GLENVAR VAULT CAPITAL LIMITED (IN LIQUIDATION) v FOSTER CRESCENT LIMITED [2020] NZHC 2432

GLENVAR VAULT CAPITAL LIMITED (IN LIQUIDATION) v FOSTER CRESCENT LIMITED [2020]NZHC 2432 [18 September 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2020-404-855[2020] NZHC 2432UNDER The Companies Act 1993IN THE MATTER of the liquidation of Glenvar Vault CapitalLimited (in liquidation)BETWEEN GLENVAR VAULT CAPITAL LIMITED(IN LIQUIDATION)First PlaintiffKEVIN JOHN DAVIES as liquidator ofGlenvar Vault Capital Limited (inliquidation)Second PlaintiffAND FOSTER CRESCENT LIMITEDDefendantHearing: 13 August 2020Appearances: K C Francis for the PlaintiffsNo appearance by or on behalf of the DefendantJudgment: 18 September 2020JUDGMENT OF POWELL JThis judgment was delivered by me on 18 September 2020 at 3.30 pm pursuant toR 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:[1] The plaintiffs, being Glenvar Vault Capital Limited (in liquidation)("Glenvar") and its liquidator, Kevin Davies, seek judgment against Foster CrescentLimited ("Foster Crescent") in the sum of $110,000.[2] The plaintiffs allege Foster Crescent acquired Glenvar's interests in anagreement for sale and purchase at an undervalue in terms of s 297 of the CompaniesAct 1993. As Foster Crescent has taken no steps in the proceedings, the claim hasproceeded by way of formal proof.What happened?[3] The evidence establishes that while Clark Valmont was at all times Glenvar'ssole director, Glenvar was in fact under the effective control of a Peter Lewis Chevin.On 14 November 2017 at Mr Chevin's direction, Glenvar entered into a conditionalsale and purchase agreement to purchase freehold property at 9B Whangaparāoa Road,Whangaparāoa ("the property") from a Mr and Mrs Sheffield.[4] The purchase price was $711,000.00, with a 10 per cent deposit ($71,100)payable when the agreement became unconditional on 19 December 2017. Settlementwas intended to be 30 working days after the unconditional date but was subsequentlyextended by agreement between Glenvar and Mr and Mrs Sheffield to 2 April 2018.[5] To enable payment of the deposit, Mr Chevin sought finance from a third party,Arthur Ramani, and on or about 22 December 2017 Glenvar entered into a loanagreement with Mr Ramani which recorded:The Borrower or a related entity needs $71,000 in funds to be able to pay a10 % deposit on the property a 9B Whangaparāoa Road, Stanmore Bay,Auckland that Peter Chevin has arranged the purchase for at $711,000, whichhe has also identified as being worth $950,000 with significant potential toadd value.[6] The loan agreement provided the loan was to be repaid to Mr Ramani on orbefore 31 March 2018. On or about 22 December 2017 Mr Ramani advanced $71,000to Glenvar. As Glenvar had no bank account it was advanced to Mr Valmont who thesame day arranged to pay the deposit to the vendors' agent.1[7] As the settlement date approached Glenvar, again at the instigation ofMr Chevin, borrowed a further $25,000 from Mr Ramani as it attempted to put itselfin a position to complete settlement. To assist in raising funds in March 2018 Glenvaralso obtained a registered valuation in respect of the property, completed by Lyons &Co Valuers Ltd. The resultant valuation was $730,000 (inclusive of GST if any). Itthen appears to have nominated Clear White Investments Limited ("Clear White"), arelated entity of which Mr Valmont was also the sole director, to take title to theproperty, but neither Clear White or Glenvar was able to effect settlement on 2 April2018.[8] On 22 April 2018 a Martin Reece Cooper wrote to Mr Chevin offering to settlethe property personally or through one of his companies as nominee. Mr Coopersuggested that Glenvar offer a further $20,000 deposit to the vendors in order to extendthe settlement date by four weeks. In the course of these discussions Mr Coopersuggested to Mr Chevin that Glenvar could have a buy back option to re-purchase theproperty offered by 30 November 2018 for $911,000.[9] Following these discussions, Glenvar's solicitor wrote to the vendors' solicitorconfirming that Glenvar was unable to settle the purchase of the property on24 April 2018, but had instructions that Mr Cooper or his nominee could settle thepurchase of the property on 22 May 2018. The letter went on to advise that if thevendors agreed to defer action under the settlement notice until 22 May 2018, Glenvarwould pay a further $20,000 non-refundable deposit towards the purchase of theproperty. The proposal was accepted by the vendors. As a result, Glenvar paid afurther $20,000 as a non-refundable deposit to the vendors' agents and proceeded tonominate Foster Crescent, whose sole director is Mr Cooper, as the assignee ofGlenvar's obligations under the agreement in place of Clear White, so as to enableFoster Crescent to complete settlement and take title to the property.1 Although the deposit was technically $71,100 it appears only $71,000 was in fact paid.