NEW ZEALAND GREYHOUND RACING ASSOCIATION INCORPORATED V MANAWATU GREYHOUND RACING CLUB INCOPORATED HC PMN CIV-2011-454-529

NEW ZEALAND GREYHOUND RACING ASSOCIATION INCORPORATED V MANAWATU GREYHOUND RACING CLUB INCOPORATED HC PMN CIV-2011-454-529 9 December 2011IN THE HIGH COURT OF NEW ZEALANDPALMERSTON NORTH REGISTRYCIV-2011-454-529BETWEEN NEW ZEALAND GREYHOUNDRACING ASSOCIATIONINCORPORATEDPlaintiffAND MANAWATU GREYHOUND RACINGCLUB INCOPORATEDDefendantHearing: 9 December 2011(Heard at Palmerston North)Counsel: J. Grant - Counsel for PlaintiffJ. Mahuta-Coyle - Counsel for DefendantJudgment: 9 December 2011ORAL JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLSolicitors: JT Law, Solicitors, PO Box 25443, Wellington 6146Loughnans, Barristers & Solicitors, PO Box 1257, Palmerston North[1] Before the Court is an application by the plaintiff to have the defendant society placed into liquidation.[2] The application is brought pursuant to s 26 Incorporated Societies Act 1908.[3] Section 25 Incorporated Societies Act 1908 provides that an incorporated society such as the defendant here may be put into liquidation by the appointment by this Court of a liquidator in certain circumstances. The first is if the society suspends its operations for the space of one year. The second is if the members of the society are reduced in number to less than fifteen. The third is if the society is unable to pay its debts. The fourth is if the society carries on an operation whereby any member makes any pecuniary gain contrary to the provisions of the Incorporated Societies Act 1908. The final ground is if this Court is of the opinion that it is just and equitable that the society should be placed into liquidation.[4] The provisions of Part 16 and 17 of the Companies Act 1993 are to apply with respect to the present application.[5] The application before me is brought by the plaintiff effectively on the ground outlined in s 25(c) Incorporated Societies Act 1908 that the defendant society is unable to pay its debts. As to this, the plaintiff served upon the defendant society a statutory demand claiming the sum of $766,947.61 on 21 February 2011. This amount was said to represent an amount owing by the defendant to the plaintiff pursuant to a Term Loan Agreement entered into between the parties dated 13 January 2009 and costs. The Term Loan Agreement referred to appeared to be signed for and on behalf of the defendant society and to provide for a principal loan amount of $660,000.00 together with interest with these amounts repayable over a term of 10 years from 1 October 2008 by six monthly payments of interest and annual principal repayments.[6] The principal sum advance of $660,000.00 referred to in this Term Loan Agreement, as I understand the position, relates to a series of payments made by the plaintiff it says on behalf of the defendant for improvements, fixtures and plantinstalled at the defendant's Palmerston North Greyhound Raceway up to some time in 2008. The defendant at the time had occupied this raceway under a Licence Agreement with Harness Racing Manawatu, a raceway, as I understand it, that they had operated for some time.[7] The evidence presently before this Court indicates that the defendant defaulted in making payments under the Licence Agreement it had with Harness Racing Manawatu and its licence for the Raceway was terminated in about May 2010. The outstanding rental payments under the licence as I understand it were something in excess of $20,000.00.[8] In the meantime, the defendant had made one payment under the Term Loan Agreement to the plaintiff of some $16,500.00 by way of interest. This occurred on20 May 2009 and was a payment expressed to be made "without prejudice" by thedefendant.[9] At that time and earlier the defendant it seems endeavoured to raise with the plaintiff certain disputes over the $660,000.00 loan and what it said were assurances given by the plaintiff to assist the defendant financially to meet its obligations including obligations under the loan.[10] There is no evidence of any real kind before me, however, regarding this suggestion by the defendant that assurances were in fact given and that they resulted in a concluded contractual arrangement between the plaintiff and the defendant for the plaintiff to provide the suggested financial assistance.[11] Instead Mr Ashoka Kant Pandey (Mr Pandey), who is the employed Secretary/Manager of the defendant, has given evidence suggesting that he was assured the defendant would receive certain financial assistance (and this by way of grants, low or no interest loans, or other financial assistance similar to the support he maintained the plaintiff had provided to the Wanganui Greyhound Racing Club in the construction of its new Greyhound Race Track at Hatrick Raceway, Wanganui). Mr Pandey makes this claim at para 22 of his affidavit sworn 24 November 2011 filed inthis proceeding. This claim however is not in any way supported by any additional or independent evidence before this Court.[12] Essentially before me, the defendant in its defence contends also that it has a significant set-off against the plaintiff with regard, to recent rental due for its fixtures and plant at the Manawatu Raceway. The plaintiff it alleges has been using these free of charge since the termination of the defendant's licence for the race track inMay 2010. On this aspect, the evidence which Mr Pandey has put forward to the Court (by way of a letter from Loughnans the solicitors to the defendant dated 11 November 2011) claims that the sum of $367,442.50 is due from the plaintiff for rental up to that time. It goes without saying that, even if this claim made by the defendant (which is disputed by the plaintiff) was found to be an accurate one, there is still a substantial deficit at present in the amount owing by the defendant to the plaintiff under the loan arrangement.