Estate: re Matthes

Seventh-day Adventist Church stood back from claiming three-quarters of a Samoan widow’s estate who died without leaving a will but had signed a preliminary ‘personal profile document’ prepared by Church staff leaving the bulk of her assets to the Church.

Pepe Matthes lived in Mangere, Auckland.  She died in 2017.  Conflict arose on the one side between two of her children who applied to the High Court for letters of administration to handle her estate and on the other her brother Tipi who asked that a Seventh-day Adventist ‘profile document’ signed by his sister some eighteenth months prior to her death be validated as her intended will.  Tipi is a member of the Seventh-day Adventist Church.

Justice Davidson was to rule the ‘profile document’ could not stand as her will and that Auckland lawyer Mr Peter Oliver be appointed to administer Pepe Matthes estate.

The Church gave evidence that it assisted adherents in drafting wills.  Staff had adherents sign a ‘profile document’ setting out their wishes as an interim measure. A formal will was then prepared and posted out for signature.  The ‘profile document’ signed by Ms Matthes in July 2015 expressed her intention to bequeath three-quarters of her assets to various branches of the Church and the remaining quarter for the education of her nieces and nephews.  The document stated she made no provision for her children as they had been adopted by her and had now returned to their natural families. This statement was later challenged in the High Court.  Evidence was given that three of the children were adopted from Samoa in 1994 for the express purpose of bringing them to New Zealand.  A fourth was adopted as an informal whangai adoption.

The court was told that Ms Matthes did not respond to multiple Church letters requesting she return a signed copy of her draft will confirming her bequests.  The Church said it would not press for validation of the ‘personal profile document’ as being her final wishes.  Justice Davidson refused Tipi’s application for validation.  Ms Matthes inertia in responding to the Church’s requests for final signature raised a very real doubt as to whether the Church document signed earlier remained her testamentary intent, he said.

Justice Davidson highlighted that Mr Oliver, now appointed as the independent administrator of Ms Matthes estate, has number of complicated issues to resolve.  Eviction proceedings are underway to remove from Ms Matthes’ home two people who were living with her at the time of her death.  And there is the question of $300,000 cash withdrawn from her bank account two weeks before she died.  Evidence points to this money being invested in a cryptocurrency called Onecoin.

Re Estate of Matthes – High Court (28.09.18)

18.193

Money Laundering: Commissioner of Police v. Snook

Two generations of the Snook family forfeit assets totalling some $284,000 after laundering drug profits generated by Mongrel Mob activities.  Snook family members have not been charged with any criminal offences, it is enough they received tainted money the High Court ruled.

In 2015 Tracey Snook agreed to sell her Wellington home in Roberts Street Tawa to Mongrel Mob member Steven Blance.  Blance is now serving a fourteen year sentence following conviction on methamphetamine charges.  There was no written sale agreement.  She was paid in cash by instalments.  The full purchase price paid in cash was disputed.  Police put the figure at about $270,000.  The High Court was told Mrs Snook remained as the registered owner and continued to live at the property for a further two months while Blance treated it as his own.  Justice Ellis was to describe Ms Snook as a naïve and highly susceptible woman who had the great misfortune to come under the thrall of Mongrel Mob members. Communication intercepts by police identified Ms Snook knew the cash purchase price came from drug deals.  The fact of money laundering surfaced when she took about $170,000 cash in a plastic shopping bag to Westpac intending to lodge the money in her bank account.  Westpac refused to accept the deposit.  Police were notified when she failed to provide any written evidence of her Roberts Street sale to Blance.

Justice Ellis declined to order immediate forfeiture of the full sale proceeds from Roberts Street as laundering proceeds of crime. Ms Snook had swapped one asset for another: her house for cash.  The full extent to which she should be penalised is best left to the asset forfeiture proceedings currently underway against Blance, Her Honour said.  A total of $109,154 held in Ms Snook’s name in two bank accounts was ordered forfeit under the Criminal Proceeds (Recovery) Act as the product of money laundering.  This cash had been deposited in discreet lots of less than ten thousand dollars to avoid again alerting banking authorities.

