ROONEY EARTHMOVING LIMITED V MCTAGUE AND ORS HC CHCH CIV 2009-476-000471

ROONEY EARTHMOVING LIMITED V MCTAGUE AND ORS HC CHCH CIV 2009-476-000471 6 October 2010IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY CIV 2009-476-000471BETWEEN ROONEY EARTHMOVING LIMITED Plaintiff AND KELVIN DOUGLAS MCTAGUE First Defendant AND CLARENCE HENRY WHITING Second Defendant AND KERRY WAYNE BARTLETT Third Defendant AND BMW CONTRACTING LIMITED Fourth Defendant Hearing: 5 and 6 October 2010 (By Telephone) Counsel: C H Toogood QC and R S Brown for Plaintiff K T Dalziel for Fourth Defendant Judgment: 6 October 2010JUDGMENT OF FOGARTY J[1] The plaintiff has applied for an order varying the terms of the existing amending freezing order by adding a new paragraph 6A to read:Notwithstanding anything in paragraph 6, you shall not dispose of the following business assets without further order of the Court –• 1991 Volvo FL10 truck Registration ABR328;• 1995 Mercedes Benz truck Registration BPU472• 2007 Toyota Hilux Registration EEG69;• 4 x 2008 DXTT5 excavators not registered.[2] The amended freezing order does not prohibit BMW Contracting from disposing of assets in the ordinary course of business. However, any proposed sale has to be notified in advance. The opposition to the sale is that the defendant has not provided any or sufficient evidence as to the reasons why the sale is taking place. It also contains the positive proposition that BMW is trading profitably and has a net equity position in excess of $1 million. [3] Although not contained in the notice of motion the concern expressed by counsel and through the affidavits is that the sale is being undertaken to meet the legal expenses of the first defendant in the Environment Court proceedings. [4] BMW's chartered accountant, Mr Bean, together with detail provided in Mr Bartlett's account, has explained that there is a considerable negative drain on cash flow each month at the present time by reason of a combination of loan repayments on chattels and increasing non-paying debtors. He has sworn that the sale of the assets is required accordingly in the ordinary course of business to meet outstanding liabilities of the company and ongoing costs that this includes legal fees in relation to this litigation and to defend an application for discovery in the Employment Court. He has sworn that there is no cash being drawn down from the company for shareholders' purposes. He has also said that the monies required are not able to be obtained through further borrowings. [5] The plaintiff does not have direct access to the turnover and expense figures of BMW. They have to rely on analysis by Mr Hadlee. Mr Hadlee is a specialist consulting accountant, who the Court holds in high confidence. He has filed two affidavits essentially expressing the view that he does not have enough information to fully understand the state of BMW's business. I can understand that. He is obtaining piecemeal financial information in the course of a financial year. It was never the Court's intention that the freezing order would impose on BMW an obligation to disclose in the course of a financial year data which would normally only be collected or derived for the purpose of annual or six monthly accounts. The obligation that the plaintiff's professional advisers are kept "fully informed" has to be seen against the context of the purpose of the amended order which is to guardagainst BMW disposing or dealing with assets in a manner detrimental to the plaintiff, not being in the ordinary course of business. [6] I am satisfied that BMW has cash flow problems at the present time. I also agree that their disposal of this plant may make it difficult for the company to take up extra work. Though I assume that if good contracts came along they would also be the occasion for justifying acquisition of contracting equipment and the contracts themselves would underpin applications for finance. [7] For these reasons I accept the affidavit of Mr Bean and am satisfied that the proposed disposal is in the ordinary course of business. Mr Toogood has complained that there has not been an explicit assurance that proceeds from these vehicles not be used to meet the legal expenses of any of the shareholders. I am interpreting paragraph 10 of Mr Bean's affidavit as including that proposition. [8] Costs are reserved.Solicitors: Meares Williams, Christchurch, for Plaintiff (Counsel: C H Toogood QC) Raymond Donnelly & Co, Christchurch, for Fourth Defendant (Counsel: K T Dalziel)