SUPERFURN PUKEKOHE LIMITED (IN LIQUIDATION) V SUPERFURN (NEW ZEALAND) LIMITED (IN LIQUIDATION) HC AK CIV 2009-404-006416

SUPERFURN PUKEKOHE LIMITED (IN LIQUIDATION) V SUPERFURN (NEW ZEALAND) LIMITED (IN LIQUIDATION) HC AK CIV 2009-404-006416 8 February 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2009-404-006416UNDER The Companies Act 19993 BETWEEN SUPERFURN PUKEKOHE LIMITED (IN LIQUIDATION) Applicant AND SUPERFURN (NEW ZEALAND) LIMITED (IN LIQUIDATION) Respondent Hearing: 8 February 2010 Counsel: No appearance for applicant N P Tetzlaff for respondent Judgment: 8 February 2010ORAL JUDGMENT OF ASSOCIATE JUDGE ABBOTTSolicitors: Blackwells, PO Box 9325, Auckland 1149 for applicant Gaze Burt, PO Box 301251, Albany 0752 for respondent[1] There are two applications before the Court today. The first is an originating application by Superfurn Pukekohe Limited now allegedly in liquidation (Superfurn Pukekohe) to set aside a statutory demand. The second is an interlocutory application by Superfurn (New Zealand) Limited (in liquidation) (Superfurn (NZ)) seeking to have the alleged liquidation of Superfurn Pukekohe declared invalid. Additionally, in the event that the Court determines that the liquidation is invalid, and that Superfurn Pukekohe has failed to establish a substantial dispute, Superfurn (NZ) seeks an order placing Superfurn Pukekohe into liquidation immediately.Background[2] Superfurn (NZ) and Superfurn Pukekohe are both in the business of selling furniture under the Superfurn brand. Superfurn (NZ) manages one retail outlet and wholesales furniture to a chain of related companies all trading under the Superfurn brand. Superfurn Pukekohe is one of the related companies and operated a retail outlet in Pukekohe. It obtained its stock from Superfurn (NZ). When incorporated in March 2008, 50% of Superfurn Pukekohe's shares were taken up by each of Superfurn (NZ) and a trust associated with Superfurn's director, Mr C J Lamb. [3] Superfurn (NZ) was put into liquidation on 9 September 2009. On 16 September 2009 it issued a statutory demand on Superfurn Pukekohe for the sum of $151,819.61, claiming that that sum was due and owing in respect of goods provided and services performed. The demand was served on Superfurn Pukekohe the following day. [4] On 1 October 2009, Superfurn Pukekohe filed the application now before the Court, seeking to have the demand set aside. The grounds stated in the application were that Superfurn Pukekohe disputed the debt, that it did not owe any amount to Superfurn (NZ), and that it was solvent. In essence it said that there was a joint venture agreement between Superfurn (NZ) and the other 50% shareholder (the family trust associated with Mr Christopher Lamb). Superfurn Pukekohe contended that under that agreement Superfurn (NZ) was to provide stock to match cashcontributions by Mr Lamb's interests for set up costs, and that the bulk of the sum demanded comprised that contribution. Superfurn Pukekohe also contended that the balance of the sum demanded (in the order of $25,000) had been paid. Additionally, it said that Superfurn (NZ) still owed it a greater sum (in the order of $31,000), by way of its contribution pursuant to the joint venture agreement. [5] Superfurn Pukekohe's application was first called on 16 October 2009. Counsel appeared for Superfurn (NZ) and filed notice of opposition in Court. In that opposition, Superfurn (NZ) challenged the contention by Superfurn Pukekohe that it was owed money to Superfurn (NZ). Directions were given at that hearing for filing of affidavits and for this defended hearing today. This included a direction that Superfurn Pukekohe file and serve its submissions in support of the application by 4 December 2009. [6] On 29 October 2009, the board of directors of Superfurn Pukekohe purportedly resolved to put Superfurn Pukekohe into liquidation. New Zealand Companies Office records disclose that Mr Bernie Drumm, a chartered accountant, was appointed liquidator. [7] On 20 November 2009, Superfurn (NZ)'s liquidator Mr Steven Khov wrote to Mr Drumm challenging the board's ability to appoint him and inviting him to provide documents evidencing and justifying his appointment. Mr Khov advised that until Superfurn (NZ)'s liquidators received evidence of a valid appointment they would be taking the position that the appointment was invalid, and that they would be continuing their legal action to liquidate Superfurn Pukekohe validly. Superfurn (NZ)'s other liquidator, Mr Damian Grant, has since filed an affidavit stating that Mr Drumm has not responded to Mr Khov's letter. [8] On 18 December 2009, counsel for Superfurn Pukekohe filed a memorandum advising the Court that Superfurn Pukekohe had been placed in liquidation and stating:"The fixture is no longer required"The memorandum did not purport to discontinue the application as such.