Evidence was given that Ms Snook used some of the cash to help her son Jayde Snook and his partner Sarah Colledge purchase a home in Jillett Street, Tawa.  Jayde raised a $264,000 ANZ mortgage for this purchase on the basis he would be putting in $21,500 from his Kiwisaver account together with $44,500 gifted by his grandfather.  Any gift from his grandfather was a lie; it was money received from his mother. Jayde fabricated a letter purporting to evidence his grandfather’s gift.  This forgery amounted to obtaining a loan by deception, by itself grounds for asset forfeiture under the Criminal Proceeds (Recovery) Act, Justice Ellis ruled. A bank balance of $24,900 in Jayde’s name was ordered forfeit.  Sale of Jillett Street was also ordered with the net equity forfeit to government after repayment of the ANZ mortgage and reinstatement of $25,000 in a Kiwisaver account in Jayden’s name.  Equity in Jillett Street was estimated at about $150,000.

Commissioner of Police v. Snook – High Court (27.09.18)

18.192

Tax: Hong v. Inland Revenue

Loans made in a private capacity by Auckland lawyer Boon Gunn Hong could not be written off against his professional income the High Court ruled, disallowing write-offs totalling $172,280.

Inland Revenue audited Mr Hong’s tax affairs after he failed to file returns for the five year period 2006-2010.  His tax return for the 2011 year, at issue before the High Court, was subsequently also filed late in conjunction with the earlier required returns.  The court was told Mr Hong wrote off two loans made to clients of his legal practice against taxable income for the 2011 year: $50,000 advanced to a Mr Chan and a further $122,280 being part of a $300,000 loan described in court as the “Tololi’ loan. Mr Hong claimed these were expenses for tax purposes; bad debt write-offs.

Justice Jagose ruled Mr Hong was not in the business of making loans.  The bad debts could not be written off against his income as a lawyer. Arranging infrequent ad hoc loans did not amount to a finance business.  He did not take security for loans or derive any significant income from lending.  Loans were made out of a charitable fund Mr Hong established: Benevolence on the Conscience Loan Fund.  The two loans in question appeared to lack a philanthropic purpose.  One was repayable on demand with interest payable at ten per cent and was used to cover cost overruns in the client’s restaurant renovation; the other was described as repayable on demand with ‘fair interest’ due on repayment.

Also at issue before the High Court was a question as to when the two debts had been supposedly written off.  Inland Revenue said an audit of metadata from Mr Hong’s spreadsheet showed the claimed write off took place after the end of the 2011 tax year.   Inland Revenue is justified in charging Mr Hong with Tax Administration Act shortfall penalties for ‘not taking reasonable care’, Justice Jagose ruled.  Mr Hong fell well short of the standard of care expected of taxpayers generally, he said.

Hong v. Inland Revenue – High Court (27.09.18)

18.191

Mortgagee Sale: Coronation Gardens v. Small (2005) Ltd

Developer Neville Mahon alleges fellow developer Tim Edney acting as mortgagee sold off at an undervalue his Auckland Coronation Gardens project.  The two are still at arms-length in a dispute over what the project is worth.

The two have a long history of co-operating in property developments.  A terraced townhouse development on Coronation Road in Mangere did not prove profitable.  The High Court was told Mr Edney’s company, Small (2005) Ltd, initially sold the Coronation Road site to Mr Mahon’s Coronation Gardens Ltd in 2014 for $14.6 million.  Funding was provided by Bank of New Zealand together with a mortgage back by Mr Edney’s Small Ltd.  Mr Mahon personally guaranteed repayment of part of the Small mortgage.  The project ran into financial difficulty.  Inland Revenue had Coronation Gardens put into liquidation in September 2018 for unpaid GST and PAYE.  Meanwhile, Coronation Gardens had defaulted on both the BNZ and Small mortgages.  Mr Edney was then in control as the major secured creditor, through his Small mortgage and having bought the BNZ mortgage from the Bank.

