M3 Construction Management Limited v Chelsea View Estate Trust Limited [2018] NZHC 930 (3 May 2018)

Last Updated: 14 May 2018

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-1992 [2018] NZHC 930

UNDER	The Companies Act 1993
IN THE MATTER OF	An application for the liquidation of CHELSEA VIEW ESTATE TRUST LIMITED
BETWEEN	M3 CONSTRUCTION MANAGEMENT LIMITED Substituted Plaintiff
AND	CHELSEA VIEW ESTATE TRUST LIMITED Defendant

Hearing:	3 May 2018
Appearances:	Stephen Laing for the Substituted Plaintiff N J Bell-Booth for the Defendant
Judgment:	3 May 2018

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Smith & Partners, Henderson, for the Substituted Plaintiff Ponsonby Law Limited, Auckland, for the Defendant

Whitlock & Co, Auckland, for the liquidators

Counsel:

Stephen Laing, Auckland, for Substituted Plaintiff

M3 CONSTRUCTION MANAGEMENT LIMITED v CHELSEA VIEW ESTATE TRUST LIMITED [2018] NZHC 930 [3 May 2018]

[1] M3 Construction Management Ltd, the substituted plaintiff, applies for Chelsea View Estate Trust Ltd to be put into liquidation. It says that it is a creditor of the company for $760,779.26 for construction work it carried out for Chelsea View Estate Trust Ltd between September 2016 and December 2017. It relies on two grounds. It says first that the company is unable to pay its debts and, second, that the company has not complied with the requirements of the Companies Act because it did not have a director, that being a requirement of s 10(d) of the Companies Act 1993.

[2] Chelsea View Estate Trust Ltd is a property development company. As its name suggests, it is a corporate trustee. The man behind the company is Mr Steven Robert Kelly. The shareholder of the company is Britomart Trustee Company Ltd, a corporate trustee associated with Mr Kelly. Mr Kelly was a director of the company. I adjudicated him bankrupt on 31 October 2017.¹ The creditor in that case had obtained judgment against Mr Kelly in April 2015. It issued a bankruptcy notice against Mr Kelly in June 2016. The bankruptcy proceeding was protracted, mainly because Mr Kelly held out prospects of payment. Money was to flow when a development that Chelsea View Estate Trust Ltd was involved in was completed. Mr Kelly’s promises of payment were empty. On being adjudicated bankrupt, he was disqualified from holding office as a director of the company under s 151(2)(a) of the Companies Act 1993. For a period, Chelsea View Estate Trust Ltd was without a director.

[3] Chelsea View Estate Trust Ltd’s development is at Huka Road, Birkenhead, Auckland. The company has sought adjournments saying, first, that it was arranging units in the Huka Road development to be completed and following sales there would be distributions to creditors; and second, that the company was arranging finance to complete the development.

Procedural history

[4] Before going into M3 Construction Management Ltd’s claim, it is necessary to describe some of the procedural history. M3 Construction Management Ltd is a substituted plaintiff. The original plaintiff was Emmitt Consultants Ltd. That

¹ AMG Nominees Ltd v Kelly [2017] NZHC 2725.

company was owed some $7,700 for surveying work out for Chelsea View Estate Trust under invoices sent in October 2016 and February 2017. Emmitt served the statutory demand Chelsea View Estate in June 2017. The company did not comply with the demand. Emmitt began this liquidation proceeding in August 2017.

[5] The case had its first call in October 2017. Mr Bell-Booth appeared for the company then. Mr Laing appeared for M3 Construction Management Ltd, which had filed an appearance. An appearance was also filed for Hargreaves Trustee Company Ltd, claiming to be a creditor for $300,000. Hargreaves Trustee Company Ltd was a corporate trustee also associated with Mr Kelly. For the company, Mr Bell-Booth sought an adjournment. He said that units within the development at Huka Road would be sold soon and funds would be available to pay creditors. He indicated that sales would take place in six to eight weeks’ time, but he was not able to stipulate any settlement date. He said that titles had already been issued for the apartments to be sold. He indicated that there may be grounds for disputing the claims by the creditors. I also recorded in my minute that a complaint against Emmitt Consultants Ltd was no longer being pursued. The company intended to pay Emmitt and to pursue a counterclaim separately. I adjourned the matter to 8 December 2017.

