Zenscape Limited v Collective Contractors Limited
[2023] NZHC 1410
•7 June 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-2452
[2023] NZHC 1410
UNDER the Companies Act 1993 IN THE MATTER OF
an application for the liquidation of a company
BETWEEN
ZENSCAPE LIMITED
Plaintiff
AND
COLLECTIVE CONTRACTORS LIMITED
Defendant
Hearing: 24 April 2023 Appearances:
David van Hout and Rebecca Selby for the Plaintiff Merran A Keil for the Defendant
Judgment:
7 June 2023
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
[Application to stay liquidation proceedings and restrain advertising]
This judgment was delivered by me on 7 June 2023 at 4:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Carson Fox Bradley (Peter Liao), Auckland, for the Plaintiff
Keil & Associates (Christina J Keil), Auckland, for the Defendant
Copy for:
Russell Legal (David van Hout/Rebecca Selby), Auckland, for the Plaintiff Merran Keil, Barrister, Regent Chambers, Auckland, for the Defendant
ZENSCAPE LIMITED v COLLECTIVE CONTRACTORS LIMITED [2023] NZHC 1410 [7 June 2023]
TABLE OF CONTENTS
Paragraphs
Introduction [1]
Background [2]
Collective’s application to restrain publication and stay proceedings [4] Affidavit of Simon William Long, dated 2 February 2023 [6] Second affidavit of Simon William Long, dated 10 February 2023 [19]
Zenscape’s opposition [24]
Affidavit of Dani Lee Coughey, dated 17 February 2023 [25]
Reply affidavit of Simon William Long, dated 27 February 2023 [36]
Reply affidavit of Aravinth Kandasamy, dated 27 February 2023 [46]
Legal principles [49]
Analysis [55]
No valid payment claims under section 20 CCA [57] Conclusion in respect of payment claims under section 20
[63]
Zenscape is not entitled to payment, due to failure to issue relevant payment claims under the 2021 Contract
[67]
Conclusion in respect of payment claim
[72]
Wrong contract relied on by Zenscape
[74]
Conclusion in respect of the wrong contract
[78]
Conflicting evidence requires substantive trial / unpaid sums are subject to a genuine and substantial dispute on substantive grounds
[80]
Conclusion in respect of conflicting evidence requires substantive trial / unpaid sums are subject to a genuine and substantial dispute on substantive grounds
[87]
Collective was solvent and was under no obligation to apply to set aside the statutory demand
[89]
Conclusion in respect of Collective’s solvency
[96]
Oppressive conduct by Zenscape and its agents
[99]
Conclusion in respect of oppressive conduct/abuse of process
[102]
Result
[105]
Orders
[106]
––––––
Introduction
[1] Zenscape Ltd (Zenscape) has applied for Collective Contractors Ltd (Collective) to be put into liquidation. Collective now applies for orders restraining publication in relation to their liquidation and staying further proceedings.
Background
[2] Zenscape provided concreting services to Collective. Subsequently, investigations into invoices issued by Zenscape to Collective led Collective to dispute various aspects of the invoices for such works, particularly around charges for travel time and meal breaks.
[3] Despite negotiations, Zenscape issued a statutory demand for such works (excluding agreed deductions), interest and legal costs, totalling $205,114.37. As Collective failed to pay within 15 days of service of the statutory demand issued on 28 October 2022, Zenscape sought for Collective to be put into liquidation. Collective disputes that any amount is outstanding having made further payment to Zenscape of
$158,829.04, leaving $46,285.33 in dispute. Collective has paid that disputed amount into its solicitor’s trust account pending resolution of this proceeding. As will become apparent further in this judgment, the figure in dispute has been recalculated multiple times and is defined differently between parties.
Collective’s application to restrain publication and stay proceedings
[4]Collective seeks orders:1
(a) Restraining the publication of an advertisement required by HCR31.9 in relation to the liquidation and restraining the publication of any other information relating to the statement of claim;
1 Interlocutory application by defendant for orders restraining publication of an advertisement required by HCR31.9 and staying any further proceedings in relation to the liquidation dated 2 February 2023 at [1].
(b) Staying any further proceedings in relation to the liquidation;
(c) Costs on this application; and
(d) Such further or other relief as the Court thinks fit.
[5]The grounds on which the orders are sought are:2
There is a Genuine Dispute
(a) The respondent/plaintiff, Zenscape Limited (Zenscape), are specialists in earthworks, concrete placement and construction. In June 2020, Collective, an earthworks and drainage company, opened a credit account with Zenscape on behalf of Collective in order for it to engage Zenscape to undertake various works on various projects for Collective.
(b) Zenscape issued invoices (but not payment claims) to Collective for works carried out on Collective's construction projects. Collective discovered significant discrepancies in relation to certain invoices and what appeared to be significant overcharging. Collective notified Zenscape of the discrepancies and undertook a thorough review into the amounts claimed by Zenscape. In response, Zenscape made demand for the invoiced amounts totalling $224,926.59 ($220,020.91 for the September 2022 invoices and $14,863.75 for the October invoices, less a sum owed by Zenscape of $9,958.01).
(c) Despite Collective raising a dispute with Zenscape over the claimed amount, Zenscape served a statutory demand on Collective making demand for $205,114.37. In response, Collective wrote to Zenscape reiterating its position that the claimed amount was in dispute (including providing a detailed breakdown of Zenscape's invoices on a line-by-line basis) and expressing its view that the statutory demand was therefore invalid.
(d) Collective and Zenscape continued to negotiate the dispute and Collective subsequently paid a total of a further $158,829.04 to Zenscape after satisfying itself that this amount was no longer in dispute. The remaining balance claimed by Zenscape was and remains in dispute.
(e) Collective has sought clarification of the discrepancies relating to the disputed amounts. Instead of responding to Collective's requests for clarification, Zenscape:
(i) Initially falsely claimed it had filed liquidation proceedings on 9 December 2022 and demanded Collective pay $277,976.77 (which included $48,231.75 in debt collection costs) that same day. It had not filed proceedings.
(ii)Filed liquidation proceedings despite its knowledge that the remaining amount claimed is in dispute due to significant and unexplained discrepancies. Zenscape failed to disclose and account for the fact that payments totalling $158,829.04 were
2 At [2].
paid by Collective prior to the liquidation proceedings being signed and filed.
(f) There is a genuine dispute between the parties relating to the remaining amount claimed by Zenscape. Zenscape have at all material times been aware of the dispute and have issued a statutory demand and liquidation proceedings with the knowledge that a genuine dispute exists.
(g) In the absence of agreement that the amount claimed is due and owing, Zenscape cannot show there is a liquidated amount. Zenscape is not a creditor and does not have status of a creditor. The claimed amount is not due and owing and Collective has not neglected to pay it.
The Applicant is Solvent
(h) Collective is solvent and able to pay its debts as they fall due. Collective's financial statements confirm that this is the case.
(i) At all material times Zenscape was aware that the claimed amount was in dispute. Collective was not obliged to take steps to set aside statutory demand in circumstances where the dispute had been made persistently clear to Zenscape through correspondence and discussions between the parties.
