ST PAULS BODY CORPORATE 85978 v COW POWER INVESTMENTS LIMITED [2023] NZHC 1559

ST PAULS BODY CORPORATE 85978 v COW POWER INVESTMENTS LIMITED [2023] NZHC 1559[22 June 2023]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2023-485-148[2023] NZHC 1559UNDER the Companies ActIN THE MATTER of the liquidation of Cow Power InvestmentsLtdBETWEEN ST PAULS BODY CORPORATE 85978PlaintiffAND COW POWER INVESTMENTS LIMITEDDefendantHearing: 20 June 2023Appearances: J D Haig for ApplicantA Gilmore for Respondent (via VMR)Judgment: 22 June 2023JUDGMENT OF ASSOCIATE JUDGE SKELTONThis judgment was delivered by me on 22 June 2023 at 10.00 am,pursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:22 June 2023[1] Before me is an application by the plaintiff to place the defendant companyinto liquidation.Background[2] The plaintiff issued a statutory demand by its solicitor dated 17 January 2023in the sum of $16,625.64 for unpaid levies and penalties with respect to units 14, 19,54 and 98 in the St Pauls Apartments, 37 Pipitea Street, Wellington on the defendantcompany.[3] The apartments are owned by the Mighty Rocket Trust (Trust) and thedefendant company is a trustee of the Trust.[4] On 19 January 2023, Mr Aaron Gilmore, as director of the defendant companywas personally served with the statutory demand. No steps were taken in responsewithin the time provided under s 290 of the Companies Act 1993.[5] On 23 March 2023, the plaintiff filed its statement of claim and notice ofproceeding (and supporting documents) seeking the liquidation of the defendantcompany on the basis that it failed to comply with the statutory demand and that it wasjust and equitable to do so.[6] The proceeding documents were served on the defendant company on29 March 2023.[7] The plaintiff's application was duly advertised in the NZ Gazette andThe Dominion Post on 21 and 22 April 2023, respectively.[8] A liquidator's consent to act from Mr Heath Gair, an insolvency practitioner,and an affidavit as to unpaid debt were filed and served on 15 May 2023, the daybefore the first call of the matter on 16 May 2023.[9] On 16 May 2023, the matter was set down for a hearing. The reason for thiswas that Mr Gilmore, as the major shareholder of the defendant company, had filedand served a notice which I accepted as a notice of appearance under r 31.18 of theHigh Court Rules 2016. Mr Gilmore wished to be heard in opposition to theapplication for liquidation.[10] There was an issue as to whether the notice had been filed in time in accordancewith r 31.19 of the High Court Rules. However, I granted special leave for Mr Gilmoreto be heard on the basis that the overall justice of the matter required that he be heard.Mr Gilmore was given the opportunity to file submissions and affidavit evidence insupport of the grounds of opposition raised in his notice.Plaintiff's position[11] The plaintiff seeks an order for liquidation of the defendant company pursuantto s 241(4)(a) or (d) of the Companies Act on the basis that it is unable to pay its debts,or that it is just and equitable to do so.[12] Mr Haig, for the plaintiff, submits that an order for liquidation unders 241(4)(a) should be made because:(a) the defendant company took no steps to comply with or set aside thestatutory demand giving rise to the statutory presumption unders 287(a) of the Companies Act;(b) there is no evidence before the Court to displace the presumption thatthe defendant company is unable to pay its debts;(c) Mr Gilmore has made an admission of insolvency in stating that thedefendant company has no funds, no assets, or even a bank account;(d) part payment combined with an offer to compromise does not changethe position in respect of the plaintiff's ability to seek and obtain anorder for liquidation.[13] The plaintiff has provided an updating affidavit of Mr Sean Rahui (a memberof the Body Corporate's committee) dated 14 June 2023 recording that payments of$5,730 have been received from the defendant company since 17 January 2023.However, the balance owing on the statutory demand sum is $10,895.64 (excludinginterest accruing and costs). Since the date of the statutory demand, further levies inthe sum of $11,728.39 have been invoiced and remain unpaid. Legal costs of$9,779.60 have been charged plus disbursements of $1,587.99. The plaintiff says thatthe total amount owing is $33,991.62 (excluding costs for June 2023).Mr Gilmore's position[14] Mr Gilmore has provided written submissions dated 12 June 2023 in additionto his notice dated 12 May 2023. Mr Gilmore raises a number of points in oppositionto the application for liquidation. I discuss these points below.Defendant company is a bare corporate trustee of the Trust[15] Mr Gilmore submits that the liquidation of the defendant company will achievenothing because the company has no funds and does not trade and has no bank account,or assets, and is a mere corporate trustee established for the sole purpose of being thesecond trustee of the Trust.