[9] On 11 January 2010 Superfurn (NZ) filed the interlocutory application that is also before the Court. In that application Superfurn (NZ) seeks leave to continue its proceeding pursuant to s 248(1)(c) of the Companies Act 1993, reflecting the fact that on the face of the Companies Register, Superfurn Pukekohe is in liquidation. However, Superfurn (NZ) then seeks directions that Superfurn Pukekohe was not in fact in liquidation as the appointment of Mr Drumm was invalid. [10] The grounds given for the contention that the purported liquidation was invalid were that the board, as distinct from shareholders, can only place the company into liquidation if the board was given that power under the company's constitution. In the present case, the company does not have a constitution and nor do the default provisions of the Companies Act make any such provision. [11] In minutes issues to both parties on 28 January 2010 and on 3 February 2010, I first questioned whether Superfurn Pukekohe had withdrawn its application, in which case it appeared that Superfurn (NZ)'s application should have been brought as an originating application. However I then directed that this hearing would remain and it would be for the presiding Judge to decide on the day whether Superfurn (NZ)'s application could proceed in its present form. I added that that would depend, at least in part, on whether or not there was any opposition. [12] Neither Superfurn Pukekohe nor Mr Drumm have appeared today. Counsel for Superfurn (NZ) advised at the commencement of the hearing that Mr Drumm had indicated, in a telephone conversation late last week, that he did not intend to appear. Additionally, counsel received an email from the solicitor for Superfurn Pukekohe sending documents and asking that they be handed to the Court. I understand that the documents indicate a possible transfer of Superfurn (NZ)'s shareholding to Mr Lamb's interests. This is not the way to put material before the Court. Counsel for Superfurn (NZ) has no obligation to present documents on behalf of Superfurn Pukekohe. The latter has notice of this hearing and has had ample opportunity to take any further steps. The application has been adjourned, however, for a short period of time to allow Superfurn (NZ) to provide evidence of service of the application upon Mr Drumm. That evidence has now been provided in an affidavit of service as well as evidence of service on Superfurn Pukekohe's counsel.Superfurn (NZ)'s application[13] There is a procedural issue as to whether Superfurn Pukekohe's application remains on foot, as a basis for Superfurn (NZ)'s interlocutory application to proceed. Counsel for Superfurn (NZ) acknowledges that if the originating application has been discontinued, his client would have to bring an originating application. [14] I am satisfied that it is appropriate to allow the interlocutory application to proceed. The memorandum from counsel for Superfurn Pukekohe, filed in December 2009, did not request discontinuance and does not meet the formal requirements of r 15.19. There has been no order by the Court granting leave to discontinue. Furthermore, no issue has been taken with the interlocutory application, notwithstanding that counsel for Superfurn Pukekohe has received minutes raising this possible issue. I come to the view, in the absence of any opposition, that the Court should apply r 1.2 and permit the interlocutory application to be heard, as this is the best way to secure the just speedy and inexpensive determination of these proceedings. [15] I accept that it is appropriate to proceed with the interlocutory application first. If Mr Drumm's appointment is not declared invalid Superfurn Pukekohe's application and Superfurn (NZ)'s opposition to it become academic.Leave to proceed[16] The first aspect of Superfurn (NZ)'s application is to seek leave to continue. As already mentioned, this is a practical acknowledgment of the fact that, on the face of the Companies Register, Superfurn Pukekohe is in liquidation.[17] This is a case where it is just and equitable for the Court to grant leave. I consider that the Court should examine the purported liquidation of Superfurn Pukekohe. Mr Grant has filed an affidavit exhibiting the Companies Office record of the liquidation. It shows that he was appointed by the board of Superfurn Pukekohe pursuant to s 241(2)(b) of the Companies Act 1993, as distinct from its shareholders pursuant to s 241(2)(a). The Companies Office record also shows that Superfurn Pukekohe does not have a constitution which could provide the board with this power. The application challenging the validity of the liquidation cannot be considered frivolous or vexatious and, on the evidence before the Court, has a reasonable chance of success. I accept the submission of counsel for Superfurn (NZ) that it is important that the appointment of liquidator be procedurally and legally correct given the power that the liquidator has over the assets of the company and the interests of the company's creditors that are affected. There is a case for saying that the board did not have the requisite authorisation. [18] Taking into account the above factors, I grant leave for Superfurn (NZ) to proceed with its application and, in the event that it is successful, to pursue its application opposing the setting aside of the statutory demand and the liquidation of Superfurn Pukekohe.Validity of appointment[19] Superfurn (NZ) initially brought its application under s 250 of the Companies Act 1993. However, in his submissions in support of the application, counsel for Superfurn (NZ) relies instead on the inherent jurisdiction of the Court to deal with and manage matters relating to the liquidation of companies. He relies on the Court's inherent jurisdiction because he takes the view that s 250 presupposes valid appointment of a liquidator. I propose dealing with the application under the Court's inherent jurisdiction without commenting on counsel's submissions as to the application of s 250, as that is a matter that would be better addressed on full and opposed argument. I am satisfied that the Court can make the orders on the basis of its inherent jurisdiction.