(j) Without any admission or acceptance that the claimed amount is due and owing (Collective denies that any debt is owed), Collective shall, within five working days after the date of this application, put the amount of
$46,285.33 (being the claimed amount of $205,114.37 less the payments by Collective totalling $158,829.04 that Zenscape has failed to disclose to the Court and account for) into its solicitors' trust account to be held pending resolution of the parties' dispute. If required by the Court as a condition of staying the liquidation proceedings, Collective and/or its solicitors are willing to provide a suitable undertaking that those funds be held on trust pending settlement of the dispute or further order of the Court.
Abuse of Process
(k) At all material times Zenscape has had clear and unequivocal knowledge that Collective disputes the amount claimed on the grounds that it has identified significant and unexplained discrepancies in Zenscape's invoices, which Zenscape has failed to respond to. Proceeding with the clear knowledge that a genuine dispute exists is an abuse of process and is oppressive.
(l) Zenscape has used the statutory demand and liquidation process as a way to exert undue pressure on Collective to pay the disputed amount. Zenscape's debt collection agent, Law Debt Collection Limited, falsely claimed it had filed liquidation proceedings and demanded Collective immediately pay $277,976.77 (which included an exorbitant amount of
$48,231.75 in debt collection costs).
(m) Zenscape is claiming $205,114.37 in these proceedings. This is despite Collective having paid a total of $158,829.04 to Zenscape, after satisfying itself that this amount was no longer in dispute. This amount was paid by
Collective prior to the liquidation proceedings being signed and filed but was not disclosed or accounted for by Zenscape. Instead, an employee of Law Debt Collection Limited, Gloria Patelesio (Ms Patelesio), deposed that she manages and oversees Zenscape's account and that the statements in the statement of claim are true and correct. Ms Patelesio makes this statement even though:
(i) Collective paid $1,306.42 to Zenscape on 21 October 2022;
(ii)Collective paid $54,215.49 to Zenscape on 21 November 2022;
(iii)Collective emailed Law Debt Collection Limited on 16 December 2022 advising it that payment of $103,307.13 was being made;
(iv)Collective paid $103,307.13 to Law Debt Collection Limited on 18 December 2022; and
(v)She swore her affidavit on 20 December 2022, four days after Law Debt Collection Limited was advised payment would be made of $103,307.13 and two days after payment was made to Law Debt Collection Limited.
(n) When Collective's payments are taken into account, the actual amount claimed by Zenscape and in dispute is only $46,285.33.
Serious Question to be Tried
(o) There is a serious question to be tried as to whether there is any debt owing at all. Collective disputes the full amount claimed by Zenscape and has detailed its objections to the amount claimed to Zenscape.
The Balance of convenience
(p) The amount claimed is in dispute. Collective is solvent and able to pay its debts as they fall due. The winding-up of Collective is not justified or appropriate.
(q) Collective will put, within five working days after the date of this application, the amount of $46,285.33 into its solicitors' trust account to be held pending resolution of the parties' dispute. It is also willing to provide suitable undertakings if required by the Court.
(r) Collective will suffer serious and irreparable harm in the event of publication of an advertisement in relation the liquidation or any other information relating to the statement of claim.
Overall Justice
(s) Overall justice favours granting an order restraining publication of an advertisement in relation to the liquidation or any other information relating to the statement of claim and an order staying the liquidation proceedings.
Disputed Questions of Fact
(t) There are disputed questions of fact in relation to the discrepancies in Zenscape's invoices, including:
(i) between the hours invoiced by Zenscape and the hours documented by Collective's site manager;
(ii)total hours claimed that differed from the time between submitted start and finish times;
(iii)unpaid meal and travel time claimed; and
(iv)multiple people with the same name charged at different rates that were unable to be reconciled with Zenscape's staff list.
(u) It is necessary for evidence to be adduced and tested by way of cross-examination at a full trial to determine whether the amounts charged by Zenscape are legitimate or mistaken/fraudulent.
(v) A stay of the liquidation proceedings should be granted to enable a full trial and cross-examination of factual witnesses to occur.
Affidavit of Simon William Long dated 2 February 2023
[6] Mr Long, one of two directors of Collective, has affirmed an affidavit in support of his application for orders restraining publication and staying further proceedings.3
[7] He deposes that Collective first opened a credit account with Zenscape on 30 June 2020 with a personal guarantee. This was superseded by a new credit account applied for on 5 May 2021 by him and the other director (the 2021 Contract). Jobs were initially priced but since January 2022, have been charged at an hourly rate or on a cost-plus-margin basis, which has created less certainty. However at the time, he had always found Zenscape provided excellent service and value.
[8] These proceedings relate to works undertaken at 125B Metcalfe Road, 1 Bukem Place and 88 Diana Place, invoiced in September 2022 totalling
$220,020.91. Mr Long accepts the invoices were issued but states that no payment claims were made.
3 Affidavit of Simon William Long in support of interlocutory application by defendant for orders restraining publication of an advertisement required by HCR31.9 and staying any further proceedings in relation to the liquidation dated 2 February 2023.
[9] Collective’s Junior Quality Surveyor, Rajesh Bilur, discovered discrepancies and possible overcharging. Mr Long first notified Zenscape of the issues on 4 October 2022. Mr Bilur corresponded with Ms Dani Coughey (Ms Coughey), one of Zenscape’s directors, and undertaking a cross-check of costs against Collective’s internal labour on site records.
[10] On 21 October 2022, North Harbour Law issued a letter of demand on Collective on behalf of Zenscape for $220,020.91. Mr Long replied to solicitor Dani Matich advising of the disputed amount and confirming that one undisputed invoice has been paid.
[11] On 28 October 2022, North Harbour Law sent a statutory demand for the same sum, penalty interest and costs but excluding less the apparently disputed amount, which Collective had not agreed to, and less money owed by Zenscape to Collective. Mr Long deposes that on 18 November 2022, he emailed Ms Coughey that he had received the demand but as the amount owning was reasonably disputed the demand was invalid and he set out the disputes in relation to labour costs, confirmed that Collective would pay 100 per cent of non-labour costs and attached an Excel sheet setting out labour disputes related to September, July and August invoices. He believed that alongside ongoing correspondence that was sufficient to cancel the demand, despite Zenscape never responding.
[12] On 24 November 2022, Law Debt Collection Limited (LDC) sent a letter of demand for $277,976.77 which included $48,231.75 in debt collection charges. As this was a different company with a fresh demand, Mr Long deposes this confirmed his belief that the previous demand was not being pursued. He called North Harbour Law and confirmed with their solicitor that the dispute had been referred to an insolvency practice, presumably Law Debt Collective Limited.
[13] On 29 November 2022, he received an email from John Campbell at LDC seeking to resolve the position and recover the debt. Mr Campbell appeared to be unaware of the disputed labour costs and sought details about that dispute. On 9 December 2022, Mr Campbell advised that liquidation proceeding had been filed. Mr Long replied asserting among other things that the amounts claimed should not
include the amounts already paid for non-labour costs. He then called Mr Campbell on 12 December 2022 to dispute the amount and emailed to confirm their discussion. As set out in that email, Mr Long advised that he had received no response from Zenscape to his 18 November 2022 dispute and confirmed that he would pay the undisputed sums and work to resolve the sums. Without prejudice discussions ensued.
