L W Holdings (Nelson) Limited v B T Wood Limited (in liquidation) [2012] NZHC 2173 (27 August 2012)

Last Updated: 4 September 2012

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

CIV-2012-442-000113 [2012] NZHC 2173

BETWEEN L W HOLDINGS (NELSON) LIMITED Applicant

AND B T WOOD LIMITED (IN LIQUIDATION) Respondent

Hearing: 16 August 2012

Appearances: L D Wood for Applicant (In Person, with leave) L M Taylor for Respondent

Judgment: 27 August 2012

_{RESERVED JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

Introduction

[1] On 10 May 2010 B T Wood Limited (BTW) sold all its trucks and trailers to L W Holdings Limited (LWH). Possession changed hands on 17 May and LWH paid the agreed purchase price less the sum of $79,628.98. Later LWH bought a further trailer from BTW for $2,300. LWH has not paid the balance owing of

$81,928.98, nor does it deny that this sum remains outstanding.

[2] BTW went into liquidation on 15 June 2010. On 5 March 2012 it issued a demand against LWH under s 289 of the Companies Act 1993 demanding payment

_{of the outstanding sum.}

Solicitors:

Mr L D Wood, L W Holdings (Nelson) Ltd, Level One, 18 New Street, Nelson. [e-mail]

_{Anthony Harper Lawyers (L M Taylor) PO Box 2646, Christchurch. [e-mail]}

L W HOLDINGS (NELSON) LIMITED V B T WOOD LIMITED (IN LIQUIDATION) HC NEL CIV-2012-442-

000113 [27 August 2012]

[3] LWH applies to set aside the demand. It says BTW owes it $122,370.25 under an invoice dated 30 June 2010 for work which it carried out with the assets for three former customers of BTW, who wrongly paid BTW for that work.

[4] The Court may grant this application if it is satisfied that the company appears to have a counterclaim set-off for cross demand in a sum sufficient to reduce the claim to below the sum of $1,000.[1]

[5] In addition to saying that LWH does not appear to have a counterclaim, set- off or cross claim, BTW also says that even if LWH does establish one, it will be an unsecured creditor in the liquidation, as it is not entitled to a set-off because of the provisions of s 310 of the Companies Act 1993.

[6] The correct approach to an application to set aside a statutory demand on the ground of a counterclaim, set-off or cross demand was stated in Covington Railways Ltd v Uni-Accommodation Ltd:[2]

[11] 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 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. ...

[7] There are two issues in this case:

(a) Does LWH appear to have a counterclaim, set-off or cross claim against BTW?

_{(b) If so, is it entitled to a set-off against the sum owing to BTW?}

Course of the hearing

[8] As Minutes issued on 30 July, 2 August and 15 August 2012 record, Mr Leon Wood, who appeared for LWH when this application was first called in the Nelson High Court, continued to represent LWH as its director and wished to do so at the fixture. In addition he did not want the allocated fixture to proceed due to health issues.

[9] Mr Wood produced a statement from his doctor addressed to the Court advising that he had been prescribed certain drugs. Those drugs can have adverse side effects causing, amongst other matters, sleepiness, dizziness and headaches. At the beginning of the hearing I discussed with Ms Taylor for BTW and with Mr Wood whether, and if so how, the hearing should proceed. Ms Taylor helpfully consented to Mr Wood representing LWH for the purpose of the hearing, and Mr Wood indicated that he did want the case to be heard but would need to have breaks so that he could deal with the process. Ms Taylor agreed that there could be some variation to the normal order of hearing to accommodate Mr Wood to the extent necessary. As a result I heard argument from Mr Wood, relatively briefly, followed by presentation of submissions by Ms Taylor for around three-quarters of an hour, after which I took an adjournment for half an hour. Mr Wood then replied to Ms Taylor’s submissions, Ms Taylor carried on to present the rest of her submissions, and Mr Wood replied again. Given this order of hearing, both Ms Taylor and Mr Wood were given a final opportunity to ensure they had fully presented their respective positions.

The case for LWH

[10] On 20 October 2010 Mr Wood sent to the liquidator of BTW an email in which he stated “Work done by my company for May June to be invoiced to B T Wood Limited amounts to $106,160.04.”

[11] On 20 May 2011 LWH issued an invoice to BTW dated 30 June 2010, for

$122,370.25. The invoiced sum is made up of five amounts, the first described as

log cartage May and June 2010 and the remaining four described as cartage. No further details appear on the invoice.

[12] Mr Wood says the higher figure in the invoice arose because he had updated his records. He says that the invoice should be offset against the balance owing by LWH on the purchase price of the assets.

The case for BTW

[13] BTW’s evidence is that neither the email nor the invoice give any details relating to how the claim is made up from which they can ascertain whether it is a valid liability of BTW. Despite requests to validate the claim, nothing more has been provided.