[6] On 8 December 2017, I adjourned the matter to 11 December. I recorded on 11 December that a Mr McCall had been appointed director of the company after Mr Kelly had been made bankrupt. Mr McCall has in the past acted as director of the companies associated with Mr Kelly during Mr Kelly’s earlier bankruptcy. Mr Bell- Booth indicated that while payment could not be made immediately, arrangements were being made for finance. To find fresh finance an Australian broker had been engaged. He also said that there were difficulties because of the publicity about a slip in the Rawene Road carpark which is close to Huka Road. I was advised that there were unconditional contracts for the sale of two lots, and a conditional agreement which depended on finishing works for the sale to go ahead. There was a possibility of further titles being created.

[7] I recorded in my minute that Mr Kelly had made similar assurances in May or June 2017 when he was seeking adjournments of his bankruptcy application. I recorded that M3 Construction Management Ltd was distressed at being held out of
money while matters did not seem to be moving towards completion. I voiced my scepticism as to the ability of Chelsea View Estate Trust Ltd to get its way out of its insolvency difficulties. I adjourned the case until 23 February 2018. I said:

[17] The company needs to understand that this is the last chance. If it has not cured its problems and arranged finance, then I will be making a liquidation order at the next hearing. It cannot expect to try for repeated adjournments on the promise that something is going to happen, when experience has shown that creditors are not paid.

[8] On 23 February 2018, I was advised that Mr McCall had died and that steps were in train to appoint a replacement director. I was later advised that a Mr Sodeau was appointed director of the company.

[9] Given that the company was temporarily director-less and that steps were being taken to appoint a director, I did not consider that I could make a liquidation order if there was a possibility that the company may be able to remedy its difficulties. I adjourned the matter until 14 March 2018. There were indications on 23 February 2018 that Emmitt was to be paid and that M3 Construction Management Ltd would seek substitution. At the time, Mr Bell-Booth said that Chelsea View Estate Trust did not accept that M3 Construction Management Ltd had a valid claim. He alleged defaults and delays in performance. He also recorded that the company had received an offer of finance and that the drawdown date was 9 March 2018. The funds were expected to be enough to refinance outstanding liabilities and to complete the project. I adjourned the matter until 14 March 2018 in the expectation that the loan would be drawn down and all liabilities would be cleared. I recorded my impatience with the delays of Chelsea View Estate Trust in meeting its liabilities. I said:

It needs to understand that it is hanging on by a very slim thread.

[10] On 14 March 2018 Emmitt had been granted leave to withdraw. M3 Construction Management Ltd was represented. There was also an appearance for a company called Finance and Investment Ltd, which indicated its intention to appear and to oppose the liquidation application. That company never did in fact file an appearance and has taken no other steps in the proceeding since then.
[11] In my minute of 14 March 2018, I gave directions which would substitute M3 Construction Management Ltd as plaintiff and I directed a hearing for today. M3 Construction Management Ltd would have until 28 March 2018 to file and serve amended pleadings evidence in support of its case. Any appearances by those either supporting or opposing the application were also to be entered by 28 March 2018. I directed statements of defence and evidence in opposition to be filed and served by 11 April 2018. M3 Construction Management Ltd would have until 26 April 2018 in which to file and serve any evidence in reply, its submissions and casebook. The company and all those opposing the application were to file and serve their submissions by 1 May 2018. I said:

[10] I also record that while the company has not yet received finance to discharge its current liabilities, Mr Bell-Booth says that the company has met all the requirements for finance to draw down. He says that the financier is overseas, and there are delays as a consequence. This may be quoted back to Mr Bell-Booth at a later hearing.

[12] On 26 March 2018, M3 Construction Management Ltd advised that it would not be filing any amended pleadings and any further evidence. I issued a minute on 20 April 2018 in which I recorded that the defendant had not filed any statement of defence and evidence. I said that in the absence of any statement of defence filed in time, Chelsea View Estate Trust was not able to appear at the hearing today. A formal application would be required if the company wished to file and serve a statement of defence out of time. I confirmed the fixture for today.

[13] This morning Chelsea View Estate Trust emailed documents to the court – an application for special leave to file a statement of defence out of time, and copies of documents: a proposed statement of defence, a construction settlement agreement, a security sharing agreement, and a payment schedule. The construction settlement agreement is dated 14 March 2017. The security sharing agreement is dated 6 March 2017. The payment schedule is dated 22 March 2018.

