Truck and Trailer Hire Limited (in liquidation) v Knox Whyte Family Trust
[2014] NZHC 1378
•18 June 2014
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2013-485-8023 [2014] NZHC 1378
BETWEEN TRUCK AND TRAILER HIRE LIMITED
(In Liquidation) Applicant
AND
KNOX WHYTE FAMILY TRUST Respondent
Hearing: 9 April 2014 Counsel:
W Aldred for Applicant
S M O'Sullivan for RespondentJudgment:
18 June 2014
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The applicant applies for orders setting aside two statutory demands issued by the respondent (the Trust) on 14 October 2013. The first of the two statutory demands (the first demand) claimed the sum of $369,917, being an amount allegedly owing by the applicant to the Trust under three loan agreements. The second statutory demand (the second demand) claimed the sum of $59,004, allegedly being the balance owing under the total of seven additional advances said to have been made to the applicant by the Trust.
[2] The sum of $369,917 claimed in the first demand was made up as follows:
Advance under a written loan agreement Amount
18 September 2008 $150,000
9 October 2008 $100,000
9 February 2009 $40,000
TRUCK AND TRAILER HIRE LIMITED (In Liquidation) v KNOX WHYTE FAMILY TRUST [2014] NZHC
1378 [18 June 2014]
Interest at 15% per annum from February 2012 $79,917
Total: $369, 917
[3] The loan agreements referred to in the first demand each called for repayments of the amounts advanced after twelve months, with interest at
15% per annum.
[4] The total of $59,004 claimed in the second demand was made up as follows:
Advance
13 July 2009
Amount
$10,000
9 October 2009
$20,000
3 February 2010
$20,000
4 March 2011
$10,000
8 March 2011
$20,000
14 March 2012
$10,000
3 May 2012
$20,000
Sub Total
$110,000
Less Repayments
$63,000
Sub Total as at 30/9/2012
$47,000
Plus unpaid interest at 15% per annum from 28/2/2012
$12,004
Total
$59,004
[5] In an early affidavit sworn in support of the application to set aside the two statutory demands, Mr Wheelans, a director and shareholder of the applicant company, initially denied that the applicant owes any of the amounts claimed in the two statutory demands. He claimed to have no recollection of having signed loan agreements referred to in the first demand, notwithstanding that his name appears on each of them alongside signatures which appear to be his. In an affidavit sworn on
16 December 2013, Mr Wheelans stated:
My signature is extremely basic and would not be difficult to duplicate. In the absence of any witnesses to my alleged signature, I therefore expressly deny that there was any agreement as presented in these documents relating to the accumulation or payment of interest as now claimed.
[6] Mr Wheelans subsequently acknowledged that the applicant did receive the sums of $100,000, $40,000 and $150,000 referred to in the first demand from the
Trust. He also confirmed the receipt of further funds as follows:
4 March 2009 $10,000 8 March 2011
$20,000
14 March 2011
$10,000
3 May 2012
$20,000
29 April 2009
$20,000
[7] Mr Wheelans’ evidence was that repayments were made by the applicant to
the Trust as follows:
21 April 2009 $20,000 10 February 2012
$5,000
17 April 2012
$10,000
[8] Mr John Knox, a trustee of the Trust, was employed as the applicant’s chief financial officer between 2005 and August 2013. Mr Knox was also a director of the applicant from 9 June 2006 until 15 August 2013.
[9] Mr Wheelans said that all of the principal monies received by the applicant from the Trust, and the subsequent repayments, were effected by Mr Knox during his employment with the applicant. The applicant’s finances were effectively under the control of Mr Knox. Following Mr Knox’s departure in August 2013, Mr Wheelans said that an external accountant had to be engaged to understand the movement of money and the entries Mr Knox had made reporting those movements.
[10] Mr Wheelans added that his company’s financial review was still under way,
and that it was possible that further repayments might have been made to the Trust.
