Smith v Southern Builders Limited (in liquidation) and (struck off)

[2015] NZHC 160

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-3363 [2015] NZHC 160

UNDER	the Companies Act 1993
IN THE MATTER OF	an application for an order that Certificate of Title 215175 vest in the applicants
BETWEEN	NEIL RICHARD SMITH, ELAINE MAVIS SMITH AND DAVID JOHN GRAEME COX as trustees of the NEIL AND ELAINE SMITH FAMILY TRUST Applicants
AND	SOUTHERN BUILDERS LIMITED (IN LIQUIDATION) AND (STRUCK OFF) Respondent

Hearing:	9 February 2015
Counsel:	A M Rutten for the Applicants No appearance by or on behalf of the Respondent
Judgment:	13 February 2015

JUDGMENT OF MUIR J

This judgment was delivered by me on 13 February 2015 at 12 noon, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:      Rennie Cox, Auckland

SMITH v SOUTHERN BUILDERS LIMITED (IN LIQ) AND (STRUCK OFF) [2015] NZHC 160 [13 February

2015]

[1]      This matter was called in the Duty Judge List on 9 February 2015 when orders were sought by the applicants on their originating application to vest in them a property described as 3 Naho Place, Meremere comprised and described in Certificate of Title 215175, South Auckland Land Registry (“the property”).

[2]      There was no attendant application for permission to commence proceedings by way of originating application as required by r 19.5 of the High Court Rules. However, to regularise the position I grant that permission.

[3]      Nor did accompanying memoranda elaborate, beyond identification of the statutory  provisions  relied  on,  on  the  Court’s  jurisdiction  to  make  the  order. However, when the matter was called Ms Rutter did provide me with a copy of a decision to which I will subsequently refer and which she suggested I may find helpful.

[4]      I minuted the file that I would need to consider the matter further.   My decision necessarily proceeds without the benefit of opposing argument.

[5]      The applicants are mortgagees of the property.   The mortgagor was the respondent now in liquidation and struck off.

[6]      Notice of the originating application was served on both the Official Assignee and the former registered office of the company.  No steps have been taken.

[7]      The  application  arises  out  of  a  notice  by  the  Official  Assignee,  dated

20 December 2012, disclaiming the property.

[8]      The outstanding amount of the mortgage is approximately $160,000 and the value of the property approximately half that.

[9]      On 7 November 2014, the respondent purported to enter into an agreement for sale and purchase in respect of the property.  That agreement was a nullity on account of the fact that the property had been disclaimed meaning that whatever interest the company in liquidation might have had in the disclaimed property had

vested in the Crown.1    The applicants now wish to sell the property to the same purchasers at the same price.

Jurisdiction

[10]     The application was made in reliance on ss 269(5) and (6) of the Companies Act 1993 and s 52(1)(b)(iv) of the Trustee Act 1956.  I cannot see how the Trustee Act provision is engaged.   It relates to the situation where a trustee, entitled to or possessed of any land or interest therein and, being a corporation, has ceased to carry on business or is in liquidation.  The focus is on the status of the trustee (in this case the  applicants),  not  as  in  this  case  registered  proprietor  of  the  property.    The provision seems to me to be directed to insolvent corporate trustees.

[11]     The relevant Companies Act provisions are set out below:

269     Power to disclaim onerous property

...

(5)       A person suffering loss or damage as a result of a disclaimer under this section may—

(a)       Claim as a creditor of the company for the amount of the loss or damage, taking account of the effect of an order made by the Court under paragraph (b) of this subsection:

(b)       Apply to the Court for an order that the disclaimed property be delivered to or vested in that person.

(6)       The Court may make an order under subsection (5)(b) of this section if it is satisfied that it is just that the property should be vested in the applicant.

Discussion

[12]     I have been referred by counsel to the decision of Re David James & Co Ltd. In that case Holland J held that:

(a)       although disclaimer determined the liability of the company, for the future, under a mortgage, it did not discharge the debt or the security

1      Re Mercer and Moore (1880) 14 Ch D 287, Re Tulloch Ltd (in liq) (1978) 3 ACLR 808 at 813,

Re David James & Co Ltd [1991] 1 NZLR 219 (HC) at 223.

interest existing at the time of the disclaimer nor render the mortgage

a mere “shell”;2

(b)even though there may be difficulty about enforcing the security provisions of the mortgage, it remained a security over the land in respect of the amount secured by the mortgage at the time;3

(c)      although there may well be no personal liability on the Crown to make payments due under the mortgage, the disclaimer did not “eliminate the liability of the land under the mortgage”;4 and

(d)to the extent the realisation of the land could satisfy the amount owing at the date of the disclaimer, it should be applied in reduction or payment in full of the secured debt at the time of the disclaimer.5

However, it remains approved by current commentators.6

[13]     That decision was under the Companies Act 1955.    Section 269(3) of the

1993 Act reinforces the position in these terms:

(3)      A disclaimer under this section—

(a)       Brings to an end on and from the date of the disclaimer the rights, interests, and liabilities of the company in relation to the property disclaimed:

(b)       Does not, except so far as necessary to release the company from a liability, affect the rights or liabilities of any other person.

[14]     With the company released from liability under the mortgage but still the registered proprietor of the land, albeit now vested in the Crown subject to the

mortgage (but with the Crown having no personal liability under the covenants7)   ,  I

2      At 225.

3      At 225.

4      At 225.

5      At 225.

6      See  Peter  Watts,  Neil  Campbell  and  Christopher  Hare  Company  Law  in  New  Zealand (LexisNexis, Wellington, 2011) at 991; Heath and Whale on Insolvency (online looseleaf ed, LexisNexis) at [22.18].

7      Re David James & Co Ltd, above n1, at 225.

agree  with  Holland  J’s  observation  about  the  difficulties  and  complexities  of enforcing the mortgage security.  To that extent I am prepared to find loss or damage in terms of s 269(5) of the 1993 Act.

[15]     I am satisfied also that it is just that the property should vest in the applicants. They hold a secured interest in respect of which it is possible for them to effect at least a partial recovery from the proposed  sale.   That sale necessitates that the property be vested in them. Any significant delay in doing so risks the sale.

[16]     From a practical perspective a liquidator will only disclaim a property where, as in the present case, it is clear that the secured amount exceeds the value of the property.   There would be few cases in that context where there was injustice in vesting the property in the mortgagee.  In the unexpected event that realisation of the property produces a recovery which exceeds the mortgage security it can be met by conditions in relation to the vesting.

Result

[17]     I order:

(a)      That the certificate of title to the property known as 3 Naho Place, Meremere, comprised in Certificate of Title 215175, South Auckland Land Registration District vest in the applicants on condition that it be sold as soon as reasonably practicable and that the proceeds of sale be applied as follows:

(i)In payment of any costs arising out of ownership of the land including rates, which may be incurred following the making of this order;

(ii)In payment of the applicants’ reasonable solicitor and client costs and disbursements of and incidental to these proceedings on a 2B basis;

(iii)In payment to the applicants of the amount owing under their memorandum of mortgage as at the date of this order;

(iv)     In payment of any balance to the Crown.

[18]     I decline the applicants’ application for costs against the respondent because the latter appears to me to have no status for the purposes of such order.

Muir J