[14] Mr Bell-Booth sought leave to file and serve the statement of defence. The standard authority on filing statements of defence out of time in liquidation

proceedings is Fresh Cut Flowers Wholesalers Ltd v The Living and Giving Gift Co Ltd.² Paterson J recorded the principles:

[9] ... First, leave should not be granted unless the applicant can show on the papers an arguable basis upon which it is not liable for the amount claimed. Further, in my view, even if there is an arguable defence, leave should not be granted if the applicant is insolvent.

[15] Mr Bell-Booth submitted were that there is not sufficient evidence of insolvency because M3 Construction Management Ltd is not entitled to rely on non- compliance with a statutory demand served on 25 August 2017. The statement of claim pleads service in August 2017 of the statutory demand for $31,169.02. Mr Bell- Booth’s point is that presumption of insolvency arises if the company does not comply with the demand, but that presumption runs for a limited period only – 30 working days after the time for complying with the statutory demand. The statement of claim was filed on 12 March 2018, long after the 30 working day period.

[16] Mr Bell-Booth said (as he had on earlier appearances) that Chelsea View Estate Trust Ltd did not accept the claims made by M3 Construction Management Ltd. They were over-stated and there were defects and delays in the work. He submitted that the security sharing agreement and settlement agreement made in March 2017 gave M3 Construction Management Ltd at least partial security for its debt. The settlement agreement contained provisions barring M3 Construction Management Ltd from taking debt recovery proceedings. He submitted that it was incorrect for M3 Construction Management Ltd to take part in the liquidation proceeding. Its proper course to recover payment was to use the remedies available under the Construction Contracts Act 2002. In fact, payment claims had been sent in February 2018 but payment schedules had been given which contested the amounts claimed. He also submitted that the company was not insolvent because there are real prospects of the company obtaining finance. It would be available in 15 working days.

[17] While those are submissions, there is really no evidence to support them. It is important to bear in mind that the court must act on evidence. That cuts both ways, for the plaintiff and the defendant. The evidence in this case is sparse. Mr Kelly filed

2. Fresh Cut Flowers Wholesalers Ltd v The Living and Giving Gift Co Ltd HC Auckland, M1317-IM01 11 December 2001, (2001) 16 PRNZ 173.

an affidavit in October 2017 setting out the company’s case for prospects of payment. That does not carry any significant weight. He alleged a dispute over the debt claimed by the supporting creditor, but that mere assertion did not establish any grounds for dispute. M3 Construction Management Ltd provided a verifying affidavit. Emmitt Consultants Ltd filed an affidavit to show service of the statutory demand, and there is its affidavit verifying the allegations in its statement of claim.

[18] In the absence of evidence from Chelsea View Estate Trust Ltd, I have difficulty understanding the basis for contesting the claim that the debt is not due. The evidence shows that M3 Construction Management Ltd did carry out work between September 2016 and December 2017 and it has not been paid for that work at all. Given the earlier submissions that the project was close to completion and the unconditional sales that were to be settled, the company must have carried out significant work which was of value to Chelsea View Estate Trust Ltd.

[19] I accept that in construction contracts there can be room for dispute as to the total amount payable. The Construction Contracts Act 2002 provides a mechanism to resolved those disputes promptly to ensure cash-flow for the contractor. There is no evidence show what has been done under the Construction Contracts Act. I simply look at the matter on the basis that obviously substantial work has been carried out over an extended period and there has been no payment. It is a nonsense to suggest that nothing is owed to M3 Construction Management Ltd for its work. It is not good enough for a debtor company to allege that it has disputes, without producing evidence to show the basis for disputing its debts. They are empty assertions which carry no weight. The failure of the company to adduce any evidence to provide grounds for disputing the debts counts against it.

