Singh v HSK Trading Limited (in limited)
[2022] NZHC 3176
•30 November 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-002227
[2022] NZHC 3176
UNDER Companies Act 1993, ss 284(1)(g) and 250 IN THE MATTE OF
An application to terminate the liquidation of HSK TRADING LIMITED (IN
LIQUIDATION)
BETWEEN
HARGUN SINGH
Applicant
AND
HSK TRADING LIMITED (IN LIQUIDATION)
First Respondent
CHRISTOPHER CAREY MCCULLAGH and STEPHEN MARK LAWRENCE, in
their capacity as liquidators of HSK
TRADING LIMITED (IN LIQUIDATION)
Second RespondentCARTERS BUILDING SUPPLIES LIMITED
Third Respondent
Hearing: 17 November 2022 Appearances:
M G Locke for Applicant
P J Morris and E K J Gamet for Third Respondent
Judgment:
30 November 2022
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 30 November 2022 at 12.00 noon
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date ………………………….
SINGH v HSK TRADING LTD (IN LIQ) & ORS [2022] NZHC 3176 [30 November 2022]
Introduction
[1] Mr Hargun Singh was a director of HSK Trading Ltd (in liquidation).1 HSK was placed into liquidation by order of the Court following a failure to pay a statutory demand for a costs award in the sum of $15,152.65.
[2] Mr Singh contends that HSK was not properly served with either the statutory demand or the liquidation proceedings in accordance with the requirements of s 387 of the Companies Act 1993.2 He says he was personally unaware of both the statutory demand and the subsequent proceedings. He seeks orders under ss 284 and 250 of the Act declaring that the orders for liquidation were not validly made and that the liquidation be terminated.
[3]The critical issues I must determine are twofold:
(a)Was service of the statutory demand and the liquidation proceedings validly effected in accordance with s 387 of the Act?
(b)In any event, is it just and equitable to terminate the liquidation?
[4] The second issue involves consideration of whether all the creditors have been paid in full, the solvency of HSK and whether the liquidators’ costs have been paid or secured.
Factual background
[5] HSK was incorporated in May 2020 to carry out a property development, the first project being an eight-unit residential development at 243 Mount Albert Road.
[6] The registered office of HSK is 243 Mount Albert Road. That property is next door to 245 Mount Albert Road. Several shop premises occupy the front of 245 Mount Albert Road and a hotel business known as Bliss Accommodation occupies the rear.
1 HSK.
2 The Act.
Each of these are operated by entities associated with Mr Singh’s family’s business interests.
[7] In 2021, Carters Building Supplies Ltd, the third respondent,3 issued a statutory demand against HSK in the sum of $160,668.37, being the unpaid balance owing for the supply of building materials. The statutory demand was served by fixing it to the window of the partly built apartments at HSK’s registered office at 243 Mount Albert Road.
[8] HSK applied to set aside the statutory demand. In his judgment of 27 July 2021,4 Associate Judge Bell held that the statutory demand was good for the reduced sum of $124,196.82. He ordered that the demand be adjusted to that reduced amount (leaving the balance of $36,471.55 subject to a reasonable dispute).5
[9] In a subsequent minute of 16 September 2021, Associate Judge Bell ordered that HSK should pay Carters’ costs and disbursements of $15,152.65.6 That is the debt on which the subsequent liquidation proceedings were based.
[10] In October 2021, Carters issued and served a statutory demand in respect of the costs sum of $15,152.65 on HSK. Whether service was validly effected is at issue.
[11] Mr Quintal, the process server engaged by Carters, says that he served the statutory demand at 243 Mount Albert Road (the registered office of HSK) on a man who:
(a)identified himself as an employee of HSK;
(b)gave his name as Sherwin Michael;
(c)accepted documents in the concrete area of 243 Mount Albert Road;
3 Carters.
4 HSK Trading Ltd v Carter Building Supplies Ltd [2021] NZHC 1897.
5 HSK Trading Ltd v Carter Building Supplies Ltd, above n 4, at [51].
6 HSK Trading Ltd v Carter Building Supplies Ltd HC Auckland CIV-2021-404-572, 16 September 2021 (costs minute).
(d)acknowledged that it was the registered office of HSK;
(e)advised that he would pass the documents to Mr Singh.
[12] A photograph of Mr Michael standing on the concrete driveway is annexed to Mr Quintal’s affidavit.
[13] At that time, Mr Locke, counsel for Mr Singh, and his instructing solicitors were representing both Mr Singh and HSK. Prior to the issuing of the statutory demand, the solicitors for Carters had been in communication with Mr Locke and had sought payment of the judgment costs sum in that correspondence.
