EVENTMAKERS INTERNATIONAL LTD V PRATNEY PRODUCTIONS LTD & ANOR HC HAM CIV 2006-419-411 [2006] NZHC 920 (4 August 2006)

IN THE HIGH COURT OF NEW ZEALAND
HAMILTON REGISTRY
                                                                       CIV 2006-419-411


              IN THE MATTER OF             an originating application to set aside a
                                         
 statutory demand

              AND

              IN THE MATTER OF             the Companies Act 1993

              BETWEEN  
                   EVENTMAKERS INTERNATIONAL
                                           LIMITED
                                
          Applicant

              AND                          PRATNEY PRODUCTIONS LIMITED
                                    
      AND ZEBRA XING LIMITED
                                           Respondents


Hearing:      2 August 2006

Counsel:     
D O'Neill for applicant
              J Murray for respondents

Judgment:     4 August 2006 at 14:30


                JUDGMENT OF
ASSOCIATE JUDGE FAIRE
                [on application to set aside a statutory demand]




Solicitors:   Fletcher Law, PO Box 29,
Hamilton for the applicant
              Vallant Hooker & Partners, PO Box 47 088, Ponsonby for respondents


EVENTMAKERS INTERNATIONAL
LTD V PRATNEY PRODUCTIONS LTD & ANOR HC HAM CIV
2006-419-411 4 August 2006

[1]    The applicant applies to set aside a statutory
demand dated 16 March 2006.
The demand seeks payment of $100,162.76 and is described as follows:

       (1)     the sum of $51,162.76
being twenty-two weekly instalments of
               $2,32558 on account of the purchase price payable under an
               agreement
for sale and purchase of business dated 12 October 2005,
               the first instalment due on 19 October 2005 and on every
               Wednesday thereafter, down to 15 March 2006; and

       (2)     the sum of $49,000 being the amount required in terms
of clause
               17.3 of the said agreement for sale and purchase to repay the ASB
               Bank overdraft, where the
terms of the overdraft require regular
               reductions of the amount outstanding.

[2]    The principal grounds relied
upon in support of the application are those set
out in s290(4)(a) and (b) of the Companies Act 1993. Those provisions provide:

       (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;

[3]    The approach that the Court adopts to an application which relies on
s 290(4)(a) of the Companies Act
1993 can be shortly stated. The Court is required
to determine whether there is a substantial dispute whether or not the debt is
owing
or is due. The applicant must show a fairly arguable basis upon which it is not liable
for the amount claimed. Forge Holdings
Ltd v Kearney Finance (NZ) Limited HC
CHCH M 149-95 20 June 1995 at 2 and Queen City Residential Limited v Patterson
Co-Partners
Architects (No 2)  [1995] 3 NZLR 307  (7 NZCLC) 260,936. That
formulation was approved by the Court of Appeal in United Homes (1988) Ltd v
Workman  [2001] 3 NZLR 447 at 451-2. Once that position is reached the statutory
demand should be set aside and the dispute is then disposed of, if necessary,
by other
proceedings in the ordinary way.


[4]    When a matter is to be determined pursuant to s 290(4)(b) of the Companies
Act
1993, the Court's approach is as set out by the Court of Appeal in Covington

Railways Ltd v Uni-Accommodation Ltd  [2001] 1 NZLR 272 at 274 where the Court
said:

        Where a company which is the subject of a liquidation application is
        indisputably in
debt to the applicant creditor, it may nonetheless be able to
        show that it has a claim against the applicant creditor, it
may nonetheless be
        able to show that it has a claim against the applicant which reduces the net
        balance owing to
the creditor or even off-sets it altogether. Where there are
        liquidated sums due each way, that is simply an arithmetical
exercise. It is
        more difficult if, on the applicant's side, there is an indisputable liquidated
        sum, but the other
party's claim is for an unliquidated sum with liability
        and/or quantum in dispute. Then, in order to impeach the statutory
demand
        and overcome the presumption in s287(a) that the company is unable to pay
        its debts when it has failed to
comply with the demand, it must be able to do
        more than merely assert that there is an available set-off. It must be able
to
        point to evidence before the Court showing that it has a real basis for the
        claimed set-off and that accordingly,
the applicant's claim to be a creditor is,
        to the extent of the set-off, seriously in doubt. In the words of Buckley LJ in
        Bryanston Finance Ltd v De Vries (No.2)  [1976] Ch 63, 78, it must show
        that there are "clear and persuasive grounds" for the set-off claim. Where
        this can be done, the
party who has issued the statutory demand against the
        company will be shown to be using the statutory demand and liquidation
        procedures improperly because there is a "genuine and substantial dispute"
        about the net amount of the company's
indebtedness (Taxi Trucks Ltd v
        Nicholson  [1989] 2 NZLR 297, 299). The dispute should then be resolved in
        the ordinary ­ way ­ except as to any undisputed balance ­ rather than upon
        the hearing of a liquidation application.

