Solar Bright Limited v Martin

[2019] NZHC 447

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2018-409-000604

[2019] NZHC 447

BETWEEN

SOLAR BRIGHT LIMITED

Applicant

AND

PATRICK MARTIN

First Respondent

AND

NICOLA JANE MARTIN

Second Respondent

Hearing:

28 February 2019

Appearances:

G E Slevin for Applicant

P J Shamy for Respondents

Judgment:

15 March 2019

JUDGMENT OF OSBORNE J

(on application under s 141 Companies Act 1993)

Introduction

[1]    On 11 January 2018, Solar Bright Ltd (Solar Bright) was the owner of an invention relating to an ice warning device for roads, the subject of granted patents, patent applications and trademarks and commonly referred to as “PATeye”. That day, the second respondent, Nicola Martin, as the managing director of Solar Bright, executed a deed whereby all Solar Bright’s right, title and interest in PATeye was assigned to Ms Martin’s husband, Patrick Martin, who had been a director of Solar Bright until he resigned on 20 December 2017.

SOLAR BRIGHT LIMITED v PATRICK MARTIN [2019] NZHC 447 [15 March 2019]

[2]    On 21 January 2018, Ms Martin also resigned as a director. Those associated with other shareholder interests in Solar Bright appointed John Walley and Murray Spackman as directors of Solar Bright on 14 February 2018.

[3]    In the meantime, the other shareholders had had disclosure that the PATeye assignment had been made.

[4]    On 23 March 2018, the Board of Directors of Solar Bright passed a resolution avoiding the assignment transaction pursuant to s 141 Companies Act 1993.

This proceeding

[5]    By this proceeding, Solar Bright seeks a declaration as to the validity of its avoidance of the assignment transaction. It also seeks consequential directions requiring the respondents to restore the position to what it had been.

[6]    Solar Bright, at the start of this hearing, obtained upon argument, leave to proceed pursuant to r 19.5 of the High Court Rules.

The subject-matter of the litigation – PATeye

[7]    PATeye is, as stated, an invention for ice detection and warning with associated patents, patent applications and trademarks.

[8]    As described by Ms Martin, both PATeye and another invention, DATAeye, were “the brain children of Mr Martin”. PATeye had been transferred into Solar Bright when Mr Spackman and others invested and became involved in Solar Bright. DATAeye was subsequently conceived but is not nearly as developed as PATeye.

[9]    Mr Spackman has deposed that Solar Bright intended to create and commercialise intellectual property. The products normally sold were related to lighting or solar powered products. The intellectual property and patents themselves were not ordinarily sold. In her evidence, Ms Martin refers to the PATeye revenue as having been very low given that it was in the research and development phase, with revenue being between $20,000 and $40,000 per annum. Documents dating from

2017 were produced in order to attract investors to Solar Bright. Those documents indicated that the company was building its future on three foundational pillars: being a patented product portfolio, a product pipeline and a breadth and depth in its products and markets.

[10]   During 2017, issues arose between the shareholders and also the directors as to the future operation of Solar Bright given its level of sales and its need for further cash injection. Those involved in Solar Bright explored the possible sale of assets. Mr Spackman’s resignation from the Board on 27 November 2017 can be seen as having occurred in that context. So too, did Solar Bright’s assignment of PATeye (through Ms Martin) to Mr Martin.

The avoidance of transactions

[11]Section 141 Companies Act 1993 provides:

141     Avoidance of transactions

(1)A transaction entered into by the company in which a director of the company is interested may be avoided by the company at any time before the expiration of 3 months after the transaction is disclosed to all the shareholders (whether by means of the company’s annual report or otherwise).

(2)A transaction cannot be avoided if the company receives fair value under it.

(3)For the purposes of subsection (2), the question whether a company receives fair value under a transaction is to be determined on the basis of the information known to the company and to the interested director at the time the transaction is entered into.

(4)If a transaction is entered into by the company in the ordinary course of its business and on usual terms and conditions, the company is presumed to receive fair value under the transaction.

(5)For the purposes of this section,—

(a)a person seeking to uphold a transaction and who knew or ought to have known of the director’s interest at the time the transaction was entered into has the onus of establishing fair value; and

(b)in any other case, the company has the onus of establishing that it did not receive fair value.