[14] Collective paid on 18 December 2022 what it was satisfied was undisputed, an amount of $103,307.13. Mr Long was at this point still not in agreement with Mr Campbell about the outstanding amount and disputed that his debt collection fee was payable by Collective.
[15] Mr Long deposes that despite this proceeding documents being signed after Collective had made multiple payments they were initially not accounted for, totalling
$158,829.04 which leaves $46,285.33 in dispute. This disputed amount related to discrepancies first raised in his 18 November 2022 email which Zenscape has never engaged with.
[16] Mr Long says that he has sought to reconcile and pay what is legitimately owed and has engaged with Zenscape, its lawyers and LDC but has never received justification for the unpaid sums claimed. He says that Zenscape has issued these liquidation proceedings without ever reconciling what is owed or engaged on the sums disputed.
[17] Regarding Collective’s solvency, he says that Collective is not insolvent, is able to pay debts as they become due and the value of its assets exceeds its liabilities, which he confirmed by annexing his most recent accounts with a letter from its accountants. He confirms at that stage that Collective would put the disputed amount into its solicitor’s trust account pending resolution of this proceeding.
[18] Regarding harm if the liquidation is advertised, Mr Long deposes the following irreparable harms to Collective are possible:
(a)Suppliers would likely stop extending credit or supplying which would halt business operations.
(b)Collective would suffer reputational damage.
(c)Mr Long and the other director would suffer reputational damage.
(d)Collective risks losing staff or failing to attract them in a market short on labour.
Second Affidavit of Simon William Long dated 10 February 2023
[19]Mr Long has affirmed a further affidavit in support of his application.4
[20] First, the affidavit confirms that Zenscape has received the payments made by Collective and allocated them against the invoices claimed to be outstanding. Mr Long notes that of Collective’s most recent payment to LDC which was all to be paid to Zenscape, Mr Campbell took 20 per cent as his fee and then instructed his employee Gloria Patelesio to affirm/swear that no payment had been received following service of the statutory demand. Mr Long sets out that on Zenscape’s own records, including the amounts taken by Mr Campbell, only $37,261.38 of the statutory demand is possibly outstanding, but even that is disputed by Mr Long as not owing.
[21] Second, Mr Long sets out concerns with Mr Campbell believing that he is providing instruction to Zenscape to file and continue these proceedings, especially because he advertises his services as “no win no fee”.
[22] Third, Mr Long identifies that some issues over payment came from the inclusion of travel time in invoiced labour times. While Zenscape’s employees were able to charge for their travel time, Mr Long understood that their subcontractors, Lumberlads Limited (Lumberlads), were not. He asked for Ms Coughey to separate out the travel time for October invoices and she requested that Mr Bilur from Collective do so using the advised travel times. Mr Long says that it became clear and was then agreed by Ms Coughey that overcharging had occurred and adjustments needed to be made to September’s invoices to account for subcontractor travel time.
4 Second affidavit of Simon William Long in support of the defendant's application for orders restraining publication of an advertisement required by HCR31.9 and staying any further proceedings in relation to the liquidation dated 10 February 2023.
Ms Coughey subsequently changed her mind believing that subcontractors travel costs were payable and refused to revise the invoices. Mr Long also deposes that there were issues with meal breaks which Collective had not agreed to pay and are not normally paid under hourly rates, alongside issues based on Zenscape’s own timesheets.
[23] Mr Long then concludes that on new calculations $45,512.43 is the disputed amount based on invoice errors and charging for travel time and meal breaks. He then concludes by stating that the real disputed amount is $59,484.92 if disputed labour costs claimed and paid for in July, August and October invoices are included.
Zenscape’s opposition
[24]Zenscape opposes Collective’s application on the following grounds:5
(a) The plaintiff and defendant company are parties to an agreement signed on 5 May 2021 (Agreement). The terms of the Agreement include:
(i) 4.1 — These terms constitute an agreement by plaintiff and the defendant company on all of the mechanisms referred to in s 14 of the Construction Contracts Act 2002 (CCA).
(ii)11.1 — All payments for services provided shall be paid to the plaintiff by the defendant company no later than the due date of the invoice.
(iii)11.3(a) — The defendant company will not withhold payment or make any deduction against any amount owing without the plaintiff’s prior written consent. If the defendant company disagrees for any reason with the claimed amount, it will respond to the plaintiff in writing with a payment schedule before payment is due, detailing a scheduled amount (the amount it proposes to pay) and its reasons and basis of calculation for any item in the payment claim that it does not propose to pay in full. The defendant company will pay the scheduled amount by the due date. If the plaintiff disagrees with the defendant company’s payment schedule the plaintiff may refer the matter to adjudication.
(iv)11.3(b) — The plaintiff may allocate payments as it sees fit notwithstanding any specific tender by the defendant company.
(v)12.1 — If the defendant company disputes an invoice/payment claim it must within 15 days of the date of the payment claim provide the plaintiff with a written payment schedule which —
5 Amended notice of opposition to the defendant’s application for order restraining advertising and other orders dated 17 February 2023 at [1].
(1)Identifies the payment claim to which it relates; and
(2)What the defendant company is prepared to pay (Scheduled Amount); and
(3)If the Scheduled Amount is less than the claimed amount:
(a) How the defendant company calculated the Scheduled Amount; and
(b) The defendant company’s reasons for the difference between the Scheduled Amount and the claimed amount; and
(c) The defendant company’s reasons for withholding payment.
(vi)13.1 — In the event of the defendant company’s default of any of these terms (and until the default is corrected):
(b) any amount owing will immediately become due and payable notwithstanding that the due date has not yet arisen;
(e) the plaintiff may charge interest on the amount owing at the rate of 15% per month;
(g) the defendant company will be liable for ALL costs incurred by the plaintiff in recovering the amount owing including debt collection agency commission and full legal costs.
(b) The Agreement is relied on by the plaintiff as if pleaded in full.
(c) During September 2022 the plaintiff issued invoices for construction work provided to the defendant company totalling $220,020.91, as follows:
(d) The defendant company failed to pay the invoices in full by the due date of 20 October 2022.
2. The plaintiff was entitled to issue the statutory demand dated 28 October 2022 to test the solvency of the defendant company. The statutory demand included interest and costs due to the plaintiff under clause 13.1 of the Agreement and included acknowledged agreed deductions to the invoices. The statutory demand amount was $205,114.37.
3. The defendant company failed to comply with the statutory demand in full within 15 working days, being by 21 November 2022.
4. The plaintiff received payments from the defendant company of
$158,829.04 as follows:
5. Despite part-payment by the defendant company of $158,829.04, there remains $46,285.33 (the Debt) outstanding to the plaintiff, which it is entitled to enforce under the expired statutory demand by bringing these liquidation proceedings to appoint a liquidator to the defendant company.
