Glenvar Property Holdings Limited (in liquidation) v 153 Holdings Limited [2016] NZHC 2272 (26 September 2016)

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IN THE MATTER	of the liquidation of Glenvar Property Holdings Limited (in liquidation)
UNDER	the Companies Act 1993
BETWEEN	GLENVAR PROPERTY HOLDINGS LIMITED (IN LIQUIDATION) First Plaintiff GRANT BRUCE REYNOLDS Second Plaintiff
AND	153 HOLDING LIMITED Defendant

Hearing:	14 and 26 September 2016
Counsel:	B M K Pamatatau for Plaintiffs
_Judgment:	_{26 September 2016}

This judgment was delivered by me on Monday, 26 September 2016 at 3.30 pm pursuant to r 11.5 of the High Court Rules.

GLENVAR PROPERTY HOLDINGS LTD (IN LIQUIDATION) v 153 HOLDING LTD [2016] NZHC 2272 [26

[1] Glenvar Property Holdings Ltd (Glenvar) entered into an agreement to purchase a property. It paid a deposit. Glenvar later nominated the defendant as purchaser. The defendant completed the purchase and acquired the property. But the defendant never paid Glenvar for the deposit—and Glenvar is now in liquidation. It and the liquidator seek that sum from the defendant. The defendant was served with the proceedings on 13 August 2016 but has not appeared or for that matter, done anything in relation to them.

[2] The case was originally brought as a liquidated demand. Katz J considered the pleadings could not be reconciled with the definition of a liquidated demand, and set the case down for formal proof pursuant to r 15.9 of the High Court Rules. That is the application before me.

[3] On 4 September 2013 Glenvar entered into an agreement with Graham and Rosemary Platt to purchase an Albany property for $6,070,500. The agreement required a 10 per cent deposit, with the balance due on settlement: 28 February 2014. The agreement was varied on 16 October 2013 to allow for the deposit to be paid in two instalments: $300,000 on 15 November 2013 and $307,500 on 30 November

2013. The balance was to be met at settlement through: (a) Payment of a further $607,500.

[4] Glenvar paid the deposit of $607,500 in November 2013 through a series of smaller payments over the course of that month. Documentary evidence appended to

¹It is not clear how the figure of $4,856,400 was calculated, as it is $900 more than the sum that would be arrived at after subtracting the three payments from the overall purchase price. Nothing turns on this.

[5] On 28 February 2014 Glenvar nominated, by deed, the defendant as purchaser. The material parts of the deed read:

A The Nominator or its nominee by Purchase of Real Estate agreed to purchase from Graeme Charles Platt and Rosemary jean Platt for the 153 Albany Highway, Albany, Auckland with Certificate of Title NA964/188 (North Auckland Registry).

3. The Nominee agrees to indemnity the Nominator from any action in respect of the Agreement.

4. The Parties agree that this Deed will be executed by way of exchange of facsimiles and further agree that this Deed is valid and enforceable under the Contracts Enforcement Act.

[6] Settlement occurred as anticipated on 28 February 2014. The documentary evidence is not clear as to whether Glenvar or the defendant paid the balance of the purchase price, $607,500, a point the liquidator acknowledges. Consequently, no claim is made for this amount; the claim relates to the identical sum paid by way of deposit back in November 2013.

[7] Glenvar was placed into liquidation on 7 November 2014—just over nine months after settlement.

repayment of the deposit on the basis it had been paid by Glenvar “on your behalf”.

The letter demanded the sum of $607,459.50 rather than $607,500 but the defendant never responded in any event.

[9] The liquidator has explained by supplementary affidavit how he has had particular difficulty in reconstructing Glenvar’s financial affairs because he has not been able to find its sole director, Yue Long, or most of the company’s records. Moreover, Glenvar has not filed any tax records.

[10] The liquidator believes Glenvar’s director has returned to China; that the company was involved in property speculation; and Glenvar was a party to other property transactions involving third party nominations or the cancellation of contracts. I treat these three observations as background only.

