Sprosen v NFL Foods Limited

[2023] NZHC 2992

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-002295

[2023] NZHC 2992

BETWEEN

JANET MARY SPROSEN and

LEON FRANCIS BOWKER as liquidators of ATTITUDE FOODS (2018) LIMITED

(in liquidation) Applicants

AND

NFL FOODS LIMITED

Respondent

Hearing:	24 October 2023
Counsel:	LB Harrison for Applicants DG Hayes for Respondent
Judgment:	27 October 2023

JUDGMENT OF DOWNS J

This judgment was delivered by me on Friday, 27 October 2023 at 11 am pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Simpson Grierson, Auckland. Hunwick Law Ltd, Hamilton. DG Hayes, Hamilton.

SPROSEN v NFL FOODS LTD [2023] NZHC 2992 [27 October 2023]

The case

[1]    Janet   Sprosen   and    Leon    Bowker    are    the    liquidators    of    Attitude Foods (2018) Ltd1. They apply for orders under ss 296B and 296C of the Companies Act 1993: (a) setting aside a voidable disposition by Attitude Foods;

(b) directing the respondent, NFL Foods Ltd,2 to transfer stock and chattels to Attitude Foods; and (c) directing NFL to pay Attitude Foods the proceeds of the sale of its assets.

Background

[2]    Attitude Foods was a wholesaler and packer of foodstuffs. The company is owned, and was operated, by Terence Le Sueur. Mr Le Sueur also owns and operates NFL, as well as a third company of relevance, Nutra Foods 2011 Ltd.3

[3]    On 4 June 2021, the Commissioner of Inland Revenue4 applied to place  Nutra Foods in liquidation. On 25 August that year—and before the liquidation application had been determined—Nutra Foods  entered  an  agreement  with Attitude Foods to sell its assets to the latter for $250,000, plus GST. Payment had to be made by 1 September 2022, failing which, penalty interest became payable. I call this the first transaction.

[4]    On 4 February 2022, Nutra Foods was placed in liquidation (on the Commissioner’s application).

[5]    On 15 November 2022, the liquidators of Nutra Foods applied to put  Attitude Foods in liquidation, as much of the  purchase  price  in  relation  to  the  first transaction remained unpaid.

[6]    On 28 July 2023—and before the liquidation application had been determined—Attitude Foods entered an agreement with NFL to sell its assets to the

1      Attitude Foods.

2      NFL.

3      Nutra Foods.

4      The Commissioner.

latter for $150,000, plus GST.5 The sum of $10,000 was due within 10 working days, and the balance on or before 28 July 2024. I call this the second transaction.

[7]    On 31 July 2023, Associate Judge Brittain placed Attitude Foods in liquidation.6    The Judge found Attitude Foods had failed to pay Nutra Foods

$206,047.46 in relation to the first transaction.

[8]    On 29 September 2023, the liquidators filed this application, which contends the second transaction is a voidable disposition calling for related orders.

[9]Ms Sprosen and Mr Bowker are also the liquidators of Nutra Foods.

Analysis

[10]Sections 296A to 296D of the Companies Act provide:

296A Dispositions of property after application but before appointment of liquidator

(1)A disposition of a company’s property is voidable if it is made during the specified period.

(2)However, the disposition is not voidable if it is made—

(a)     in the ordinary course of business of the company; or

(b)     by an administrator, a deed administrator, or a receiver, on the company’s behalf; or

(c)     under an order of the court.

(3)In this section,—

disposition has the same meaning as in section 345 of the Property Law Act 2007

property has the same meaning as in section 345 of the Property Law Act 2007

specified period means the period beginning on the date on which an application is made to appoint a liquidator under section 241(2)(c) and ending at the time the liquidator is appointed (or the court otherwise disposes of the application).

5      Plus payment of invoices for stock on hand.

6      Nutra Foods 2011 Ltd v Attitude Foods (2018) Ltd [2023] NZHC 2013.

296B Procedure for setting aside dispositions

(1)A liquidator who wishes to set aside a disposition that is voidable under section 296A must—

(a)     file a notice with the court; and

(b)     serve the notice as soon as practicable on—

(i)the party to which the disposition was made; and

(ii)any other party from whom the liquidator intends to recover.

(2)The notice must—

(a)     be in writing; and

(b)     state the liquidator’s postal, email, and street addresses; and

(c)     specify the disposition to be set aside; and

(d)     describe the property or state the amount that the liquidator wishes to recover; and

(e)     state that the person named in the notice may object to the disposition being set aside by sending to the liquidator a written notice of objection that is received by the liquidator at an address stated in the liquidator’s notice within 20 working days after the notice has been served on that person; and

(f)      state that the written notice of objection must contain full particulars of the reasons for objecting and must identify any documents that evidence or substantiate the reasons for objecting; and

(g)     state that the disposition will be set aside as against the person named in the notice if that person does not object; and

(h)     state that if the person named in the notice does object, the liquidator may apply to the court for the disposition to be set aside.

(3)The disposition is automatically set aside as against the person on whom the liquidator has served the notice unless that person has sent to the liquidator a written notice of objection that is received by the liquidator at an address stated in the liquidator’s notice within 20 working days after the liquidator’s notice has been served on that person.

