Spinach Design Ltd v Property Ventures Ltd (in rec and liq)
[2012] NZHC 3594
•21 December 2012
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2012-409-001605 [2012] NZHC 3594
BETWEEN SPINACH DESIGN LIMITED Applicant
ANDPROPERTY VENTURES LIMITED (IN RECEIVERSHIP AND LIQUIDATION) Respondent
Hearing: 12 November 2012 (Heard at Christchurch)
Appearances: KW Clay for Applicant
K P Sullivan for Respondent
Judgment: 21 December 2012
JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to setting aside a statutory demand]
[1] Property Ventures (the respondent company) was the central company of the property development ventures formerly controlled by David Henderson of Christchurch.
[2] An order was made putting Property Ventures into liquidation on 27 July
2010. Robert B Walker, a Wellington chartered accountant was appointed liquidator. The order was stayed pending an appeal by Property Ventures to the Court of Appeal. Property Ventures subsequently withdrew its appeal and the liquidation proceeded.
[3] A considerable number of “Henderson companies” joined Property Ventures
in liquidation. Mr Walker is the liquidator of a number of them.
[4] After some resistance from those involved with the documents of Property
Ventures and related companies, Mr Walker deposes that he was able to obtain
SPINACH DESIGN LIMITED V PROPERTY VENTURES LIMITED (IN RECEIVERSHIP AND LIQUIDATION) HC CHCH CIV-2012-409-001605 [21 December 2012]
relevant records including the general ledgers and some bank statements. He was then able to track a number of payments which he considered Property Ventures should recover.
[5] He caused Property Ventures (in receivership and in liquidation) to issue statutory demands in relation to particular payments.
[6] This case concerns one of those demands, being a demand served on Spinach
Design for $12,206.25.
[7] Spinach Design applies to set aside the demand. At the same time as hearing this application, I heard a parallel application by Gibbston Downs Wines Ltd in relation to which I am contemporaneously delivering a separate judgment (Gibbston Downs Wines Ltd v Property Ventures Ltd (in receivership and liquidation)).[1]
The approach to the setting aside jurisdiction
[1] Gibbston Downs Wines Ltd v Property Ventures Ltd [2012] NZHC 3592.
[8] The Court’s jurisdiction to set aside a statutory demand is contained in s 290
Companies Act 1993. I refer specifically to the basis upon which the Court may grant an application as contained in s 290(4) which provides:
290 Court may set aside statutory demand
…
(4) The Court may grant an application to set aside a statutory demand if it is satisfied that—
(a) There is a substantial dispute whether or not the debt is owing or is due; or
(b) The company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c) The demand ought to be set aside on other grounds.
[9] For the purposes of this hearing I adopt as a general approach to the exercise
of this jurisdiction these 5 principles –
The applicant must show that there is arguably a genuine and
substantial dispute as to the existence of the debt.
The mere assertion that the dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is
disputed.
If such material is available the dispute should normally be resolved
other than by means of proceedings in the Court’s Companies Act
jurisdiction.
An applicant must establish that any counterclaim, cross demand or
set-off is reasonably arguable in all the circumstances.
It is not usually possible to resolve disputed questions of fact on
affidavit evidence alone, particularly when issues of credibility arise.
[10] For this formulation of the applicable principles, I acknowledge the editors of
Brookers Insolvency Law and Practice, CA290.02(1).
Spinach Design’s grounds of application
[11] Spinach Design identified two specific grounds:
(a) A substantial dispute as to whether or not the debt specified in the demand is owing or due;
(b)Property Ventures’ liquidator has no authority to issue the statutory demand.
The liquidator’s authority in relation to the statutory demand
[12] I am dealing with the liquidator’s authority in relation to statutory demands issued by Property Ventures in the separate judgment contemporaneously delivered today.[2]
[2] Gibbston Downs Wines Ltd v Property Ventures Ltd [2012] NZHC 3592 at [42]-[49].
[13] For the reasons contained in that judgment I am satisfied that the statutory demand issued (in this case and the other case) by Property Ventures Ltd (in receivership and liquidation) is valid. The debt claimed is that of Property Ventures. The demand made is not that of the liquidator but is of Property Ventures. The fact that the debt in question will not become a debt of the liquidation does not preclude Property Ventures (under the hand of the liquidator) making demands for payments of debts owing to the company. The Court can look to the liquidator (and, indeed, the receivers) to properly complete matters of accounting for monies received as between the company and the receivers on the one hand and the company and its body of unsecured creditors on the other.
The subject matter of the demand
Spinach Design and Ms Buxton
[14] Kristina Buxton was, and is, the sole director and shareholder of Spinach Design. She has been similarly associated with a substantial number of what may be (arguably inaccurately) called “Henderson companies”. Ms Buxton is the partner of Mr Henderson.
[15] Mr Walker produced a Companies Office Register search of companies of which Ms Buxton has been a director or shareholder or both. They are 59 in number, including Spinach Design of which she remains director. Ms Buxton has noted that
in May 2009 she was the director of only 10 of them.