6. The defendant company did not apply to set aside the statutory demand.
7. It is acknowledged that the amount referred to in the statement of claim as the debt owing to the plaintiff incorrectly referred to the original sum stated in the statutory demand. However, despite that error, the Debt owing after accounting for the payments listed in [4] satisfies the requirements of the prescribed amount under r 5 of the Companies Act Liquidation Regulations 1994.
8. There is insufficient evidence to show that the defendant company is solvent. The evidence provided by the defendant company in its 31 March 2022 financial statements records that its current liabilities exceed its current assets by approximately $95,000. The solvency test under s 4 of the Companies Act 1993 is a two-pronged assessment that includes a company’s ability to pay its debts as they become due in the ordinary course of business. The defendant company has not provided evidence that it is paying its debts when they fall due.
9. The defendant has no ‘strong’ prima facie case’ of the existence of a genuine dispute on substantial grounds, nor can it show clear or persuasive grounds for a stay.
10. The plaintiff is a creditor of the defendant company and there has been neglect by the defendant company to pay the plaintiff.
11. The liquidation proceeding is not an abuse of process, nor is there unfairness or undue pressure on the defendant company.
Affidavit of Dani Lee Coughey dated 17 February 2023
[25] Ms Coughey, one of Zenscape’s directors alongside her partner Zen Arden, has made an affidavit in support of her opposition to restraint of publication and stay of proceedings.6
[26] Ms Coughey deposes that it was usual for Zenscape to subcontract, including to Lumberlads. Collective knew this and would liaise directly with Lumberlads’ director, Mr Dallace Robertson for questions regarding their work. She notes that Collective’s directors also own a labour hire company, Hustle Limited (Hustle), and that they have drawn funds from Hustle in the past to pay Zenscape invoices.
[27] Ms Coughey acknowledges that the amount outstanding, given corrected errors in accounting for payments and ordinary proceeding times, is now $46,285.33.
[28] Regarding payment claims under the Construction Contracts Act 2002, she deposes that the invoices were intended to be payment claims despite only the first one being accompanied by the requisite information. However, she notes that Zenscape’s terms and conditions state that the payment claim and schedule process is made in every invoice.
[29] Regarding travel costs, Ms Coughey deposes that she sent an initial email stating that sub-contractors hours would be billed from arrival at Collective and Zenscape staff would be billed from arrival at Zenscape. She then later agreed with Mr Long and Mr Kandasamy, Collective’s quantity surveyor, that Zenscape would charge travel time in its labour costs in invoices. This was agreed by Collective as a compromise for other services for which Zenscape did not charge.
[30] Ms Coughey goes on to state that it is usual for sub-contractors to charge travel- related costs. She gives the example of the Concrete Pump Suppliers who charge a travel and set-up fee which Collective pays.
6 Affidavit of D L Coughey in support of opposition to the application for order restraining advertising, staying liquidation and other orders dated 17 February 2023.
[31] Regarding the invoices, she accepts that minor discrepancies were corrected but that she refused to further amend the invoices as they included the labour costs which accurately reflected travel time. Zenscape had both Mr Robertson and Zen Arden onsite daily, so she is assured of accurate timesheets.
[32] Regarding North Harbour Law’s demands, Ms Coughey accepts that she instructed them to collect the September 2022 invoices because despite the minor time queries Collective had over $200,000 due of which roughly $14,000 was calculated as disputed. She acknowledges that Mr Long eventually responded to the statutory demand and that she agreed to a small deduction in good faith. However, she questions why he disputed already paid July and August 2022 invoices and says there was no reason why the non-labour portion of September’s invoices should ever have been paid late.
[33] Regarding LDC, Ms Coughey deposes that much of Mr Long’s evidence on Mr Campbell is irrelevant. She states that LDC issued the liquidation proceeding on the basis that a payment promised in a text message by Mr Long two weeks prior never arrived. She accepts that the recent $103,307.13 payment should be fully allocated to the outstanding balance and that LDC’s costs, others costs and interest will be later recoverable under their terms of trade with Collective.
[34] Regarding Lumberlads’ travel time, she says she never changed her mind on their payment. Zenscape’s arrangement was only to pay them from their arrival at Collective and excluding breaks. However, she deposes that Mr Robertson advised her that Collective director Mr Webster had privately agreed that Lumberlads did not need to deduct meal breaks or travel time.
[35] In conclusion, Ms Coughey notes that Collective’s lack of payment and attempts to poach their and Lumberlads’ staff have seriously harmed Zenscape’s relationships with suppliers, and caused much personal stress. She cannot understand why Zenscape has been made to fund projects that Collective could not due to their delayed payments, despite Collective being paid by its client.
Reply Affidavit of Simon William Long dated 27 February 2023
[36]Mr Long affirmed an affidavit in reply to that of Ms Coughey.7
[37] He disputes that Collective had drawn funds from Hustle to pay their debts. Instead, Hustle had on occasions in June and November 2021 advanced money not yet due to Zenscape as a favour and for an additional fee to prevent Zenscape from collapsing as it was otherwise insolvent.
[38] Regarding payment claims, he reasserts that no payment claim has ever been received from Zenscape at least with respect to the invoices subject to the statutory demand.
[39] He questions why it took so long for Collective’s payments to be allocated to the invoices and reflected in this proceeding, despite Collective making numerous enquiries. Given this time frame, Mr Long notes that various staff and Collective’s lawyers have been forced to spend significant time and money on tracking down the amounts owing and payments received. Consequently, they will be seeking increased or indemnity costs.
[40] Regarding the statutory demand, Mr Long believes the statutory demand and liquidation proceeding are invalid as they are brought under an earlier superseded contract with Collective.
[41] Regarding agreement of travel costs, he disputes that he ever accepted that they were payable to Zenscape. He agreed that he initially paid them, but put systems in place to monitor hours and then raised them later with Ms Coughey. He says it would not make sense for Collective to have agreed to pay travel time in exchange for services they were already receiving from Zenscape. Mr Long instead suggests Zenscape gave them good rates because they were long-term customers and helped them out when they were potentially insolvent.
7 Third affidavit of Simon William Long: In reply dated 27 February 2023.
[42] Mr Long disputes that it is common to always charge for travel costs. Hustle does not and they only pay for Concrete Pump Suppliers because they have agreed to that known cost.
[43]Regarding the disputed amount, Mr Long claims that amount was always
$46,285.33 and not the lower $13,975.50 amount. This higher amount is that currently held in their solicitors trust account in accordance with my prior order.8 He reiterates that further investigation now yields a disputed figure of $59,484.93 and that Collective is actually a creditor of Zenscape not the other way around.
[44] Regarding Lumberlads, Mr Long contends that Mr Robertson while initially charging for travel and meal breaks had removed them upon request. Zenscape never adjusted their invoices to reflect this.
[45] Mr Long rejects any allegations of poaching and states that any harm to Zenscape is of their own making. They are not permitted to overcharge whatever their hours. Any stress caused was a result of Zenscape refusing to attempt to resolve the dispute with Collective despite their attempts. He deposes that Collective has been put under great stress and live liquidation proceedings risk significant damage to the company. He ends by asserting that Collective is still solvent.