[11] Mr Wheelans stated that he recalled Mr Knox mentioning to him that Mr Knox had some funds available to put into the applicant (and into a related company of the applicant), and that these funds had been raised by way of mortgage over Mr Knox’s bach. Mr Wheelans deposed to his recollection that Mr Knox had already paid some money to the applicant before he spoke to Mr Wheelans about this the first time; he thought that the amount already paid before this conversation with Mr Knox was $150,000. Mr Wheelans’ evidence was that later payments made by Mr Knox or the Trust into the applicant company were not discussed in advance with Mr Wheelans. Nor, according to Mr Wheelans, was there any discussion about the timing of repayments or interest. He said that he did not see copies of the agreements relied upon in support of the demand for $290,000 plus interest until they were supplied by the Trust in an affidavit filed in the present proceeding. Mr Wheelans said that all payments were effected by electronic transfer, so that there was never a need for his signature, as there would have been if the payments had been made by cheque.
[12] For the Trust, there was one affidavit in opposition, that of Mr Knox sworn on 24 March 2014.
[13] Mr Knox stated that in his early days with the applicant Mr Wheelans spent the majority of the time in Auckland working on the business, leaving Mr Knox to supervise the Wellington operation and other branches in New Zealand. That situation changed in 2009, from which date Mr Wheelans was predominately based in Wellington.
[14] Mr Knox denied setting up the applicant’s bank system. He stated that the applicant employed an office manager, and any payments or authorisations on behalf of the applicant required two signatures. Authorised signatories were Mr Wheelans, Mr Knox, and the office manager. As Mr Wheelans was generally in Auckland before 2009, Mr Knox and the office manager would authorise payments.
[15] With reference to the three loans which are subject of the first demand, Mr Knox stated that they were made in consultation with Mr Wheelans. Mr Knox obtained a form of precedent from a finance company, and filled in the details for the
advances when they were made. He said that he always met with Mr Wheelans and discussed the loans before they were made. Mr Knox also stated that he was present when Mr Wheelans signed the loan documents.
[16] With reference to the Trust’s claims for interest, Mr Knox deposed that Mr Wheelans was fully aware that Mr Knox was receiving monthly interest payments for advances to the applicant from November 2008 until October 2012. He produced copies of spreadsheets prepared by the applicant’s office manager, which recorded interest payments made by the applicant not only to himself, but also on advances made to the applicant by Mr Wheelans. Mr Knox’s evidence was that Mr Wheelans had insisted that he receive these interest payments, which were made on a monthly basis.
[17] Mr Knox left the applicant on 27 September 2013.
[18] A fourth affidavit was provided by Mr Wheelans on 8 April 2014, annexing correspondence between the solicitors. One of the letters was a letter dated 24
September 2013 from the Trust’s solicitors, which set out details of the Trust’s claims under the first demand. Mr Wheelans said he had not seen this letter until the Trust’s solicitors provided a copy to his barrister on 26 March 2014.
[19] On 2 April 2014 the Trust provided the applicant with copies of bank statements and/or cheque butts which were said to evidence each of the advances totalling $110,000 which are the subject of the second demand. Details of acknowledged repayments made by the applicant were supplied with a further letter from the Trust’s solicitors on 7 April 2014. Repayments were acknowledged to have been made in August 2009 ($50,000), February 2012 ($5,000), April 2012 ($10,000), and June 2012 ($3,000). The total repayments as calculated in April 2014 were
$68,000, being $5,000 more than the Trust’s solicitors had stated in their letter dated
24 September 2013.
[20] The final document produced by Mr Wheelans with his 8 April 2014 affidavit was a letter from the applicant’s solicitors to the Trust’s solicitors sent shortly before the hearing. In this letter, the applicant’s solicitors raised various disputes. In
respect of the first demand, the solicitors advised that a repayment of $20,000 made on 21 April 2009 had been overlooked when they had earlier acknowledged that the principal amount of $290,000 was not disputed. They acknowledged the Trust’s relevant bank account record describing this receipt as “interest”, but (because the applicant denies any obligation in respect of interest) contended that the $20,000 must be treated as having been a repayment of part of the principal sum. The applicant’s solicitors also contended that there was clear evidence of other amounts having been repaid to the Trust which should have been set off against the original
$290,000 advance.
[21] In respect of the second demand, the applicant’s solicitors contended that the information supplied established that advances of only $40,000 had been made by the Trust to the applicant. The argument was that other advances had been made not by the Trust, but by Mr Knox personally. The solicitors contended that the Trust could only issue a demand in respect of monies owed to it, and not to a third party (Mr Knox).