[11] As to the defendant, there is very little evidence about it beyond that it was incorporated on 14 November 2013 as an investment company in residential property. Its connection to Glenvar is unclear. And as observed, it has taken no part in these proceedings in circumstances in which the documentary evidence is scant.

[12] Glenvar contends its payment of the deposit gave rise to an enforceable debt against the defendant for the same sum. In the alternative, it contends the transaction was an undervalue transaction in terms of s 297 of the Companies Act 1993.

[13] This cause of action is at best amorphous because neither in its statement of claim nor its submissions does Glenvar explain how the evidence establishes a debt for $607,500 in relation to the defendant.

[14] I had assumed the debt was said to arise from the terms of the deed, a species of contract.²The deed complies with the requirements of s 9 of the Property Law Act 2007, in that it is in writing and executed by both Glenvar and the defendant.

_{And, the parties expressly stated in the deed they intended it
to be valid and}

enforceable, albeit under the Contracts Enforcement Act 1956, an enactment repealed in 2008. So far so good. However, this does not address what legal obligations the deed created, or more particularly, whether the deed required the defendant to repay Glenvar the deposit paid to the Platts.

[15] The question is one of contractual interpretation.³In the recent judgment of Air New Zealand Ltd v New Zealand Air Line Pilots’ Association Inc, the Court of Appeal adopted the following statement of principle of Lord Neuberger on behalf of the Supreme Court for the United Kingdom:⁴

When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] AC 1101, para 14. And it does so by focussing on the meaning of the relevant words ... in their documentary, factual and commercial context. That meaning has to be ascertained in light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of [the contract], (iii) the overall purpose of the clause and the [contract], (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions. ...

[16] It is far from clear what a reasonable person would take from the deed having regard to its language and background, about which little is known. While a deposit can be treated as part payment of the purchase price,⁵the deed contains no express requirement for the defendant to repay Glenvar that sum. Moreover, as the deed was executed on the date of settlement and three months after the deposit had been paid, the reference to “purchase monies” could also be understood to refer to those

outstanding as at settlement, thereby excluding the deposit in any event. Indeed, Glenvar expressly disclaims this basis for the cause of action for precisely this reason.

[17] Glenvar simply asserts when it nominated the defendant as purchaser, “a debt was created between the two Companies in relation to the deposits previously paid

³_{See, for example, Sayes v Tamatekapua [2012] NZCA
524, (2012) 25 NZTC 20-156.}

⁴Air New Zealand Ltd v New Zealand Air Line Pilots’ Association Inc [2016] NZCA 131, [2016]

2 NZLR 829 at [35], citing with approval Lord Neuberger in Arnold v Britton [2015] UKSC 36, [2015] AC 1619 at [15].

⁵D W McMorland Sale of Land (3rd edition, Cathcart Trust, Auckland, 2011) at [7.01].

by Glenvar”.⁶No authority is cited for the proposition an act of nomination necessarily creates liability in this way.

[18] There is also the indemnity provision. In her Minute refusing judgment based on a liquidated demand, Katz J pointed out the statement of claim did not assert the indemnity provision had been called on. And no such evidence has been provided subsequently. All that exists is the earlier mentioned letter from the liquidator to the defendant asserting Glenvar paid the deposit on behalf of the defendant. However, there is no evidence to support this proposition.

[20] Section 297 of the Companies Act 1993 provides for the liquidator of a company to recover the difference in value between what another person received from the company under a transaction and what the company itself received from the transaction if:

(b) And, the company was insolvent at the time of the transaction or the transaction caused the company to become insolvent.

[21] There is no statutory requirement for the other person to have been a party to

(1) Under subsection (2) the liquidator may recover from a person (X) the amount C in the formula A − B = C, where—

(a) A is the value that X received from a company under a transaction to which the company was or is a party; and

(b) B is the value (if any) that the company received from X under the transaction.

(2) The liquidator may recover the difference in value (that is, C in the formula in subsection (1)) from X if—

(i) the company was unable to pay its due debts when it entered into the transaction; or

(ii) the company became unable to pay its due debts as a result of entering into the transaction.

