TI RAKAU DRIVE LIMITED V ASCOT AUCKLAND LIMITED HC AK CIV 2008-404-006257

TI RAKAU DRIVE LIMITED V ASCOT AUCKLAND LIMITED HC AK CIV 2008-404-006257 3 June 2009IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2008-404-006257IN THE MATTER OF THE COMPANIES ACT 1993 BETWEEN TI RAKAU DRIVE LIMITED Plaintiff AND ASCOT AUCKLAND LIMITED Defendant Hearing: 3 June 2009 Counsel: M Pitch for plaintiff J Strauss for defendant Judgment: 3 June 2009ORAL JUDGMENT OF ASSOCIATE JUDGE ABBOTTSolicitors: Malcolm Whitlock, PO Box 105 725, Auckland 1143 for plaintiff Dyer Whitechurch & Bhanabhai, PO Box 5547, Auckland 1141 for defendant[1] Ti Rakau Drive Limited (Ti Rakau) has applied for an order that Ascot Auckland Limited (Ascot) be put into liquidation. The basis for that application is that Ascot is indebted to Ti Rakau for the sum of $6,630, and has failed to comply with a statutory demand to pay that sum. [2] The debt claimed by Ti Rakau is a judgment debt entered in the District Court at Auckland on 18 February 2008. That judgment has been entered by way of enforcement of an order of the Disputes Tribunal of the same date. [3] Ascot has filed a statement of defence in which it alleges that the amount for which judgment was entered was paid by a third party, John Ede, in or about April or May 2007. It appears that this contention was not raised in the Disputes Tribunal, before its order of 18 February 2008. It was raised in an application to the Disputes Tribunal for rehearing. That application was declined. [4] Ascot contends that the point has not been determined before now. It says that there is evidence before the Court on this application on which the Court can find that the debt has been paid, and in that event Ti Rakau does not have the standing of a creditor to bring the present application. [5] Ti Rakau contends that Ascot has failed to establish a case for payment. It says that the evidence put forward does not really go beyond assertion, and falls short of the standard that would be required at this stage of the dispute. It notes that the assertion was initially made before the Disputes Tribunal (although it was raised only on the application for rehearing), and that Ascot failed to apply to set aside the statutory demand that underlies the present application. Further, the evidence now provided, although more expansive than that provided on the application for rehearing, is unsupported by any contemporary records. Ti Rakau also relies on the fact that Ascot has given no evidence of solvency to rebut the presumption arising out of the failure to meet the statutory demand.Background[6] A brief summary of the background to this dispute is needed. [7] The dispute has a lengthy history. It first came before me in October 2005 on an application by Ascot to set aside a statutory demand issued by Ti Rakau seeking payment of the sum of $12,661.95. Ti Rakau claimed that sum as an amount due to it arising out of a transaction involving a residential property at 1/1 Ambrico Place, New Lynn. It is unnecessary to rehearse the facts of the dispute at that time: they are set out in my judgment: (Ascot Auckland Limited v Ti Rakau Drive Limited HC AK CIV 2005-404-3569, 26 October 2005). The statutory demand was set aside in that case on the ground that there was a genuine dispute. [8] The dispute eventually found its way to the Disputes Tribunal which heard evidence from the parties on their respective contentions, and ultimately determined that the sum due to Ti Rakau, after various off sets or credits, was $6,630. There appears to be some issue as to whether that sum as expressed in the Tribunal's order contains a typographical error, but it is not material to the present application. [9] Ascot was dissatisfied with the decision of the Disputes Tribunal. It applied for a rehearing. In support of that application John Ede filed an affidavit in which he acknowledged original responsibility for the debt which Ti Rakau is now seeking to recover, and stated that he had settled that debt in full "some time ago". It is common ground that, as part of the various transactions in respect of 1/1 Ambrico Place, Ascot has assumed responsibility for the debt which Mr Ede acknowledged in his affidavit. [10] The application for rehearing was declined by the Disputes Tribunal. [11] Ti Rakau issued the statutory demand which underlies the present application on 7 July 2008. Again it is common ground that a statutory demand was issued previously on 28 April 2008 but allowed to lapse. [12] Ascot did not apply to set aside the statutory demand of 7 July 2008.