United Builders Limited v MKOD Developments Limited

[2022] NZHC 2381

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-1538

[2022] NZHC 2381

UNDER

the Companies Act 1993

BETWEEN

UNITED BUILDERS LIMITED

First Plaintiff

WOLFGRAMM CONTRACTING LIMITED

Second Plaintiff

AND

MKOD DEVELOPMENTS LIMITED

Defendant

On the papers:	16 September 2022
Appearances:	D G Collecutt for the Plaintiffs No appearance for the Defendant
Judgment:	16 September 2022

JUDGMENT OF ASSOCIATE JUDGE D GARDINER

[Dismissal of application to appoint an interim liquidator]

This judgment was delivered by me on 16 September 2022 at 3:30pm

pursuant to Rule 11.5 of the High Court Rules

………………………….

Registrar/Deputy Registrar

Solicitors:

Peter Broad, Papatoetoe, Manukau for the Plaintiffs

Counsel:

D G Collecutt, Barrister, Auckland

UNITED BUILDERS LIMITED v MKOD DEVELOPMENTS LIMITED [2022] NZHC 2381 [16 September 2022]

Introduction

[1]    The first and second plaintiffs, United Builders Ltd (United Builders) and Wolfgramm Contracting Ltd (Wolfgramm), apply without notice for an order appointing an interim liquidator to the defendant, MKOD Developments Ltd (MKOD).

[2]    The application is supported by affidavits of Munesh Chand, Director of the first plaintiff, and Mavis Wolfgramm, Manager of the second plaintiff.

[3]    The first and second plaintiffs have also given undertakings to pay damages to compensate the defendant for any damage sustained through the appointment of an interim liquidator.

Background facts

[4]    Chandar Prakash, a representative of MKOD, assisted Wolfgramm to arrange a builder to carry out  renovation and repair  work of fire damage to a house in      Mt Roskill (the building work). Mr Prakash also provided architectural drafting services in relation to the building work.

[5]    Mr Prakash obtained a quote from United Builders to carry out the building work and presented it to Wolfgramm. The quote, dated 17 May 2022, was for

$529,000 with a 40 per cent deposit of $211,600 and the balance to be paid in three instalments.

[6]    Mrs Wolfgramm says that when Mr Prakash presented this offer to her, she indicated that she was uncomfortable with the deposit and that she wanted Mr Prakash to act as a “middleman” between her and United Builders.

[7]    On  20  May  2022,  Mr  Prakash  presented  an  offer   from   MKOD   to Mrs Wolfgramm for the building work for the same total price as the offer from United

Builders, but with a reduced deposit of $69,000, four payments of $100,000 and a final payment of $60,000. MKOD also issued an invoice for the deposit.

[8]    On the same day, Mr Prakash sent United Builders a document from MKOD which set out a different payment plan for the building work, involving four payments of $138,000 and a final payment of $115,000, totalling $667,000.

[9]On or about 23 May 2022, Wolfgramm paid the deposit of $69,000 to MKOD.

[10]   United Builders says that at some  stage  between  20  and  26  May  2022, Mr Prakash instructed them to commence the building work and to issue an initial invoice for $100,000. On 26 May 2022, United Builders sent an invoice for $100,000 to Mr Prakash.

[11]On 9 June 2022, Mr Prakash paid United Builders $40,000.

[12]   Between 7 June and 20 July, MKOD issued three further invoices to Wolfgramm for $50,000 each, which Wolfgramm paid.

[13]   On 8 August 2022, United Builders issued a further invoice for the building work for $138,000. It did not receive any payment from MKOD or Wolfgramm for this invoice.

[14]   Wolfgramm says that in total it paid $219,000 to Mr Prakash for the building work. United Builders says it only received $40,000.

[15]Therefore, the plaintiffs claim that Wolfgramm paid Mr Prakash/MKOD

$179,000 for building work that was not passed on to United Builders as agreed.

[16]   When United Builders contacted Mr Prakash, he stated that the payments would be released when Auckland Council gave a certain level of approval. Later, he said that Wolfgramm was unhappy with the building work and had delayed paying.

Grounds for the plaintiffs’ claim

[17]   The plaintiffs applied under s 241(4) of the Companies Act 1993 to have MKOD placed into liquidation on the grounds that the company is unable to pay its debts; or it is just and equitable that the company be placed into liquidation.

[18]   They now apply, without notice, under s 246 for an order appointing interim liquidators to MKOD.

[19]   The plaintiffs say that the key issue is whether MKOD is liable to one or both plaintiffs for a debt (i.e. that they are a creditor). They say that on any analysis, MKOD must be obliged to pay the balance of $150,000 to United Builders; or refund $150,000 to Wolfgramm; or pay part of $150,000 to United Builders and refund the balance to Wolfgramm.