[20] I am satisfied that M3 Construction Management Ltd has carried out significant work in September 2016 and December 2017 for which it has not been paid at all and, accordingly, it is a creditor of the company. That gives it standing to apply for a liquidation order. The significant period of non-payment is itself evidence that the company is insolvent. On that aspect, Chelsea View Estate Trust cited the English Court of Appeal’s decision in Taylors Industrial Flooring ltd v M H Plant Hire
(Manchester) Ltd.³ That case has frequently been followed in New Zealand in cases such as the present one where there is clear evidence of undisputed indebtedness which has remained unpaid over a significant period to show evidence of insolvency, even in the absence of non-compliance with a statutory demand. There is further evidence of insolvency in the non-compliance with Emmitt Consultants Ltd’s statutory demand. It is not disputed that there was no compliance with the demand and that Emmitt Consultants Ltd was entitled to begin its liquidation application. It was paid only after the start of that proceeding. The start of the proceeding by Emmitt Consultants Ltd was within time for Emmitt’s statutory demand. As M3 Construction Management Ltd has been substituted for Emmitt Consultants Ltd, it is entitled to rely on the presumption of insolvency from non-compliance with Emmitt’s statutory demand. There is further evidence of insolvency through the repeated assurances that the company is going to obtain finance and will pay its creditors. Those assurances reflect the financial position that the company is not able to pay its due creditors. I am satisfied therefore on the evidence that Chelsea View Estate Trust Ltd is insolvent.

[21] I need to say something as to the status of M3 Construction Management Ltd. Mr Bell-Booth said that M3 Construction Management Ltd had security for at least part of the debt. I record that a secured creditor is not barred from applying for a liquidation application. Under s 241(2)(c) of the Companies Act, a creditor has standing to apply for a liquidation order. A “creditor” is defined in s 240(1):

240 Interpretation

(1) In this Act, unless the context otherwise requires,—

creditor means a person who, in a liquidation, would be entitled to claim in accordance with section 303 that a debt is owing to that person by the company; and includes a secured creditor only—

(a) for the purposes of sections 241(2)(c), 247, 250 and 289; or

(b) to the extent of the amount of any debt owing to the secured creditor in respect of which the secured creditor claims under section 305 as an unsecured creditor

[22] A secured creditor comes within the definition for s 241(2)(c) – that is, as having standing to apply. In addition, a secured creditor counts as a “creditor” to the

³ Taylors Industrial Flooring ltd v M H Plant Hire (Manchester) Ltd (1990) 8 ACLC 529 (CA).

extent if they are unsecured under s 305 of the Companies Act. Mr Bell-Booth accepts that the security that he refers to is, at best, only partial security. Therefore, the security
– to the extent that there is any security – in favour of M3 Construction Management Ltd does not stand in the way of its standing to apply for a liquidation order.

[23] As I am satisfied as to standing, indebtedness and insolvency, there is the residual discretion. The only matter of residual discretion that might count against a liquidation order is that the company may be able to pay its creditors shortly. Mr Bell- Booth proposed that the funds would be available in 15 working days. That, however, has a very hollow ring. I have been hearing this story for quite some time now, and I have been sceptical about it from the outset. Given the repeated adjournments, on the basis that funds would be paid shortly, I have no confidence now that the funds will be paid.

[24] I directed a hearing today for a defended liquidation application to provide some finality on the liquidation application. It is undesirable that there should be repeated adjournments, with repeated assurances that money is going to be forthcoming, without anything eventuating. Certainty was required. To ensure that certainty, I gave directions that both sides were to prepare their cases for a defended hearing. I gave directions for pleadings and evidence to be filed. Chelsea View Estate Trust Ltd did not comply with those directions. It did not file any evidence. It did not file any statement of defence and, at the last minute, seeks an adjournment for an opportunity for further steps.

[25] I decline to adjourn. I refuse leave to file any statement of defence because I am satisfied that there is no evidence to show an arguable defence, and there is no good reason for extending this proceeding in the hope that the creditor might be paid.

[26] Accordingly, I make an order that Chelsea View Estate Trust Ltd is to be put into liquidation. I appoint Paul Vlasic and Derek Ah Sam as liquidators. I approve their rates of remuneration. At the end of the liquidation they will be required to obtain the court’s approval of their overall remuneration in accordance with ss 176 and 277 of the Companies Act 1993. The time of the order is 11:23am.
[27] M3 Construction Management Ltd is entitled to costs. It seeks costs of
$5,352.00 plus disbursements which are fixed at $640.00. I suspect that the disbursements may be understated and there may be additional filing fees. That aside, I approve the costs as claimed, while giving the plaintiff the right to satisfy the Registrar that there are additional disbursements which are properly claimable.

.....................................

Associate Judge R M Bell