[13] Notwithstanding this, Mr Mahuta-Coyle counsel for the defendant endeavoured to argue before me that, had what he claims as the correct rental amounts due to the defendant been paid by the plaintiff from May 2010 for theplaintiff's use of the defendant's plant and fixtures, then the defendant would have been able to meet its loan payments under the $660,000.00 loan, and we would not be here today.[14] Although this argument on its face may have some attraction, in my view it must fail here for two reasons. The first is that there is no evidence of any kind before me to support the claim by the defendant that the plaintiff has any legal liability to it for the rental claimed for use of its plant and fixtures.[15] The second reason relates to the fact that the $660,000.00 Loan Agreement which takes the usual Law Society form clearly provides that in the event of default, the full principal sum under the loan becomes repayable. That is clearly what has occurred here. Despite the loan providing for annual principal repayments of some $66,000.00 together with interest payments to be made on a six monthly basis, this has clearly not occurred. The defendant is unquestionably in default under this Loan Agreement.[16] On that aspect before me Mr Mahuta-Coyle endeavoured to raise a further argument. This related to whether the Loan Agreement itself was valid in the sense that he contended it related to past advances. He noted that the document had been signed some time after the various payments were made by the plaintiff for work carried out on the track. Even if Mr Mahuta-Coyle is correct in that argument, however, in my view, it makes little difference here.[17] I reach that conclusion for the following reason. Even if the Term Loan Agreement is a nullity, in my view there can still be no doubt that the $660,000.00 paid by the plaintiff on behalf of the defendant was a loan to the defendant and at worst from the plaintiff's perspective it would have been interest free. If this loan had not been repayable upon demand, it would have been repayable on reasonable and usual commercial terms none of which in any event have been met by the defendant here. No payments other than the small payment for interest I have noted above were made.[18] I conclude that there can be no doubt in my mind here that the defendant is in default under this loan and the amount due has been properly called up.[19] This leaves for consideration one final matter argued before me by Mr Mahuta-Coyle. This is the suggestion that the plaintiff here does not itself have clean hands in that it gave assurances to the defendant that it would assist it financially by way of grants, loans and other financial assistance in order that it could meet repayments on the $660,000.00 loan but it has failed to do so. Accordingly, the defendant contends that the predicament in which the defendant finds itself, including the termination of its licence to use the race track with Harness Racing Manawatu, was caused by the actions of the plaintiff and it must follow that the plaintiff should not in effect be rewarded here by obtaining an order for liquidation of the defendant.[20] As I have noted above, there is no real evidence of any kind, and especially no independent evidence, to support the defendant's contention that the plaintiffundertook or legally obliged itself to provide some grant, further loan/s or other financial assistance to the defendant. One would have thought that, if a matter asimportant as this to the defendant was being contemplated then, from a commercial perspective, there would be detailed documentation in existence to outline the assistance which was to be provided. None of this is said in any way to exist. If indeed there were discussions regarding the ongoing financial viability of the defendant (and this is effectively denied on behalf of the plaintiff) it would have been reasonably expected that these would be clearly documented and this information would be available to the Court now. That is not the case here.[21] Next, I need to note that this particular matter has some considerable history. There is no doubt in my view that the upgrading and improvement work which was carried out at the Manawatu Race Track was arranged at least at the request of the defendant. The accounts which are before the Court from contractors all appear to be addressed in the main to the defendant.[22] The plaintiff made payment of these accounts I am satisfied by way of loan advance to the defendant. The work was carried out at the Manawatu Racetrack which the defendant occupied under its licence. It is simply inconceivable that the plaintiff would have made a payment for this work undertaken on the defendant'sproperty effectively by way of gift. I find clearly that there was a loan here and it is this loan which has not been repaid.[23] Turning now to the substantive legal position, the provisions of the Companies Act 1993 which are to apply to this liquidation application include s 241(4)(a) Companies Act 1993 which allows a Court to place a company or societyinto liquidation if "the company is unable to pay its debts". (The use of the word company here of course effectively includes the present defendant which is an incorporated society).