Sparta13 Contractors Limited v Moeke - [2015] NZHC 1222

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV-2014-463-178 [2015] NZHC 1222

BETWEEN
SPARTA13 CONTRACTORS LIMITED

(In Liquidation) First Plaintiff

VIVIEN JUDITH MADSEN-RIES and HENRY DAVID LEVIN as liquidators of SPARTA13 CONTRACTORS LIMITED (In Liquidation)

Second Plaintiffs

AND

MAHU WIREMU MOEKE First Defendant

MELODY ANN WIREMU Second Defendant

Hearing: 23 March 2015, further submissions received 13 April 2015

Appearances:

K M Wakelin and E E Meade for the Plaintiff

Judgment:

4 June 2015

JUDGMENT OF ELLIS J

This judgment was delivered by me on Thursday 4 June 2015 at 10.00 am pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:………………………….

Counsel/Solicitors:
K M Wakelin, Meredith Connell, Auckland
E E Meade, Meredith Connell, Auckland

SPARTA13 CONTRACTORS LIMITED v MOEKE [2015] NZHC 1222 [4 June 2015]

[1] Sparta13 Contractors Limited (In Liquidation) (Sparta) and its court appointed liquidators bring various claims against the first and second defendants consequent upon the liquidation of the company.

[2] Sparta was incorporated on 30 March 2011. It carried on business providing labour only services in the horticulture industry. The first defendant, Mr Moeke, is a director and shareholder of Sparta. The second defendant, Ms Wiremu, was at all material times a director of the company. Ms Wiremu was not, however, a shareholder.

[3] No statement of defence has been filed by either defendant and the matter proceeded before me by way of formal proof.

Sparta’s insolvency

[4] Sparta ceased trading in May or June 2012. It was placed into liquidation on

24 September 2012, following an application by Inland Revenue made on 27 July

2012. Ms Madsen-Ries and Mr Levin were appointed as liquidators. At the time of liquidation Sparta’s only assets were $11,126.64 in its bank account and its legal claims.

[5] Sparta first defaulted on its PAYE obligations in the period ending 31 August

2011. The following month it also defaulted on its GST obligations. From that time onwards the company was consistently in default in relation to GST and PAYE. Interest and penalties have consequently accrued. Sparta also incurred a penalty for on an income tax default for the period ending 31 March 2012.

[6] No financial statements were ever prepared for the company. The defendants did not keep any accounting records, either. The liquidators have therefore had to use the limited available records to reconstruct the financial position of the company. The key material that has given them insight into Sparta’s financial position are its bank statements and information provided by Inland Revenue.

[7] Mr Levin says that the principal reason for Sparta’s failure to meet its tax

obligations was that the defendants were consistently taking and using funds from

the company for their personal expenses rather than applying those funds for proper purposes, namely accounting to Inland Revenue. He says that, to the extent the funds taken by the defendants gave rise to a debt owed to the company, it had no value.1 In other words, it was not a readily realisable asset that the company could…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2015] NZHC 1222
Decision Date: 4 June 2015

CaseChat Overview and Summary

Sparta13 Contractors Limited, a company in liquidation, and its liquidators brought various claims against the company's directors and shareholders, who are also the defendants in this case. The claims arise from the directors' alleged misappropriation of company funds and the company's failure to keep proper accounting records. The defendants did not file a statement of defence, and the matter proceeded by way of formal proof. The court had to determine whether the defendants should be ordered to repay the misappropriated funds, compensate for the company's losses, and be held personally liable for the company's debts.

The court found that the defendants had indeed taken and used company funds for their personal benefit without proper authorisation. The company's insolvency was a result of the defendants' actions, and liquidation costs had been incurred. The court held that the defendants should be ordered to repay the misappropriated funds under section 301 of the Companies Act 1993. The court also found that the defendants should compensate the company for the interest and penalties incurred due to their actions, as well as the reasonable costs of the liquidation. However, the court did not consider it appropriate to hold the defendants personally liable for the company's pre-existing debts under section 300 of the Act, as the primary cause of the company's insolvency was the misappropriation of funds.

In conclusion, the court ordered the defendants to repay the misappropriated funds and compensate the company for the additional losses and costs incurred due to their actions. The court found that a single cause of action would have been sufficient to achieve this result, rather than the seven causes of action initially pleaded.

Orders