Reply Affidavit of Aravinth Kandasamy dated 27 February 2023
[46] Mr Kandasamy, Senior Quantity Surveyor at Collective, has made an affidavit in reply to Ms Coughey’s.9 His affidavit covers discussions that occurred at a meeting between Ms Coughey, Mr Long and him which in part concerned Collective paying for staff travel.
[47]At the meeting, Ms Coughey agreed to the following:
(a)a new timesheet for Zenscape’s staff,
8 Zenscape Ltd v Collective Contractors Ltd HC Auckland CIV-2022-404-2452, 17 February 2023 (Minute of Associate Judge C B Taylor).
9 Affidavit of Aravinth Kandasamy in reply dated 27 February 2023.
(b)to provide greater transparency around travel and meal times charges for each worker,
(c)to attempting keep the number of staff on site consistent at the Metcalf site, and
(d)that Zenscape provide as much information as possible regarding the scope of work for each invoice.
[48] Finally, Mr Kandasamy deposes that Mr Long had made clear that he did not agree to pay Collective for travel time daily for all staff. If that had been required by Ms Coughey, which he claims it was not, then he would have advised that Collective would find alternative labour to prevent jobs from becoming barely profitable.
Legal principles
[49]Rule 31.11 of the High Court Rules 2016 states:
31.11 Power to stay liquidation proceedings
(1) If an application for putting a company into liquidation is made under rule 31.3, the defendant company … may, within 5 working days after the date of the service of the statement of claim on the defendant company, apply to the court-
(a)for an order restraining publication of an advertisement required by rule 31.9 or any other information relating to that statement of claim; and
(b)for an order staying any further proceedings in relation to the liquidation.
(2) The court must treat an application under subclause (1) as if it were an application for an interim injunction and, if it makes the order sought, it may do so on whatever terms the court thinks just.
(3) The inherent jurisdiction of the court is not limited by this rule.
[50] The relevant principles concerning the Court’s jurisdiction to stay proceedings are well established.10
10 See Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 (HC) and Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA). These authorities remain relevant to the present approach.
[51] In Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd, Wallace J set out the principles:11
(a)The Court has an inherent jurisdiction to stay winding-up proceedings where the debt upon which such proceedings are founded is the subject of genuine dispute. In those circumstances, the plaintiff cannot show it has the status of a creditor or that there has been neglect by the company to pay.
(b)The jurisdiction is an inherent one to prevent abuse of process. There is no inflexible rule.
(c)The governing consideration is whether the proceedings suggest unfairness or undue pressure.
(d)It is a serious matter to stay winding-up proceedings, so the decision to do so is never made lightly. The onus is on the applicant and it is normally necessary to demonstrate “something more” than the balance of convenience considerations which are usually considered on an application for interim injunction. If the defendant company has had an opportunity to file appropriate affidavits they are required to establish a strong prima facie case of the existence of a genuine dispute on substantial grounds or show that there are clear and persuasive grounds for a stay.
[52] It is clear also that the power to restrain advertising may be exercised separately from the power to stay the proceeding. Advertising may be restrained where “on the face of it” there is a genuine dispute, the Court will then fix a date to finally determine the issue of whether there is in fact a genuine dispute.12 But the Court retains a discretion. It may be appropriate to give notice by advertisement to potentially interested persons, since such persons may be aware of potential difficulties within the company.
11 Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd, above n 10, at 385.
12 Walls v Arbor Real Ltd (1994) 8 PRNZ 61 (HC) at 62.
[53]Section 14(1) of the Construction Contracts Act 2002 (CCA) provides:
14 Parties free to agree on payment provisions in construction contract --
(1)The parties to a construction contract are free to agree between themselves on a mechanism for determining —
(a)the number of payments under the contract:
(b)the interval between those payments:
(c)the amount of each of those payments:
(d)the date when each of those payments becomes due.
[54]Section 20 of the CCA provides:
20 Payment claims
(1)A payee may serve a payment claim on the payer for a payment,—
(a)if the contract provides for the matter, at the end of the relevant period that is specified in, or is determined in accordance with the terms of, the contract; or
(b)if the contract does not provide for the matter in the case of a progress payment, at the end of the relevant period referred to in section 17(2); or
(c)if the contract does not provide for the matter in the case of a single payment expressly agreed under section 14(1)(a), following the completion of all of the construction work to which the contract relates.
(2)A payment claim must –
(a)be in writing; and
(b)contain sufficient details to identify the construction contract to which the payment relates; and
(c)identify the construction work and the relevant period to which the payment relates; and
(d)state a claimed amount and the due date for payment; and
(e)indicate the manner in which the payee calculated the claimed amount; and
(d) state that it is made under this Act.
(3)A payment claim must be accompanied by –
(a)an outline of the process for responding to that claim; and
(b)an explanation of the consequences of –
(i)not responding to a payment claim; and
(ii)not paying the claimed amount, or the scheduled amount, in full (whichever is applicable).
(4)The matters referred to in subsection (3)(a) and (b) must –
(a)be in writing; and
(b)be in the prescribed form (if any).
Analysis
[55]The two issues to be determined in this judgment are:
(a)should an order staying the liquidation proceedings be made?
(b)should orders restraining the publication of an advertisement required by r 31.9 in relation to the liquidation and any other information relating to the statement of claim be made?
[56] Ms Selby, for Collective, advances seven grounds in support of Collective’s application:
(a)Zenscape has no entitlement to payment of any amount due to failure to issue valid payment claims under s 20 of the CCA.
(b)Zenscape has no entitlement to payment of any amount due to failure to issue valid payment claims under the 2021 Contract entered into between the parties, dated 5 May 2021;
(c)Zenscape has no contractual entitlement to payment of any amount as the wrong contract has been relied upon;
(d)conflicting evidence requires a substantive trial;
(e)the unpaid sums are subject to a genuine and substantial dispute on substantive grounds;
(f)Collective is solvent and was under no obligation to apply to set aside the statutory demand;
(g)oppressive conduct by Zenscape and its agents.
No valid payment claims under section 20 CCA
[57] Ms Selby submits that the 2021 Contract is a construction contract within the meaning of, and governed by, the CCA and cl 4.2 of the contract provides:
“You [Collective] acknowledge that the obligations and benefits of the CCA shall apply in respect of any supply deemed Construction Work, Construction Contract, and the terms are a Construction Contract between Zenscape and the customer [Collective].”
[58] Ms Selby submits that the supply of labour and materials provided by Zenscape to Collective was, and was deemed, Construction Work, both as defined under s 6 of the CCA and as identified on each invoice submitted by Zenscape to Collective. Ms Selby submits that accordingly, under cl 4.2 of the 2021 Contract:
(a)there was an obligation on Zenscape to submit to Collective payment claims that complied with the requirements of s 20 of the CCA in order to obtain the benefit of payment from Collective; and
(b)the terms of the 2021 Contract, including payment terms (cl 11), disputes (cl 12), and default (cl 13), are to be read in accordance with the provisions of the CCA, meaning that claims for payment by Zenscape were required to be payment claims that complied with the requirements of s 20 of the CCA.