[20] The first point to make on this aspect of Superfurn (NZ)'s application is that neither Superfurn Pukekohe nor the liquidator have filed notice of opposition, nor provided any evidence on the matter. That is particularly relevant having regard to the request made by Superfurn (NZ)'s liquidators for Mr Drumm to provide evidence justifying his appointment. [21] I have already mentioned that the liquidator was appointed pursuant to s 241(2)(b) of the Companies Act. This reads:241 Commencement of liquidation(2) A liquidator may be appointed by— ... (b) the board of the company on the occurrence of an event specified in the constitution ...[22] Counsel for Superfurn (NZ) submitted that a board may not exercise the right given by s 241(2)(b) to appoint a liquidator unless the company both has a constitution, and that constitution specifically makes provision for liquidation. He submitted that the section does not provide the board of a company, without a constitution, with a licence to liquidate that company at will. He says that the effect of allowing this would be to transfer the rights of shareholders (s 241(2)(a)) or the Court (s 241(2)(c)) to the board, and that public policy should prohibit boards from subverting shareholders' and creditors' rights without express authorisation from the company's constitution. [23] Without necessarily accepting all of this reasoning (particularly on an undefended application) the points appear to be well made. I do accept, however, that the board may not exercise rights pursuant to s 241(2)(b) unless there is a specific provision for doing so under a constitution of the company. The effect of this finding is that it was not open to Superfurn Pukekohe's board, on the evidence before the Court, to put the company into liquidation pursuant to s 241(2)(b). I find, therefore, that the board's exercise of that section was a nullity, and that it is just and equitable for the Court to exercise its inherent jurisdiction to set aside the purported liquidation on 29 October 2009, and the related appointment of Mr Drumm as liquidator.Substantive application – substantial dispute[24] Both parties have filed affidavits in relation to the alleged dispute. Superfurn Pukekohe's director, Mr Lamb, contends that there was a joint venture agreement between his interests and Superfurn (NZ), under which Superfurn (NZ) was to supply stock to Superfurn Pukekohe:5. At the time SPL commenced trading it was agreed that I would make initial cash contributions for set up costs and disbursements and that SNZ would match these contributions by way of stock.[25] Mr Lamb says that the total cash contribution from himself, or his interests, was $158,000 although he does not produce any documentation to support either that claim or that figure. He contends that Superfurn (NZ) contributed $126,938.64 to Superfurn Pukekohe's business by way of stock. He supports this by production of a statement issued by Superfurn (NZ) to Superfurn Pukekohe dated 31 August 2009. The figure he puts forward represents the total of a number of invoices listed in the statement with the description stock or stock contribution. He contends that the balance of the sum demanded, namely $24,880.97 (represented by a number of miscellaneous invoices), has been paid but says that he is unable to provide supporting documentation because the liquidators of Superfurn (NZ) had "wrongfully demanded delivery" of all Superfurn Pukekohe's records. As well as denying that any sum is due, Mr Lamb also contends that Superfurn (NZ) is still obliged to make a further contribution to Superfurn Pukekohe by way of stock or cash in the sum of $31,061.40 in order to match the contribution from his interests in accordance with the alleged joint venture agreement. [26] Superfurn Pukekohe's application to set aside the statutory demand is made pursuant to s 290(4) of the Companies Act 1993:290 Court may set aside statutory demand(4) The Court may grant an application to set aside a statutory demand if it is satisfied that— (a) There is a substantial dispute whether or not the debt is owing or is due; or(b) The company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or (c) The demand ought to be set aside on other grounds.