(6)A transaction in which a director is interested can only be avoided on the ground of the director’s interest in accordance with this section or the company’s constitution.

[12]   The avoidance of transactions under s 141(1) of the Act must occur within three months after the transaction is disclosed to all the shareholders. Solar Bright, under its new directors, complied with that requirement.

[13]   It is common ground between the parties that Ms Martin had an interest in the transaction.

[14]Thus in this proceeding, there arise only two questions:

(a)First, under s 141(4) – was the transaction entered into by the company in the ordinary course of its business and on its usual terms and conditions? If so, the company is presumed to have received fair value under the transaction.

(b)Secondly, under s 141(2) – did the company receive fair value under the transaction? If s 141(4) applies, fair value is presumed to have been received. If it does not apply, fair value is to be determined under s 141(3) on the basis of the information known to the company and to the interested director at the time the transaction was entered into.

[15]Those are the two questions to be determined.

[16]   Section 141(5) deals with the onus of proof in relation to the question of fair value. It is common ground in this case that the onus of establishing fair value is upon the respondents if they were not engaged in a transaction in the ordinary course of Solar Bright’s business according to its usual terms and conditions.

The nature of the transaction – in the “ordinary course of business”?

What Solar Bright did on 11 January 2018

[17]   On 11 January 2018, Solar Bright (through Mrs Martin as managing director) entered into an “intellectual property deed of assignment” with Mr Martin. By the

deed, the parties acknowledged that Solar Bright owned the PATeye invention and was assigning and transferring all its right, title and interest in the PATeye invention to Mr Martin. The assignment was immediately effective.

Consideration for the assignment?

[18]The parties did not in the deed record any consideration for the assignment.

[19]   However, Mr and Mrs Martin produced Minutes of a meeting on 19 December 2017 attended by the two of them alone (the day before Mr Martin resigned as director of Solar Bright).

[20]In one item of the Minutes they recorded:

… we will need to try and sell assets being the lesser value than 50% of assets in SBL, sold the van and forklift for fair value. Any intangibles to at least put/keep some funds in the business to pay for creditors/staff back-pay etc, .… NM to do this action asap it was thereforem (sic) agreed and seconded by Pat Martin being a management decision in the best interests of the company. PATeye currently on B/S is $110K being 20% of the total assets of SolarBright and not a revenue stream SBL can depend, plus given Pat is the only person with knowing the technology it would be difficult to now sell to any third party given Pat isnt (sic) working nor a Director of SBL, therefore it was agreed and passed that Pat purchase the PATeye IP back after initially selling to SBL for

$1. Given both founders Pat & Nicola Martin have not been paid which again is an illegal action and Nicola as Director needs to act in best interests. Given the total of Nett Pay is around $55K being half value of assets then – it was agreed and passed Pat & Nicola will in-lieu of back payment use there (sic) non payment of salary as payment for the IP for PATeye. Deed of Assignment (sic) to be arranged.

[21]The next item in the Minutes recorded:

It is therefore, with regret we liquidate in the New Year, Nicola to sort court order by a Director to Liquidate – given again PVL willingness to “do nothing”…

[22]The final item in the Minutes recorded:

No AGM will be held – Liquidator will inform creditors and shareholders of event.

[23]   It is common ground between the parties that Solar Bright’s trading had been such that Mr and Mrs Martin were, as employees, owed back-pay. But it transpired

that by the time of this hearing neither Mr nor Mrs Martin had by any document or other evidence surrendered any part of their entitlement to back-pay. On the contrary, Mr and Mrs Martin had each filed applications with the Employment Relations Authority (ERA). In each application they sought (amongst other relief):

Payment of All outstanding salaries, holiday pay, arrears and 4 weeks in lieu immediately.

[24]   Mrs Martin in her evidence acknowledged that the claims before the ERA continued to be for all the back-pay (arrears) owing to each of the Martins. She indicated that that was a mistake on her part as the claims should not have included the back-pay that was intended to be used, as the 19 December 2017 Minutes recorded, as “payment for the IP for PATeye”. Mrs Martin went on to state that since filing the ERA claims she has realised she overlooked claiming for other financial entitlements which Mr and Mrs Martin had in relation to the earlier development phase at Solar Bright. Mrs Martin indicated that, although those entitlements had been earlier written out of the accounts, they remained entitlements which she and her husband could claim.