[59] Ms Selby submits that Zenscape failed to submit any valid payment claims as it failed to submit with its invoices the prescribed form to be submitted under s 20(3) and (4) of the CCA and, as a result of this failure, none of the invoices are payable.
[60] Ms Selby also points to the fact that Zenscape was aware when issuing the invoices that invoices had to be valid payment claims and were required to comply with s 20 and points to the facts that:
(a)That compliant payment claims had been issued was the sole ground under the original notice of opposition for Zenscape’s claim that the invoices were payable;13 and
(b)Ms Coughey confirms that invoices were meant to be payment claims under the CCA and further confirms that none of the relevant invoices were issued with the prescribed form, meaning that none of the invoices were valid payment claims.14
[61] Ms Keil, for Zenscape, on the other hand, submits that s 14 of the CCA allows parties to a construction contract to agree between themselves the mechanism for determining the number, interval, amount and date of payments under the contract, and the contract governs the legal obligations between the parties to this proceeding. She submits that although the 2021 Contract is a construction contract within the meaning of the CCA, Zenscape has not operated within the framework for progress payment claims established by the CCA and while Zenscape accepts the payment provisions in ss 20–23 of the CCA have not been invoked, there was a right to claim payment of the invoices under the 2021 Contract which are independent of the CCA.
She refers to AMC Construction Ltd v Frews Contracting Ltd.15
[62] Ms Keil submits the CCA is not a code and the parties to a construction contract may agree their own mechanisms for payment, referring to cl 4.1 of the 2021 Contract and s 14 of the CCA. She submits that Collective’s position that Zenscape was obliged to submit payment claims to comply with s 20 of the CCA before its invoices became payable misreads the CCA and s 20 provides “the payee may serve a payment claim to the payer for a payment…” and this is not obligatory. In addition, she submits this
13 Notice of Opposition to the defendant’s application for order restraining advertising and other orders dated 14 February 2023. The defendant filed an amended notice of opposition on 17 February 2023.
14 Affidavit of D L Coughey in support of opposition to the application for order restraining advertising, staying liquidation and other orders sworn/affirmed 17 February 2023 at [12(a)].
15 AMC Construction Ltd v Frews Contracting Ltd [2008] NZCA 389 at [14].
position also overlooks the fact that Collective had paid invoices issued by the plaintiff since June 2020.
Conclusion in respect of payment claims under s 20
[63] In my view, the position put forward by Ms Keil on behalf of Zenscape is correct in that the parties had established their own regime in respect of payments under cls 4.1, 11 and 12 of the 2021 Contract. Accordingly, Collective’s obligation to make payment of the invoices arose, notwithstanding that the payment claims did not comply with s 20. In my view, parties are allowed to decide on additional contractual payment schemes beyond the claims regime in s 20, and the obligation of Collective to make payment arose under the terms of the Contract independently of the CCA payment claims regime.
[64]In particular, I note the following regarding the terms of the 2021 Contract:
(a)“Amount Owing” as defined in cl 1.1 is not defined by reference to an amount owing under a payment claim;
(b)References in cl 11 refer to the “Amount Owing” rather than payment claims;
(c)Clause 12 does refer to “payment claims” but also refers to dispute of an “invoice” as well as a payment claim, and the parties at cl 12.1(b) have created their own definition of “scheduled amount”.
[65] Overall, there are ambiguities in the language used in cls 11 and 12, but taken with cl 4 and s 14 of the CCA, in my view the intention is clear enough that the parties had agreed their own contractual regime for payment terms beyond the CCA.
[66] My acceptance of Ms Keil’s position in respect of the ability of the parties to decide on additional contractual payment schemes is supported by the Court of Appeal’s decision in AMC Construction.16
16 AMC Construction Ltd v Frews Contracting Ltd, above n 15.
Zenscape is not entitled to payment due to failure to issue relevant payment claims under the 2021 Contract
[67] Ms Selby submits that under cl 12.1 of the 2021 Contract, if Collective disputed an “invoice/payment claim”, it was required to provide Zenscape with a payment schedule within 15 days of Zenscape’s valid payment claim and if Collective did not issue a payment schedule within 15 days under cl 12.2, it would become liable for the claimed amount. It submits therefore it is only the point at which Collective either admit sums are payable or fails to provide a payment schedule for a valid payment claim that the claimed amounts would become an “amount owing” under the 2021 Contract.
[68] Ms Selby submits there is no obligation on Collective to issue a payment schedule in the absence of a valid payment claim and that it is clear under the CCA that a payment schedule is to directly respond to a valid payment claim. Accordingly, she submits, the amounts claimed under the disputed invoices never became “amounts owing” under the terms of the 2021 Contract and thus, the provisions relating to “amounts owing” under cl 11 (payment terms) were never engaged. She submits that Collective is not liable for the claimed amount as it has not breached the terms of the 2021 Contract and is not in default under cl 13.1 of the 2021 Contract, and any default interest or costs claimed by Zenscape cannot be payable by Collective.
[69]Ms Keil’s answer to this argument is similar to her arguments summarised at
[61] and [62], that the parties had agreed their own regime as to payments under s 14 and an obligation on Collective to pay invoices arose under the terms of the 2021 Contract independent of the s 20 regime under the CCA.
[70] Ms Keil also points to cl 11.3(a) of the 2021 Contract which stipulates that Collective cannot withhold payment without Zenscape’s written consent or without providing a payment schedule before the payment is due. She submits the inability to withhold payment is not predicated on the issue of valid payment claim, and the clause operates in respect of invoices issued by Zenscape. She submits no payment schedule detailing the amount Collective proposed to pay was received before the September 2022 invoices were due. Accordingly, Zenscape was contractually obliged to pay the whole of the September 2022 invoices.
[71] Ms Keil further submits that where a contractual provision prevents withholding a payment except on certain grounds, if those grounds are not met then the Court’s discretion should be exercised against the person withholding the payment and she refers to the Court of Appeal decision in Brown’s Real Estate v Grand Lakes Properties Ltd.17
Conclusion in respect of payment claim
[72] In my view this is really a variation of the point raised by Collective and discussed at [57] to [66]. As I have concluded at [63] to [66], my view is that the parties are operating in contract beyond the payment claims regime under s 20 of the CCA, and beyond the requirement that a valid payment claim was required before the terms of the 2021 Contract relating to “amount owing” were engaged, including cls 11 and 12.
[73] Accordingly, I do not accept this argument as a valid ground to stay the liquidation proceeding or restrain advertising.
Wrong contract relied on by Zenscape
[74] Ms Selby submits that Zenscape’s statement of claim fails to plead the contractual basis on which it says it is entitled to payment of its invoices, has relied on the wrong contract, and it has failed to establish that Collective is liable to pay any amount including the disputed invoices.
