CP Asset Management Limited v Grant [2012] NZHC 2228 (30 August 2012)

Last Updated: 28 September 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-2498 [2012] NZHC 2228

UNDER the Companies Act 1993

IN THE MATTER OF the liquidation of NZ PROPERTIES HOLDING LIMITED (IN LIQUIDATION)

BETWEEN CP ASSET MANAGEMENT LIMITED Applicant

AND DAMIEN GRANT AND STEVEN KHOV Respondents

Hearing: On the papers

Counsel: R B Hucker for applicant

B J Norling for respondents

Judgment: 30 August 2012

JUDGMENT OF LANG J [on costs]

This judgment was delivered by me on 30 August 2012 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

_{Date...............}

CP ASSET MANAGEMENT LIMITED V DAMIEN GRANT AND STEVEN KHOV HC AK CIV-2012-404-

2498 [30 August 2012]

[1] This proceeding arises out of the liquidation of NZ Properties Holding Limited (In Liquidation) (“New Zealand Properties”). The respondents were appointed as liquidators of New Zealand Properties when this Court placed it in liquidation on 23 March 2012.

[2] In this proceeding CP Asset Management Limited sought orders reversing two decisions by the liquidators. The first of these was a decision by the liquidators to reject a proof of debt that CP Asset Management had lodged in the liquidation. The second was a decision by the liquidators not to hold a meeting of creditors.

[3] On 23 July 2012, CP Asset Management obtained leave to discontinue the proceeding. It did so because the liquidators had by that stage decided to call a creditors meeting. They had also provisionally accepted the proof of debt so as to enable CP Asset Management to vote at that meeting. As a consequence, there was no reason for CP Asset Management to continue with the proceeding.

[4] The parties have been unable to reach agreement regarding the issue of costs, and the Court is now required to determine that issue.

Background

[5] The events leading to this proceeding began on 5 April 2012, when the solicitors acting for CP Asset Management sent a letter to the liquidators in the following terms:

NEW ZEALAND PROPERTIES HOLDINGS LIMITED (IN LIQUIDATION)

1. We act for CPS Management Limited a creditor of the above company.
   

2. We enclose a proof of debt that has been completed by our client.

3. This letter requests that pursuant to the provisions of the Companies

Act that a meeting of creditors be convened by you.

4. The purpose for which our client seeks to convene a meeting of creditors is for a resolution to be passed that liquidators other than those appointed by the Court be appointed in place of those originally appointed liquidators and that under section 243(7) of the Companies Act 1993 that the current liquidators made application to the High Court for their replacement.

5. Please confirm the date of the meeting.

[6] The proof of debt enclosed with the application stated that NZ Properties was indebted to CP Asset Management in the sum of $81,997.68. The proof described that debt as being an “advance to NZ Properties Limited”. CP Asset Management did not, however, provide any supporting documentation when it lodged the proof of debt.

[7] On 5 April 2012, being the Thursday immediately preceding the Easter break, an exchange of emails took place over a period of approximately two hours between the liquidators and the solicitors acting for CP Asset Management. In this exchange the liquidators requested CP Asset Management to provide supporting documentation for the proof of debt. CP Asset Management declined that request. In their final email, the liquidators advised CP Asset Management as follows:

Your client’s claim as a creditor has not been accepted. If they can prove that they are a creditor then we will proceed with the creditors’ meeting. Until then, there will be no meeting.

CP Asset Management did not respond to this email.

[8] On 10 April 2012, the first working day after the Easter break, the liquidators formally rejected the proof of debt on the basis that CP Asset Management had failed to provide any documents to support its claim.

[9] On 1 May 2012, the solicitors acting for CP Asset Management sent the liquidators a copy of an MYOB schedule showing monies due to their client by NZ Properties. The liquidators responded on 3 May 2012 as follows:

RE: NZ PROPERTIES HOLDING LIMITED (IN LIQUIDATION)

Thank you for your fax in relation to the ledger for CP Asset Management

Ltd.

We still however require further documentation from you. Can you please provide the following:

1. A current statement from CP Asset Management Ltd as at the date of liquidation of NZ Properties Holding Limited (in liquidation).
   
2. Any contracts and arrangements between CP Asset Management Ltd and NZ Properties Holding Limited (in liquidation).
   
3. Details of who the wages were paid to and for what purpose these wages were paid.
   

My earlier decision to decline your creditors claim still stands.

If you require any further clarification or have any further queries please do not hesitate to contact me.

[10] CP Asset Management did not respond to the liquidator’s letter dated 3 May

2012. Instead, it issued the present proceeding on 8 May 2012, and the liquidators filed documents in opposition on 22 May 2012.

[11] The proceeding was listed for first call before the Associate Judge on 1 June

2012. On that date the Associate Judge made timetable directions, and allocated the proceeding a fixture on 26 July 2012.