[13] Ti Rakau issued the present application for liquidation on 22 September 2008. Ascot filed a statement of defence on 21 October 2008. In that statement of defence it denied that it was indebted to Ti Rakau, and that it was unable to pay its debts, and further pleaded (described as an affirmative defence):8. Further the amount for which judgment was entered in the proceeding, $6,600.00 was paid by a third party namely John Ede in or about April or May 2007. 9. On or about May 9, 2008 and on or about July 29, 2008 the defendant by its legal advisers wrote to the plaintiff after it had issued and served statutory demands dated April 28, 2008 and July 7, 2008 in terms, relevantly:-"We formally put you on notice that should Ti Rakau Drive Limited file a proceeding in the higher court at Auckland seeking to have Ascot Auckland Limited wound up our client will apply to have such proceeding struck out as an abuse of process, and seek solicitor client costs against both [Ti Rakau Drive Limited] and its directors. The grounds upon which our client shall make such an application are as follows:- (a) the debt has been paid in full as is or ought be well known to [Ti Rakau Limited] though its director(s); and(b) it transpires that alleged judgment of the Disputes Tribunal of February 18, 2008, following the hearings in on [sic] December 10, 2007 and on February 16, 2008 because is[sic] a nullity at law because it is given in favour of an entity that does not exist. Ti Rakau Drive Limited was at the time of both hearings (and therefore the judgment) struck off, and had been since October 12, 2007."10. In the premises this proceeding is an abuse of process and the defendant seeks the cost consequence in the prayer for relief below.Counsel are agreed that there were typographical errors in that letter and the words Ti Rakau Drive Limited in square brackets be inserted to reflect the true meaning of the letter.Principles[14] The application is brought pursuant to s 241(4)(a) and/or (d) of the Companies Act 1993 which read (in relevant part):241 Commencement of liquidation. (4) The Court may appoint a liquidator if it is satisfied that— (a) The company is unable to pay its debts; or . (d) It is just and equitable that the company be put into liquidation.[15] It is not in dispute that the effect of Ascot's failure to have the statutory demand set aside is that it is presumed to be unable to pay its debts: s 387 of the Companies Act 1993. Failure to apply to set aside a statutory demand does not necessarily preclude a company contending that it has a substantive defence based on a challenge to the underlying debt. However, in such cases the defendant company will need to show some special or exceptional factor justifying that failure (reflecting the existence of a genuine dispute). Further the Court still retains a discretion if satisfied that there is a genuine dispute: Brookers Insolvency Law and Practice para CA241.04(1). [16] Counsel for Ascot took the slightly unusual step of calling Ti Rakau's director, Mr Chapman, to give evidence orally as to whether or not the debt had been settled as suggested by Mr Ede. There had been no affidavit in reply to Mr Ede's affidavit, in particular to the following passages:5. In about April or May 2007 I negotiated a settlement with Grant Reynolds on behalf of Debt Recovery Co NZ Limited to pay the debt in full at a compromised sum of $10,000.00. Grant Reynolds was the agent of Mr Chapman and his company, Debt Recovery Co NZ Limited. When this occurred Mr Reynolds returned the stamp albums to me. 6. The payment of $10,000 was made by an electronic transfer from a company I was working for at the time called Neil Timber Ltd. 7. I only ever had one loan from Debt Recovery Co NZ Limited. The stamp albums were put up as security for that loan and no other.[17] It has to be said that the evidence given by Mr Chapman did no more than confirm that the payment of the debt is still in dispute. Nevertheless, counsel for Ascot submitted that it was still open to the Court, on all the evidence before it, tofind that the debt had been paid. The thrust of the evidence on which he relies, as I recorded it is: a) Mr Ede was the original debtor (this was acknowledged by Mr Chapman); b) The debt for which Ascot assumed liability was originally Mr Ede's debt; c) Certain stamp albums were provided as security for the original debt; d) The stamp albums were to be returned once the debt was paid; e) The albums were later returned (albeit to Mr Ede) (a fact that is recorded in the Disputes Tribunal decision). [18] Counsel for Ascot submitted that these