[5]     Because there is a conflict in the evidence that has been adduced in this
case,
it is appropriate that I shortly review that position. A Court is not required to accept
uncritically any or every disputed
fact: Eng Mee Yong v Letchumanan  [1980] AC
331 at 341. However the Court will not reject even dubious affidavit evidence, even
though there must be suspicion of good faith of the
deponent if there is an essential
core of complaint that support a defence. In essence, the inquiry is whether or not
the assertion
made passes the threshold of credibility: Pemberton v Chappell[1987]
1 NZLR 1 at 3, Orrell v Midas Interior Design Group Ltd  (1991) 4 PRNZ 608 at
613 (CA).


[6]     The respondents oppose the application. They allege there is no proper
foundation for the claim that there
exists a substantial dispute whether or not the debt
is owing or is due or, in the alternative, that the applicant company appears
to have a
counterclaim, set-off or cross-demand and the amount specified in the demand less
the of the counterclaim, set-off or cross-demand
is less than the prescribed amount.

[7]    The applicant and respondents are parties to a sale and purchase agreement
dated 12
October 2005. The agreement provides for the sale of the respondents'
business to the applicant.     The business is event managing
and theming.               The
respondents organised food and refreshments and entertainment for corporate and
private functions.


       The agreement for sale and purchase is contained in the 3rd edition of the
[8]
Form for Sale and Purchase of Businesses
approved by the Real Estate Institute of
New Zealand and by the Auckland District Law Society. It contains a number of
further terms,
some of which are important in determining this application. The
agreement provides for a total purchase price of $249,000. In clause
14 of the
further terms, that sum is to be paid by 86 weekly payments, subject to the provision
in clause 17.3.1, and for amounts
to be not less than $10,000 per month.


[9]    Clause 14.6 provides:

       14.6    The Vendor records that the Purchaser is entitled
to the benefit of all
               deposits paid for events booked, but not yet completed by the
               Vendor, as at the
Changeover Date totalling $48,714.19 ("WIP").
               The parties records that the WIP has been or will be banked to the

              Vendors bank account and has reduced the Vendors overdraft at the
               bank (refer clause 17.0).

[10]  
The agreement also gives a right of use of an overdraft and revolving credit
facility to the purchaser which was enjoyed by the vendor.
At the changeover date,
which is recorded in the agreement, the vendor acknowledges an indebtedness to its
bank, under the overdraft
revolving credit facility, of $49,000.            The agreement
provides that the purchaser is deemed to have paid the $49,000 in
part-payment of
the purchase price as at the possession dated provided for in the agreement.


[11]   Clause 17 further provides
that the vendor, and certain officers of the vendor
company, will have no authority to use any portion of the business overdraft
as from
the possession date and for the period up to 30 months from possession date.


[12]   The agreement also contains a restraint
of trade provision, a requirement that
the respondent is responsible for liabilities until possession, a warranty as to turnover
and a number of other obligations on the respondent, which I need not detail.

[13]   I commence my analysis of this application
by examining the first ground
advanced by the applicant in support of the application. The question is: has the
applicant established,
in accordance with the authorities that I have referred to, that
there is a substantial dispute whether or not the debt is owing
or is due?


[14]   I analyse firstly the issue regarding the claim for the return of the overdraft of
$49,000. The evidence establishes
that, within approximately 19 days of the signing
of the contract, the respondents, despite clause 17.3.5, withdrew access to the
overdraft facility by the applicant. It is not surprising, in those circumstances, that
the applicant would thereafter make no further
payments into the bank account in
respect of which the overdraft facility was given. Accordingly, I conclude there is
clearly a dispute
as to whether, at the time the statutory demand was issued, there
was an entitlement, on the respondents' part, to demand $49,000
from the applicant.
I do not over look the fact that the respondents claim that there were reasons for
withdrawing the applicant's
access to the facility. What that does, however, is
simply establish that there is a dispute about the matter. I am satisfied that the
applicant has taken the matter to
an appropriate position and has therefore discharged
the onus on it. I reach that conclusion because, on the face of it, the applicant
had a
right to the use of this facility which was denied to it. The ultimate question of
entitlement to these funds, however, should
properly be determined in proceedings
issued in the ordinary way.


