Tactical
use of a receivership to avoid payment of body corporate levies at the troubled
Mid-City complex in Auckland CBD backfired when the receiver was held personally
liable for ongoing payments.
Spread across three levels in downtown
Auckland, the Mid-City complex has a chequered history. A movie theatre complex on the upper floors
was not a commercial success. There have
been subsequent proposals to revamp the building first as a parking facility
and latterly as residential apartments.
The Court of Appeal was told a Mr Copeland and
a Mr Finnigan established 239 Queen Street Trust Ltd in 2010 to carry out the
redevelopment. Mid-City is divided into
44 individually owned units, all governed by the Unit Titles Act. Queen St Trust purchased two units intending
to redevelop them together with the airspace above. These two units carried unpaid levies of some
$939,000 when purchased. Queen St
offered a deal: the levies would be written off, Queen St Trust would be given
the right to redevelop the top floor area and it would replace the roof on
completion. Nothing came of the proposed
project. Mid-City sued for the levies,
still unpaid. In September 2012 it sought
to put Queen St Trust into liquidation.
Evidence was given that the two units were
transferred to a new company, QSM Trustee Ltd, days before Queen St Trust went
into liquidation. With the transfer, QSM
took on liability for two mortgages
registered against the units. Mr
Finnigan as sole director of second mortgagee Gartmore Nominees Ltd appointed
Mr John Gilbert as receiver of QSM in July 2013. QSM immediately went into liquidation. Body corporate levies payable by QSM were
running at a cost of $39,200 per month. Matters reached a head when Mr Gilbert fenced
off part of an arcade on level one of Mid-City claiming to exercise rights
enjoyed by QSM. Mid-City took court action
to remove the fence. Action for ongoing
unpaid levies followed.
Mr Gilbert said as receiver he is not liable
for the levies. As a general rule, a
receiver is not personally liable on contracts entered into by a company prior
to receivership. Payment of monthly levies
was QSM’s responsibility, he said, not his.
There was evidence that Mr Gilbert as receiver was collecting rents paid
by tenants renting space owned by QSM.
When a receiver continues to occupy or make use
of space owned or rented by a company in receivership, the Receiverships Act
requires a receiver to keep up payments due under any prior “agreement”. This is to ensure the receiver doesn’t enjoy
benefits without payment. Mr Gilbert
argued body corporate levies do not arise from an “agreement” and he didn’t have
to pay. The Court of Appeal ruled that buying
into a unit title development amounts to joining a contract on common terms
with all other unit owners in a development.
Unit title ownership brings with it the obligation to pay body corporate
levies. The Court of Appeal ruled Mr
Gilbert, as receiver using QSM’s property, was personally liable for the levies
while QSM was in receivership; the receiver was benefitting from QSM’s rights
of ownership and had to meet QSM’s related obligation to pay monthly body
corporate levies. The Court further
ruled he was liable to pay interest at ten per cent per annum on arrears since 14
days after the receivership started. In
August 2012, Mid-City’s body corporate rules were changed to impose penalty
interest on late payments. Receivers
have two weeks grace from the start of a receivership to review the company’s
financial position and consider their options.
Body
Corporate 162791 v. Gilbert – High Court (21.05.15)
15.055