[25]   Accordingly, the Martins’ ERA claims at the date of this hearing continued to include all back-pay. That might be argued to mean that, at the date Solar Bright moved to avoid the transaction, there had been a total failure of consideration. However submissions were not directed by either party on such a proposition. Evidence which may be relevant to the question of consideration was only partly developed in the supplementary evidence given by Mrs Martin.

[26]   In the circumstances, I refrain from further consideration of the implications of the Martins’ claims for all arrears of pay remaining alive.

Solar Bright’s case as to the nature of the transaction

[27]   Solar Bright asserts that the transaction was not entered into by the company in the ordinary course of its business and on its usual terms and conditions.

[28]   For Solar Bright, Mr Slevin submitted that Solar Bright’s ordinary course of business was the development of intellectual property through creation and

commercialisation and the sale of products from that intellectual property. Solar Bright relies on evidence documenting the company’s intentions. Those include the document referred to at [9] above in which the company was stated to be building its future on three foundational pillars, being a patented product portfolio, a product pipeline and a breadth and depth in its products and markets.

[29]   Solar Bright relies also upon an “Investor Deck” document, produced in order to attract potential investors in Solar Bright. In that document, reference was made to Solar Bright’s intellectual property. The company made these statements:

REPEAT INNOVATION:

WE INNOVATE CONTINUOUSLY, A CRUCIAL SKILL FOR ENSURING LONGEVITY IN FAST MOVING TECHNOLOGY MARKETS.

Pat Martin, our founding Director, is a prolific generator of IP

…

With a pipeline of additional product concepts that complement the current portfolio, Solar Bright is well positioned to leverage its IP platform.

[30]   Mr Slevin submitted that there was no suggestion in the company’s documents, either in the Investor Deck or elsewhere, that the company was in the business of developing and selling its intellectual property.

[31]   Solar Bright’s main evidence was provided by Mr Spackman. Mr Spackman deposed:

11.The ordinary course of business for SBL involved the sale of products that had been developed by employees of SSL. Some of these products were patented by SBL, which provided added value for SBL The object of SBL was to create and commercialise intellectual property for the benefit of shareholders from efforts by the employees and the sale of products developed from that intellectual property. The products normally sold were related to lighting or solar powered products. The Investor deck provided in early 2017 shows the range of products being looked at. A copy is attached and marked “I”.

12.SBL’s ordinary course of business did not involve selling its patents or intellectual property, let alone for less than the amortised cost of their development. That would not have been a viable business model and no-one would have invested in it. The proposed sale of the IP to new investors was simply a last-resort effort to recover some value for the shareholders, who had invested more than $2.3m between 2013

and 2017 at $750/share. It was only contemplated because no-one was prepared to inject the further capital the company needed to commercialise the PATeye and DATAeye inventions.

13.The 31/1/18 balance sheet records that SSL had total liabilities of

$848929 which could not be met following the transfer of the PATeye IP to Pat Martin, that being the main item of intellectual property showing in SBL’s accounts.

14.The current directors (being myself and John Walley) contend that the 31/1/18 balance sheet does not accurately reflect the liabilities of SBL

– as at 31/1/18, because the Martins had journaled a transaction converting a loan from Powerhouse Ventures Ltd of $675,750 to share capital, without the necessary approval of Powerhouse Ventures Ltd.

[32]   Solar Bright also relies upon the way in which the company had begun to generate revenue from product sales, Mrs Martin herself having acknowledged in her evidence that the PATeye product was being sold and had been generating sales revenue of $20,000 – $40,000 per annum.

The Martins’ case

[33]   For Mr and Mrs Martin, Mr Shamy referred particularly to the Privy Council’s discussion of the phrase “in the ordinary course of business” in Countrywide Banking Corporation Ltd v Dean.1 While that case concerned the use of the phrase in the context of voidable transaction provisions under the 1955 and 1993 Companies Acts, both Mr Shamy and Mr Slevin accepted that their Lordships’ discussion had application in this case to the test under s 141 Companies Act 1993.