[14] In November 2021, Carters filed liquidation proceedings against HSK in this Court. The service of those proceedings is also at issue.
[15] In his affidavit, Mr Quintal says that he served the liquidation proceedings at the registered office of HSK and served a man who:
(a)identified himself as an employee of HSK;
(b)gave his name as Matthew;
(c)accepted the liquidation proceedings on behalf of HSK;
(d)accepted documents in the concrete area of 243 Mount Albert Road;
(e)provided his phone number;
(f)gave directions to Mr Quintal to place the liquidation proceedings in a mailbox belonging to HSK – and Mr Quintal did so.
[16] Attached to Mr Quintal’s affidavit are photographs of Matthew, the said employee.
[17] On 25 February 2022, an order was made in this Court for the liquidation of HSK. The liquidators subsequently advised HSK’s legal advisers in writing of the order for liquidation. Mr Singh says that this is the first knowledge that he had, or that HSK had, of any liquidation proceedings.
[18]In July 2022, Mr Singh made the present applications.
Relevant legal principles
[19]Section 387 of the Companies Act 1993 reads:
Service of documents on companies in legal proceedings
(1)A document, including a writ, summons, notice, or order, in any legal proceedings may be served on a company as follows:
(a)by delivery to a person named as a director of the company on the New Zealand register; or
(b)by delivery to an employee of the company at the company’s head office or principal place of business; or
(c)by leaving it at the company’s registered office or address for service; or
(d)by serving it in accordance with any directions as to service given by the court having jurisdiction in the proceedings; or
(e)in accordance with an agreement made with the company; or
(f)by serving it at an address for service given in accordance with the rules of the court having jurisdiction in the proceedings or by such means as a solicitor has, in accordance with those rules, stated that the solicitor will accept service.
(2)The methods of service specified in subsection (1) are the only methods by which a document in legal proceedings may be served on a company in New Zealand.
[20] Section 250(1) of the Act provides that a court may, if it is satisfied that it is just and equitable to do so, make an order terminating the liquidation of a company. An application under subsection (1) may be made by a director of the company (s 250(2)(c)).
Analysis and decision
Issue (a) – Validity of service
[21] Mr Singh says that the order for liquidation was not validly made because both the statutory demand and the liquidation proceedings were not served in accordance with the mandatory requirements of s 387 of the Act. He says they were not served at HSK’s registered office or on an employee of HSK. He also submits that the principal purpose of service, namely to bring the documents to the attention of the appropriate people in the company, was not achieved. As the sole officer of the company, he was not aware of the proceedings or the statutory demand until it was too late.
[22] In his affidavit Mr Singh says that he believes that the statutory demand was served at the next-door property (245 Mount Albert Road) and that Mr Michael is not, and has at no time been, an officer, shareholder or employee of HSK.
[23] In relation to the service of the liquidation proceedings, Mr Singh says that the employee who identified himself as Matthew according to Mr Quintal was never an employee of HSK and that again, from attached photographs, it appears that the service took place on the adjoining property at 245 Mount Albert Road (i.e. not 243).
[24] However, I am sceptical of the account given by Mr Singh and his attempt to reconstruct how the service of both the statutory demand and the liquidation proceedings was carried out. Mr Singh says that he knows both Mr Michael and Matthew and that both are employees of Bliss Accommodation. Bliss Accommodation is one of the family-owned and operated businesses at 245 Mount Albert Road. However, despite knowing both Mr Michael and Matthew, Mr Singh has provided no evidence from them or put forward any explanation as to why those two individuals did not give the documents to him and/or bring them to his attention.
[25] The evidence establishes that Carters experienced significant difficulties in serving HSK and Mr Singh personally with Court proceedings. I note also that the liquidators, despite their best efforts, have never met with Mr Singh and have had limited contact with him. I find that Mr Singh’s attempts to argue that the documents were improperly served at the next-door property, namely 245 Mount Albert Road, is
misplaced and in any event of little moment. That next-door property is owned and operated by his family interests. Even if both Mr Michael and Matthew were employees of Bliss Accommodation (and not of HSK) it is difficult to believe that they did not take steps, given all the circumstances, to bring the documents to Mr Singh’s attention. I find that there is no valid basis for challenging the evidence of Mr Quintal, the process server, who acted carefully and responsibly in carrying out his service duties, including the taking of photographs.
[26] I reject the submission of Mr Locke that the process server should have affixed the documents (in both cases) to a building/window at 243 Mount Albert Road. That mode of service had proved difficult in the past, as is apparent from the judgment of Associate Judge Bell in the application to set aside the original statutory demand.7 I agree that it may have been prudent to have copied in Mr Singh’s solicitors (and Mr Locke) with both the statutory demand and the liquidation proceedings, but in the circumstances that is not fatal.