(4)The notice of objection must contain full particulars of the reasons for objecting and must identify any documents that evidence or substantiate the reasons for objecting.

(5)A disposition that is not automatically set aside may still be set aside by the court on the liquidator’s application.

296C Other orders

If a disposition is set aside under section 296B, the court may make 1 or more of the following orders:

(a)an order that a person transfer to the company—

(i)      property that the company disposed of:

(ii)     any proceeds of property referred to in subparagraph (i):

(iii)   property that, in the court’s opinion, fairly represents the application of proceeds referred to in subparagraph (ii):

(b)an order that a person pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the disposition:

(c)an order releasing, in whole or in part, a charge given by the company:

(d)an order requiring security to be given for the discharge of an order made under this section:

(e)an order specifying the extent to which a person affected by the setting aside of a disposition by an order made under this section is entitled to claim as a creditor in the liquidation.

296D Additional provisions relating to setting aside dispositions

(1)The setting aside of a disposition or an order made under section 296C does not affect the title or interest of a person in property that the person has acquired—

(a)     from a person other than the company; and

(b)     for valuable consideration; and

(c)     without knowing the circumstances in which the property was acquired from the company.

(2)The setting aside of a charge or an order made under section 296C does not affect the title or interest of a person in property that the person has acquired—

(a)     as the result of the exercise of a power of sale by the mortgagee of the charge; and

(b)     for valuable consideration; and

(c)     without knowing the circumstances relating to the giving of the charge.

(3)A court must not order the recovery of property of a company (or its equivalent value) by a liquidator, whether under this Act, any other enactment, or in law or in equity, if the person from whom recovery is sought (A) proves that when A received the property—

(a)     A acted in good faith; and

(b)     a reasonable person in A’s position would not have suspected, and A did not have reasonable grounds to suspect, that the company was, or would become, insolvent; and

(c)     A gave value for the property or altered A’s position in the reasonably held belief that the transfer of the property to A was valid and would not be set aside.

(4)Nothing in the Land Transfer Act 2017 restricts the operation of this section or sections 296A to 296C.

[11]   NFL accepts the second transaction is a voidable disposition within these provisions. NFL also accepts none of the “defences” in s 296D is available. Despite these concessions, NFL contends the orders sought should not be made.

[12]   On behalf of NFL, Mr Hayes notes Nutra Foods has security over the chattels governed by the Personal Property Securities Act 2007. Mr Hayes says this means Nutra Foods may seize and sell the chattels. That being so, the orders should not be made as Nutra Foods has an alternative means by which it may obtain relief as a creditor (relying on the security).

[13]   This submission is beside the point. The security is held by Nutra Foods, not Attitude Foods. That Nutra Foods is a creditor of Attitude Foods does not mean orders would be inappropriate, particularly as the liquidators must act for the benefit of all creditors. Furthermore, it is clear from s 254 of the Companies Act the mere fact Nutra Foods holds security does not preclude the liquidators from seeking orders.

[14]   Mr Hayes also contends the voidable disposition regime is not intended to apply to property subject to security governed by the Personal Property Securities Act. This because the existence of security provides its own relief in situations such as this.

[15]   This submission is no more than a restatement of the first using different language. Furthermore, ss 296A to 296D are not qualified in the way suggested, and the argument is unsupported by authority. It would also mean liquidators would be powerless to act in relation to a voidable disposition when a creditor holds related security. That cannot be right.

[16]   Mr Hayes contends orders would be inappropriate because the liquidators have a duty to realise as much money as possible, and this is best achieved by awaiting the payment of the balance of the purchase price (July next year) rather than seeking orders.

[17]   This submission assumes the balance of the purchase price  will  be  paid. The assumption is contestable, indeed heroic, given the background outlined earlier. In any event, it cannot be said the liquidators are acting improperly in seeking orders.

[18]   Mr Hayes contends the liquidators are estopped from seeking orders as they did not treat the first transaction as a voidable disposition, and by treating the second transaction differently, the liquidators are acting improperly. There are two answers to this submission. First, the liquidators’ position could not be described as unconscionable—the  concern  animating  the  law  of  estoppel.  Second,  and  as  Ms Harrison observes for the liquidators, as payment in full was never made in relation to the first transaction, it is reasonable for the liquidators to approach the second transaction differently.

[19]   Mr Hayes also contends the liquidators are estopped from seeking orders because they hold the $10,000 deposit. However, as Ms Harrison also observes, the orders could be made conditional on its return.

[20]   Finally, Mr Hayes contends the liquidators should be liable for the costs of relocating the chattels following NFL’s eviction from leased premises. Mr Hayes says these would otherwise have the fallen on the liquidators. Ms Harrison argues against this because the liquidators did not cause NFL’s eviction, and the chattels remain NFL’s pending determination of this application.

[21]I agree with Ms Harrison.

Result

[22]   The liquidators’ application is granted. I make the orders sought  at  (1)(b) and (1)(d) of the notice of application.7

[23]   The liquidators must return the $10,000 deposit once  NFL has  complied with (1)(b).

……………………………..

Downs J

7      (1)(d) concerns costs, which I award on a 2B scale basis.