[34]   Mr Shamy noted passages in the Privy Council’s opinion, written by Gault J, which emphasise that the determination of whether a payment was or was not made in the ordinary course of business requires examination of the actual transaction in its factual setting. The determination is to be made objectively by reference to the standard of what amounts to the ordinary course of business. While there was to be reference to business practices in the commercial world in general, the focus must still be the ordinary operational activities of businesses as going concerns, not responses to abnormal difficulties.2

1      Countrywide Banking Corporation Ltd v Dean [1998] 1 NZLR 385 (PC).

2      At 394 – 395.

[35]   Mr Shamy, against the background of the Privy Council’s approach, submitted that he could address “the ordinary course of business” in relatively simple terms. This part of his submission was contained in three paragraphs:

… there are clear factual disputes as to what was in the ordinary course of business of [Solar Bright] and whether value was given.

The transaction from the Martin’s (sic) point of view was entered into to reduce the debt that was owed to them by way of unpaid wages/salary, so fair value was given as far as they are concerned.

It is the business of a company to reduce debt.

[36]   In his oral submissions, Mr Shamy referred in particular to a passage in the Privy Council’s opinion which speaks of exceptional situations. Gault J, referring to s 266 of the 1955 Act (the predecessor of s 292 of the 1993 Act), stated:3

The section therefore requires examination of the actual transaction in its factual setting (excluding the intent or purpose of the company save as required by subs (4)). Because the examination is undertaken objectively by reference to the standard of the ordinary course of business, there may be circumstances where a transaction, exceptional to a particular trader, will none the less be in the ordinary course of business - as for example its first transaction of a particular type. It may be that transactions undertaken in the past will, because of changed circumstances, no longer be considered as in the ordinary course of business. The payment of some accrued indebtedness may be within the ordinary course of business as may the payment of moneys owing under a lease to secure a lessor’s consent to an assignment of the lessee’s interest. The particular circumstances will require assessment in each case.

[37]   Mr Shamy submitted that the Court should examine the present transaction by reference to how Solar Bright was operating at the time. He noted that sales of product had been selling on only a modest scale (Mrs Martin referring to sales of $20,000 –

$40,000 per annum). Mr Shamy pointed to evidence indicating that the company had been having some form of difficulty in fully commercialising the PATeye product. He submitted that on the evidence it was clear that the DATAeye product had not yet been commercialised at all.

3      At 394.

[38]   Against this background, Mr Shamy submitted that, as with any company facing indebtedness, this company was in a position that it needed to compromise its debts.

Discussion

[39]   The transaction which the Martins had Solar Bright enter into from December 2017 was plainly not in the ordinary course of Solar Bright’s business.

[40]   That conclusion flows from the nature of Solar Bright’s intended business as evidenced by the contemporary documents adduced in evidence and from the nature of the transaction, involving as it did the disposal of Solar Bright’s most important asset at the time.

[41]   A faithful application of the Privy Council’s discussion in Countrywide Banking Corporation Ltd v Dean makes my conclusion inevitable.

[42]   First, in relation to the identification of the ordinary business of the company in question, the Privy Council rejected the invitation to focus on whether a transaction might reasonably take place in some business setting. Gault J recorded:4

Their Lordships do not accept, as submitted for the appellant, that the test is general in the sense that it would be satisfied so long as it can be said that the transaction is one which might reasonably take place in some business setting. To abstract the particular business setting and inquire (in effect) merely whether it is possible to envisage a setting in which the transaction would be an ordinary one is not what the statute requires. In that situation the intent and purpose of the company would never have relevance yet s 266(4) specifies circumstances in which they are to be taken into account.

[43]   In this case, it is established on the evidence that Solar Bright was intended to take on and develop intellectual property products and to leverage off that development of intellectual property by selling products. The payment of debt – a usual enough activity in the business of any trading enterprise – cannot be viewed on its own as “the transaction” in this case. The transaction involved was the assignment of Solar Bright’s major asset (with the apparent intention that a wages debt would be written off in return).