[10] Although no nomination agreement signed by Foster Crescent is available, itis clear that agreement must have been reached as Foster Crescent went ahead andcompleted settlement with the vendors on 18 May 2019, by paying the balance of thefunds owing on the purchase of the property, ($620,000), and receiving title to theproperty.[11] Glenvar subsequently went into liquidation on 13 November 2019, with theprincipal creditor being Mr Ramani.The plaintiffs' claims[12] The plaintiffs argue that Foster Crescent obtained the property at anundervalue, having provided no consideration to Glenvar for the deposits paid byGlenvar towards the purchase of the property totalling $91,000.[13] The plaintiffs also contend that Foster Crescent received an additional benefitas the result of the fact that a registered valuation obtained by Glenvar in March 2018valued the property at $730,000 (inclusive of GST), and therefore even on the nominalpurchase price of $711,000 Foster Crescent had acquired the property at an undervalueand therefore Foster Crescent should pay a further $19,000 to the plaintiffs.Discussion[14] Section 297 of The Companies Act 1993 ("the Act") relevantly provides:297 Transactions at undervalue(1) Under subsection (2) the liquidator may recover from a person (X) theamount C in the formula A − B = C, where—(a) A is the value that X received from a company under atransaction to which the company was or is a party; and(b) B is the value (if any) that the company received from X underthe transaction.(2) The liquidator may recover the difference in value (that is, C in theformula in subsection (1)) from X if—(a) the company entered into the transaction within the specifiedperiod; and(b) either—(i) the company was unable to pay its due debts when itentered into the transaction; or(ii) the company became unable to pay its due debts as aresult of entering into the transaction.(3) For the purposes of this section,—(a) transaction has the same meaning as in section 292(3):(b) specified period means—(i) the period of 2 years before the date ofcommencement of the liquidation together with theperiod commencing on that date and ending at thetime at which the liquidator is appointed; and(ii) in the case of a company that was put into liquidationby the court, the period of 2 years before the makingof the application to the court together with the periodcommencing on the date of the making of thatapplication and ending on the date on which, and atthe time at which, the order of the court was made;and(iii) if—(A) an application was made to the court to put acompany into liquidation; and(B) after the making of the application to thecourt a liquidator was appointed underparagraph (a) or paragraph (b) of section241(2),—the period of 2 years before the making of theapplication to the court together with the periodcommencing on the date of the making of thatapplication and ending on the date and at the time ofthe commencement of the liquidation.[15] For the plaintiffs to succeed they must establish:(a) Glenvar entered into a "transaction" within the meaning of that term ins 292(3) of the Act.(b) That transaction was during the period specified in s 297(3)(b) of theAct.(c) Glenvar was either insolvent at the time of the transaction or becameinsolvent because of the transaction.(d) Foster Crescent received more from Glenvar under the transaction (towhich Glenvar was a party) than Glenvar did.[16] I address these matters in turn.Was there a transaction?[17] A transaction for the purposes of s 292(3) of the Act includes "conveyancingor transferring the company's property".2 The nomination of Foster Crescent so as toenable the company to complete the purchase of the property is clearly a transactionfor the purposes of s 292(3)(a). As Downs J noted in almost identical circumstancesin Glenvar Property Holding Limited v 153 Holdings Limited.3Section 292(3)(a) provides for a transaction as including any conveyance ortransfer of the company's property. A "conveyance or transfer" of propertyhas been given the widest possible meaning by the courts, and includes "everymeans by which property may be passed from one person to another."4 Forexample, an assignment transferring a chose in action can be transaction unders 292(3)(a).5The deed of nomination assigned the defendant the right to purchase the Platts'property under the agreement for sale and purchase earlier entered into byGlenvar.6 The deed made the defendant liable for the obligations attaching to2 Section 292(3)(a) of the Companies Act 1993.3 Glenvar Property Holding Limited v 153 Holdings Limited [2016] NZHC 2272 at [30]-[31].Somewhat surprisingly there appears to be no connection between Glenvar in this case andGlenvar Property Holdings Limited notwithstanding the similar circumstances.4 Gathercole v Smith (1881) 17 Ch D 1 at 9, cited in Insolvency Law and Practice (online looseleafedition, Westlaw) at [CA292.03(3)].5 Levin v West City Construction Ltd [2014] NZCA 98, [2014] 3 NZLR 1 at [20]. The findings inthis judgment were reversed on appeal (see West City Construction Ltd v Levin [2014] NZSC 183,[2015] 1 NZLR 362) but the