[15]   The next aspect that I analyse in respect of the question
of whether there is a
substantial dispute arises from the applicant's assertion that it has paid various
accounts which are the respondents'
responsibility. Those accounts were detailed in
two specific schedules to Mr Cook's, the applicant's director, affidavit. I will
not set
out, in this judgment, the precise detail because that is unnecessary. Suffice to say,
the person to whom the payment was
made is identified in the schedule, as is the
amount that has been paid. The first schedule provides a total of $17,714.95. It has
not been suggested, with any credible evidence, that those debts were not the debts
of the respondent.


[16]   There is a further
schedule attached to Mr Cook's affidavit which detailed
accounts paid by the applicant which are allegedly the responsibility of
the

respondents and which total $26,708.15. Once again, the person to whom the
payment has been made is identified and the amount
that has been paid has also been
identified. It is significant that there is an acknowledgement that the most substantial
creditor
who was paid, in this schedule, Show Light and Power, is acknowledged as
being the responsibility of the respondents.


[17]   What
is significant in the above analysis is that either there is a dispute as to
whether $44,423.10 is payable in respect of the first
part demanded under the
statutory demand or, alternatively, there is a set-off in respect of the first part
claimed in the statutory
demand for that sum. The sum is clearly identified. I am
satisfied that the applicant has discharged the appropriate onus on the
two bases that
I have mentioned.


[18]   There is one additional matter which also fits within the category of a
substantial dispute
or would justify a set-off. It relates to clause 14.6 of the sale and
purchase contract. It will be recalled that there is a contractual
acknowledgement
that the purchaser is entitled to the benefit of all deposits paid for events booked but
not yet completed by the
vendor of $48,714.19. There is acknowledgement in the
papers that $24,000 of that sum in fact has been paid by the vendor to the
purchaser.
Mr Cook, the applicant's director, says the applicant has not been paid the balance of
$24,714.19. Mr Murray sought to
persuade me that the applicant had not gone far
enough in establishing a dispute about this balance figure. I do not agree. Clause
14.6 is an acknowledgement that the vendor has received on account of work still to
be performed, or will receive on account of work
to be performed, $48,714.19. The
only evidence before me of payment of anything in respect of this acknowledgement
is the figure
of $24,000 to which I have made reference. If, by some chance, the
vendor/respondents has paid that sum to the purchaser, or the
purchaser has, via the
client, received credit for part of that sum, then I would have expected that to have
been a matter which
was primarily within the vendor/respondents' knowledge to
give evidence on. I am satisfied that the purchaser/applicant discharges
the onus of
establishing that there is either a dispute or a set-off in respect of $24,714.19 by
saying it has never received that
money from the vendor. I do not consider the
applicant as having to do anything else but that. One would have expected, on a
commercial
basis that if invoices had been issued for the figure mentioned in clause

14.6 they would have been issued by the vendor/respondents.
The invoices would
require payment to the vendor/respondents. The vendor/respondents' own records
should have established the position and, no doubt that is why, the position
which is
recorded in clause 14.6 of the agreement was recorded in the way it was in the
agreement. Accordingly, I am satisfied that
the applicant has established, to the
required onus, that there is either a dispute in respect of the first part of the statutory
demand and in respect of the sum of $24,714.19 or, alternatively, that, in respect of
that sum, the applicant is entitled to a set-off
in the sum of $24,714.19.


[19]    What the above analysis discloses is that the amount which is either disputed
or, in fact would
form the basis for a set-off, exceeds the first sum contained in the
statutory demand. That first sum is $51,162.76. The analysis
just carried indicates
that the dispute or set-off figure is $69,137.29.


[20]    A number of other matters were raised as the foundation
for a dispute, or for
the basis for a counterclaim, set-off or cross-demand. They do not require analysis,
having regard to the conclusion
I have reached.


[21]    I am satisfied that there is a dispute as to whether the amount demanded is
payable. In the alternative,
I am satisfied that there is a set-off which equals or
exceeds the amount of the demand.


Orders


[22]    I order that the statutory
demand issued by the respondents against the
applicant be set aside.


Costs


[23]    Counsel were in agreement that Category 2
Band B was appropriate for this
application. Accordingly, I order that the respondents pay the applicant's costs
based on Category
2 Band B of the High Court Rules together with disbursements as

fixed by the Registrar.




                          _____________________

                                         JA Faire
                                  Associate Judge