Team Elevin Limited v Stelen Marketing Limited HC Auckland CIV-2010-404-004447

[2011] NZHC 139

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-004447

UNDER  The Companies Act 1993

BETWEEN  TEAM ELEVIN LIMITED Plaintiff

ANDSTELEN MARKETING LIMITED Defendant

Hearing:         7 February 2011

Appearances: A Henderson for Plaintiff

A Webb for the Defendant

Judgment:      14 February 2011

RESERVED JUDGMENT OF ELLIS J

This judgment was delivered by me on 14 February 2011 at 3 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:           Rice Craig, PO Box 72 440, Papakura 2244

Counsel:           A Webb, PO Box 106-215, Auckland 1143

TEAM ELEVIN LTD V STELEN MARKETING LTD HC AK CIV-2010-404-004447 14 February 2011

[1]      Team Elevin Limited (TEL) has applied to place Stelen Marketing Limited (SML) into liquidation.  It is not in dispute that on 24 May 2010 SML was served with a statutory demand for $190,000.  Nor is it in dispute that no formal legal steps were taken by SML to set aside the statutory demand and that, by virtue of that fact, SML  is  presumed  to  be  insolvent,  the  onus  being  on  that  company  to  show otherwise.

[2]      It is relevant to note at the outset that the directors and shareholders of TEL are  Kevin  and  Elaine  Brewster  and  the  directors  and  shareholders  of  SML are Steven and Helen Blake.  Steven Blake and Elaine Brewster are brother and sister. As well, TEL and SML have something of a history of business dealings and appear to have been involved jointly in property investment and/or development for about six years.  It is unclear precisely how or why the present dispute between them has come to pass.

[3]      Notwithstanding the absence of a formal response by SML to the statutory demand it was submitted, and I accept, that SML disputed the debt that was the subject  of  the  demand  from  the  outset.    The  relevant  lawyers’ letters  were  in evidence before me.   And in the context of what are essentially a series of intra- family transactions I also tend to accept Mr Blake’s statement that formal steps were not taken on behalf of SML because he could not bring himself to believe that TEL would apply to liquidate SML.

[4]      For these reasons I do not consider that SML’s “failure” to apply to have the statutory demand set aside prevents it from advancing in these proceedings the submission that the debt is disputed.[1]

[1] I refer also to the recent broader discussion of this issue by Bell AJ in Heron's Flight Ltd v NZ Properties International Ltd HC Auckland CIV-2010-404-005878, 7 February 2011.

[5]      A quantity of (often conflicting) evidence was placed before the Court as to: (a)      the history of dealings between the companies;

(b)      the agreement said to give rise to the $190,000 debt;

(c)       the present financial position of SML.

[6]      There was also evidence before me as to a purported “settlement” reached verbally between the parties in September 2010 which resulted in the plaintiff instructing its solicitors to file a notice of discontinuance.  No such notice was filed, however, and the proceedings continued.   Other than to note that the defendants’ belief that “settlement” had occurred did cause a small hiatus in the conduct of the proceeding, I do not propose to deal with it further.

[7]      Dealing with the solvency issue first, the onus is, as I have noted, on SML. While affidavit evidence was filed by Mr Blake in which he summarised the company’s current (as at November 2010) assets and liabilities there were, as pointed out by the expert accountant engaged by TEL, significant deficiencies in that evidence.  By way of example only I refer to:

(a)      the  failure  to  include  in  the  statement  of  accounts  prepared  by Mr Blake the contingent liability of $350,000 in relation to other court proceedings involving SML that are currently on foot;

(b)      the  inclusion  as  part  of  SML’s  assets  of  “machinery  and  plant”

including such items as office furniture;

(c)     the inconsistency in SML’s own evidence as to the amount of indebtedness in relation to vehicles owned by the company (the statement of accounts recording that indebtedness as nil whereas another statement recording it as being some 80 per cent of the value of the vehicles).

[8]      Accordingly, while Mr Blake’s evidence on its face did suggest that SML’s assets were greater than its liabilities and that it was able to meet its debts, I am unable to have any great confidence in that evidence.  Put bluntly, I simply cannot be sure one way or another as to SML’s solvency and I consider that the presumption of insolvency has thus not been rebutted.  Prima facie, then, the company is liable to be wound up.

[9]      At that point the critical issue becomes whether it is just and equitable that SML be put into liquidation or whether I should exercise my discretion and decline TEL’s application.  The principal basis on which SML submitted that I should do so was that there was a genuine dispute as to the debt said to be owed.

[10]     It appears to be agreed by the parties that the $190,000 advance was made by TEL to SML, and that it occurred  against the wider background of  a proposed development of a property in Belgium Street, Waiuku.  Mr Blake’s son, Steven, was also involved and it is I think also agreed by all that it was his purchase of the Belgium Street property from TEL in January 2009 that provided the vehicle for the

$190,000 advance.   Ms Henderson for TEL would not go so far, however, as to accept that the advance was made for the purpose of that development.   SML’s evidence as to the ongoing existence of a joint venture with TEL in that respect was flatly rejected by TEL.