[22] The applicant’s solicitors also contended that there is nothing to show that the repayments of $68,000 made to the Trust were made in reduction of the advances which are the subject of the second demand, rather than in reduction of the $290,000 advances which are the subject of the first demand. In support of that contention, they pointed to a repayment schedule provided by the Trust which showed a repayment of $50,000 in August 2009, when the Trust’s advances schedule relative to the second demand showed that only $10,000 had been advanced by that date.
[23] The applicant’s solicitors concluded that the Trust was attempting to maximise the amount owing in respect of the advances which are the subject of the first demand, in order to enable the Trust to have recourse to a personal guarantee which Mr Wheelans had signed in respect of those loans. (There was no similar guarantee of the advances which are the subject of the second demand).
Discussion
Applications to set aside statutory demands – legal principles
[24] Section 290 of the Companies Act (the Act) governs applications to set aside statutory demands. It relevantly provides:
290 Court may set aside statutory demand
(1) The court may, on the application of the company, set aside a 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.
(5) A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.
(6) In subsection (5), defect includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.
(7) An order under this section may be made subject to conditions.
[25] The principles which apply to applications such as the present are well established. They can be discerned from cases such as Taxi Trucks Ltd v Nicholson; Fletcher Homes Ltd v Ellis; United Homes (1988) Ltd v Workman; and Rennie v Prospect Resources Ltd.1
[26] In determining this case I apply the following principles:
1 Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297; Fletcher Homes Ltd v Ellis HC Auckland M471/99, 23 July 1999; United Homes (1998) Ltd v Workman [2001] 3 NZLR 447; Rennie v Prospect Resources Ltd HC Greymouth M14/95, 3 November 1995.
(a) The applicant must demonstrate that there is arguably a genuine and substantial dispute as to the existence of the debt.
(b)The mere assertion that a dispute exists is not sufficient. Material, short of proof, is required to support the claim that the debt is disputed.
(c) If such material is available, the dispute should normally be resolved other than by means of proceedings in the Companies Court.
(d)The applicant must demonstrate that any counterclaim or cross- demand is reasonably arguable in all the circumstances.
(e) It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
[27] The court is entitled to allow statutory demands to stand in reduced amounts representing items not open to dispute.2
Application of legal principles in this case
The first demand
[28] The applicant’s first contention was that a repayment of $20,000 made on
21 April 2009 which the Trust allocated to interest, should have been treated as a repayment of principal. It referred to a page which the Trust produced from its relevant ASB account showing a deposit of that amount made into the account on that date by the applicant. While the payment is shown on the account as “INT PYMet”, the applicant says that it is at least arguable that it was a capital repayment.
[29] The payment of $20,000 made on 21 April 2009 does seem an oddly round figure for an interest payment, and there is nothing to say which of the three loans which are the subject of the first demand the payment refers to. In the absence of
any detail showing the calculation of interest totalling $20,000 (including which
2 United Homes (1998) Limited v Workman above n 1, at [46]; 21st Century Investments Limited v
ANZ National Bank [2011] NZCA 548 at [39].
loan, and the interest period covered by the payment), I consider it arguable that this payment may have been a repayment of principal as the applicant contends.
[30] The next argument mounted by the applicant is that there is nothing in the evidence to show that certain payments said to have been made in reduction of the amount due on the advances which are the subject of the second demand, were not repayments of the advances which are the subject of the first demand. Again, this appears to be arguable on the evidence which was produced. A repayment schedule provided by the Trust showed a repayment of $50,000 made in August 2009. But at that time, only $10,00 of the advances claimed in the second demand had been made. Quite clearly the applicant could not have been repaying money which had not yet been lent to it. The applicant therefore argued that at least $40,000 of the $50,000 repayment must have been a full or partial repayment of one or more of the advances which are the subject of the second demand. That appears to me to be inarguable, and I accordingly find that the applicant has an arguable case that the principal sum demanded in the first demand has been overstated by this $40,000.