[16] Mr Gilmore submits that the defendant company will, pursuant to the TrustDeed, automatically cease to be a trustee of the Trust on liquidation, further alienatingfunding options for the plaintiff. He refers to s 116 of the Trusts Act 2019.[17] Mr Gilmore also refers to s 86(3) of the Trusts Act.1 He submits that theplaintiff has previously been made aware of "the limited indemnity" of the defendantagainst trust property. Therefore, he says that the plaintiff cannot seek a full indemnityagainst the Trust.[18] I do not consider that any of these points prevent a liquidation order beingmade against the defendant company. A trustee company that becomes insolvent maybe put into liquidation by the Court on the application of a creditor in the same manneras any company would ordinarily be put into liquidation.21 Section 86 of the Trusts Act provides a creditor with a direct right to be indemnified from trustproperty through a trustee's indemnity in certain circumstances.2 Paul Heath and Michael Whale Heath and Whale on Insolvency (3rd ed, LexisNexis, Wellington,2018) at 46.8(c)(ii); and CIR v Chester Trustee Services Ltd [2003] 1 NZLR 395 (CA).[19] The defendant company as a trustee would usually be entitled to beindemnified out of the assets of the Trust.3 Any issues as to the scope of the indemnityor divesting of trust property under s 116 of the Trusts Act would be matters for theliquidator, but do not mean that the defendant company should not be put intoliquidation.4[20] Further, the Court of Appeal has found that an insolvent company is generallyunfit to act as trustee, and the courts will not readily acquiesce in continuation astrustee by an assetless company.5Disputes[21] Mr Gilmore submits that the amounts owing arose due to valid disputes overthe lack of progress in the use of special levies at the St Paul's Apartment complex toundertake earthquake repairs. Mr Gilmore says that the uncompleted repairs have leftcommon areas looking dangerous. He acknowledges that some progress has beenmade recently but submits that significant outstanding issues remain, and says that theBody Corporate committee continue to waste money on unnecessary things.[22] Mr Rahui covered this issue in his updating affidavit. He stated:5. The Saint Pauls apartments consists of four blocks. They haveundergone an extensive weathertightness remediation andsubsequently, earthquake repairs under a scheme approved by theHigh Court.6. Hawkins builders who we contacted [sic] to undertake theweathertight remediation project also carried out the earthquakestrengthening and repairs as determined by Pointload Engineers. Theproject was supervised by the Body Corporate employed ProjectSupervisor Hugh MacKenzie.7. The detailed work plans drawings, cost schedules and invoices weresubmitted to EQC in 2020.8. On 23 December 2020, EQC reimbursed the Body Corporate to coverthe cost of the earthquake remediation work. All works are completedother than some minor further works that are under way.3 Section 81 of the Trusts Act 2019.4 There were suggestions made during the hearing that the defendant company may recently haveceased to be a trustee of the Trust. However, there is no evidence before the Court on this issue.5 CIR v Chester Trustee Services Ltd, above n 2, at [48], [63], [81] and [83].9. For the minor works, a contract has been let with Architecture+ toarrange for corridor touch ups and redecoration. That work followingthe recent installation of new carpet tiles in all corridors will take placein the next few months.[23] The issue with regard to this ground of opposition is that the defendantcompany took no steps to set aside the statutory demand on the basis of a dispute,thereby giving rise to the statutory presumption under s 287(a) of the Companies Act.While this presumption is rebuttable, a company that has failed to apply and have thestatutory demand set aside on the ground that the debt is disputed needs to show someexceptional factor to justify that failure which is likely to reflect the existence of agenuine dispute.6[24] Mr Gilmore was given the opportunity to file affidavit evidence in support ofhis opposition to the liquidation order, but he has not done so. He has raised issuesregarding outstanding repairs in his submissions, but the plaintiff has providedaffidavit evidence explaining the position regarding the progress of repairs at theapartment complex. I am not satisfied on the evidence before me that Mr Gilmore hasestablished the existence of an exceptional factor justifying the failure to apply to setaside the statutory demand that reflects the existence of a genuine dispute.Service of the statutory demand[25] Mr Gilmore submits the defendant company was unable to apply to set asidethe statutory demand because the statutory demand was not served lawfully. Hesubmits that service was not at the address for service of the company, or the addressof the director (Mr Gilmore), or the company's registered office.