[75] Ms Selby points to the following as indicating that Zenscape has relied on the wrong contract for claimed payments:
(a)In a letter dated 21 October 2022, Zenscape’s solicitors referenced Collective’s application to open a credit account with Zenscape dated 30 June 2020 which attached Zenscape’s terms and conditions of trade (the 2020 Contract). In the letter, Zenscape relied on cl 4.1 of the 2020 Contract in asserting that Collective had agreed to pay Zenscape’s
17 Browns Real Estate v Grand Lakes Properties Ltd [2020] NZCA 425 at [17].
charges for services provided and cl 5.1 in asserting that all invoices were payable on the 20th day of the current month in which the invoice was issued. Zenscape then purported to terminate the 2020 Contract and charge interest at the rate of 15 per cent and costs on an indemnity basis in reliance on the terms of the 2020 Contract.
(b)In the statutory demand and statement of claim, Zenscape claims interest and costs pursuant to the 2020 Contract.
[76] Ms Selby submits the 2020 Contract does not apply and is unenforceable, and the 2021 Contract governs the relationship between the parties. She submits that Zenscape made demand for payment, purported to terminate its contractual relationship with Collective, and issued the statutory demand and liquidation proceedings in reliance on the wrong contract and the wrong clauses, and that alone is sufficient grounds to stay the liquidation proceedings.
[77] In answer to this, Ms Keil submits that there are not significant differences between the contracts and any errors are not materially relevant to the disputed invoices and charging of interest. She points to cl 13.1(e) of the 2021 Contract, which allows the charging of interest at the rate of 15 per cent per month. She submits that the material terms regarding the disputed invoices are not substantially different from the 2020 Contract.
Conclusion in respect of the wrong contract
[78] Having reviewed the 2020 Contract and the 2021 Contract, there are clearly material differences — for example, cl 5 of the 2020 Contract, which deals with payments sets out a different procedure upon default or unwillingness to pay to that in cls 4 and 11 of the 2021 Contract. Further, the 2020 Contract does not contain equivalent provisions to cl 12 of the 2021 Contract, being the clause about disputes.
[79] In my view, this point is of not much significance. The references by Zenscape to the 2020 Contract were clearly in error, an error that would have been obvious to Collective and would not, in my view, have misled or prejudiced Collective in any material way. The proceedings would not be stayed on this basis.
Conflicting evidence requires substantive trial/unpaid sums are subject to a genuine and substantial dispute on substantive grounds
[80] I deal with these two grounds advanced by Ms Selby in support of the application together.
[81] Ms Selby submits that conflicting evidence on what agreements were made at a meeting between the parties of 12 August 2022 will require cross-examination of witnesses to resolve, and that is not appropriate that such conflicting evidence be resolved in the context of a liquidation proceeding. She submits that the evidence given on behalf of Collective ought to be favoured (at least) insofar as the current application is concerned as:
(a)it is more likely that Ms Coughey misunderstood or misremembered what was agreed at the meeting than both Mr Long and Mr Kandasamy are incorrect; and
(b)the evidence of Mr Kandasamy ought to be given more weight than the evidence of either Ms Coughey or Mr Long as he, as an employee, has significantly less interest in the current dispute.
[82] Ms Selby submits that the conduct of Collective subsequent to the 12 August 2022 meeting demonstrates that Collective understood that Zenscape would not be charging for travel times for its employees, and refers to the following:
(a)Mr Long’s email of 4 October 2022 to Ms Coughey attaching the findings of its junior quantity surveyor, Mr Bilur, which queried additional time charged of one or two hours per worker per day, and querying why Zenscape employees were recording that they started work at 6.00 am despite “no Collective staff starting at 6:00 am ever”.
(b)On 21 October 2022, Mr Bilur provided Ms Coughey with a recalculation of Zenscape’s charges, based on Collective’s understanding of what time was charged, deducting travel time for Zenscape’s employees and for sub-contractors.
(c)On 21 October 2022, Mr Long wrote to Zenscape’s solicitors advising that all of the invoices, save for a materials-only invoice (invoice 1807), were disputed as Collective did not agreeing to paying for a return-trip travel time.
(d)On 18 November 2022, Collective sent to Zenscape its calculations of the over-charging which excluded travel time.
[83] In summary, Ms Selby submits that the unpaid components of the disputed invoices are charges for travel time, and meal breaks (and a variation between the time-sheets and the invoices) which are not payable. She submits that there is a substantive and genuine dispute with respect to these charges and that Zenscape’s response to Collective’s careful and detailed analysis of the dispute was that “we know that the hours charged to Collective are accurate”.18 Ms Selby submits that Collective advised Zenscape of the dispute early, and undertook a thorough review of the charges and identified to Zenscape the basis for the dispute, and its calculations of the correct amount of the invoices which were paid.
[84] Ms Keil, on the other hand, submits that Collective did pay travel time and breaks on invoices issued to it between February 2022 and August 2022. Those payments had been approved by its quantity surveyor. She submits that it may be inferred from the conduct and correspondence of the parties it shows an agreement that Collective would continue to pay for travel time and breaks from August 2022. At [19] of her submissions, she set out detail of the correspondence between the parties from 12 July 2022 to 19 October 2022. Ms Keil relies in particular on sections of that correspondence shown in bold in the submissions in support of her argument that there is no genuine dispute in respect of the September 2022 invoices.
[85] Ms Keil also points to the fact that the September invoices were not made up solely of travel time and meal breaks, and the majority was labour hours on site and materials, and just a small portion related to travel time and meal breaks which
18 Affidavit of D L Coughey in support of opposition to the application for order restraining advertising, staying liquidation and other orders sworn/affirmed 17 February 2023 at [12(k)].
Zenscape agreed to hold in dispute, amounting to $12,150.00 plus GST — the same deduction as itemised as “disputed amount” in the statutory demand.
[86] In summary, Ms Keil submits that Collective had no genuine or substantial dispute to deny payment of the travel time and breaks as it had done so since February 2022 and had agreed to continue to pay it.
Conclusion in respect of conflicting evidence requires substantive trial / unpaid sums are subject to a genuine and substantial dispute on substantive grounds.
[87] In my view, there is a genuine substantial dispute between the parties as to payment for time and meal breaks and also disputes relating to variations between timesheets and invoices. The conflicting evidence relating to the meeting of the parties of 12 August 2022, in particular the conflict in the evidence between Ms Coughey on the one hand and Mr Long and Mr Kandasamy on the other, needs to be tested at trial. It is not appropriate to resolve these disputes in the context of liquidation proceedings. The correspondence between the parties prior to the issue of the statutory demand indicates the dispute was well articulated to Zenscape before the statutory demand was issued.
[88] Accordingly, in my view the conflict of evidence which requires resolution and the existence of the substantial dispute between the parties is a sufficient basis to stay the liquidation proceedings and to restrain advertising of the proceedings.
Collective was solvent and was under no obligation to apply to set aside the statutory demand
[89] Ms Selby submits that the presumption of insolvency that arises where a company fails to set aside the statutory demand is a rebuttable presumption. She submits that Collective has provided evidence that it is solvent, and it has deposited the full amount of the alleged debt now asserted by Zenscape to be owed into its solicitors’ trust account, and in these circumstances a liquidation order would be unjustified.
