South Canterbury Finance Limited (in rec) v Bennett HC Auckland CIV-2011-404-001841

[2011] NZHC 284

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-001841

BETWEEN  SOUTH CANTERBURY FINANCE LIMITED (IN RECEIVERSHIP) Plaintiff

ANDG C BENNETT Defendant

Hearing:         On the papers

Judgment:      1 April 2011 at 5:00 PM

JUDGMENT OF COURTNEY J

This judgment was delivered by Justice Courtney on 1 April 2011 at 4:30  pm

pursuant to R 11.5 of the High Court Rules.

Registrar / Deputy Registrar

Date……………………….

Solicitors:           Chapman Tripp, P O Box 2206, Auckland 1140

Fax: [phone] – B J Burt / J McMillan

SOUTH CANTERBURY FINANCE LTD (IN RECEIVERSHIP) V BENNETT HC AK CIV-2011-404-001841 1

April 2011

[1]      South  Canterbury  Finance  Limited  (in  receivership)  (SCF)  has  applied without notice for orders freezing the assets of the defendant, Gavin Bennett.

[2]      Mr Bennett is the sole shareholder and director of the DataSouth group of companies.  One of those companies, DataSouth Finance Limited (DFSL), has for some years had an arrangement with SCF under which it entered into equipment leases with customers, SCF would purchase assignments of the leases from DFSL and DFSL would collect payments from customers and pass them on to SCF.

[3]      Accountants BDO Christchurch, have recently undertaken a limited scope review of DFSL’s finance receivables at the request of SCF.  This step was prompted by advice from the Chief Executive Officer of the DataSouth group of companies that there appeared to be irregularities in the leases purportedly assigned by DFSL to

SCF.  BDO Christchurch has reported to SCF that:

There are material differences between the ledger of receivables maintained by SCF and DSFL’s list of active leases, with the number of active leases

significantly less than that advised by DFSL to SCF.

SCF’s receivable ledger amounts to $25,711,829.  In comparison DFSL’s

ledger of assigned leases totals $2,598,825.

There are material discrepancies between SCF’s receivable ledger and what

DFSL’s customers claimed was owed under the leases.

Many of DFSL’s customers contacted by BDO Christchurch claimed that

they either leased no equipment or less equipment from DFSL than reported by DFSL to SCF.

[4]     BDO Christchurch requested an explanation from Mr Bennett for the discrepancies.  In an email response he has provided a substantial list that he says “is a list by deal number, client, origin date, instalment that are not bona fide leases”.

[5]      SCF has brought its application under r 32.2 of the High Court Rules which permits an order known as a freezing order to be made without notice to restrain a respondent  from  removing  assets  located  in  or  outside  New  Zealand  or  from disposing of, dealing with or diminishing the value of, those assets.

[6]      The principles relevant to the grant of a freezing order are summarised in Bank of New Zealand v Hawkins.[1]    An applicant for a freezing order must show a good arguable defence on its substantive claim, the existence of assets within the jurisdiction to which the orders can apply and a real risk that the defendant will dissipate or dispose of assets so as to render himself “judgment proof”.

[1] [1989] 1 PRNZ 451

[7]      SCF asserts that it has a strong claim against Mr Bennett for deceit and monies had and received, evidenced (at the least) by Mr Bennett’s admission of leases that are “not bona fide”.

[8]      Although the leases which are the subject of the claim are owned by DFSL, he is the sole shareholder and director of that company and indeed the other companies in the DataSouth group.  SCF has produced an income tax return for Data South Business Solutions Limited showing $150,000 paid by way of remuneration to Mr Bennett and asserts that, as a result, it is very likely Mr Bennett has one or more bank accounts in New Zealand.  I accept that for the purposes of an application under r 32.2 this level of information is sufficient for me to conclude that there are assets in New Zealand to which an order can attach.

[9]      In terms of the risk of removal of assets or funds, SCF points to the fact that Mr Bennett lives in Sydney and that liquidators have now been appointed to the DataSouth group of companies.   As a result, Mr Bennett has no ready source of income from those companies.   I would add to that the obvious risk that, since Mr Bennett has apparently acknowledged the deceit by DFSL he could reasonably be expected to anticipate action by SCF to recover its losses and to take action to avoid

his assets being affected.

[10]     There is no evidence that any third party who might be detrimentally affected by the making of the orders sought and SCF has given an undertaking as to damages. SCF is, of course, in receivership but the receivers have undertaken that any liability incurred will be a cost in the receivership and therefore paid ahead of any payment to the debenture holder.

Conclusion

[11]     I am satisfied as to the grounds for the orders sought.  I therefore make orders

in terms of the draft orders filed with SCF’s application.

P Courtney J