Evidence was given that Mr Edney’s attempts to sell the project through a mortgagee sale met with little success.  A July 2017 tender round saw 120 expressions of interest, only one unconditional offer at nine million dollars and conditional offers ranging from $6.4 million to $17.3 million.  No sale was finalised.  A further tender round in May 2018 resulted in only one conditional offer at seven million dollars plus sundry expressions of interest without any further offers. In July 2018, Mr Edney formed a new company, Golden Belt Mining Co Ltd, and sold Coronation Garden’s land to his new company for $11.75 million.  The land has since been offered back to Coronation Gardens at a price of $17.25 million, described by Mr Edney as being at an approximate discount of $500,000 on what Coronation Gardens owes.

Mr Mahon sued asking the High Court for an interim injunction to stop Mr Edney further dealing with the land.  He alleges Mr Edney’s sale to a related party was at an undervalue and prejudices Coronation Gardens.  Justice Jagose refused an injunction.  If there was a sale at an undervalue, Coronation Gardens gets damages, he said.  That will require a further court hearing.  With Coronation Gardens now in liquidation, it is not Mr Mahon’s decision whether his company continues with court action; this decision now lies with the liquidator.

Coronation Gardens Ltd v. Small (2005) Ltd – High Court (26.09.18)

18.190

Trust: Singh v. Singh

Common practice within the Sikh community of making cash loans with no written record required Gary Singh to produce a detailed accounting trail to prove his part ownership of a Tauranga house that sister Jaspal and her husband claimed was theirs alone.

A Pooles Road property in Greerton was purchased for $350,000 in April 2007: $100,00 cash and a $250,000 bank loan.  Harvinder Singh and Jaspal Kaur were registered as owners.  They claim the property is theirs.  Relatives, Gurminder (Gary) Singh and Rupinder Kaur, claim they are part owners with a one-half share.  Justice Courtney was left to sort out who owned Pooles Road.

Justice Courtney ruled Gary’s evidence was consistent with his claim to a half share.  There was evidence his $50,000 cash contribution came from savings, a loan from a friend and repayment of a loan made by him.  Witnesses corroborated details of the loans.  Deposits in the bank account of Harvinder and Jaspal in the days after instalments of Gary’s $50,000 were said to have been handed over matched his evidence.  Gary said he left Harvinder to finalise the purchase as Harvinder was older and senior to him in Sikh culture.  There was also evidence from the accountant employed by Gary’s auto mechanic business of regular payments made towards the ASB mortgage raised to purchase Pooles Road. These payments were recorded as personal drawings, not a business expense.  Harvinder and Jaspal hold a half share of Pooles Street on trust for Gary and Rupinder, Justice Courtney ruled.

The High Court was told Pooles Street had been rented out to a succession of tenants, including at one time an employee of Gary. Gary and Rupinder have been tenants for the last four years, paying rent.  Action taken in the Tenancy Tribunal by Harvinder and Jaspal to evict them has been on hold pending a High Court ruling on ownership of Pooles Road.  Evidence was given that there had been a falling out between the two families during 2016 in a dispute over a loan Harvinder and Jaspal made to Gary’s auto mechanic business.

Singh v. Singh – High Court (25.09.18)

18.189

Asset Forfeiture: Commissioner of Police v. Wellington & Moana

Riki William Wellington and Christiana Kaneihana Moana agreed to surrender assets valued at $176,000 as proceeds of crime.