[16] Ms Buxton has deposed that Spinach Design was incorporated for her own business purposes in 2006, with the intention of undertaking the interior design work for the bars and restaurants in the SOL Square hospitality precinct in Christchurch. Ms Buxton says that she has a diploma in interior design from London. She says that Spinach Design did not ultimately receive any payment for such services.
[17] The bank account statements of Property Ventures record that on 12 May
2009 Property Ventures made a payment of $12,206.25 to Spinach Design.
[18] The liquidator identified the payment to Spinach Design through Property Ventures’ bank statements. The liquidator says that he deduced that Ms Buxton would have a working knowledge of the company accounts of Spinach Design and, from her close relationship to Mr Henderson, would have an understanding of what the payments made by Property Ventures to Spinach Design would be for.
[19] The liquidator, after finally obtaining the records of Property Ventures, first discovered the existence of the payment around June 2012.
[20] He immediately wrote to Ms Buxton explaining his position and his role in investigating the affairs of Property Ventures. Pursuant to s 261 Companies Act
1993 he requested three categories of information as follows:
A description of Ms Buxton’s relationship with the Company
All records and documents that support the payment of $12,206.25 made to Ms Buxton by the Company on 12 May 2009
Any other information that is relevant to the liquidator’s understanding of the Company’s affairs
[21] He received no response to that request.
[22] He then sent Spinach Design (through Ms Buxton) a letter making immediate demand for the $12,206.25. He took the view that as there was no record of Spinach Design being a creditor of Property Ventures the monies appeared to have been an unsecured advance. He therefore discounted the other option available to him which was to seek repayment as an insolvent transaction.
[23] Ms Buxton then caused her solicitors to write to the liquidator in July 2012. She did not respond to the liquidator’s June questions. Instead, she requested copies of the records and documents supporting the assertion of a payment of $12,206.25 from Property Ventures to Spinach Design.
[24] The liquidator issued the statutory demand the next day.
[25] The liquidator explains his failure to provide Ms Buxton such records as he had to Ms Buxton before he issued a statutory demand. He says that because of the involvement and positions of Ms Buxton and Mr Henderson, Ms Buxton could have been expected to be the person with the best knowledge and access to details of the payment.
[26] For her part, Ms Buxton has said in her affidavit that Spinach Design seeks details as to the basis upon which Property Ventures asserts that the sum is owing. She explains that all her banking records and business records associated with Spinach Design were situated in a property in Lichfield Street, Christchurch. She says she does not have access to Spinach Design’s banking records. She refers to two difficulties, namely a seizure of business records by the police in April 2011 and latterly the demolition of the building. She deposes that she has been endeavouring to obtain copies of the relevant banking records and would then be able to identify whether the funds were in fact received by Spinach Design and, if so, for what purpose. She deposes that it is most unlikely that they were paid for the benefit of Spinach Design but, rather, would have been paid for the benefit of another party. She stated that when the records were obtained, she would file a further affidavit. She assumes that, if the liquidator is able to obtain all the relevant bank records, they will show what account the funds were paid into and what the funds were utilised for.
[27] The single banking record available confirms that the money was paid by Property Ventures to Spinach Design as asserted by the liquidator. In the usual way of bank statements, the statements do not show what the funds were utilised for.
The “sanctuary for hiding money”
[28] The only other document produced contains an email exchange identified by the liquidator in a review of the emails of Property Ventures. It is of some significance.
[29] On 5 May 2009, Property Ventures’ in-house accountant at Property Ventures, Ying Hu, and Property Ventures’ business development manager, Daniel Godden, and Mr Henderson were involved in email exchanges. This was exactly one week before the payment in question. It appears to be part of an exchange which was apparently taking place with regard to the financial commitments of various companies associated with Mr Henderson.
[30] An exchange of emails commences with Ying Hu advising Daniel Godden –
Just let you know Spinach incurred $254.11 GST to pay for Feb/Mar period due on 7/05/09.
…
Still waiting for the funds transferred from PVL. The funds are not coming yet.
[31] In response to this email, Daniel Godden sends an email to Mr Henderson which reads:
This money was for Minx.
I have been left short of $40k from a GST refund. So I am now trying to get
this open on 50% of the original amount …
It’s kind of impossible to work with. Spinach was my last sanctuary for hiding money.
[32] Mr Henderson then sends a reply to Daniel Godden. It reads:
No one told me. I will fix.
[33] The subject of all emails is “Spinach”. Having regard to the timing of this exchange concerning Spinach (one week before the payment by Property Ventures to Spinach) the unavoidable inference is that a purpose of the payment to Spinach being discussed was to place Property Ventures’ money with Spinach Design.
[34] Understandably, the liquidator deposes that Mr Godden’s reference to the
“last sanctuary for hiding money” was of considerable concern to him as liquidator.
[35] Ms Buxton replied to that evidence. She said in relation to the relevant passage in Mr Walker’s affidavit –
This e-mail exchange in fact confirms my position that the Spinach account was being used as a clearing house for making payments on behalf of other parties.
