BODY CORPORATE 372942 v THE CROWN [2022] NZHC 2854

BODY CORPORATE 372942 v THE CROWN [2022] NZHC 2854 [2 November 2022]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2020-404-597[2022] NZHC 2854BETWEEN BODY CORPORATE 372942ApplicantAND THE CROWN(acting through the Secretary to theTreasury)RespondentHearing: 2 November 2022Appearances: J R Duckworth for ApplicantNo appearance for Respondent (abides the decision of the Court)Judgment: 2 November 2022JUDGMENT OF LANG J[on application for orders under s 269(5) of the Companies Act 1993]This judgment was delivered by me on 2 November 2022 at 3 pm,pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors:Jennifer G Connell, Auckland[1] Body Corporate 392472 (the Body Corporate) seeks an order under s 269(5)of the Companies Act 1993 (the Act) vesting in it Unit G3, an apartment that formspart of a complex situated on the Whitianga Esplanade. Ownership of units within thecomplex is by way of stratum estate in freehold under the Unit Titles Act 2010. TheBody Corporate is responsible for managing the affairs of the complex.[2] The current owner of Unit G3 is a company called First Light Holdings Ltd(First Light). First Light was placed in receivership and then in liquidation. It hasnow been struck off the Companies Register. This has resulted in the unit vesting inthe Crown under s 324(1) of the Companies Act 1993 (the Act).[3] Dominion Finance Ltd (Dominion) and Bridgecorp Finance Ltd (Bridgecorp)hold registered mortgages over the title to the unit. Dominion also held a generalsecurity over First Light's assets. Bridgecorp and Dominion were subsequently placedin receivership and liquidation and have now been removed from the CompaniesRegister. The liquidators of both companies have disclaimed the mortgages on thebasis that they are onerous property.1[4] Unit G3 is currently vacant and is continuing to accrue indebtedness in theform of levies payable to the Body Corporate. These currently amount toapproximately $100,000. In addition, rates in excess of $100,000 are currently owedto the Thames-Coromandel District Council and the Waikato Regional Council (theCouncils).[5] The Body Corporate considers the only way in which the present impasse canbe resolved is for Unit G3 to be vested in it, so the unit can be sold to pay these debts.The Body Corporate therefore seeks a vesting order in its name under s 269(5)(b) ofthe Companies Act 1993 (the Act).[6] The Treasury has confirmed on behalf of the Crown that it abides the Court'sdecision and does not wish to be heard on the application. The proceeding has alsobeen served on the liquidators of the two mortgagees and they both abide the Court'sdecision. Not surprisingly, the Councils support the Body Corporate's application.1 Under s 269(1) of the Act.The law[7] Sections 269(5) and (6) of the Companies Act 1993 provide as follows:269 Power to disclaim onerous property(5) A person suffering loss or damage as a result of a disclaimer underthis section may—(a) claim as a creditor of the company for the amount of the loss ordamage, taking account of the effect of an order made by thecourt under paragraph (b):(b) apply to the court for an order that the disclaimed property bedelivered to or vested in that person.(6) The court may make an order under subsection (5)(b) if it is satisfiedthat it is just that the property should be vested in the applicant.[8] The Body Corporate submits that the present application raises questions thatdo not appear to have been considered thus far in the context of s 269(5) of the Act.However, it says the Court should be guided by the approach taken in cases decidedunder s 119(3) of the Insolvency Act 2006. This is the equivalent provision to s 269(5)in circumstances where a person has been declared bankrupt.[9] Section 119 provides:119 Position of person who suffers loss as result of disclaimer(1) A person suffering loss or damage as a result of disclaimer by the Assigneemay—(a) claim as a creditor in the bankruptcy for the amount of the loss ordamage, taking account of the effect of an order made by the courtunder paragraph (b):(b) apply to the court for an order that the disclaimed property bedelivered to, or vested in, that person.(2) The bankrupt may also apply for an order that the disclaimed property bedelivered to, or vested in, the bankrupt.(3) The court may make an order under subsection (1)(b) or (2) if it is satisfiedthat it is fair that the property should be delivered to, or vested in, theapplicant.[10] Although the Insolvency Act provides no guidance as to when it will be 'fair'to make a vesting order under s 119(3), Toogood J in Goldstone v Goldstone identifiedthe following circumstances as being relevant to the Court's determination:2(a) the applicant's former interest in it, if any;(b) how and when such interest was acquired;(c) if the applicant had no interest in the disclaimed property, what otherrelationship formerly existed between the applicant and the property;(d) whether the applicant has maintained or increased the value of the property tobe vested or prevented its transfer to a third party;(e) the circumstances in which the disclaimed property became vested in theAssignee through bankruptcy;(f) the rights and interests of third parties, if any, and, in particular, whether theyconsent to the vesting; and(g) the consequences of any vesting for the applicant and any other persons.