[11]     It is instructive to consider the evidence of the Brewster’s in relation to the purchase of the Belgium Street property by the younger Steven Blake (this issue being  another  area  of  context  between  the  parties).     In  their  affidavit  dated

19 November 2010 they begin this part of their evidence in this respect by saying:

To our minds the transaction was simple.  Steven (Jnr) agreed to purchase

3 Belgium Street for $320,000.

On 20 January 2009 TEL agreed to sell and Steven (Jnr) agreed to purchase the property at 3 Belgium Street, Waiuku (“the property”).   The agreement for  sale  and  purchase  was  signed.    It  provided  for  a  purchase  price  of

$320,000 and settlement/possession date of 27 January 2009. ...

On settlement Steven (Jnr) did pay to us $200,000 from which $190,000 was advanced to SML.  This is recorded in the settlement statement of Sturroch Monteith, solicitors, dated 29 January 2009.

[12]     The Brewsters’ avowal as to the “simplicity” of the transaction is, however, somewhat belied by the historical narrative that then follows.  Mr and Mrs Brewster deposed:

On 7 March 2008 SML and/or nominee agreed to purchase the property.  ... We understand that on or about the 11th March 2008 SML nominated TEL as

purchaser. We confirm that TEL resolved to purchase the property.

On 6 May 2008 TEL resolved to purchase the property.  ...

On or about 7 May 2008 the purchase settled, and the property was transferred to TEL as registered proprietor. ...

TEL paid the purchase price of $320,000 on 7 May 2008.  The deposit of

$12,000 was paid.  The balance of $309,399.14 was paid on the settlement date.   This figure included legal costs in relation to the conveyancing transaction.

The settlement statement of Sturroch Monteith, solicitors, confirms the position.  ... That settlement statement refers to a “loan advance” from SML. This   related   to   monies   SML   owed   TEL   following   the   sale   of

19 Sandspit Road, Waiuku, on 8 February 2008.  This sum is advanced to

SML to assist their purchase of 30 George Street, Tuakau.  It would be more correct for the settlement statement to have recorded $309,399.14 was in

relation to loans already advanced and then set off.

On 15 February 2008 being soon after the agreement to purchase 3 Belgium

Street by TEL, TEL was owed by SML the sum of $43,310.01.  On 15 June

2008 SML owed TEL $112,817.20.  ...

TEL desired to subdivide 3 Belgium Road into two lots, selling one and keeping the other as a rental (LAQC).

There was no specific agreement between SML and TEL in relation to the project.  We did expect to instruct SML to carry out much of the subdivision works and to pay by a set off from what they owed TEL.  However, this was left unsaid. There was no discussion or express agreement to do so.

As the project developed we did instruct SML to carry out the subdivision works.   This can be seen from the various monies deducted in the reconciliation Annexure L during the period 11 March 2008 to 9 January

2009.  [Emphasis added]

[13]     I do not intend to traverse in any detail the evidence adduced on behalf of the Blakes in relation to the above events and transactions.  Suffice it to say that they depose that the Belgium Street advance must be viewed in the wider context of the dealings between the parties (which even the Brewsters’ affidavit does not succeed in making look straightforward) and that the advance has now wholly, and in the course of those dealings, been repaid.

[14]     Perhaps unsurprisingly in light of this history and the highlighted statement in the penultimate paragraph of the quotation from the Brewsters’ affidavit, it is far from clear to me:

(a)      what  the  terms  upon  which  the  $190,000  was  advanced  were, including whether there were any terms as to repayment amounts, the timing of any such repayments, the payment of interest or the purpose for which the money was advanced.   No documentation whatsoever exists in these respects;

(b)what  part  the  advance  played  in  what  appears  to  have  been  a kaleidoscope of similar transactions between the two companies.

[15]     Equally unsurprisingly it is also unclear to me how much of the $190,000 has been repaid and (therefore) how much remains owing, if any.  Based on SML’s own calculations all outstanding amounts (in terms of the global position between the companies) have been repaid.  It is undisputed that, as a result of these proceedings,

$58,467.17 (being the amount calculated by SML to be owed by it to TEL in terms of its total indebtedness) has been repaid.  SML denies any further outstanding debt and on the basis of the evidence before me I simply cannot be confident that that is not correct.

[16]     Accordingly and in light of the fundamental nature of the myriad disputes between the parties I have formed the view that the Companies Court jurisdiction is inapt to deal with the present case.  While I am unable in the context of the present application to resolve any of those disputes I have nonetheless had little difficulty in forming the relevant view that, from SML’s perspective, they are genuine.

[17]     Accordingly I consider that notwithstanding SML’s failure to satisfy me that it is solvent, justice and equity do not, in the unusual circumstances of this case, require that company to be wound up.  TEL’s application is declined accordingly.  I can only add that it is, in my view, regrettable that family matters have come to this.

[18]     SML is entitled to its costs on a 2 B basis.

Rebecca Ellis J