[12] On 19 July 2012, CP Asset Management filed a reply affidavit annexing a large quantity of documents that the liquidators had not previously seen. This caused the liquidators to reconsider their position. On 20 July 2012 the liquidators wrote to CP Asset Management Limited advising it that they were prepared to provisionally accept the proof of debt, and that they were also prepared to call a creditors’ meeting. This, in turn, led to the discontinuance of the present proceeding.

The competing arguments

[13] Each party seeks an award of costs against the other. CP Asset Management points out that it effectively obtained the relief it had sought, albeit not by order of the Court. As a result, it claims to have been the successful party in the proceeding, and that it should receive an award of costs against the liquidators.

[14] The liquidators contend that CP Asset Management issued the proceeding unnecessarily. They say they should not be penalised for the fact that CP Asset Management failed to supply proper supporting documentation until it filed the reply affidavit on 19 July 2012. They say they were entitled to reject the proof of debt in the absence of adequate supporting documentation, and that CP Asset Management did not supply such documentation prior to that point.

Decision

[15] I consider CP Asset Management to have been the successful party in this proceeding. The whole point of the proceeding from its perspective was to obtain an order requiring the liquidators to accept the proof of debt and to call the creditors’ meeting. It ultimately achieved both objectives after the proceeding was issued.

[16] It is clear, however, that the liquidators were entitled to require CP Asset

Management to produce adequate supporting documentation in relation to its claim.[1]

The fact that it did not supply any supporting documentation at all when it initially lodged the proof of debt meant that the liquidators were entirely justified in refusing to accept the proof of debt at that point. That is a different matter, however, to a decision to reject the proof.

[17] It was always open to the liquidators to defer acceptance of the proof of debt until such point as CP Asset Management supplied adequate supporting documentation. Neither party would have been prejudiced if they had continued to take that stance, as they had initially done at the end of the email exchange on

5 April 2012. The liquidators purported, in fact, to provide CP Asset Management with a further opportunity to provide supporting documentation at the end of that email exchange. They then effectively deprived CP Asset Management of that opportunity, however, when they formally rejected the proof of debt on the first working day after the Easter vacation.

[18] Matters changed significantly once the liquidators rejected the proof of debt. Once they took that step, CP Asset Management was required to file any application

seeking a reversal of the liquidators’ decision no later than 8 May 2012, being

20 working days after the date upon which the liquidators rejected the proof of debt.[2]

Having rejected the proof, the liquidators therefore ran the obvious risk that CP Asset Management would seek to protect its rights by challenging their decision in proceedings filed in this Court. They also ran the associated risk that CP Asset Management would ultimately be able to provide sufficient documentation to justify its claim. In that event, it would succeed in having both of the liquidators’ decisions set aside. The liquidators would then be exposed to an adverse award of costs as the unsuccessful party in the proceeding.

[19] It was open to the liquidators to re-consider their decision once they received the MYOB material from CP Asset Management on 1 May 2012. At that point they could have advised CP Asset Management that they had rescinded their earlier decision, and that they would make a fresh or amended decision once CP Asset Management had provided the further information sought in their letter dated 3 May

2012. Again, that would have preserved the position of both parties, and avoided the need for CP Asset Management to protect its position by filing proceedings. The liquidators elected, however, not to take that step. Instead, they expressly stated in their letter dated 3 May 2012 that they stood by their earlier decision to reject the proof of debt. As a consequence, time continued to run for CP Asset Management.

[20] Assuming that CP Asset Management received the liquidators’ letter dated

3 May 2012 on the day on which it was sent, it had just three further working days to file proceedings challenging the liquidators’ decision. It was, of course, open to CP Asset Management to immediately gather together and provide the liquidators with the information they sought in their letter. If it had taken that step, however, further time would have passed. There was also no guarantee that the material would persuade the liquidators to alter their stance. In those circumstances, CP Asset Management cannot be criticised for electing to protect its position by issuing the present proceeding on 8 May 2012. It follows that I reject the liquidators’

_{submission that CP Asset Management issued the proceeding unnecessarily.}

[21] I therefore accept that CP Asset Management should be entitled to an award of costs in its favour as the successful party. This is not an appropriate case, however, for an award of increased or indemnity costs. CP Asset Management was to some extent the author of its own misfortune, because it ought to have provided the critical material to the liquidators far earlier than it did. The liquidators also altered their stance relatively promptly once they received that material. For those reasons an award of increased or indemnity costs would not be justified in terms of r

14.6 of the High Court Rules, which provides the Court with jurisdiction to award increased or indemnity costs.

Result

[22] I award costs in favour of CP Asset Management against the liquidators on a

_{Category 2B basis, together with disbursements as fixed by the Registrar.}

Lang J

Solicitors:

Hucker & Associates, Auckland

Waterstone Insolvency, Auckland

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[1] Companies Act 1993, s 304(1)(b).

[2] Companies Act 1993, s 284(1)(b) and Companies Act 1993 Liquidation Regulations 1994, reg 15(2); High Court Rules, r 20.4(2)(b).