Reynolds v JPL Trading Limited
[2013] NZHC 2287
•3 September 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-5665 [2013] NZHC 2287
UNDER The Property Law Act 2007
IN THE MATTER of an application to set aside prejudicial dispositions; s 348 of the Property Law Act 2007
BETWEEN GRANT BRUCE REYNOLDS as liquidator of JAMES PRODUCTS LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) AND KLASSE PROPERTIES LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION)
Plaintiff
ANDJPL TRADING LIMITED Defendant
Hearing: 3 September 2013
Appearances: K J Crossland for the Plaintiff
R B Hucker (given leave to withdraw) for the Defendant
Judgment: 3 September 2013
ORAL JUDGMENT OF PRIESTLEY J
Counsel/Solicitors:
K J Crossland, Stace Hammond, Hamilton
R B Hucker, Hucker Associates, Auckland
REYNOLDS v JPL TRADING LIMITED [2013] NZHC 2287 [3 September 2013]
[1] The plaintiff, Mr Reynolds, is the liquidator for James Products Limited (James) and Klasse Properties Limited (Klasse). Mr Reynold’s is an experienced liquidator. He has sworn two affidavits in this proceeding dated 18 September 2012 and 23 January 2013 respectively.
[2] He has also helpfully prepared, at my request, a wiring or flow diagram for James, Klasse, and the defendant (JPL), which have been produced as exhibits A and B respectively.
[3] The relief the plaintiff seeks is under s 348 of the Property Law Act 2007. That relief is to set aside, in terms of subpart 6 of Part 6 of the Act, two dispositions. The first disposition is a deed of forgiveness of debt made by James on 6 April 2011. The second disposition is a deed of forgiveness of debt made by Klasse on 4 April
2011. The beneficiary of both deeds of forgiveness was the defendant JPL Trading
Limited.
[4] All three companies, James, Klasse, and JPL are in liquidation. All three companies, as to shareholders and directors, were controlled by members of the Stenner family. I am told that Mr and Mrs Stenner are both undischarged bankrupts currently living in Australia. JPL itself was placed in liquidation as a result of a special resolution organised by Mr M Stenner, the son of the other two Stenners.
[5] Initially the plaintiff ’s application was opposed. A statement of defence was filed. However, the defendant has, for various reasons which are not relevant here, decided not to mount its defence in Court. Mr Hucker appeared today as a matter of courtesy for the defendant and confirmed that was his client’s position. I gave Mr Hucker leave to withdraw. The liquidators of JPL were well aware of this hearing today. As I have said they have chosen not to pursue their defence or offer any evidence in support of it.
[6] The evidence I have heard was from first, Mr Reynolds and secondly, from Mr C N George who was formerly an executive of Asset Finance Limited (Asset). The current position of Asset is that it is a creditor of both James and Klasse. It was
also a creditor of Mr and Mrs Stenner and instrumental, as I understand it, in making them bankrupt.
[7] The relevant transactions and history can be simply described as follows:
(a) In December 2008 Asset advanced a loan of $170,561.46 to Mr and Mrs Stenner. That loan was to be repaid by 12 December 2009 (a year later). Both James and Klasse were guarantors of the loan.
(b)That loan remains in default. Demand has been made by Asset of both James and Klasse. Indeed Asset, in September 2011, obtained judgment against Mrs Stenner in the Whakatane District Court.
(c) On 5 April 2010 James transferred certain tax losses to JPL. The consideration was $838,769.
(d)A year later (there being some slight confusion over documents on the date) James forgave that sum owing to it by JPL.
(e) In an identical type of transaction Klasse transferred tax losses to JPL
on 3 April 2011. The consideration was $506,405.
(f) The next day, 4 April 2011, Klasse forgave JPL that debt.
[8] No gift duty was paid on either of these deeds of forgiveness of debt. The result of the linked transactions is that JPL has retained the benefit of tax losses but no longer has any obligation to pay the debts it incurred in consideration of those tax losses to either James or Klasse.
[9] It is thus very clear that neither James nor Klasse have assets (the debts from
JPL) which could in theory be used to meet their obligations to Asset.
[10] I record that in much the same timeframe Kiwibank advanced a housing loan to Mrs Stenner. Mr Reynolds’ evidence is that loan too is in default. Both James and Klasse are guarantors of the Kiwibank obligation.
[11] So the simple issue is whether in terms of the Act I should set aside the two dispositions to which I have referred. In that regard Mr Crossland has filed helpful submissions. In terms of the statute I need to give some brief consideration to ss 345
– 348 which set out the relevant provisions.