[26] An affidavit of service of the statutory demand sworn on 22 March 2023 byMr Michael Jarvis has been provided by the plaintiff. The affidavit states thatMr Gilmore (as director) was served on 19 January 2023 at 8.33am at 292 WakefieldStreet, Wellington. Mr Gilmore submits that he could not have been served thenbecause he was in Thorndon at that time. However, the service report attached to the6 Quantum Holdings NZ Ltd v United Recyclers NZ Ltd HC Auckland CIV-2008-404-4564,20 November 2008 at [15]–[18].affidavit records that Mr Gilmore "acknowledged his identity and accepted service ofthe documents" at that time.[27] Section 387(1)(a) of the Companies Act allows service on a company bydelivery to a person named as a director of the company.[28] Mr Gilmore also submits that the two process servers who claimed to haveeffected service have not completed the affidavit of service. However, as submittedby Mr Haig, a person who physically carries out service of documents is not requiredto swear the affidavit of service.7[29] The affidavit of service records that the deponent did not attend to the serviceof the statutory demand personally and swore the affidavit on behalf of the twoemployees who completed service because they were not available to swear theaffidavit. One was out of the country and the other had suffered a medical event whichmade him unable to swear the affidavit. As noted above, the affidavit attaches theservice report of the process servers dated 19 January 2023.[30] Overall, I am satisfied on the evidence before me that the defendant companywas validly served with the statutory demand on 19 January 2023.[31] Finally, Mr Gilmore submits that the statutory demand in this case has beenused "as a pure debt collection or disputes mechanism" and this has been deemedinappropriate by the courts. However, as submitted by Mr Haig, statutory demandsmay be used to obtain payment for debts owing.8Assets of the Trust[32] Mr Gilmore submits that the Trust holds more than $3 million in net assets andthat this is a basis for the liquidation order not being made against the defendant trusteecompany.7 Goldman v MacKay 1911 (1912) 31 NZLR 859.8 See for example, Manchester Securities Ltd v Body Corporate 172108 [2018] NZLR 455 (HC) at[34].[33] However, there is no evidence before the Court as to the assets of the Trusteven if the defendant company has a right to be fully indemnified from the trustproperty.9 Further, as Mr Haig submits, it is the cashflow test of insolvency that countsin terms of considering a liquidation application under s 241(4)(a).10Compromise offers[34] Mr Gilmore submits that, in addition to the $5,730 part payment, numerouscompromise offers have been made to the plaintiff to pay the balance of the leviesrequested. He says that the Trust is selling two of the apartments it holds with a publicauction dated 29 June 2023. He says that offers have been made by the Trust to settleall levies owing at that time and to pay legal fees at a reasonable level.[35] Mr Rahui states in his affidavit that:11. Entities owned by Mr Gilmore as shareholder have a long history of non-payment of levies (in their capacity as trustee of the unit owning trust) in theSaint Pauls apartment buildings. Over the years the Body Corporate has hadto make many demands and has issued proceedings .12. Mr Gilmore has been consistent in failing to fulfil promises to payBody Corporate levies or other sums owing. While it is understoodMr Gilmore/Cow Power has now listed two of their four apartments for sale,the Body Corporate has no confidence that the Body Corporate's levies willbe paid in the future (for the two remaining apartments, assuming both ofthose currently listed for sale are sold) or that the total sums owing now willbe cleared. Therefore, in the circumstances the Body Corporate considers thatthe company should be liquidated, with a liquidator appointed to manage theprocess.