4      At 394.

[44]   The way in which Mr and Mrs Martin recorded their intentions in the 19 December 2017 minutes clearly evidences the successive steps they planned – disposal of PATeye to Mr Martin; Mrs Martin to arrange liquidation of Solar Bright.5 There was no intention to put the company in a position to trade on – the steps taken were in the context of a liquidation.

[45]   The Martins’ transaction is parallel to the fact situation in Countrywide Banking Corporation Ltd. There, the Privy Council, in returning to the facts, concluded:6

In the present case, on the finding of Cartwright J at first instance, the payment was made when, to the knowledge of the lessor, it was part of the transaction by which the company was disposing of its business. Their Lordships consider it was entirely open to the Judge to find that in the circumstances the payment was not in the ordinary course of business. Equally, the view was open to the Court of Appeal that the payment, made up as it was including long-standing arrears, when made was not in the ordinary course of business.

[46]Here, the transaction was equally not in the ordinary course of business.

[47]   The onus of establishing the fair value of the transaction accordingly shifts to the respondents.

Fair value

The sum adopted by the Martins

[48]   Mrs Martin, who has given the evidence for the Martins, has not explained the means by which the Martins calculated the “around $55K” as the sum (representing arrears of salary) to be given up by the Martins in return for the assignment of PATeye.

[49]   Mrs Martin made two documentary records of the arrangement. First, she referred to it in the 19 December 2017 Minutes of her meeting with Mr Martin (above at [20]). There she recorded that she and her husband had agreed that the net pay of around $55,000, being half value of assets, would be used “in lieu of back-payment”.

5      Above at [20] – [22],

6      At 395.

[50]   Secondly, Mrs Martin produced an invoice dated 18 December 2017 addressed by Solar Bright to Mr Martin. The invoice referred to PATeye as the item being sold to Mr Martin and recorded the “Unit Price” as $53,381.64 (including GST). That sum was stated in the invoice to be made up of two smaller sums representing “Nicola Martin in lieu of salary” and “Patrick Martin in lieu of salary” respectively.

The Martins’ case

[51]   As the Martins have the onus of establishing fair value, I begin with their case in relation to fair value.

[52]   Mrs Martin deposed that she believed the transfer of PATeye was for a fair market value based on what was owed to her husband and her.

[53]   She then referred to evidence she had provided in the other proceeding between the parties. She continued:

16.As I have detailed in my affidavits in the 83 proceeding, PatEye had nowhere near the value that has been given to it by PVL and SBL in both these proceedings and in the 83 proceedings. I have described the value as a mere “puff”. It was very much an optimistic offer to sell PatEye to the Canadian company.

17.PatEye is still very much in a research and development stage, and importantly the input of the first respondent is very much required in its continuing development.

18.That firstly there has been no formal valuation of PatEye, it is remarkably difficult to value something like PatEye. That it has been estimated to me that it would cost over $20,000.00 to have that done. However more importantly at the time of the transfer of the patent, I formed the view as a director of SBL, that it was in total less than 50% of the total assets and accordingly was not a major transaction.

19.I note that in the balance sheet of SBL as at the 31st January 2018, that a value of $305,348.00 is put on “total intangibles”. PatEye makes up   $110,896.00   of   that   value.  The   total   assets   are   noted as

$633,584.00. Accordingly the percentage is only 18%.

20.In Mr Stewart Witham’ affidavit filed in the 83 proceedings, he refers to the March 2017 accounts showing PatEye as worth $315,243.00. However there was a coding error that the person who was employed by SBL to do the accounts picked up, and most of that value was R &

D. This accordingly should have been coded as R & D and attributed to that account. This meant that the actual IP cost was $110,896.00.

The Create IP invoicing for PatEye was similar, approximately

$110,000.00.

21.In my first affidavit in the 83 proceedings I refer to the annual financial report for PVL which was prepared by its auditors Ernst & Young as at the 30th June 2017. This was some six months prior to the transfer, and SBL in total was valued by Ernst & Young at approximately $200,000.00 or jointly with another company called Motim at $540,000.00. I understand that Motim is slightly larger than SBL with a higher turnover.

22.As I have noted above and indeed I referred to in my first affidavit filed in the 83 proceedings, my husband and I were owed a considerable amount by SBL. I refer to that in my first affidavit, in the sum of $479,891.94.