[31] A further three payments were received by the trust and allocated to the debt due under the second demand. These were payments of $5,000 made on
10 February 2012, $10,000 made on 17 April 2012, and $3,000 made on
22 June 2012. Again, it is not clear why these sums have been allocated to the second demand and not the first. In circumstances where it seems irrefutable that the trust has allocated to the second demand at least $40,000 which could only have been made in reduction of the loans which are the subject of the first demand, I think the evidence needed to be a lot clearer that these particular receipts were properly allocated to the advances which are the subject of the second demand. In the circumstances, I consider it arguable that the applicant may have made a further
$18,000 in partial repayment of the advances which are the subject of the first demand.
[32] Pausing there, I consider that the applicant has shown an arguable case that it may have made principal repayments totalling $78,000. Deducting that sum from the amount of principal claimed in the first demand, reduces the claim (for principal) to $212,000.
[33] The final challenge to the first demand was a challenge to the claim for interest of $79,917. Each of the three written loan agreements provided for interest at 15% per annum. The basis for this challenge appears to be that Mr Wheelans denies having signed the three loan agreements. His evidence was that he had no recollection of having signed them personally. I am not prepared to accept that defence. Mr Wheelans was a director of the applicant, and the advances in question were made nearly five years before Mr Knox left the applicant. In my view, it is not credible that Mr Wheelans would not have been aware of cash injections into his company totalling $290,000 within a period of less than six months, and he cannot plausibly claim a belief that sums as large as that would have been advanced by the Trust free of interest. Mr Wheelans did not produce any evidence to support his claim that the signatures on the loan agreements were not his own. In all of those circumstances, I do not consider it seriously arguable that there was no agreement to pay interest on the three advances, or that the agreed rate was less than the rate shown in the loan documents, namely 15% per annum.
[34] The one point of doubt which exists about the claim for interest in the first demand is the date from which the interest is claimed. The demand simply refers to “February 2012” but there is no obvious reason why interest should not have commenced far earlier, when the loans were made. But if interest which might have been claimed has not been claimed, that cannot avail the applicant in the present situation. I will assume for the purposes of this application that the applicant’s claim for interest was limited to the period from the end of February 2012 to the date of the first demand.
[35] To the extent that loan repayments may have been made in reduction of the three advances which are the subject of the first demand after 28 February 2012, it must be arguable that interest should have ceased on the amounts repaid from the dates of repayment. I have found it arguable that two such repayments were made, namely a payment of $10,000 on 17 April 2012 and a payment of $3,000 on
22 June 2012.
[36] As at 28 February 2012, I find that the balance of principal owing under the three advances which were the subject of the first demand, was $225,000. The Trust
was entitled to claim interest on that sum at the rate of 15 percent per annum from
1 March 2012 to 17 April 2012, when a repayment of $10,000 was made. Interest on
$225,000 for that (48 day) period at 15 percent per annum comes to $4,438.35.
[37] The Trust was then entitled to claim interest on the reduced balance of
$215,000 at 15 percent per annum for the period from 18 April 2012 until
22 June 2012, when the $3,000 repayment was made. Interest on $215,000 for that
(65 day) period comes to $5,743.15.
[38] There is no arguable case that further principal repayments were made after
22 June 2012. The balance of principal then owing ($212,000) accordingly carried interest at 15 percent per annum from 23 June 2012 until the date the first demand was issued on 14 October 2013. Interest on $212,000 for that (478 day) period at 15 percent per annum comes to $41,643.36.
[39] I accordingly assess the amount of the interest component of the first demand in respect of which there can be no genuine and substantial dispute, at $51,824.86. Adding the unpaid principal of $212,000, I find that the applicant has failed to show that there is any genuine and substantial dispute over the sum of $263,824.86 claimed in the first demand.
The second demand
[40] The Trust claims that it advanced a total of $110,000 to the applicant, and that repayments were made totalling $68,000. The second demand included a sum of
$12,004 for interest calculated at 15% per annum from February 2012.
[41] In fact, the repayment of $50,000 in August 2009 could only have been a repayment of the advances which are the subject of the second demand to the extent of $10,000 – of the various advances which make up the sum claimed in the second demand; only $10,000 had been advanced by August 2009. Total repayments referable to the second demand therefore cannot be greater than $28,000 (total repayments $68,000 minus $40,000 which must be applied to the first demand).
