Zhao v KBS Capital Limited - [2025] NZHC 1129

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-641

[2025] NZHC 1129

BETWEEN
JIE ZHAO

Plaintiff

AND

KBS CAPITAL LIMITED

Defendant

CLEARWATER CAPITAL PARTNERS DIRECT LENDING OPPORTUNITIES FUND LIMITED PARTNERSHIP

Non-Party

Hearing: 26 March 2025 and 30 April 2025

Appearances:

Chen Jiang for the Plaintiff Kishen Kommu for the Defendant

Sebastian Bisley and Jonathan Schwarcz for the Non-Party

Judgment:

16 May 2025

JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

[Application to put a company into liquidation]

This judgment was delivered by me on 16 May 2025 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:
Tompkins Wake (Chen Jiang/Katie Mills), Auckland, for the Plaintiff Webster Law, Auckland, for the Defendant
Wilson Harle (Felicity Monteiro/Jonathan Schwarcz), Auckland, for the Non-Party

Counsel :
Kishen Kommu, Barrister, Auckland, for the Defendant
Sebastian Bisley, Thorndon Chambers, Wellington, for the Non-Party

JIE ZHAO v KBS CAPITAL LIMITED [2025] NZHC 1129 [16 May 2025]

TABLE OF CONTENTS

Paragraph

The application [1]

Background [5]

Default under the Edison Loan [10]

Clearwater’s lending to KBS [11]

McLeod Green facility and the Deed of Subordination [14]

Legal principles [27]

Analysis [32]

Ms Zhao’s position

Is the debt due? [33]
Discrepancies in versions of the Deed of Subordination [35] Deed of Subordination does not apply to the KBS Loan [37] Is KBS insolvent?

Is KBS cashflow insolvent? [43]

Is KBS balance sheet insolvent [46

Submissions for KBS

Is the KBS Loan due and owing? [48]

Is Ms Zhao a creditor? [48]

Deed of Subordination applies to the KBS Loan [51]

Is KBS Insolvent?

Preliminary issue – Ms Zhao’s evidence on KBS’s solvency [54]

Discretion [62]

Clearwater’s position [64]

Is the Loan due and owing?
Is Ms Zhao a creditor? [68]

Deed of Subordination [69]

Abuse of process [72]

Is KBS solvent? [73]

Clearwater’s evidence  [75]
KBS’s evidence  [77]
Ms Zhao’s evidence  [78

Residual discretion [81]

Result [82]

Is the debt due and owing? [83]

Orders [88]

The application

[1] Ms Jie Zhao (Ms Zhao) is seeking an order that KBS Capital Limited (KBS) be placed into liquidation.

[2]Ms Zhao alleges that KBS has defaulted in its obligation to repay a loan of

$2,727,760 owed to her and has failed to comply with a statutory demand issued in respect of repayment of this loan.

[3] KBS opposes the application on the grounds that, in summary, the debt is not due and owing, the statutory demand cannot be relied upon as evidence of insolvency, and KBS is solvent. KBS further submits that liquidation would result in significant prejudice to its other creditors.

[4] Clearwater Capital Partners Direct Lending Opportunities Fund Limited Partnership (Clearwater) is a significant secured creditor of KBS and has been granted leave to file submissions as a non-party. Clearwater alleges there is a genuine and substantial dispute as to whether the debt is owing, that it would be an abuse of process to order KBS be put…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2025] NZHC 1129
Decision Date: 16 May 2025

CaseChat Overview and Summary

Jie Zhao sought to have KBS Capital Limited (KBS) put into liquidation on the basis that it had defaulted on a loan of $2,727,760 and failed to comply with a statutory demand. KBS opposed the application on the grounds that the debt was not due and owing, the statutory demand could not be relied upon as evidence of insolvency, and KBS was solvent. Clearwater Capital Partners Direct Lending Opportunities Fund Limited Partnership, a significant secured creditor of KBS, also opposed the application and was granted leave to file submissions as a non-party. The primary issues for the Court were whether there was a genuine dispute as to whether the KBS Loan was due and owing, whether KBS was insolvent, and if there was any basis for the Court to exercise its discretion against ordering the liquidation of KBS.

The Court found that there was a reasonable argument that there was a substantial dispute regarding whether the KBS Loan was due and owing to Ms Zhao. The Court also found that there was a reasonable argument that KBS was solvent, based on evidence from Clearwater and KBS, including evidence from a chartered accountant that KBS could meet its debts as they fell due. The Court further found that it was arguable that Ms Zhao's application was an abuse of process, as she had sought payment for her loans but then accepted her claim could be subordinated. The Court exercised its discretion not to order the liquidation of KBS on the basis that the majority creditor, Clearwater, opposed the liquidation and had indicated continuing financial support for KBS. The Court also noted that no other creditors of KBS had sought a liquidation order, and there was no significant risk to the public or commercial community with KBS continuing.

Accordingly, the Court dismissed Ms Zhao's application for an order putting KBS into liquidation and ordered that Ms Zhao's evidence in paragraphs 26 to 50 and 68 and 69 of her reply affidavit dated 17 March 2025 be excluded. The Court directed counsel to endeavour to agree on costs and, failing agreement, for counsel for KBS and Clearwater to file a memorandum as to costs within 5 working days of receipt of counsel for Ms Zhao's memorandum in response. A decision as to costs would then be made on the papers.

Orders