view that an assignment was a transaction was not disputed.6 Although a deed of nomination is not necessarily an assignment, it can constitute an assignmentif it complies with the requirements of an assignment: see Broughton v Wyatt Family TrustHoldings Ltd (2011) 12 NZCPR 368 (HC), leave to appeal refused by Wyatt Family Trust HoldingsLtd v Broughton [2011] NZCA 87, (2011) 12 NZCPR 381. Section 50 of the Property Law Act2007 provides:(1) The absolute assignment in writing of a legal or equitable thing in action, signed bythe assignor, passes to the assignee—(a) all the rights of the assignor in relation to the thing in action; and(b) all the remedies of the assignor in relation to the thing in action; and(c) the power to give a good discharge to the debtor.(2) Subsection (1) applies whether or not the assignment is given for valuableconsideration.that agreement, including payment of the purchase price. The indemnityprovision tends to confirm Glenvar's legal obligations were to become thoseof the defendant.(citations included)Within the specified period?[18] In this case the nomination of Foster Crescent must have occurred after16 March 2018 when a briefing paper noted that a nominee had not yet been identified,and 18 May 2019, when title to the property was transferred to Foster Crescent uponpayment of the balance of the amount of the monies owing under the agreement forsale and purchase. As Glenvar was placed in liquidation on 13 November 2019 therecan be no dispute the transaction occurred within the relevant two-year period.Was Glenvar insolvent at the time or because of the transaction?[19] As liquidator of Glenvar Mr Davies has confirmed that at all relevant times thecompany was insolvent. It had no funds of its own, or indeed even a bank account,and it had to seek third party funding to first pay the deposit and then to attempt tosettle the purchase of the property.[20] As a result of the nomination, Glenvar not only transferred its right to purchasethe property, but lost any ability to repay the $96,000 borrowed from Mr Ramani forthe deposit, noting Mr Ramani's original advance of $71,000 was repayable by31 March 2018.[21] It is therefore clear that Glenvar was already insolvent at the date of thetransaction but even if it had not been it would have become insolvent as aconsequence of the transaction, thereby meeting the test in s 297(2).Was there a difference in value?[22] There is no evidence to suggest that Glenvar received any benefit fromnominating Foster Crescent as the purchaser despite having paid a total deposit of$91,000. Foster Crescent was therefore able to acquire the property for $620,000rather than the $711,000 specified in the agreement for sale and purchase. In theabsence of any matters raised in defence by Foster Crescent,7 this difference, theamount of the total deposit paid ($91,000), amounts to an undervalue for the purposesof s 297(1) and is therefore recoverable from Foster Crescent.[23] The position is different with regard to the balance of the monies claimed bythe plaintiffs, the difference in value between the actual nominal sale price ($711,000)and the value as per the registered valuation obtained in March 2018 ($730,000).[24] On this issue, there is no direct evidence that either Foster Crescent orMr Cooper were provided with a copy of the valuation. Even if they had been it isdifficult to see on what basis the registered valuation should be preferred as a moreaccurate assessment of the market value of the property as compared to the actual priceagreed between Glenvar and the Sheffields, given that there is no suggestion on theevidence that this transaction was conducted on anything other than an arm's lengthbasis on the open market. Given this position, I am not prepared to conclude that thesale price negotiated between Glenvar and the vendors was an undervalue, and as aresult this part of the plaintiffs' claim fails.Decision[25] The plaintiffs are entitled to judgment in the sum of $91,000 together withinterest from 18 May 2018 to the date of judgment, a total of $6,808.50.[26] The plaintiffs are also entitled to costs on a 2B basis in the sum of $18,761.50,together with disbursements in the sum of $165.00, a total of $18,926.50.87 In Glenvar Property Holdings Ltd v 153 Holding Ltd, Downs J noted at [38]-[39] that the defencesset out in s 296(3) were potentially applicable where the person from whom recovery is soughtproves (a) they acted in good faith; (b) would not have suspected the company was insolvent; or(c) gave value for the property or altered their position on the basis the transaction was valid.8 The plaintiffs sought costs in the sum of $19,956.50, however, this included 2.5 days for thepreparation of affidavits where the schedule allows for only two days. There was also no commonbundle produced by the plaintiffs that would justify the extra half a day. Accordingly, the plaintiffswere entitled to recover costs for a total of 7.85 days as opposed to the 8.35 days claimed._______________________________Powell J