23.I also note that valuations can be done on revenue. The PatEye revenue was very low given it was still in the R & D phase and the revenue achieved for PatEye was not significant to SBL’s turnover at all, it was between $20,000.00 and $40,000.00 per annum.

24.I know that there has been no formal valuation obtained by SBL nor for that matter PVL in either of these proceedings. They seem to rely heavily on a letter that was written. It seems however that PVL does not see the value as it stated in the 83 proceedings, as it is no longer interested in pursuing the return of this patent. As the Court will note it is seeking to discontinue its involvement, and these current proceedings are apparently brought solely by SBL.

25.For completeness I refer again to my first affidavit in the 83 proceedings, and note that I attached minutes from the meeting on the 19th December 2017 referring to the transaction, they also refer to an invoice from SBL to myself and my husband (in lieu of salaries), this is at page 296, at page 297 I refer to the resolution of the directors declaring our interest pursuant to s140 of the Companies Act, and at page 330 I refer to the PatSnap online website valuation, as not a proper valuation.

26.I annex marked “A” to this affidavit correspondence with Ever Edge which notes that valuing intellectual property is not something an accountant can simply do.

[54]   For the Martins, Mr Shamy first observed that there appeared to have been a significant change in the assessment of PATeye’s value as advanced by Solar Bright (and Powerhouse Ventures Ltd) in this and the related proceedings. Mr Shamy commented, accurately, that the original suggestion of the other parties was that PATeye was worth millions of dollars. Solar Bright, in its evidence filed in this proceeding, did not adduce valuation evidence from an expert. To the extent that Mr Spackman produced any evidence purporting to be a valuation, it was a one-page conclusory document, referred to as an “on-line valuation”. It ascribed a total value

of US$1,130,000 to the “road marker”. Mr Spackman did not refer to any other valuation.

[55]   Mr Shamy further submitted that in the absence of a proper valuation on behalf of Solar Bright, Solar Bright is not in a position to rebut the Martins’ evidence or to prove that fair value was other than what was “paid for it”.

[56]   Finally, Mr Shamy emphasised that, under s 141(3) of the Companies Act 1993, fair value is determined on the basis of the information known to the company and to the interested director at the time the transaction is entered into. Mr Shamy noted that Mr Martin was the director who was intimately aware of the value which could be attributed to PATeye as an asset still in the early stage of research and development. Mr Shamy submitted that:

The evidence from the response from the Martins is quite clear on the worth of this particular asset.

[57]   In answer to questions from the Bench, Mr Shamy noted that Ms Martin had in her evidence explained the absence of an expert valuation. The explanation lay in the fact that she had received an estimate that it would cost over $20,000 to obtain a formal valuation of PATeye.7

[58]   Mr Shamy further submitted that it was for the Court to make the decision as to the value of PATeye upon the evidence filed, with nothing in s 141 of the Act requiring there to be an independent or expert valuation. In Mr Shamy’s submission, Mr Martin’s personal knowledge of PATeye meant that the Martins were entitled to rely on Mr Martin’s conclusion as to valuation.

Solar Bright’s position

[59]   For Solar Bright, Mr Slevin emphasised that, once the Court holds as I have that this transaction was not entered into in the ordinary course of the company’s business, then the onus was upon the Martins to establish the fair value of the transactions.

7 Mrs Martin’s affidavit, paragraph 18, as set out at [53] above.

[60]   Mr Slevin submitted that on the evidence the Court should conclude that the Martins had provided no value at all in return for the assignment of PATeye.

[61]   Mr Slevin alternatively submitted that, if the Court were to regard the invoiced sum of $53,381.64 as having been provided, then the evidence of Solar Bright’s financial statements and dealings established that PATeye’s value was beyond

$53,381.64 which the Martins were invoiced. Mr Slevin referred in particular to evidence establishing that the $110,000 which Mr and Mrs Martin identified in the financial statements as the balance sheet value of PATeye in December 2017 was arrived at only after Mrs Martin had purported to correct what she described as a “coding error”. She had thereby purported to reduce the book value of $313,243 attributed to PATeye in the 31 March 2017 accounts. Mr Spackman gave evidence as to why the recoding is not accepted by Solar Bright. He also referred to offers which had been made, including with the Martins’ approval, to sell or license PATeye for sums in excess of $53,381.64.

