SOUTH CANTERBURY FINANCE LTD (IN RECEIVERSHIP) V BENNETT HC AK CIV-2011-404-001841

SOUTH CANTERBURY FINANCE LTD (IN RECEIVERSHIP) V BENNETT HC AK CIV-2011-404-001841 1 April 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2011-404-001841BETWEEN SOUTH CANTERBURY FINANCELIMITED (IN RECEIVERSHIP)PlaintiffAND G C BENNETTDefendantHearing: On the papersJudgment: 1 April 2011 at 5:00 PMJUDGMENT OF COURTNEY JThis judgment was delivered by Justice Courtneyon 1 April 2011 at 4:30 pmpursuant to R 11.5 of the High Court Rules.Registrar / Deputy RegistrarDate.Solicitors: Chapman Tripp, P O Box 2206, Auckland 1140Fax: (09) 357-9099 – B J Burt / J McMillanIntroduction[1] South Canterbury Finance Limited (in receivership) (SCF) has applied without notice for orders freezing the assets of the defendant, Gavin Bennett.[2] Mr Bennett is the sole shareholder and director of the DataSouth group of companies. One of those companies, DataSouth Finance Limited (DFSL), has for some years had an arrangement with SCF under which it entered into equipment leases with customers, SCF would purchase assignments of the leases from DFSL and DFSL would collect payments from customers and pass them on to SCF.[3] Accountants BDO Christchurch, have recently undertaken a limited scopereview of DFSL's finance receivables at the request of SCF. This step was promptedby advice from the Chief Executive Officer of the DataSouth group of companies that there appeared to be irregularities in the leases purportedly assigned by DFSL to SCF. BDO Christchurch has reported to SCF that:There are material differences between the ledger of receivables maintained by SCF and DSFL's list of active leases, with the number of active leasessignificantly less than that advised by DFSL to SCF.SCF's receivable ledger amounts to $25,711,829. In comparison DFSL'sledger of assigned leases totals $2,598,825.There are material discrepancies between SCF's receivable ledger and what DFSL's customers claimed was owed under the leases.Many of DFSL's customers contacted by BDO Christchurch claimed thatthey either leased no equipment or less equipment from DFSL than reported by DFSL to SCF.[4] BDO Christchurch requested an explanation from Mr Bennett for the discrepancies. In an email response he has provided a substantial list that he says "is a list by deal number, client, origin date, instalment that are not bona fide leases".SCF's application for freezing orders[5] SCF has brought its application under r 32.2 of the High Court Rules which permits an order known as a freezing order to be made without notice to restrain a respondent from removing assets located in or outside New Zealand or from disposing of, dealing with or diminishing the value of, those assets.[6] The principles relevant to the grant of a freezing order are summarised inBank of New Zealand v Hawkins.1 An applicant for a freezing order must show a good arguable defence on its substantive claim, the existence of assets within the jurisdiction to which the orders can apply and a real risk that the defendant willdissipate or dispose of assets so as to render himself "judgment proof".[7] SCF asserts that it has a strong claim against Mr Bennett for deceit and monies had and received, evidenced (at the least) by Mr Bennett's admission of leases that are "not bona fide".[8] Although the leases which are the subject of the claim are owned by DFSL, he is the sole shareholder and director of that company and indeed the other companies in the DataSouth group. SCF has produced an income tax return for Data South Business Solutions Limited showing $150,000 paid by way of remuneration to Mr Bennett and asserts that, as a result, it is very likely Mr Bennett has one or more bank accounts in New Zealand. I accept that for the purposes of an application under r 32.2 this level of information is sufficient for me to conclude that there are assets in New Zealand to which an order can attach.[9] In terms of the risk of removal of assets or funds, SCF points to the fact that Mr Bennett lives in Sydney and that liquidators have now been appointed to the DataSouth group of companies. As a result, Mr Bennett has no ready source of income from those companies. I would add to that the obvious risk that, since Mr Bennett has apparently acknowledged the deceit by DFSL he could reasonably be expected to anticipate action by SCF to recover its losses and to take action to avoid his assets being affected.1 [1989] 1 PRNZ 451[10] There is no evidence that any third party who might be detrimentally affected by the making of the orders sought and SCF has given an undertaking as to damages. SCF is, of course, in receivership but the receivers have undertaken that any liability incurred will be a cost in the receivership and therefore paid ahead of any payment to the debenture holder.Conclusion[11] I am satisfied as to the grounds for the orders sought. I therefore make ordersin terms of the draft orders filed with SCF's application.____________________P Courtney J