(a) transaction has the same meaning as in section 292(3): (b) specified period means—

(i) the period of 2 years before the date of commencement of the liquidation together with the period commencing on that date and ending at the time at which the liquidator is appointed; and

(ii) in the case of a company that was put into liquidation by the court, the period of 2 years before the making of the application to the court together with the period commencing on the date of the making of that application and ending on the date on which, and at the time at which, the order of the court was made; and

(B) after the making of the application to the court a liquidator was appointed under paragraph (a) or paragraph (b) of section 241(2),—

the period of 2 years before the making of the application to the court together with the period commencing on the date of the making of that application and ending on the date and at the time of the commencement of the liquidation.

(a) Glenvar entered into a “transaction” within the meaning of that term in s 292(3) of the Companies Act.

(d) The defendant received more from Glenvar under the transaction (to which Glenvar was a party) than Glenvar did.

(a) conveying or transferring the company’s property: (b) creating a charge over the company’s property:

(e) paying money (including paying money in accordance with a judgment or an order of a court):

(f) anything done or omitted to be done for the purpose of entering into the transaction or giving effect to it.

[25] Glenvar contends there is a transaction within either or both of paragraphs (a) and (e): (a) by virtue of an assignment of the right to purchase created by the deed and (e) through Glenvar’s payment of the deposit.

[26] Glenvar’s payment of the deposit is clearly a transaction in terms of paragraph (e). However, there is no evidence that transaction affected the defendant; unlike the subsequent transaction in which the defendant was nominated as purchaser. The learned authors of Insolvency Law and Practice observe the section

appears to envisage a single transaction rather than multiple transactions.⁸I assume that is correct in the absence of the defendant: this is not an occasion for adventurism.

[27] In Rowmata Holdings Ltd (in liq) v Hildred, which Glenvar did not cite, it was held the payment of a deposit by the company (later placed in liquidation) was a transaction within the terms of s 297.⁹There, the paying company was not the purchaser and had no entitlement to the land in relation to which it had paid the deposit.

[28] Two related distinctions emerge between Rowmata and this case. First, unlike Rowmata, there is no evidence Glenvar paid the deposit on someone else’s behalf. Indeed, settlement is the first evidence of the defendant’s involvement in this case, a point counsel accepted at the hearing. Second, in Rowmata the defendant derived value from the transaction at the time of the transaction, again, by virtue of the fact the deposit was being paid on its behalf by the company. Here, nothing of value to the defendant occurred until it was nominated as purchaser at settlement, several months after the deposit had been paid by Glenvar.

[29] I conclude a transaction in terms of (e) is not made out for these reasons, which reduce to a single proposition: the payment of the deposit was an earlier transaction to the transaction of value of the defendant. What then of (a)?

[30] Section 292(3)(a) provides for a transaction as including any conveyance or transfer of the company’s property. A “conveyance or transfer” of property has been given the widest possible meaning by the courts, and includes “every means by which property may be passed from one person to another.”¹⁰For example, an

_{assignment transferring a chose in action can be transaction under s
292(3)(a).}¹¹

183[2014] NZSC 183; , [2015] 1 NZLR 362) but the view that an assignment was a transaction was not disputed.

[31] The deed of nomination assigned the defendant the right to purchase the Platts’ property under the agreement for sale and purchase earlier entered into by Glenvar.¹²The deed made the defendant liable for the obligations attaching to that agreement, including payment of the purchase price. The indemnity provision tends to confirm Glenvar’s legal obligations were to become those of the defendant.

[32] Therefore, I conclude the assignment constituted a transaction under s 292(3)(a) of the Act, being one of value to the defendant at that time.