Discussion

[62]   Mr and Mrs Martin have failed to discharge the onus of establishing the fair value of the transaction.

[63]Their failure is for a number of reasons:

(a)Even were the Martins to have established the fair value of PATeye as being the (newly arrived at by Mrs Martin) book value of $110,000, the consideration which they purported to offer ($53,381.64) is less than 50 per cent of that value.

(b)While some of the material relied on by each side would potentially be relevant to an informed valuation of PATeye, none of that information either individually or collectively is such that this Court is able to reliably assess the fair value of PATeye in the absence of expert evidence. The valuation of this cutting-edge technology, which appears to be in a relatively early stage of commercialisation, would plainly be an exercise of complexity. Not only would the valuer need to be

informed with a technical understanding of the technology and the stage its development has reached, the valuer would also need detailed evidence of market penetration to date, revenue created and the likely capital and other costs involved in gearing up. Ironically, Mr and Mrs Martin in the limited evidence they have provided as to value, have identified the difficulty of the valuation task involved. They valuer they approached (who provided the $20,000 estimate for a valuation) identified the insufficiently understood role of intellectual property rights and intangible assets in business. The valuer continued that traditional service providers (such as accountants, lawyers and patent attorneys) are ill-equipped to provide meaningful valuation of intellectual property rights due to a lack of domain expertise, skills and contextual knowledge. The valuer observed that an incorrect analysis of detail can mean differences of two or more orders of magnitude (that is, an error ranging between $10,000 up to $1,000,000). It is not for this Court, in the absence of satisfactory valuation evidence, to posit a figure. The legislative framework is that it is for the interested director to establish the fair value which they assert. Mrs Martin has not by her evidence established a particular value.

[64]   The Martins have not established the fair value exception which is available under s 141(2) of the Act.

[65]Solar Bright’s avoidance of the transaction was accordingly valid.

[66]   Solar Bright is entitled to the declaration and consequential directions which it seeks.

Costs

[67]   Counsel did not address me on costs issues. Costs would normally follow the event on a 2B basis. In the event that the parties do not agree on costs and disbursements, the directions below will apply.

Orders

[68]I order:

(a)There is a declaration that the transaction entered into by Solar Bright Ltd (Solar Bright) whereby certain property of Solar Bright was assigned to Patrick Martin, was validly avoided by Solar Bright under s 141 Companies Act 1993 on 23 March 2018.

(b)The following directions apply:

(i)Patrick Martin shall complete, execute and lodge with the appropriate all documents required to cause all and any patents for the property currently registered in his name to be transferred to and registered in the name of the Solar Bright within five working days of the date of judgment or such additional time as the Court may direct;

(ii)The Registrar, in the event of Patrick Martin’s failure to comply with order [68](b)(i), to execute on behalf of Patrick Martin any documents that may be required to give effect to order [68](b)(i), on request by Solar Bright;

(iii)Patrick Martin and Nichola Martin shall deliver up to Solar Bright all data storage devices and documents of any kind relating to the property;

(iv)Patrick Martin and Nichola Martin shall deliver up to Solar Bright all other property of the company in their possession or under their control;

(v)Patrick Martin and Nichola Martin shall transfer the registration of the domain names and from the name of PJ and NJ Partnership Limited or any other name controlled by either of them; and

(vi)Patrick Martin and Nichola Martin shall deliver up to Solar Bright all usernames, passwords, access codes and the like relating to any computers or other electronic devices and any Solar Bright (or SBL) email addresses or subscriptions of any kind relating to the business of Solar Bright that are within their knowledge, possession or control.

(c)Leave is reserved to Solar Bright to seek further directions on two working days’ notice.

(d)The costs and disbursements of the proceeding are reserved. Any application for costs and disbursements is to be made by memorandum filed and served within 10 working days (five page limit) and is to be replied to within five working days after service (five page limit). In the event that no memorandum is received as to costs within five working days the order of the Court (without further direction) will be that there is no order as to costs.

Osborne J

Solicitors:

Waimak Law (2017) Ltd, Christchurch St Martins Law, Christchurch