I understand that Mr Godden’s reference to “hiding money” is a reference to
hiding it from Mr Henderson.
[36] The second sentence I have quoted, purporting to be Ms Buxton’s “understanding”, is unattributed hearsay. There is no proper basis for admitting it in evidence and I disregard it. As it is, the understanding scarcely makes sense given that the person from whom Ms Buxton says Mr Godden was supposedly hiding money was the very person to whom he was writing the email.
[37] The first quoted sentence of Ms Buxton’s reply evidence (above [35]) introduced a concept of the Spinach Design bank account as “a clearing house for making payments on behalf of other parties".
[38] To support that statement, Ms Buxton filed an affidavit from Daniel Godden (the Property Ventures’ business development manager involved in the email exchange on 5 May 2009). He deposes that he had been involved with the development and fit-out of the Minx Restaurant and Bar in Lichfield Street, Christchurch, which was the “Minx” referred to in the email exchange. He deposes:
During this period [2009], the Spinach Design Limited ... bank account was being utilised for the receipt and payment of some of the funds to undertake this development and fit-out. This bank account was being used because it was operated separately from the PVL Group and I was concerned that if the fund[s] were paid into the PVL Group account they would be used for other purposes. As such the Spinach account was being used as a clearing account for payment to other companies, in this case Minx Limited.
[39] It is to be noted that Mr Godden does not speak of hiding money from Mr Henderson, as was suggested in Ms Buxton’s unattributed hearsay. Mr Godden does not directly explain his 5 May 2009 email reference to Spinach as “my last sanctuary
for hiding money” (with no reference to the hiding being from Mr Henderson). What his evidence states is simply a concern that funds paid into Property Ventures might then be used for other purposes, so that the Spinach Design account became a “clearing account”.
Discussion
[40] What the applicant’s case lacks on this application is material short of proof to support the proposition that there is a genuine and substantial dispute as to the existence of a debt.
[41] It appears clear from the content of the email exchanges on 5 May 2009 that Ms Buxton, as the sole director of Spinach Design, had permitted a situation to develop whereby others were controlling the bank account of Spinach Design. Furthermore, they were using it for the purposes of Property Ventures.
[42] The contemporaneous documentary evidence from the 5 May 2009 exchanges indicates that the purpose of the transfer to Spinach Design was for the purpose of holding Property Ventures’ money outside Property Ventures own bank account. It is clear that it is Property Ventures’ money that it is being talked about.
[43] The late suggestion by Mr Godden (in reply evidence) that the payment by Property Ventures to Spinach Design was then simply paid on to Minx is inconsistent with the contemporaneous record and unsupported by any bank record. Ms Buxton (together with personnel of Property Ventures it seems) are in this litigation the people who are in the position to have peculiar knowledge of the treatment of Property Ventures’ money within the Spinach Design account. Ms Buxton’s apparent criticism of the liquidator for not providing documentation is misplaced. As director she could and should have obtained copies of any bank account records necessary to support in some tangible way one or other of the explanations which Spinach Design was offering. As applicant Spinach Design has failed to provide the material short of proof which is required to support a dispute in this jurisdiction. The absence of an arguable genuine and substantial dispute should appropriately lead in this case to the dismissal of the application. Property Ventures should have the
opportunity to rely on Spinach Design’s failure to meet the demand as evidence of
Spinach Design’s insolvency.
Ability to pay the sum demanded
[44] Ms Buxton, in her reply affidavit, went on to assert that the sum demanded can be paid (if it is determined that there is a debt owed by Spinach Design to Property Ventures). The ability to pay the debt was not relied upon as a ground of the application for setting aside. The absence of any such reliance is consistent with the authorities which establish that it would be extremely rare (if at all) for that ability to pay a debt to be of itself a ground for setting aside a statutory demand:
AMC Construction Ltd v Frews Contracting Ltd.[3] Were ability to pay the debt to be
material in the present context, the assertion by Ms Buxton of such ability would have failed for the same reason as the allegation of substantial dispute, namely that it arises from mere assertion, unsupported by evidence short of proof.
Costs
[3] AMC Construction Ltd v Frews Contracting Ltd (2008) 19 PRNZ 13 (CA).
[45] The application has failed and it is appropriate that costs follow the event.
Orders
[46] I order:
(a) The application to set aside the statutory demand dated 13 June 2012 is dismissed;
(b) The date for payment pursuant to the statutory demand is extended to
15 January 2013 after which date Property Ventures will be entitled to present an application for the winding up of Spinach Design Ltd if the
demand has not been met; and
(c) The applicant is to pay the respondent’s costs in relation to this application on a 2B basis together with disbursements to be fixed by the Registrar, upon the basis of a one half day hearing with a certificate for counsel’s reasonable costs of travel and accommodation.
Associate Judge Osborne
Solicitors:
K W C Clay - Email: [email protected]
K P Sullivan - Email: [email protected]
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