[27] There is a further reason why it is misguided for Mr Singh to attempt to create a distinction between 243 and 245 Mount Albert Road and to try and reconstruct, with the use of photographs, how the service was carried out. The COVID-19 QR code, which was affixed to the window of Bliss Accommodation, recorded a visitor sign at that location when visiting titled “HSK Trading”. The address recorded on the QR code was 243 Mount Albert Road. Thus, those visiting HSK’s principal place of business were directed to Bliss Accommodation in the first instance. As Mr Morris submitted, the placement of the COVID-19 QR code sign suggests that both 243 and 245 Mount Albert Road would have been used as a principal place of business for HSK, given that 243 Mount Albert Road was at times a building site.
[28] I find that the service of both the statutory demand and liquidation proceedings was validly carried out in accordance with the requirements of s 387 of the Act. The documents were served in accordance with s 387(1)(c) by leaving them at the company’s registered office. I also find that it is more likely than not that both sets of documents did come to the attention of Mr Singh. The principal purpose of service
7 HSK Trading Ltd v Carter Building Supplies Ltd, above n 4.
was therefore achieved. As I have emphasised, no evidence has been put forward as to why the two employees (even if not of HSK), who were both known to Mr Singh and according to him employed in the family business, did not bring the documents to his attention.
[29] In reaching the conclusion that service was validly carried out, I note that on 13 August 2021 the solicitor for Carters emailed Mr Singh’s counsel demanding payment of the outstanding costs judgment sum. In a further email to Mr Singh’s counsel on 4 October 2021, the same solicitor again made demand for the judgment sum and expressly referred to his client’s right to issue a new statutory demand. It is therefore likely that Mr Singh anticipated service of the very documents that he now says were improperly served.
Issue (b) – Is it just and equitable to terminate the liquidation?
[30] In Mao v Inno Capital No 4 Ltd,8 the Court of Appeal held that the jurisdiction under s 250 of the Act is a broadly expressed one, and the Court should not attempt to define an exhaustive set of criteria. The following factors however are generally regarded as relevant to the exercise of discretion:9
(a)Have all creditors been paid in full or has satisfactory provision been made or do they consent?
(b)Have the liquidators’ costs been paid?
(c)Would the shareholders, having given their consent, be in no worse position than if the liquidation proceeds to its conclusion?
(d)The public interest.10
8 Mao v Inno Capital No 4 Ltd [2018] NZCA 433, [2019] NZCCLR 16 at [33].
9 Mao v Inno Capital No 4 Ltd, above n 8, at [31].
10 See Canterbury Squid Company Ltd v South West Fishery Ltd HC Whanganui M31/93, 24 August 1993.
[31] The ultimate issue remains whether it is just and equitable to terminate the liquidation of the company.11
[32] I find that Mr Singh has failed to establish the just and equitable threshold. There is no legitimate basis for terminating the liquidation.
[33] Carters has not been paid its outstanding debt and does not consent to the application. The liquidators’ costs have not been fully paid or secured. Mr Singh essentially challenges those costs, however, he has clearly failed to cooperate with the liquidators, bringing his application to terminate the liquidation some five months after the liquidation order and well after the time when he says he became aware of that order. On the evidence before me the liquidators’ costs were properly incurred.
[34] I further find that it would not be in the public interest for the liquidation to be terminated. Mr Singh has put forward very limited evidence as to the company’s solvency or its ability to pay existing creditors and the liquidators’ fees. HSK was established to carry out property development but has only undertaken one development, namely the one at 243 Mount Albert Road. Mr Singh says that HSK’s existence is necessary as it is a “development vehicle”. However, no evidence has been provided of projected work which might result in a cash injection for HSK. I note also that Mr Singh has informed the liquidators that HSK has no assets, and no assets have been identified by the liquidators.
[35] None of the documentation attached to Mr Singh’s affidavit, including copies of HSK’s GST returns and transactions and draft versions of profit and loss statements for 31 March 2021 and 31 March 2022, provide any sound basis for assessing HSK’s financial position.
[36]I conclude that the application to terminate the application is to be dismissed.
11 Mao v Inno Capital No 4 Ltd, above n 8, at [31].
Result
[37] The applications by Mr Singh under s 284, challenging the validity of liquidation, and s 250 of the Act for an order terminating the liquidation, are dismissed.
[38] As to costs, having succeeded, I am of the preliminary view that the third respondent, Carters Building Supplies Ltd, is entitled to costs and on a 2B basis plus disbursements. If costs are not agreed, then memoranda (no more than three pages) are to be filed and served within 14 days.
Associate Judge P J Andrew
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