[12] I refer first to the definition of “disposition” set out in s 345(2)(d) of the Act which provides:
(d) the release, discharge, surrender, forfeiture, or abandonment, at law or in equity, of a debt, contract, or thing in action, or of a right, power, estate, or interest in or over any property (and for this purpose a debt, or any other right, estate, or interest, must be treated as having been released or surrendered when it has become irrecoverable or unenforceable by action through the lapse of time): ...
[13] As a matter of basic interpretation I am satisfied that a deed of forgiveness of debt is caught by the broad scope of the subsection. Such a deed is clearly a release, or surrender, at law, of a debt.
[14] I must next consider the provisions of s 346 which provides:
346 Dispositions to which this subpart applies
(1) This subpart applies only to dispositions of property made after
31 December 2007—
(a) by a debtor to whom subsection (2) applies; and
(b) with intent to prejudice a creditor, or by way of gift, or without receiving reasonably equivalent value in exchange.
(2) This subsection applies only to a debtor who—
(a) was insolvent at the time, or became insolvent as a result, of making the disposition; or
(b) was engaged, or was about to engage, in a business or transaction for which the remaining assets of the debtor were, given the nature of the business or transaction, unreasonably small; or
(c) intended to incur, or believed, or reasonably should have believed, that the debtor would incur, debts beyond the debtor’s ability to pay.
[15] Both deeds of forgiveness were made after December 2007. Both the attacked transactions in terms of s 346(1)(b) were ipso facto gifts. There is no evidence whatsoever of any countervailing consideration.
[16] The next issue in terms of the provision is whether James and Klasse were, as required by s 346(2)(a), insolvent at the time of the two deeds (4 April 2011 and 6
April 2011).
[17] In that regard I have the evidence of Mr George, that both companies were in default of their obligations as guarantors. I also have the evidence of Mr Reynolds. It is apparent that from December 2009 both James and Klasse had failed to honour their obligations as guarantors of the Asset loan. Furthermore there is Mr Reynold’s evidence that there was default also in respect of the Kiwibank loan. Prima facie those defaults point to both James and Klasse being insolvent in the sense that they were unable to pay their debts. Importantly in the context of this case, there has been no evidence to the contrary from JPL that it was in fact solvent at the relevant time. Finally, s 345(1)(d) provides a debtor “must be treated as insolvent” if unable to pay debts as they fall due “from assets other than the property disposed of”. Mr Reynolds cannot point to assets or solvency.
[18] Thus, on the balance of probabilities I am satisfied that both James and
Klasse are caught by s 346(2)(a).
[19] In terms of s 348(1)(a) I may make an order if the defendant in this case has been served in accordance with s 347. I am satisfied that the notice required under s 347 has in fact been given. The defendant was properly served with this proceeding and had taken the initial step of filing a statement of defence.1
Additionally, on 27 August 2013 the plaintiff’s solicitors notified the liquidator of
the defendant company of this hearing and gave notice of the type required by s 347.
The defendant’s liquidator acknowledged receipt by email at 12.39 pm on 28 August
2013.
1 Supra [5].
[20] The final clog on making any order is set out in s 349. That provision in essence protects any acquirer, for valuable consideration, who acquires an asset in good faith without knowledge of the disposition. In slightly more cumbersome language, s 349(1) provides protection for the hallowed status of a bona fide purchaser for value. There is no evidence whatsoever that any such person exists.
[21] For all these reasons therefore, I am satisfied that Mr Reynolds, in his position as liquidator of both James and Klasse falls comfortably inside the s 348(1)(b) definition. Clearly the two deeds of forgiveness have prejudiced the company. The prejudice is the inability of the company to satisfy its creditors. The attacked transactions, for no apparent reason, have forgiven or extinguished over
$500,000 in respect of Klasse and just under $840,000 in respect of James.
[22] The specific relief sought by the plaintiff’s counsel is an order under
s 348(2)(b).
[23] I thus order that the defendant, JPL Trading Limited, is to pay to James Products Limited the sum of $838,749. I further order that the same defendant, JPL Trading Limited, is to pay to Klasse Properties Limited the sum of $506,405.
[24] I am satisfied that the plaintiff is entitled to costs on the 2B scale. In formulating such costs counsel will be alert to the fact that this was effectively an undefended hearing today. However, there has been legitimate expenditure on pleadings and interlocutory matters.
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Priestley J
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