[27] The issue for the Court on this application is not to resolve any dispute but rather determine whether there is a substantial dispute and hence a fairly arguable basis for an applicant to say that it is not liable for the amount claimed. [28] Counsel for Superfurn (NZ) contends that the evidence put forward by Mr Lamb is mere assertion, lacking material to back up the claim of a dispute. He submits that some evidence short of proof is required: Focus International Export Limited v Honeywell Limited, HC Auck M134-IM 99, 28 May 1999, Master Faire. He also points out that the liquidators (in the evidence of Mr Grant) challenge the evidence of Mr Lamb, and argues that, in the absence of any material supporting contentions of Superfurn Pukekohe, the Court is entitled to examine Mr Lamb's evidence critically and reject mere assertions which do not pass the threshold of credibility: Eng Mee Yong v Letchumanan [1980] AC 331, 341. [29] Although it is not necessary for parties entering into some form of joint venture to record their arrangements in writing, that would be the usual approach particularly as between commercial parties. Mr Lamb's evidence on the point is scant. He appears to contend that this was an oral agreement. It is difficult to accept that an oral agreement would not have been recorded in some way such as contemporaneous notes or subsequent correspondence. This is particularly so where parties are obviously contemplating contributions in excess of $100,000. Even accepting that there may have been a relatively close working relationship between the directors of the two companies, some form of written record would be expected. The only written record appears to be the delivery of invoices, not in evidence before the Court, and what appears to be an equivocal description of the invoices in the statement that has been produced. On the other side of the ledger is an email produced by Mr Grant, dated 21 May 2009, which records the state of account between Superfurn (NZ) and various retailers. That email records that SuperfurnPukekohe owes Superfurn (NZ) $149,445.85, with an offset debt owed by Superfurn (NZ) to Superfurn Pukekohe of $1,327.70. [30] It is also relevant that there is no evidence from Superfurn Pukekohe as to the alleged oral agreement. There is no mention of the party within Superfurn (NZ) who is alleged to have made the agreement with Mr Lamb, or when that occurred, nor any explanation as to why it was not documented. These requirements, it seems to me, would have been the very least that would have been required to support the allegations of an oral agreement as a basis for the dispute. [31] Weighing these matters, I come to the view that the evidence advanced by Mr Lamb does not go beyond mere assertion. I am not persuaded that there is an arguable dispute on the evidence before me. I am also mindful of the fact that Mr Lamb himself has seen fit to endeavour to place the company into liquidation, signifying his concerns about solvency. In my view the dispute, if there is any underlying basis for it, can be and should be better resolved by liquidation. [32] I do not overlook the other two matters raised on behalf of Superfurn Pukekohe, being the alleged payment of the balance of the amount demanded (leaving aside the amount of the alleged stock contribution) and the balance of sum payable under the alleged joint venture agreement. The latter suffers from the same difficulty as the stock contribution argument, namely that there is simply no credible evidence of the joint venture agreement. As to the former, that is a matter that a liquidator can investigate. For present purposes, I accept the statement from Superfurn (NZ)'s liquidators that there is no evidence of payment. [33] In summary I find that there is no arguable basis for a sustained disputed or counterclaim capable of impugning the sum that Superfurn (NZ) has demanded.Disposition[34] Counsel for Superfurn (NZ) submits that in the event of a finding the Superfurn Pukekohe is not in fact in liquidation, and that there is no substantial dispute or set-off available, that the Court consider an order under s 291(1)(b) of the Companies Act 1993:291 Additional powers of Court on application to set aside statutory demand(1) If, on the hearing of an application under section 290 of this Act, the Court is satisfied that there is a debt due by the company to the creditor that is not the subject of a substantial dispute, or is not subject to a counterclaim, set- off, or cross-demand, the Court may— (a) Order the company to pay the debt within a specified period and that, in default of payment, the creditor may make an application to put the company into liquidation; or (b) Dismiss the application and forthwith make an order under section 241(4) of this Act putting the company into liquidation,— on the ground that the company is unable to pay its debts.[35] I accept counsel's submission that, in light of the steps already taken to try to put Superfurn Pukekohe into liquidation, and my finding of a substantial debt being due but unpaid, there is little merit to allowing further time to pay. It appears that Superfurn Pukekohe does have solvency problems. On that basis, I consider that it is better to have a liquidator take possession of the company's assets promptly for the protection of all creditors. [36] I make an order pursuant to s 291(1)(b) of the Companies Act 1993 putting Superfurn Pukekohe Limited into liquidation on the basis that it is unable to pay its debts. [37] Counsel for Superfurn (NZ) has produced a consent to act. Mr Digby John Noyce and Mr Keith Mawdsley of RES Corporate Services Limited are appointed as liquidators.[38] Superfurn Pukekohe is to pay Superfurn (NZ) costs on a 2B basis together with disbursements as fixed by the Registrar. [39] These orders are made at 1:14pm today, 8 February 2010. ____________________Associate Judge Abbott