transaction” under s 292.  In short it is the Companies’ position that their liability to the respondent was met by a gift by Mr Vincent from funds made available from the Trusts he was a beneficiary of.  One of those companies i.e. Warkworth was owed

$1.4M by the Barrier Trust at the time it sold the property that realised the funds from  which  the  payment  was  made  at  the  direction,  and  with,  arguably  the

compliance of Mr Vincent.   There was not however the same debt owed to the

Companies by the Pigeon Bay Barrier Trust.

[47]     Mr Reynolds bears an onus of establishing that the transactions he seeks to set aside fall within the terms of s 292, including the definition of “transaction” in s 292(3) of the Act. That subsection provides:

... transactions means any of the following steps by the company... (e)       paying money...

[48]     Mr Reynolds contends that the journal entries made by the respondent paying their invoices were, in substance, payments by or on behalf of the Companies.

[49]     I disagree.  I consider the evidence suggests that the relevant journal entries record payments by the Trustee to the respondent in accordance with the agreement reached between them.  The irrevocable authority signed by Mr Chamberlain does not  refer  to  the  Companies  or  to  any deductions  from  the  sale  proceeds  being advances to the Companies.  Rather the documents simply record the arrangement between the Trustee and the respondent.

[50]     The  resolution  of  the  Trustee  does  not  refer  to  advancing  funds  to  the Companies to enable them to pay the respondent’s invoices.  There is no other record of payment being made for the purpose of advancing funds for the payment of the respondent’s invoices.

[51]     Mr Chamberlain’s evidence clearly rejects any suggestion of an advance for the Companies’ purposes.

[52]     Mr Vincent refers to personal reasons why he considered the respondent’s invoices should be paid.  He confirms Mr Chamberlain’s advice that there was no discussion or agreement for the invoice payments to be considered as loan advances to the Companies.   He says he did not  give any instruction to the Companies’ accountants that the payment of the respondent’s invoices were to be treated as an advance to the Companies.

[53]     Although  the  settlement  statements  record  a  transfer  of  funds  which ultimately paid the respondent’s invoices they also record, as did the Trust account records, that the payments were pursuant to the specific authority given by the Trustee. They do not refer to loan advances to the Companies.

[54]     Mr Vincent does not dispute Mr Reynolds account of the email exchange on

8 October 2010.   Mr Vincent says he responded without giving the matter much thought.

[55]     The accountant’s reply, to Mr Vincent that the Trust’s journals would be a direct reflection of the transactions from the settlement statements, is equivocal.  For Mr Reynolds it is argued that the accountant’s reply was confirmation of the fact that the accounts will show that the payments were made for the Companies.   On the other hand it may not have done that.  The accountants were only saying that any accounts would be adjusted to show what is in the settlement statements and that those will show there were payments by the Trustee to the respondent.  Also there was no evidence that the accountants were ever instructed to treat the payments as being on behalf of the Companies.

[56]     I think too much is made of Associate Judge Abbot’s record on the occasion when the respondent withdrew from its liquidation proceeding on 10 March 2010, when another creditor was at that time substituted as plaintiff.  Clearly at that time the respondent  had  in  its  trust  account  the funds  they were  going  to  pay their invoices with pursuant to the Trustee’s irrevocable authority.   The learned Judge’s notation does not purport to record an arrangement by which the respondent’s fees were settled on behalf of the Companies.

[57]     Nor, does  the fact that Warkworth had previously made advances to  the Trusts mean that any payment made to resolve the debt of Warkworth to the respondent would be offset against the debt owed by the Trustee to Warkworth. There is no evidence of such an agreement.  The Trust has not filed a proof of debt in Warkworth’s liquidation.

Conclusions

[58]     In short:

a)       Although Mr Reynolds is concerned about the process by which the respondents  have  been  preferred  to  other  creditors  there  is  no evidence, merely supposition, from which to conclude the payment of the respondent’s invoices was made on behalf of the Companies.

b)The only person with authority to bind the Trustee at the relevant time has said there was no agreement that the payments would be advances to the Companies, and the Trustee has not filed proofs of debt in the liquidation.

c)       The trust account transactions do not record anything more than the name of the Companies for the purposes of confirming the Trustee’s instructions for settlement of the respondent’s invoices.   The Companies had no control over that process.

d)There is no clear contemporaneous documentary evidence of an agreement between the Companies and a third party providing for payment of a creditor’s claim and recording it as a loan to the Companies.   In this case the Trustee had no obligation to the Companies to make payments to the respondent.

Result

[59]     The application is dismissed.

[60]     Costs are reserved on will be fixed upon an application being made.   The

Court’s inclination is to let costs lie where they fall.

Associate Judge Christiansen