Wellington was sentenced to thirteen years imprisonment on charges of methamphetamine possession and supply.  This followed a police bust in 2016 when cash and cars were seized during raids in Auckland and at the Christchurch home of Wellington and Moana.  Ms Moana denied all knowledge of the nearly $159,000 cash found in a bag in their wardrobe.  Police raids were the culmination of a ten year investigation: Operation Virunga. Police allege both Wellington and Ms Moana earned drug profits in excess of the assets seized but police took a pragmatic approach since no other assets purchased with the proceeds of crime were found.  The court was told the two received minimal legitimate income in the previous seven years. It was agreed no profit forfeiture orders would be sought if the two surrendered both $160,240 cash seized in the 2016 drug raids and proceeds of sale of three motor vehicles seized at the same time: a Toyota Mark X, an Audi 8 and a Toyota Hiace.  The agreed settlement was approved by Justice Muir under the Criminal Proceeds (Recovery) Act.  Ms Moana was paid the $4400 realised from the sale of a seized Volkswagen Touareg.  She said she owned the Touareg, despite it being registered in Wellington’s name, and that she had not purchased the vehicle with tainted money.

Commissioner of Police v. Wellington & Moana – High Court (24.09.18)

18.188

Trade Mark: Australasian Conference Association v. Little Bit of Britain

With survey evidence showing nearly one-third of respondents who had lived in the UK confused the New Zealand cereal brand ‘Weet-Bix’ with the UK product ‘Weetabix’ the High Court ordered imports could be put on sale only after covering the UK brand.

A classic David and Goliath battle was played out in the media when Sanitarium, manufacturer of Weet-Bix in New Zealand, sued Canterbury niche retailer A Little Bit of Britain Ltd for importation of Weetabix from the United Kingdom.  Sanitarium claims its trade mark is breached.  Britain Ltd said it sells to ex-pats and Anglophiles who are willing to pay two and half times the price for an equivalent Sanitarium product just for the pleasure of identifying with the UK.  Sanitarium was hesitant to elevate Britain Ltd to martyrdom, but feared failing to take a principled stand would potentially result in major retailers also stocking the UK product.  Britain Ltd rejected Sanitarium’s offer to allow sales provided the Weetabix name was covered over on packaging.

Britain Ltd scored a minor victory when Justice Gendall ruled the two brand names were not identical.  Spelling is different and one is pronounced with two syllables, the other with three.  But imported Weetabix did breach the Trade Marks Act because the brand names were similar and likely to cause confusion.  About half of New Zealand households purchase Weet-Bix.  If Weetabix were given shelf space in retail stores most customers would be unaware it was a product different from Weet-Bix, Justice Gendall decided.  An online survey identified that a significant minority of five hundred consumers surveyed, all of whom had at some time lived in the UK, were unaware of the difference.

Justice Gendall ruled that sale of UK’s Weetabix in New Zealand breached Sanitarium’s trademark for Weet-bix, but the product could be sold by Britain Ltd’s niche business provided the UK brand name was covered over.

Australasian Conference Association Ltd v. A Little Bit of Britain Ltd – High Court (24.09.18)

18.187

Asset Forfeiture: Commissioner of Police v. Sun

Twice convicted of drug offending and serving cumulative jail sentences of ten years, Jia Sun did a deal with the authorities who threatened to sell his family home, confiscate $77,100 cash seized during drug busts and to slap on him a two million dollar profit forfeiture order.  In a court-approved settlement under the Criminal Proceeds (Recovery) Act he surrendered the cash and former wife Angie Guo gets to keep the house once the two stump up $422,700.

Sun is the registered owner of a home on Laurel Oak Drive at Schnapper Rock on Auckland’s North Shore.  Its current rateable value is $1.4 million.  There is a $661,000 mortgage registered against the title.  Police found cash totalling $67,800 at the property during a drug bust.  A further $9300 cash was found at his offices in Auckland’s Queen Street.  Police allege the cash and equity in Laurel Oak came from dealing in pseudoephedrine, ephedrine and methamphetamine.  In 2015 he was sentenced to six years jail for possession and dealing.  In 2017, a further four years jail time was added for drug offences committed whilst on bail prior to the first sentencing.  The High Court was told for the six tax years prior to his arrest, Sun’s declared income to Inland Revenue totalled $65,800.  In four of those tax years, he declared no income.