[14] BTW also says:

LWH did not complete a claim as an unsecured creditor in the liquidation,

did not declare the existence of the alleged debt in the information given to the liquidator by Mr Leon Wood who was a director of BTW at the time of the liquidation,

LWH has not produced any time sheets, drivers’ logs or other records to substantiate whether the work LWH now says it did, payment for which it says was made wrongly to BTW, was in fact done,

those records which have been produced in evidence to support that position are in fact in the name of BTW.

[15] In response to this LWH says that after the assets were bought, LWH simply continued to use the same stationery rather than stationery in the name of the new company. It continued to work for the same three principal customers that BTW had serviced prior to sale of its assets. The work, he says, is verified by records showing payments for fuel and road user charges, the dates on which show these costs being incurred from the date of takeover of the assets. Mr Wood accepts that BTW continued for a period to pay drivers’ wages, and says that he asked BTW for an

invoice so he could recompense BTW, but did not receive one. While BTW points out that records showing payments in these categories are not in the name of LWH, but rather other entities under Mr Wood’s control, Mr Wood explains that by saying that at the time he had been unable to arrange credit for LWH which had only just started business, so he used his other businesses in the meantime.

[16] Although recognising, I think, that he faces some difficulty in not being able to identify specific invoices for work carried out by LWH for which payment had, on his evidence, been made to BTW, Mr Wood points out that the way the three contracts worked was that the customers produced buyer-generated invoices for the services they received, instead of either BTW or LWH producing invoices. Mr Wood says these buyer-generated invoices went to BTW not to LWH so he does not hold them.

[17] In response to this BTW says that there is no evidence from the three customers confirming they have paid the wrong company and the liquidator has been unable to determine how the LWH invoice is made up or to verify it from any records it holds.

[18] Additionally, the liquidator says that the records of BTW at the time of the liquidation in June show that at the end of May 2010 it was owed approximately

$124,000 by the customers who are said to have paid the wrong entity, so BTW was entitled to receive payments from these companies.

Discussion

[19] There is evidence that LWH carried on a trucking operation after it took possession of the assets from BTW. Expenses were incurred from immediately after that date. For present purposes little turns on the fact that invoices for those expenses are in the names of other enterprises of Mr Leon Wood; his explanation is satisfactory in an application of this kind. Whilst the evidence shows that BTW also continued to pay fuel, invoices for tyres, NZ Transport Authority fees and wages after the takeover date, there does not appear to be a calculation apportioning which part of those expenses relate to supplies before the takeover date and which apply to

supplies after that date. The same office clerk continued to do the books; indeed in all respects it seems, as far as I can tell, that business carried on as usual – the same staff, trucks, trailers, stationery and customers and little if any thought or attention seems to have been given to taking formal steps to set up a new operation by LWH.

[20] Similarly, there is no apportionment of the buyer-generated invoices to show charges which relate to work carried out for the three customers prior to takeover date, and charges which relate to the work carried out after that date.

[21] The result is I am unable to work out how LWH arrived at the figure in its initial claim by email, or in its later invoice. It says that BTW received monies which it should have received for work it did after takeover date. Without an analysis of the buyer-generated invoices from the customers concerned, I fail to see how it could have arrived at an accurate, or indeed any, figure for this work. I am as much in the dark about how this invoice is made up as the liquidators claim to be. Invoices showing that expenses were incurred raise a strong likelihood that LWH was carrying on business, and for the work it did it should of course be paid. To make out a claim that it was not paid, but that payments went instead to BTW, it must analyse the payments and apportion them at takeover date. It has not.

[22] The evidence falls short of showing that LWH has a real basis for its assertion that it is owed a sum of money by BTW exceeding the amount in the statutory demand, whether as invoiced, or at all. Accordingly I decline to set aside the statutory demand.

Set-off under the Companies Act 1993

[23] Given this finding it is not necessary for me to determine whether a set-off would have been available to LWH in the liquidation of BTW.

Outcome

[24] The application to set aside the statutory demand is dismissed.

[25] Under s 291(1)(b) I am entitled to make an order putting the company into liquidation on the ground that the company is unable to pay its debts. Ms Taylor invited me to do so, if I set aside the statutory demand. She pointed out that the demand has expired and that LWH has not led any evidence as to its solvency.

[26] I do not think that the possibility of such an order being made was clear to Mr Wood. It is not specifically stated in the notice of opposition filed by BTW that it would seek this order (nor need it have been) though it is specifically mentioned in paragraph 52 of counsel’s submissions provided in advance of the hearing to both Mr Wood and the Court. However, Mr Wood was representing his own company and in the interests of justice I give him the benefit of a doubt on this point. Accordingly, I adjourn this proceeding to the Insolvency List on 2 October 2012 at Christchurch. BTW is to file a formal proceeding for liquidation and to comply with all statutory requirements.

Costs

[27] BTW has succeeded in its opposition to LWH’s application to set aside the statutory demand. It is entitled to costs. LWH will pay costs on a 2B basis plus

_{disbursements fixed by the Registrar.}

J G Matthews

Associate Judge

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[1] _{Companies Act 1993 s 290(4) and Companies Act 1993 Liquidation Regulations 1994 reg 5.}

[2] Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272.