[42] The Trust produced evidence in the form of bank statements and cheque butts which sufficiently show that it advanced the following sums to the applicant:
13 July 2009 $10,000
3 February 2010 $20,000
4 March 2011 $10,000
Total $40,000
[43] In respect of the remaining $70,000, the applicant contends that these advances were or may have been made by Mr Knox personally, and not by the Trust. Advances made by Mr Knox personally should not have been included in a statutory demand made by the Trust.
[44] On the limited evidence produced, it seems to me that that is at least arguable. The evidence of the advance of $20,000 made on 3 May 2012, for example, consists of a cheque butt from what appears to be Mr Knox’s personal cheque book. Similarly, the evidence relating to the advances of $20,000 and $10,000 made respectively on 8 March 2011 and 14 March 2012, appears to show that the payments may have come from Mr Knox’s personal account (the relevant bank statements show that the payments were made from the same bank account into which Mr Knox’s salary was paid by the applicant, and there were a number of personal expenses paid from the account which, without some explanation from Mr Knox, one would not expect a family trust to have been paying).
[45] The remaining advance which was the subject of the second demand, was an advance of $20,000 made on 9 October 2009. The supporting evidence for this advance was a barely legible copy of a cheque butt with some handwritten detail, including the sum advanced of $20,000. But the number of the cheque butt is clearly legible (100219), and that number appears to be consistent with the numbers and dates of cheques issued on Mr Knox’s personal cheque account during the relevant period ( e.g. cheque numbers 100237 on 8 March 2011, 100348 on 14 March 2012, and 100369 on 3 May 2012).
[46] In my view, it is at least arguable that $70,000 out of the total $110,000 might have been advanced by Mr Knox personally rather than by the Trust. The statutory demand must accordingly be set aside to that extent. Of the remaining $40,000 which I am satisfied was advanced to the applicant by the Trust, $10,000 (part of the
$50,000 repaid by the applicant in August 2009) may have been a repayment of the
$10,000 advanced by the Trust to the applicant on 13 July 2009. The other repayments ($5,000 on 10 February 2012, $10,000 on 17 April 2012, and $3,000 on
22 June 2012) may have been repayments of advances apparently made by Mr Knox personally in October 2009 ($20,000) or on 8 March 2011 ($20,000) or on
14 March 2012 ($10,000). Or they may have been repayments of the total figure of
$40,000 which had clearly been advanced by the Trust to the applicant by
4 March 2011. The evidence is simply not clear enough on the point, and I
accordingly conclude that it is reasonably arguable that the applicant repaid a total of
$28,000 in reduction of the $40,000 which I am satisfied was advanced by the Trust to the applicant. The applicant does not appear to have any reasonably arguable case over the balance of $12,000, and the statutory demand will be sustained to that extent.
[47] On the claim to interest under the second statutory demand, the evidence is again unclear. Unlike the claims made under the loans which were the subject of the first demand, there is no document recording any obligation to pay interest. While the applicant may have paid interest from time to time on the shareholders’ current accounts of both Mr Knox and Mr Wheelans, in the circumstances of this case, with a number of gaps and discrepancies having been found in the applicant’s record keeping, I cannot regard the applicant’s challenge to the interest claim in the second demand to be beyond reasonable argument.
[48] In the foregoing circumstances, I find that the applicant has reasonable arguments in respect of the second demand in respect of all but $12,000 of the amount claimed.
Orders
[49] The first demand is allowed to stand in respect of the sum of $263,824.86. It is set aside to the extent that it claimed more than that figure.
[50] The second demand is allowed to stand in respect of the sum of $12,000. It is set aside to the extent that it claimed more than that figure.
Costs
[51] The applicant was put into liquidation on the application of another party following the hearing of this application. In those circumstances I expect there is unlikely to be any issue over costs, but in case there is, leave is reserved to the Trust and the liquidator of the applicant to file memoranda within 14 days of the date of this judgment.
Associate Judge Smith
Solicitors:
W Aldred, Wellington for Plaintiff
DLA Phillips Fox, Lower Hutt for Defendant
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