In the agreed settlement, Sun agreed to confiscation of the cash found at Laurel Oak and at his offices.  Ms Guo and her stepmother Shi Wen take ownership of Laurel Oak on payment of $422,777 to government.  Mrs Guo strongly denies any knowledge of or benefit from her former husband’s offending.  As part of the agreed settlement, police agreed not to pursue profit forfeiture orders against either Sun or Ms Guo.

Commissioner of Police v. Sun – High Court (21.09.18)

18.184

Enduring Powers of Attorney: re Fitzgerald

Two sisters breached the Protection of Personal Property Act by using their mother’s enduring power of attorney to sell a 125 acre Taranaki farm, splitting the proceeds between themselves and three other sisters in what Justice Dobson said was a stratagem to remove assets from their mother’s estate prior to death.  It is unlawful to use enduring powers of attorney for your own benefit.

Doreen Fitzgerald died in 2014.  Her death crystallised family enmities going back last century.  She had been widowed for over thirty years.  The High Court was told of her disappointment at receiving nothing from the estate of her husband, known as DJ, following his 1983 death.  One witness described her as poring over estate papers stating: ‘the bastard left me nothing’.  DJ left proceeds of a life policy valued at some $21,000 to their elder son Daniel (living in Australia), a life interest in his farm to their second son Arnold (with Arnold’s children to then inherit) and little to their five daughters.  Widow Doreen and the daughters were left with a right to occupy the farm homestead; the daughters until they married.

Doreen owned in her own right a 125 acre farm six kilometres away in Rowan Road, Kaponga.  In 2011, while Doreen was still alive but suffering from dementia, daughters Marie and Angela used an enduring power of attorney to sell Rowan Road to a third sister, Louise and her husband.  Louise had been sharemilking on the property at various times since 2003.  The agreed price was $2.26 million which was then divvied up: $450,974 to each of Doreen’s five daughters, including Marie and Angela who had signed off on the sale.

Colouring family dynamics was evidence of Arnold assisting his mother at Rowan Road for over two decades with the construction of hay barns, replacing fencing and refurbishment of the milking shed, cow yard and effluent ponds.  Justice Dobson was to rule that this work supported a claim by Arnold under the Law Reform (Testamentary Promises) Act.  Family discussions at the time of the work pointed to Arnold being given first right to buy Rowan Road after Doreen’s death on easy terms; he would have to buy at market price but payment to his siblings of their share could be delayed up to five years.  This was pre-empted when Maria and Angela sold up using their mother’s enduring power of attorney at a time when she was diagnosed with dementia.  They did not tell Arnold of the $2.26 million being gifted, rather than being kept as an asset of their mother.  He found out after his mother’s death.

Arnold’s testamentary promises claim was bitterly fought, with ten days of evidence in the High Court seeing fifty years of family washing hung out for inspection.  Past disputes against distant relatives and between family members all got an airing. 

Justice Dobson ruled Arnold was entitled to $50,000 from his mother’s estate: $40,000 for his testamentary promises claim based on his loss of the right to buy Rowan Road and a further $10,000 for a related family protection claim arising from the fact his mother’s estate was now notionally worth some $3.35 million with value of the unlawful gifting following sale of Rowan Road to Louise added back in.  Louise keeps Rowan Road, but the $450,974 received by each of the daughters is liable for repayment.  Daniel was awarded $20,000 in a similar family protection claim under the Family Protection Act.  Justice Dobson ordered the five daughters as residuary beneficiaries of their late mother’s estate bear both the estate costs of all the litigation and the damages awarded to each of Arnold and Daniel.  Estate payouts have been frozen since litigation was threatened.  Separately, Doreen’s will leaves $50,000 each to both Daniel and Arnold; the balance equally to her daughters.

re Fitzgerald – High Court (21.09.18)

18.186

Westgate: Westgate Town Centre v. Auckland City

Westgate Town Centre Ltd must pay Auckland City $11.8 million as its share of undergrounding high voltage transmission lines near the west Auckland retail project despite Westgate’s complaints Auckland messed up the entire development.

