Redline IT Limited v Wired Road Limited aka Wireless Infrastructure Solutions Limited [2013] NZHC 1902 (26 July 2013)

Last Updated: 5 August 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-1984 [2013] NZHC 1902

UNDER The Companies Act 1993

BETWEEN REDLINE IT LIMITED Applicant

AND WIRED ROAD LIMITED formally known as WIRELESS INFRASTRUCTURE SOLUTIONS LIMITED

Respondent

Hearing: 26 July 2013

Appearances: D E Foster for plaintiff

J Sherer for respondent

Judgment: 26 July 2013

_{ORAL JUDGMENT OF ASSOCIATE JUDGE BELL}

Solicitors:

D E Foster, Hammonds Law, Dargaville. J Sherer, Hoffmann Law, Auckland.

REDLINE IT LIMITED v WIRED ROAD LIMITED [2013] NZHC 1902 [26 July 2013]

[1] This is an opposed application by Redline IT Limited that Wired Road Limited be put into liquidation. Wired Road Limited formerly carried on business under the name Wireless Infrastructure Solutions Limited. It carried on a diverse range of computer services. Its director is Mr D H Cronin. It had a base in Puhoi, north of Auckland. It was a relatively small company.

[2] The plaintiff, Redline IT Limited, is a company of which Mr Pierre Hay is the sole shareholder and director. Mr Hay used Redline IT Limited from to time to time to provide services as an independent contractor.

[3] The case for Redline IT Limited is that it is a creditor of Wireless Infrastructure Solutions Limited for $33,098.72 for services provided and expenses incurred as an independent contractor between June and November 2012. It served a statutory demand on the registered office of the defendant on 25 February 2013. Wireless Infrastructure Solutions Limited did not comply with the notice and did not apply to set aside the notice. Redline IT Limited accordingly says that Wireless Infrastructure Solutions Limited is presumed to be insolvent. It began this proceeding in April 2013. The ground for the application is that Wireless Infrastructure Solutions Limited is unable to pay its due debts.

[4] There are two issues in this case:

[a] Wireless Infrastructure Solutions Limited says that the person who provided the services for which it is liable was Mr Hay personally rather than his company, Redline IT Limited.

[b] Wireless Infrastructure Solutions Limited says that the outstanding amount is in dispute. It says that the amount due is not $33,098.72 but $17,324.56.

[5] In a liquidation application based on an inability to pay debts it is a proper defence to show that the company has a genuine bona fide dispute as to its

indebtedness to the creditor. The approach that the Court normally takes was set out by Associate Judge Faire in South Waikato Precision Engineering Limited v Ahu Development Limited.[1]

a) A winding up order will not be made where there is a genuine and substantial dispute as to the existence of a debt such that it would be an abuse of the process of the Court to order a winding up;

b) In such circumstances, the dispute, if genuine and substantially disputed, should be resolved through action commenced in the ordinary way and not in the Companies Court;

c) The assessment of whether there is a genuine and substantial dispute is made on the material before the Court at the time and not on the hypothesis that some other material, which has not been produced might, nonetheless be available;

d) The governing consideration is whether proceeding with an application savours of unfairness or undue pressure.

[6] A company is not prevented from showing that the indebtedness is disputed even if it has failed to apply to set aside a statutory demand under s 290 of the Companies Act: Heron’s Flight Limited v NZ Properties International Limited.[2]

[7] The nature of the first matter in dispute can be noted. Wireless Infrastructure Solutions Ltd accepts that it is indebted for an amount for the services provided by either Redline IT Ltd or Mr Hay. It simply takes the point that Mr Hay should have claimed the debt in person rather than his company Redline IT Ltd. Normally the issue of separate corporate identity is legally significant. It can make differences as to tax liability. It can also be important to the person receiving the services: if that person wants to hold the contractor to account it may want to look to the individual, but will be unable to do so if the contract is with his company. But those matters are relatively academic at this stage as Mr Hay and/or Redline IT Ltd is no longer providing services and is unlikely to do so because Wireless Infrastructure Solutions Ltd stopped trading. Mr Hay and his company are unlikely to provide it with

_{services again.}

[8] Redline IT Ltd is the entity that issued invoices for the services provided by Mr Hay. Mr Hay initially had discussions with Wireless Infrastructure Solutions Ltd that he would work for the company as an employee. In that event there would be no question of Redline IT Ltd being the employee because a company by virtue of its corporate identity is incapable of providing personal services required in an employment relationship.

[9] At some stage before Mr Hay began providing services it was discussed that instead of there being an employment relationship, his services should be provided as an independent contractor. Mr Cronin suggested Mr Hay might like to take the advice of the accountant for Wireless Infrastructure Solutions Ltd, a Mr Fleming.

[10] At the same time Mr Panapa, a manager at Wireless Infrastructure Solutions Ltd, prepared a draft contract between Wireless Infrastructure Solutions Ltd and Mr Hay. At this stage the document was simply internal to Wireless Infrastructure Solutions Ltd but it shows a proposed contract between Wireless Infrastructure Solutions Ltd and Mr Hay rather than his company. In saying that, I also record Mr Cronin was aware that Mr Hay did operate through a company, Redline IT Ltd.