[33] This ingredient of the claim is readily established given timing: the transaction occurred on 28 February 2014 and liquidation was ordered on

[34] There is no presumption that simply because the transaction was within two years of the liquidation, the company was insolvent. In determining whether the company was unable to pay its debts when they were due, the following principles are applicable:¹³

¹²Although a deed of nomination is not necessarily an assignment, it can constitute an assignment if it complies with the requirements of an assignment: see Broughton v Wyatt Family Trust Holdings Ltd [2010] NZHC 1869; (2011) 12 NZCPR 368 (HC), leave to appeal refused by Wyatt Family Trust Holdings Ltd v Broughton [2011] NZCA 87, (2011) 12 NZCPR 381. Section 50 of the Property Law Act 2007 provides:

(1) The absolute assignment in writing of a legal or equitable thing in action, signed by the assignor, passes to the assignee—

(2) Subsection (1) applies whether or not the assignment is given for valuable consideration.

b) Regard may be had, however, to the recent past to see if the debtor was unable to pay debts as they became due;

e) The ability to pay involves a substantial element of immediacy to provide payment from cash and non-cash resources. An excess of assets over liabilities will not by itself satisfy the test if there is no ability to pay. The ability to procure sufficient money to pay debts by realisation by sale or mortgaging or pledging assets within a relatively short period of time will satisfy the test;

f) The issue of a company’s solvency requires a consideration of the company's financial position in its entirety. A temporary lack of liquidity does not necessarily evidence insolvency. For that reason, a consideration of the debtor’s position over a period of time is required; and

[35] When a company declines to pay its undisputed debts as they fall due, it leaves itself open to the inference it is unable to pay its debts as they fall due.¹⁴

[36] I am satisfied Glenvar was insolvent, in the sense of being unable to pay its debts when due, at the time of the transaction:¹⁵

(b) Glenvar had not paid a $133,000 debt which it owed at the time of the transaction.

the company shows they were non-existent (presumably because the company was a holding company for this transaction only).

¹⁵The liquidator gave evidence before me Glenvar’s bank accounts with at least one trading bank revealed not insignificant funds in those accounts. However, the liquidator said those funds appeared to be connected with another property transaction in relation to Glenvar, and one settled at a similar time.

[37] Transactions in the nature of gifts by a company or ones without any benefit are captured by the provision.¹⁶There is no evidence Glenvar received any benefit for nominating the defendant as purchaser having earlier paid the deposit itself. The difference in value in these circumstances is the sum of the deposit.

(3) A court must not order the recovery of property of a company (or its equivalent value) by a liquidator, whether under this Act, any other enactment, or in law or in equity, if the person from whom recovery is sought (A) proves that when A received the property—

(b) A reasonable person in A’s position would not have suspected, and A did not have reasonable grounds for suspecting, that the company was, or would become, insolvent; and

(c) A gave value for the property or altered A’s position in the reasonably held belief that the transfer of the property to A was valid and would not be set aside.

[39] This provision is under Part 16, but under the heading “Voidable transactions”. Section 297 is in the following section, “Recovery in other cases”. Although this might suggest the exception in s 296(3) does not apply, it has been seen as applying to applications under s 297.¹⁷In Heath and Whale on Insolvency, the learned authors state the other party to a transaction can rely on the statutory defence under s 296(3).¹⁸

¹⁶Paul Heath (ed) Heath and Whale on Insolvency (online looseleaf edition, LexisNexis) at

_{[24.141(c)]; Insolvency Law and Practice (online looseleaf
edition, Westlaw) at [CA292.03(2)].}

¹⁷Ruscoe v McKeown Group Ltd [2015] NZHC 789; Grant v Lotus Gardens Limited [2014] NZCA

¹⁸Paul Heath (ed) Heath and Whale on Insolvency (online looseleaf edition, LexisNexis) at

[41] The first cause of action fails but the second succeeds. I enter judgment for the plaintiffs in the sum of $607,500.

[42] The plaintiffs sought interest. They are entitled to it on the judgment sum.¹⁹

[43] The plaintiffs are also entitled to costs on a 2B basis, but only in so far as they relate to the second cause of action.

High Court of New Zealand Decisions

Glenvar Property Holdings Limited (in liquidation) v 153 Holdings Limited [2016] NZHC 2272 (26 September 2016)