Westgate says it will be forced to borrow the entire eleven million dollars at commercial rates to make payment while it has its own $33 million claim against Auckland still outstanding.  Westgate alleges Auckland is dragging the chain on contractual obligations to support its retail development.  Westgate has its origin in deals struck with the former Waitakere City Council in 2004.  Waitakere was later absorbed into an expanded Auckland supercity.  The High Court was told Westgate construction is now governed by some 23 separate contracts between Auckland City and joint venture developers, NZ Retail Property Group. These contracts were signed variously between 2004 and 2017.

Westgate Town Centre sued alleging Auckland had not carried out its part of the deal.  In particular, it says Auckland has hampered traffic in and around the development after establishing roading with high-volume traffic flows that hinder promised ready access to community and retail facilities.  It also says Auckland has failed to provide a promised bus interchange and has delayed construction of promised library and community centre facilities.  Westgate says it has been left with a dysfunctional commercial precinct instead of the compact, integrated town centre promised.

Westgate sued Auckland for $33 million, including a demand for return of $2.6 million part-payment already made for its share of power undergrounding costs.  Westgate argued it was only liable for undergrounding if the town centre was developed as agreed.  Auckland City counterpunched with an $11.8 million summary judgment claim for Westgate’s remaining share of undergrounding costs.  Auckland has paid Transpower in full for the work.  Justice Wylie ordered Westgate pay the $11.8 million.  There was no argument the money was due and owing, he ruled.  Westgate’s share of the undergrounding cost had a drop-dead final payment date in October 2017, Justice Wylie said.  The contract was not subject to any conditions or right of set-off.     

Westgate has to go to a later full court hearing on its separate $33 million damages claim against Auckland City.

Westgate Town Centre Ltd v. Auckland City – High Court (21.09.18)

18.185

Mainzeal: Mainzeal Property v. Yan

Directors attempts to knock Mainzeal’s liquidator out of contention before legal action against them even got into court has failed.

In 2013, Mainzeal Property and Construction Ltd went into liquidation.  To date, liquidators have accepted creditor claims totalling $117 million.  Insolvency specialists at BDO were appointed liquidators. They are suing Mainzeal directors alleging reckless trading and breaches of directors’ duties during Mainzeal restructuring.

Before the case got to trial, directors applied to knock out evidence intended to be given by liquidator Andrew Bethell.  He lacked independence, they said.  Mainzeal liquidators have signed up to a liquidation funding agreement covering costs of legal action against directors.  They are required to ‘use their reasonable endeavours to maximise settlement or judgment proceeds’.  This does not prejudice the liquidators’ position, Justice Cooke ruled. Liquidators are under a general obligation in any event to maximise returns for Mainzeal creditors.

Directors also criticised the tone of Mr Bethell’s proposed evidence.  He could give evidence of fact they said, but not offer opinion evidence about directors’ knowledge and the timing of insolvency.  In complex commercial litigation, the dividing line between fact and opinion becomes less clear, Justice Cooke said.  Mr Bethell, as an insolvency specialist, is qualified to give expert opinion evidence about matters within his area of expertise, Justice Cooke ruled.

Most of the heavy lifting in winding down Mainzeal’s construction activities was carried out by PwC appointed as receiver to recover funds advanced by secured creditor, Bank of New Zealand.  Receiver’s final report dated May 2017 show that at the end of the receivership PwC handed over eight million dollars to BDO as liquidator.  

Mainzeal Property and Construction Ltd v. Yan – High Court (20.9.18)

18.183

Dumping: NZ Steel v. Commerce

Ministry of Commerce did not take into account credible overseas studies detailing levels of state subsidy for Chinese steel production when declining requests for countervailing duties on imported steel. The High Court ordered a reconsideration.

Commerce made material errors in determining the extent to which Chinese steel producers benefit from being state controlled and state funded, Justice Mallon ruled on a review filed by NZ Steel. 