[11] Mr Hay did consult the accountant recommended by Mr Cronin. The accountant recommended that services be provided through a company rather than by Mr Hay personally. The written advice given by the accountant has been put in evidence. He was an accountant in public practice. Wireless Infrastructure Solutions Ltd was one of his clients. I regard the advice given by the accountant to Mr Hay as advice to a separate client. Giving that advice does not count against Wireless Infrastructure Solutions Ltd.

[12] Mr Hay started providing services in the last week of April 2012. He sent his first invoices for his work in about June 2012. Those invoices were backdated to the last week of April 2012. The invoices were issued in the name of Redline IT Ltd. It appears at the outset Wireless Infrastructure Solutions Ltd paid for those invoices. At the same time, Mr Panapa of Wireless Infrastructure Solutions Ltd sent the draft contract he had prepared to Mr Hay for consideration. As already mentioned that draft contract showed the contractor as Mr Hay rather than Redline IT Ltd.

[13] So Mr Hay issued invoices in the name of his company which were paid without objection and at the same time Wireless Infrastructure Solutions Ltd had tendered a contract showing Mr Hay personally as contractor. There is no evidence that Wireless Infrastructure Solutions Ltd objected to the invoices being issued by Redline IT Ltd, nor on the other hand is there any evidence that Mr Hay pointed out that the contract should show Redline IT Ltd as contractor rather than himself personally.

[14] The parties have also referred to some of the matters that developed when relations broke down. Mr Hay issued proceedings personally in the Employment Relations Authority. That simply misfired because it is quite clear there was not an employment relationship at all.

[15] About the same time Mr Fleming, writing on behalf of Wireless Infrastructure Solutions Ltd, wrote to Mr Hay using “Redline IT Ltd.” Mr Cronin wrote a similar letter. With evidence going both ways, it is not conclusive that Redline IT Ltd is necessarily the correct creditor. There are matters here where the Court can say that there is room for a genuine dispute of a substantial nature. So for this liquidation application there is room for Wireless Infrastructure Solutions Ltd to genuinely dispute whether a creditor has applied for liquidation. But there is little in the point as to the identity of the creditor. If Wireless Infrastructure Solutions Ltd had continued to pay for the services provided into Mr Hay’s personal bank account, it is inconceivable that Redline IT Ltd would have taken the point that it had not been paid and it had a claim for the unpaid debt because the wrong person had been paid. The reality is that if payment had been made into Mr Hay’s bank account no- one would have bothered saying there was a wrong person paid and that Redline IT Ltd was in fact the correct creditor. The protection that should be given to Wireless Infrastructure Solutions Ltd is that if it pays one of them it will not face a claim from the other.

[16] Accordingly, there is an appropriate path forward which is to allow Mr Hay to be joined as an alternative plaintiff. That is on the basis that either Redline IT Ltd or Mr Hay personally is the correct creditor and Wireless Infrastructure Solutions Ltd is entitled to pay one of them on the basis that paying one will also discharge any

liability it might be under to the other. The fact that Wireless Infrastructure Solutions Ltd is indebted will not be in issue. It is the identity of the creditor which is in issue and that identity question can be addressed. While there is a legal point in the distinction between the director and the shareholder on the one hand and the company on the other, it does not really matter in this case.

[17] It will be necessary to adjourn the proceeding to allow the joinder to be effected. Mr Foster confirms that Mr Hay can be joined as an alternative plaintiff. It will be necessary for Mr Hay and Redline IT Ltd to file a fresh statement of claim and for a fresh verifying affidavit to be filed and served.

[18] I now address the other question, that is, the amount of the debt. Redline IT Ltd says it provided services through to November 2012. The invoices show charges for work carried out during that period. Mr Cronin, the director of Wireless Infrastructure Solutions Ltd, does not accept that. He says that the contract was terminated because of lack of work in August 2012 and Mr Hay was promised that he would be paid an additional month’s fee in lieu of notice to the end of September

2012. For that reason he says the amount owing for services provided by Mr Hay or his company was $17,324.56.

[19] Mr Foster candidly accepts that he does not have evidence that demolishes that evidence given by Mr Cronin. Accordingly, I find that there is a dispute as to the amount of the indebtedness. I find that the amount of the indebtedness is at least

$17,324.56 but I am unable to say that the increased amount sought by the plaintiff in this case is the amount of the debt. The matter will proceed on the basis that the maximum amount that can be claimed by either Redline IT Ltd or Mr Hay is

$17,324.56.

[20] I give these directions:

[a] Mr Hay is joined as an alternate plaintiff;

[b] The proceeding is adjourned to 20 September 2013 at 11.45 am;

[c] Within that time an amended statement of claim is to be filed and served showing both Mr Hay and his company as plaintiffs and a fresh verifying affidavit is to be filed and served. The fresh documents are to be filed and served by 9 August 2013;

[d] There is no need for fresh advertising.

[21] On 20 September I will consider what further orders ought to be made.

......................................... R M Bell

Associate Judge

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[1] South Waikato Precision Engineering Limited v Ahu Development Limited HC Auckland

_{CIV-2008-404-970, 10 December 2008.}

[2] Heron’s Flight Limited v NZ Properties International Limited [2012] 1 NZLR 424 (HC).