Legal principles

[20]Section 246 of the Companies Act relevantly provides:

246 Interim Liquidator

(1)  If an application has been made to the court for an order that a   company be put into liquidation, the court may, if it is satisfied that it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company, appoint a named person, or an Official Assignee for a named district, as interim liquidator.

[21]   Associate Judge Osborne summarised the relevant considerations in Truck and Trailer Holdings Ltd v Skelly Holdings Ltd:1

[5]        The application is filed under s 246 Companies Act 1993 which permits the Court to appoint an interim liquidator if it [is] satisfied that it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company. Accordingly, the over-arching criteria are necessity and expediency. The threshold indicated by the latter term has been explained by the Court in Carter Holt Harvey Ltd v Timbalok NZ Ltd as meaning:

fitting, suitable, desirable or convenient.

1      Truck and Trailer Holdings Ltd v Skelly Holdings Ltd HC Christchurch, CIV-2012-409-000541, 11 May 2012.

[6]Chisholm J observed that this conveys a relatively low threshold.

[7]        Beyond the statutory criteria it has been recognised that there are three main pre-conditions to an interim liquidation:

(i)There must be a valid winding-up application under way.

(ii)The application will in all probability succeed.

(iii)The circumstances must be not merely urgent, but also justify the appointment of an interim liquidator.

[8]The Court has recognised as three important factors:

(a)Whether the company assets are in jeopardy.

(b)Whether the status quo should be maintained.

(c)Whether the interests of creditors are safeguarded.

[9]        These various formulations are ways of measuring whether necessity or expediency are established. They are a “litmus test”, not exhaustive.

Decision

[22]I decline to appoint an interim liquidator for the following reasons.

[23]   First, I am not satisfied, based on the limited evidence before me, that the plaintiffs have a strong case for having MKOD placed in liquidation.

[24]   The contractual arrangements allegedly resulting in MKOD owing a debt to United Builders, or Wolfgramm, or both, are far from straightforward. The offer from United Builders does not align with the payment plan Wolfgramm agreed to, which does not align with the document MKOD sent United Builders. There is no written agreement between United Builders and MKOD or Wolfgramm.

[25]   Putting those issues aside, and assuming one or both of the plaintiffs are creditors of MKOD, the Court will only place MKOD in liquidation if it is satisfied that MKOD is unable to pay its debts and/or it would be just and equitable for the company to be placed in liquidation.

[26]The plaintiffs submit:

There is an inference that as $179,000 has not been paid over a period of three months the company is unable to pay its debts.

There is also an inference in this case that the affairs of the company are being run in such a way that a significant amount of money which has been paid to the company has been misapplied, to the detriment of the company’s creditors.

[27]   There is no evidence before the Court that MKOD is unable to pay its debts. If the plaintiffs were to issue a statutory demand for the amount claimed, and that statutory demand was not satisfied or set aside by the Court, that would give rise to a presumption that MKOD is unable to pay its debts. Without that, I am not able to draw the inference the plaintiff asks me to draw from the fact that MKOD has not passed on

$179,000 to United Builders as allegedly agreed. It is quite possible, for example, that the company has assets that exceed its liabilities.

[28]   There is some evidence to suggest that Mr Prakash/MKOD has misapplied funds paid by Wolfgramm that were intended for United Builders. That may provide a basis for the Court, in its discretion, to place MKOD into liquidation on the “just and equitable” grounds. However, there has been no opportunity to test this allegation, as there will be when the substantive proceeding is advanced.

[29]   In summary, I cannot be confident at this stage that an application to place the company in liquidation will be successful, especially without any information about MKOD itself. It is important not to lose sight of the fact that an application for the liquidation of a company must be based on the company’s insolvency, the company’s persistent failure to comply with the Companies Act or essential requirements, or some other circumstance that justifies the company being wound-up; such as a deadlock imperilling the company’s operations, the substratum of the company being gone, or the company being operated in a way that is oppressive or unfairly prejudicial to a shareholder(s). This application is not based on any of the above. It is based primarily on a claim that Mr Prakash has misappropriated money owed to the plaintiffs.

[30]   For the same reasons, I cannot be confident that it is necessary or expedient to appoint an interim liquidator to preserve the company’s assets and/or protect the interest of creditors.

[31]   The plaintiffs point to two additional circumstances as creating urgency. These are that Mr Prakash was previously convicted for failing to pay $170,000 of GST to the Commissioner of Inland Revenue; and that he recently travelled to Fiji. The plaintiffs say that there is an obvious risk that Mr Prakash will stay in Fiji and arrange for any money left in MKOD’s bank account to be transferred out of that bank account.

[32]   These factors are not compelling enough to persuade me that it is appropriate for the Court to take the serious step of placing the company into interim liquidation on a without notice basis.

Result

[33]The application without notice to appoint an interim liquidator is dismissed.

[34]   The plaintiffs are to serve their notice of proceeding and statement of claim for an order putting the defendant company into liquidation on the defendant in the usual way.

………………………………

Associate Judge Gardiner