Australian-listed company Bluescope owns NZ Steel.  It has operations in seventeen countries worldwide. Bluescope was surprised to learn a 2017 Commerce investigation concluded that any subsidy on Chinese steel exported to New Zealand was slight.  No anti-dumping duties would be imposed. Reversing the analogy beloved of economists describing how surprising events can upset preconceived views, Bluescope said Commerce’s decision was the equivalent of saying Chinese steel producers qualified as white swans when the rest of the world had seen only black swans.

Commerce staff investigated Chinese steel imports after a complaint was laid by NZ Steel in 2016.  Its Glenbrook plant is the sole New Zealand producer of galvanised steel coil. Equivalent steel product is imported, predominately from Taiwan, Japan, South Korea and China.  NZ Steel said China had 22 per cent of the import market by volume in 2015.  It alleged Chinese suppliers were undercutting prices with the sale of subsidised steel, causing material injury to its business.  Having to meet Chinese prices meant profitability, return on capital and ability to raise capital were prejudiced, it claimed.

The High Court was told Commerce received a very limited response to questions posed to Chinese authorities.  The government of China expressed ‘concern’ that an investigation had been initiated on the basis of ‘insufficient and unsubstantiated information’ before providing little more than a general denial the state subsidies were provided.

Justice Mallon said Commerce was in error by rejecting evidence of Chinese state subsidies identified by earlier Australian and US investigations.  Commerce presumed, incorrectly, these overseas findings were not based on first-hand evidence.  In fact, investigators had relied on data provided directly from Chinese suppliers and had made verification visits to China.  A US study assessed the level of subsidy at 38.99% arising from a raft of below market charges for loans, land use, electricity and raw materials, coupled with subsidies in the form of export credits.

NZ Steel Ltd v. Commerce & Consumer Affairs – High Court (18.09.18)

18.182

Liquidation: Abedi v. Sultan Kebab

Failing to recognise his one-man company was a legal person separate from himself will potentially cost Fakhrodin Abedi $143,000.  With cash from his takeaway shop either pocketed or paid into his personal bank account and then later used to pay company debts he could not claim a set-off when ordered to hand over the cash drawings.  

West Auckland takeaway business Sultan Kebab Ltd did not keep good accounting records.  Tax compliance was no better.  The High Court was told no GST returns or income tax returns were filed for a number of years.  After the company folded, the liquidator found cash takings had not been paid into a company bank account.  Mr Abedi was sued by the liquidator, demanding repayment of the company’s money. Mr Abedi’s defence was that he had used this money to pay company expenses.  He claimed a set-off.

The Companies Act prohibits director/shareholders of small companies from claiming any set off for transactions in the two years prior to liquidation, unless they can prove their company was solvent at the time.  Mr Abedi did not deny his company was insolvent.  Justice Hinton ruled Mr Abedi could claim the benefit of company expenses he paid personally if he could prove he acted as an intermediary; funds flowed contemporaneously through his personal bank account in payment of company expenses.  Mr Abedi had no documentation to prove this had happened, except in relation to a few payments totalling $9,896.  Mr Abedi was held liable to return $143,468 to Sultan Kebab’s liquidator.  He is left to prove as an unsecured creditor in the liquidation.

Abedi v. Sultan Kebab Ltd (14.09.18)

18.181

Receivership: Harris v. BNZ

The deal had its genesis in asset shuffling designed to keep assets away from creditors of property developer Gregory Olliver.  It is ending with former spouse Sarah Sparks successfully arguing over $3.5 million remains under her control, not their joint control.

A decade ago, Mr Olliver had grand plans for redevelopment of nine sites on Waimaire Street in Auckland’s seaside suburb St Heliers. His then personal financial difficulties were a stumbling block.  He owned no assets personally and had committed to a court-approved Insolvency Act scheme.

Ten years on, assets of the failed redevelopment have been sold and receivers are holding some $3.8 million for distribution. Unsure of the legal status of about $3.6 million cash put up to start the project, receivers went to the High Court for a ruling: was the $3.6 million equity (to be shared by the joint venture partners but deferred after payment of all debts) or a loan (to rank with payment due to other creditors)?  Justice Jagose ruled the $3.6 million was a loan, advanced by Glover No.2 Ltd, a company controlled by Ms Sparks.