facts supported the evidence of Mr Ede set out above, particularly in the absence of any opposing evidence from the person at Ti Rakau with whom Mr Ede says that he dealt, Mr Grant Reynolds. [19] I am not persuaded that the evidence before the Court is clear enough to determine the issue. The evidence given by Mr Chapman today did not determine the matter one way or another. However, I note that Mr Chapman remained of the view, at the end of his evidence, that the debt had not been settled before the matter went to the Disputes Tribunal, and he referred on several occasions to the fact that the dispute was raised in the Tribunal (albeit it seems only on the application for rehearing). Mr Chapman also contested whether or not the albums had been provided by way of security. [20] I also find it curious that, in this hotly disputed matter, Ascot has been unable to provide any documentary support for the alleged payment even though it is alleged that the payment was made some time in late 2007. It is also curious that the matter was raised in the Disputes Tribunal on the application for rehearing, and apparently raised in correspondence after issue of the statutory demand underlying this application, but not pursued by way of an application to set aside the statutorydemand. Nor is there any explanation given by Ascot of the failure to apply to set aside. [21] I am led to the conclusion that the alleged payment does not constitute such an exceptional factor as to justify Ascot's failure to apply to set aside and allow this matter to be reopened in the context of this application for liquidation. The failure to apply to set aside the statutory demand at the very least goes to the credibility of Ascot's case. Coupled with the continuing dispute by Ti Rakau, and the late emergence of the allegation of payment (it was not originally before the Disputes Tribunal) I am not persuaded that there is a sufficient basis established for a genuine dispute. [22] I also take into account Ascot's failure to adduce any evidence as to solvency. Given the history of this matter that omission is surprising to say the least. Ascot must have contemplated that it would be unable to establish anything more than a possibly arguable case on this application. In that event it would be a relevant factor for the exercise of the Court's discretion to show that it was solvent. Failure to do so really leaves the Court with little scope for the exercise of its discretion in Ascot's favour. I accept the submission of counsel for Ascot that the Disputes Tribunal did not decide the merits of whether or not the debt had been paid. However, it was still for Ascot to establish its case in this Court. I find that it has not done so.Decision[23] Ti Rakau has a clearly established judgment debt in its favour. I have considered, but do not accept, Ascot's argument that there is a genuine and substantial dispute over that debt such as to call into question Ti Rakau's standing as creditor. Ascot's failure to pay the statutory demand, or to have it set aside, raises a presumption of insolvency. On that basis Ti Rakau is entitled to seek an order placing Ascot into liquidation. I see no reason to exercise the Court's residual discretion not to do so.[24] I make an order placing Ascot into liquidation. Paul Suter, insolvency practitioner of Auckland, is appointed liquidator. This order is made at 6:23pm today, 3 June 2009. [25] Counsel for Ascot sought deferral of the making of the order for liquidation so as to allow Ascot time in which to settle the debt. Had it provided evidence of solvency I would have been prepared to accede to that request. In the absence of such evidence, and particularly as to whether there are any other outstanding creditors, I am not prepared to make that order. It remains open to Ascot to take steps to settle both this debt and any other debts and to apply for termination of the liquidation pursuant to s 250 of the Companies Act 1993. I accept that there will be a cost associated with that, but that is a matter that Ascot should have considered before today. [26] Ti Rakau is entitled to costs. Its counsel sought additional costs for arranging for Mr Chapman to be present for examination today. I am not prepared to order other than standard scale 2B costs. In that respect I am taking into account the modest amount at issue, and the lengthy history of dispute. I consider that an award on a 2B basis is appropriate in all the circumstances of the case. I make no special award in respect of the attendance of Mr Chapman today. ____________________Associate Judge Abbott