[11] On appeal, the Court of Appeal observed that the assessment of fairness "musttake in all the circumstances of both the applicant(s) and the property".3[12] The Body Corporate contends the same approach should be taken when theCourt is assessing whether it is 'just' to make a vesting order under s 269(5) of theAct. I accept this submission because I do not see any material distinction betweenthe words 'just' and 'fair' given the similar context in which they are used.[13] I therefore accept it is appropriate to follow the approach taken in cases decidedunder s 119. The first of these, Re Body Corporate 201036, concerned a unit within abuilding complex that was abandoned by its bankrupt owner and subsequentlydisclaimed by the Official Assignee.4 A registered mortgage held over the unit hadalso been discharged. The body corporate responsible for managing the affairs of thecomplex was therefore unable to levy the owner of the unit for the unit's share of thecost of remediation works carried out on the complex. This amounted toapproximately $170,00. In those circumstances Thomas J was satisfied it wasappropriate to vest the unit in the body corporate.52 Goldstone v Goldstone [2019] NZHC 1649 at [41].3 Goldstone v Goldstone [2021] NZCA 664 at [26].4 Re Body Corporate 201036 [2016] NZHC 2035, (2016) 17 NZCPR 659.5 Above n 4, at [42].[14] A similar situation arose in Re Body Corporate 447594.6 In that case, theregistered proprietors of a unit in a complex managed by a body corporate had beenadjudicated bankrupt. The Official Assignee disclaimed the unit as onerous property.This left the body corporate unable to recover outstanding levies of approximately$104,000. I made orders vesting the unit in the body corporate, noting:[11] There is no point in the Crown continuing to remain the beneficialowner of the unit in circumstances where levies will continue to increase andremain unpaid.[15] In each of these cases, as in the present, the Crown did not oppose the ordersought by the applicant.[16] In the ordinary course the Body Corporate could have relied on the twomortgagees to sell Unit G3 once payments under the mortgages fell into arrears. Thiswould have resulted in another person acquiring Unit G3 and assuming responsibilityfor future rates and levies payable in relation to the unit. That is no longer the case,given the fact that the two mortgagees disclaimed their interests under the mortgages.To that extent the Body Corporate has suffered loss or damage as a result of thedisclaimer. I therefore consider jurisdiction exists to make an order under s 269(5)(b)of the Act.[17] I am also satisfied it is just to make the order the Body Corporate seeks. If thisis not done the unit will continue to accrue indebtedness and this will be to thedetriment of the remaining unit owners in the complex. The order will allow the BodyCorporate to sell the unit to a solvent purchaser who will be able to satisfy the leviesand rates payable in respect of the unit in the future.[18] However, the unit will still be subject to the mortgages registered in favour ofDominion and Bridgecorp. The effect of a disclaimer of land subject to a mortgagewas considered in Smith v Southern Builders Ltd (in liq):76 Re Body Corporate 44759 [2018] NZHC 3078.7 Smith v Southern Builders Ltd (in liq) [2015] NZHC 160 at [12], citing Re David James & CoLtd [1991] 1 NZLR 219 (HC) at 225.(a) although disclaimer determined the liability of the company, for the future, undera mortgage, it did not discharge the debt or the security interest existing at the time ofthe disclaimer nor render the mortgage a mere "shell";(b) even though there may be difficulty about enforcing the security provisions ofthe mortgage, it remained a security over the land in respect of the amount secured bythe mortgage at the time;(c) although there may well be no personal liability on the Crown to make paymentsdue under the mortgage, the disclaimer did not "eliminate the liability of the landunder the mortgage"; and(d) to the extent the realisation of the land could satisfy the amount owing at the dateof the disclaimer, it should be applied in reduction or payment in full of the secureddebt at the time of the disclaimer.[19] In the present case it will obviously be necessary for the Body Corporate todeal with this issue when it sells the unit.Orders[20] I grant leave to bring the present proceeding by way of originating application.[21] I make an order under s 269(5) of the Companies Act 1993 vesting in theapplicant the stratum estate in freehold in Unit G3 and Accessory Unit 36, 40-41, 43and 63 on Deposited Plan 372942 contained in Identifier 320081.Lang J