[36] In the circumstances, I agree with Mr Haig's submission that part payment of$5,730 of the statutory demand sum since January 2023 combined with offers ofcompromise does not change the position in respect of the plaintiff's ability to seekand obtain an order for liquidation.9 See [17] above.10 Commissioner of Inland Revenue v Aotearoa Coolstores Ltd HC Palmerston North CIV-2008-454-940, 5 October 2009 at [25].Ulterior motive[37] Finally, Mr Gilmore submits that the plaintiff has been a "serial vexatiouslitigant" against the Trust and has an ulterior motive in pursuing liquidation. He saysthat the plaintiff has been unwilling to discuss or accept any other forms of disputeresolution. He refers to members of the Body Corporate having expressed views viamedia and emails.[38] Again, no evidence has been put forward by Mr Gilmore to substantiate theseclaims. The position of the plaintiff is set out above in the extract from Mr Rahui'saffidavit. Mr Gilmore's main complaint seems to be that the plaintiff has not beenwilling to engage in other forms of dispute resolution in respect of the levies owed.However, based on the evidence before me, I so not consider that the plaintiff can belabelled a "serial vexatious litigant" against the Trust or that there is an "ulteriormotive" in seeking liquidation of the defendant company.Conclusion[39] For the reasons set out above, I am satisfied that the defendant company isunable to pay its debts in terms of s 241(4)(a) of the Companies Act and there is nodiscretionary reason why an order for liquidation should not be made.Costs[40] The plaintiff has been successful and is entitled to costs on the application.[41] The plaintiff claims costs on the basis of s 124(2) of the Unit Titles Act 2010which provides:The amount of any unpaid levy, together with any reasonable costs incurredin collecting the levy, is recoverable as a debt due to the body corporate by theperson who was the unit owner at the time the levy became payable or by theperson who is the unit owner at the time the proceedings are instituted.[42] In Body Corporate 207650 v Singh, Hinton J found that:1111 Body Corporate 207650 v Singh [2019] NZHC 2818 at [3].[3] Section 124(2) of the Unit Titles Act 2010 provides that the amountof any unpaid levy, together with any reasonable costs incurred in collectingthat levy, is recoverable as a debt due to the Body Corporate. That is thestarting point here. I accept on that basis that solicitor/client costs incurred inthe bankruptcy proceeding are recoverable in principle.[43] The plaintiff provided a memorandum as to costs dated 16 June 2023 claimingcosts as follows:(a) solicitor and counsel costs up to 31 May in the sum of $9,779.60(including GST) plus disbursements of $1,587.99;(b) for 1 June 2023 to 15 June 2023, counsel's costs in the sum of$7,700.40 (including GST); and(c) with regard to costs from 16 June 2023 up to and including the hearingon 20 June 2023, costs are claimed on a 2B basis with an additionalallowance of 0.5 of a day for preparation for the affidavit hearing on20 June 2023. A sealing fee of $50 is also added to the disbursements.[44] In total, the solicitor/client costs sought to be fixed amount to $20,348 plusdisbursements of $1,637.99. The plaintiff seeks that costs be paid out the assets of thedefendant company.[45] Mr Haig acknowledges that the costs sought are higher than 2B coststhroughout which would be $11,233 excluding disbursements. However, he submitsthat the costs are reasonable given that scale costs are expected generally to representtwo thirds of actual costs. He further submits that Mr Gilmore has raised an unusuallywide range of issues in his opposition and, to assist the Court, each had to be addressedwhich added to the time and costs involved.[46] With regard to the legal fees claimed, Mr Gilmore submits that the plaintiff isclaiming fees at twice the amount of levies owing and contends there has beenduplication with different lawyers billing for the same work.[47] I do not propose to undertake a detailed line-by-line analysis of the invoicessubmitted on behalf of the plaintiff. A robust approach is appropriate.12[48] I have reviewed the invoices and note that detailed breakdowns are providedin respect of most of them with no obvious duplication. Overall, taking into accountthe points made by Mr Haig above, I consider that the legal costs claimed arereasonable.[49] No issue is taken with the disbursements claimed. I consider that thedisbursements are reasonable.Orders[50] The following orders are now made:(a) an order placing the defendant company into liquidation;(b) the approved liquidator is Heath Gair of Palliser Insolvency Ltd;(c) the liquidator's remuneration is approved in accordance with theconsent of Heath Gair dated 8 May 2023 subject to s 284 of theCompanies Act 1993;(d) costs and disbursements are awarded to the plaintiff in the total sum of$20,348 plus disbursements of $1,637.99, to be paid out of the assetsof the defendant company;(e) these orders are timed at 10.00 am today, 22 June 2023.Associate Judge SkeltonSolicitors:Greenwood Roche, Wellington for Applicant12 At [8].