[24] Section 287(a) Companies Act 1993 contains a rebuttable presumption that a company or incorporated society is presumed to be unable to pay its debts if it has failed to comply with a statutory demand. That is clearly the case in the present proceeding before me. The defendant has failed to comply with the plaintiff'sstatutory demand served on it some considerable time ago.[25] As I have noted above, this presumption in s 287(a) is rebuttable. Turning to that aspect now, there is very little evidence before me of any real kind however to assist in making an assessment as to the present financial position of the defendant.[26] Mr Pandey in a recent affidavit has provided accounts for the defendant but only for the twelve month period ending in July 2010. This is approximately 16 months ago. Those accounts are of little help in assessing the present financial position of the defendant.[27] On that question of the defendant's financial position, all parties before me today appear to accept that since May 2010 when its licence with Harness Racing Manawatu was terminated, the club has no longer been able to operate race meetings from the track.[28] It seems therefore that it has been able to achieve little income, although Mr Mahuta-Coyle confirmed today that Mr Pandey remains employed by the defendant at present. Whether or not he is being paid or whether additional liability is accruing for his salary or wages is unknown however.[29] What is before the Court, as I have noted above, is some evidence of theClub's claim that it is owed monies by the plaintiff for the alleged use of its plant and fixtures at the race track. As I have noted at para [12] above the letter from thedefendant's solicitors, Loughnans claims an amount owing of $367,442.50 as at 11November 2011. That amount, however, is disputed by the plaintiff and it remains to be seen whether this or a lesser amount might ultimately become an asset of the defendant at all.[30] The only other real evidence of any kind before me concerning the financial position of the defendant appears to take two forms.[31] The first relates to an application by the defendant for a waiver of fees on its defence and opposition to the present proceeding, a waiver which was approved by this Court. The fees in question total $108.80. The explanation from Mr Pandey on behalf of the defendant in support of the waiver application is "the plaintiff in thiscase has unlawfully withheld monies due to the defendant in their case leaving thedefendant unable to meet the fee". Mr Pandey also appears to have attached to the application a bank statement for the defendant as at 12 August 2011 with the ANZ Bank. This shows a credit balance in the Club's account of only $4.74.[32] The second additional aspect regarding the financial position of the Club is a matter given some emphasis by Mr Grant counsel for the plaintiff. Although this occurred nearly some two years ago, on 28 December 2009 a unanimous resolution of the Board of the defendant was passed at a meeting to the following effect:The MGRC (the defendant's) Committee accepts that MGRC today may not be able to pay its debts as they fall due in the normal course of business. The MGRC Committee requests assistance from GRNZ (the plaintiff) by GRNZ engaging a person nominated and satisfactory to GRNZ and in consultation with MGRC to provide financial and professional assistance on the terms of reference/position description attached.[33] Mr Grant made something of this resolution. It certainly would appear on its face to indicate that in December 2009 the Board Members of the defendant believed that it was in some financial difficulty and would have trouble meeting its debts at that time. That is a matter which is of some assistance here.[34] I conclude on that aspect that there is little before the Court which might assist the defendant in rebutting the presumption that it is unable to pay its debts as they fall due at present as it has failed to comply with the statutory demand.[35] Notwithstanding this, s 241 Companies Act 1993 does give the Court a discretion to appoint a liquidator notwithstanding that the requirements for a liquidation order are satisfied.[36] In addressing the Court's discretion to refuse an order for liquidation under s 241, it is clear from the authorities that this jurisdiction is one to be exercised sparingly. As Brookers Company & Securities Law at Companies Act 1993 CA241.04 notes:Even if the applicant has standing to institute the liquidation process before the Court and it is found that the facts support one or other of the grounds for the appointment of a liquidator, the Court reserves the right to refuse to put a company into liquidation. The Court will exercise this jurisdiction sparingly. The normal ruleis that if the relevant requirements have been met, the person making the application is entitled to his or her order for the company's liquidation. This is so even if it isshown that in the liquidation it is unlikely there will be any assets available for distribution to the unsecured creditor. In cases such as this, often the Court still regards the liquidator as serving useful functions in the investigation of thecompany's affairs and is acting as a guardian of the interests of the unsecuredcreditors.