[90] She also submits that Collective has provided three years of financial accounts and confirmation from its chartered accountant that demonstrates its solvency.
[91] Ms Keil, on the other hand, submits that the obligation is on Collective to prove that it is solvent. She refers to the standard of proof of solvency as discussed by the Court of Appeal in AMC Construction Ltd v Frews Contracting Ltd where the Court said:19
To establish that a statutory demand ought to be set aside on the grounds of solvency it could not be sufficient to establish that the company was arguably solvent. Inability of a company to pay its debts constitutes a ground for appointment of a liquidator under s 241(4). The purpose of the demand procedure is to enable the creditor to take advantage of the statutory presumption in s 287, by which, if the demand is not met, the company is presumed to be unable to pay its debts. To rebut that presumption, the company must prove that it is able to pay its debts.
[92] Ms Keil also relies on the following additional evidence of Collective’s insolvency under s 288(2) of the Companies Act 1993:
(a)Failure of Collective to pay its debts as they fall due in the normal course of business. Earlier invoices (not the subject of this proceeding) have also been paid late (after the 20th of the month) and drip-fed to Zenscape. Collective has not provided any evidence that it is paying its creditors as they become due.
(b)The value of Collective’s liabilities are greater than the value of its assets including contingent liabilities.
[93] Ms Keil points to the statement that Collective’s accountant has provided to the effect that Collective is solvent based on a balance sheet of 31 December 2023 (which should have read ‘2022’) and is “technically” able to pay its debts as they fall due. She submits that the balance sheet dated 31 March 2022 shows a subvention payment as an account receivable of $204,623 owed to Collective by a related company. She submits that the accounts receivable has not been paid and has been classified as a current asset, but if the subvention payment is removed from the current assets, then Collective’s liabilities exceed its assets by $30,242.
19 AMC Construction Ltd v Frews Contracting Ltd, above n 15, at [10].
[94] Ms Keil further submits that payment into a solicitor’s trust account of the sum claimed does not establish the defendant is able to pay its debts as they fall due. She relies on the decision in Omid Construction Management Ltd v Target Painters & Decorators Ltd.20 She submits the contention that the defendant has assets that exceeds its liabilities, including contingent liabilities, is unsubstantiated.
[95] Finally on this point, Ms Keil submits that Collective’s failure to provide up- to-date and relevant financial documents infers that the directors are reticent to disclose the affairs of Collective.
Conclusion in respect of Collective’s solvency
[96] In my view, Collective has provided sufficient evidence to rebut the presumption of insolvency that arises where a company failed to set aside a statutory demand. The payment into Collective’s solicitors’ trust account of the amount to which the statutory demand now relates, and the provision of evidence from Collective’s chartered accountant is sufficient to meet this threshold.
[97] As to Ms Keil’s argument that reference to Collective being “technically” solvent in Collective’s chartered accountant’s statement casts doubt as to Collective’s solvency on a balance sheet basis, I do not consider this argument carries much weight. There is no expert evidence before the Court as to the status of the subvention payment as a current asset or the financial position of the related company obliged to make the payment and the Court cannot therefore make any assessment of it.
[98] Accordingly, I am of the view that the alleged insolvency of Collective is a not a sufficient ground to refuse to order a stay the liquidation proceedings and restrain advertising of the proceedings.
Oppressive conduct by Zenscape and its agents
[99] Ms Selby submits that the conduct of Mr Campbell and LDC indicates oppressive conduct by Zenscape or its agents. At [120] and [121] of her submissions,
20 Omid Construction Management Ltd v Target Painters & Decorators Ltd [2019] NZHC 3189 at [21].
Ms Selby refers to the comments that have been made in relation to Mr Campbell and LDC by the Courts and by the Commerce Commission in relation to his practices in respect of debt collection.
[100] Ms Selby points to the following as supporting oppressive conduct and/or abuse of process by Zenscape and its agents:
(a)The verifying affidavit does not comply with r 9.82(a) as the deponent did not know that about 75 per cent of the alleged debt had been paid or that the remainder of the debt was disputed. There is no evidence of the deponent’s involvement with the dispute other than providing an affidavit.
(b)The statutory demand was served despite Zenscape being well aware that the invoices were disputed. The purpose was not to test the solvency of Collective but to extract from Collective a payment to which Zenscape was not entitled.
(c)Mr Campbell attempted to obtain payment of a fee of almost $50,000 from Collective under the threat of liquidation proceedings which he said on 9 December 2022 had been issued, but which had not.
(d)Zenscape issued liquidation proceedings against Collective, despite Collective having put Zenscape and its agents squarely on notice that the unpaid components of the invoices were disputed and approximately 75 per cent of the claimed amount having been paid.
(e)Zenscape served the proceedings on Collective without acknowledging around 75 per cent of the claimed amount had been paid, and failed to confirm receipt of the payments for weeks after the claim had been served, despite requests from Collective’s solicitors.
[101] Ms Keil, on the other hand, submits that the proceedings are not oppressive or abusive, as real questions arise in respect of Collective’s solvency. She submits that
Collective has not pointed to any irretrievable prejudice that will be suffered if the proceedings were advertised.
Conclusion in respect of oppressive conduct/abuse of process
[102] Given the conclusion I have reached at [88] that a stay should be granted and the advertising of the proceedings restrained, it is not necessary for me to deal with the arguments put forward by Ms Selby that there ahs been an abuse of process by Zenscape and its agents. However for the sake of completeness I deal with this issue.
[103] I am of the view that given the dispute was clearly communicated to Zenscape regarding the invoices prior to the issue of a statutory demand, there was an abuse of process by Zenscape in issuing the statutory demand. The conduct of Mr Campbell and LDC referred to in [100] supports this view. It is clear that Collective would be prejudiced if liquidation proceedings were to continue and advertised where the amount claimed is inaccurate and no real issue as to solvency arises
[104] Accordingly, in my view the oppressive conduct/abuse of process by Zenscape is another ground on which the proceedings should be stayed and advertising of the proceeding should be restrained.
Result
[105] As a result of the conclusions I have reached at [87], [88], and [104], I am of the view that the liquidation proceedings should be stayed and advertising the proceedings should be restrained. In addition, the funds paid by Collective into a solicitor’s trust account are to be released to Collective.
Orders
[106]I make the following orders:
(a)The publication or advertisement required by r 31.9 in relation to the liquidation and the publication of any other information related to the statement of claim is restrained pending further orders of the Court.
(b)Any further proceedings in relation to the liquidation arising in this case are stayed, pending further orders of the Court.
(c)The amount of $46,285.33 paid by Collective to its solicitor’s trust account be released to Collective.
(d)Counsel are directed to endeavour to agree costs. If agreement is not reached within 20 working days of the date of this judgment, then counsel for Collective will file a memorandum as to costs (not exceeding five pages) within 10 working days of expiry of the 20 working day period; and counsel for Zenscape will file a memorandum in reply (not exceeding five pages) within 5 working days of the receipt of counsel for Collective’s memorandum. A decision as to costs will then be made on the papers.
…………………………….. Associate Judge Taylor
3
1