[37] In the present proceeding, although the defendant has endeavoured to dispute the debt claimed as being outstanding, in my view, it has been quite unable to put before the Court any realistic material to show that this debt may not be owing. As I have noted the plaintiff clearly paid for the fixtures and plant installed for the defendant at its race track by way of loan, and it is this loan, even if the formal documentation is in some way flawed, which remains outstanding despite demand.[38] The debt is a substantial one. It has been outstanding for quite some time. The jurisdiction for the making of an order to place the defendant Club into liquidation in my view is clearly established.[39] Turning now to the issue of whether the Court should nevertheless exercise its discretion to refuse an order for liquidation, despite his very best endeavours, as I see it there have been no grounds of any substance advanced before me by Mr Mahuta-Coyle for the defendant which would justify the exercise of this discretion in favour of the defendant. In my view it is important here that a liquidator of the defendant is appointed promptly and that this liquidator might have an opportunity to consider fully whether s/he should explore or investigate the position of the defendant. This may well include claiming back from the plaintiff some amount by way of rent for the plant and fixtures at the race track since May 2010, if indeed there is some justifiable legal basis for this to occur.[40] As I have noted, it is important in my view that there is no further delay in appointing a liquidator for the defendant which is clearly insolvent. This is because a liquidation commences on the day on which the liquidator is appointed by the operation of s 241(5) of the Companies Act 1993. Avoidance provisions contained in that Act have a trigger or start date for the period that can be reviewed generally being acted upon from the date when a liquidator is appointed. It is clear therefore that any delay in the disposal of the present application under s 241 Companies Acthas potential prejudice to a liquidator's ability to make a recovery in appropriate cases.[41] In the present case Mr Mahuta-Coyle for the defendant indicates that the defendant may well be continuing to trade in the sense that Mr Pandey remains employed as its Secretary/Manager. No doubt therefore the defendant is likely to be incurring additional debt. This must be of concern to the Court because if the defendant is continuing to trade and no doubt building up further debts this will only have a prejudicial impact upon existing creditors.[42] For all these reasons I am satisfied the plaintiff's application here mustsucceed. The following orders are now made:(a) An order is made placing the defendant Club, Manawatu Greyhound Racing Club Incorporated into liquidation.(b) Thomas Lee Rodewald and Kenneth Peter Brown are appointed liquidators.(c) Costs are awarded to the plaintiff on a category 2B basis together with disbursements as fixed by the Registrar.(d) These orders are timed today, 9 December 2011 at 11.40 am.POST SCRIPT[43] Before me Mr Grant for the plaintiff requested that I might grant leave to the plaintiff to make an application for costs on this matter to be awarded not only against the defendant company but also against its Secretary/Manager Mr Pandey personally. The grounds for such an application were not disclosed however.[44] Nevertheless, it is apparent from the file in this proceeding that Mr Pandey has played a significant role in this whole matter perhaps understandably so as the Secretary/Manager for the defendant Club.[45] Under all the circumstances here I see no harm therefore in granting the leave sought by the plaintiff. This is not in any way to suggest that any such order of costs against Mr Pandey personally might be made here. Counsel will be aware that such orders for costs personally against a non-party to a proceeding are unusual to say the very least.[46] Finally therefore, an order is now made granting leave to the plaintiff to bring any further costs application it may wish with respect to the present proceeding.POSTSCRIPT 2[47] It is now 11.44 am on 9 December 2011.[48] Having delivered this oral judgment to counsel and parties over the last 37 minutes (approximately) Mr Mahuta-Coyle has now made an oral application before me seeking a stay of execution of this judgment.[49] He advances in support of this oral application the contention that, as he has instructions on behalf of the defendant (he did not say whether this was from the Board of the defendant or indeed from its Secretary/Manager Mr Pandey who is present in Court) to lodge an appeal to the Court of Appeal against the decision I have just delivered, a failure to allow a stay of that decision and the orders made herein would effectively render the appeal nugatory.[50] In my view, for all the reasons I have outlined in the judgment above, it is important that the defendant society be placed into liquidation and a liquidator be appointed without further delay. This is for the range of reasons also outlined above. And I note too that there is no written application before me seeking a stay nor any written material in support.[51] It is a serious matter to grant a stay of a liquidation order. In my view it is not appropriate for such a stay order to be granted here. The oral application from Mr Mahuta-Coyle before me for a stay is therefore refused. This judgment and the orders made above stand.'Associate Judge D.I. Gendall'