The High Court was told the Waimarie Street project was initiated with a 2009 joint venture agreement between Mr Olliver and Ms Sparks.  The two separated some three years later.  The agreed joint venture saw Ms Sparks putting in cash and Mr Olliver putting in land.  It was intended they would reside on one of the Waimarie Street properties as a family home and Mr Olliver would oversee development of the rest.

Harris v. BNZ – High Court (11.09.18)

18.179

Liquidation: Patterson v. McConnell Dowell

Creditors funding liquidators’ legal actions to recover assets in an insolvent liquidation get a reward; they have first claim on funds recovered.  The High Court ruled McConnell Dowell had priority ahead of other creditors over the $1.1 million clawed back from interests associated with David Browne, owner of Polyethylene Pipe Systems Ltd, after his company was pushed into liquidation following pipe-weld failures on a Christchurch sewer outfall project. 

Polyethylene Pipe went into liquidation in 2009. McConnell Dowell, head contractor for the sewer outfall project, is a major creditor having been awarded $2.9 million damages following a claim for faulty pipe-welds.  McConnell put up $297,750 of its own cash for the liquidator to chase down funds extracted from Polyethylene Pipes by interests associated with Mr Browne after the magnitude of McConnell’s claim became apparent. This recovery was fought through the High Court, Court of Appeal and Supreme Court.

To be eligible for the bounty, creditors must have a legally enforceable claim against an insolvent company.  The support provided must be cash or an indemnity against legal costs, not supply of goods or services.  The funding commitment must arise after liquidation commences.  The Companies Act then allows funding creditors to claim against recoveries for their debt plus legal costs advanced to the liquidator.  Associate judge Bell ruled McConnell Dowell had priority for $1.4 million: the $1.1 million clawed back plus $297,750 paid for liquidator’s legal fees.  The purpose of this rule is to encourage assistance by offering a reward, he said.

Mr Browne’s similar claim failed.  As a supposed secured creditor of Polyethylene Pipe he took legal action against Bosch Irrigation resulting in a $201,250 out-of-court settlement.  This money was handed over to Polyethylene’s liquidator after his supposed security was invalidated by the courts in the legal action funded by McConnell Dowell.  The claim against Bosch was not brought for the benefit of creditors generally, Judge Bell said.  It was solely for the benefit of Mr Browne who at the time presumed he was a secured creditor.

Petterson v. McConnell Dowell – High Court (11.09.18)

18.180

Bankruptcy: re Nottingham

Self-styled justice campaigner Dermot Nottingham has been bankrupted on an unpaid $15,000 court costs order.  It is in the public interest to put a stop to his practice of commencing groundless private criminal prosecutions, Associate judge Johnston said.

Described as wreaking havoc with the lives of those wrongly accused of criminal activity, Mr Nottingham failed in a last ditch stand to prevent bankruptcy with a failed Insolvency Act scheme offering creditors deferred part payment.  He claims to have no assets and debts in the order of two million dollars.

While the Insolvency Act proposal appeared to get sufficient creditor votes for approval, Judge Johnston disqualified from the count all those who voted in favour; they did not provide sufficient detail evidencing either their identity or the circumstances of the amount claimed.  A two-line claim stating a name, an amount and a cryptic description of a debt did not suffice.  The only creditors whose votes did count were judgment creditors with court judgments against Mr Nottingham.  They did provide sufficient details of their claim when voting and all voted against the proposal.

Judge Johnston ruled failure to pay the $15,000 costs order and offers to make part-payment to creditors were both evidence of Mr Nottingham’s insolvency.  Bankruptcy will enable Insolvency Service to investigate why Mr Nottingham claims to have no assets at a time when recent dealings totalled two million dollars, he said.

re Nottingham – High Court (11.09.18)

18.178

Asset Forfeiture: Commissioner of Police v. Hines

Denying all knowledge and involvement in a Head Hunters drug ring, Leng Han agreed to confiscation of his Auckland property in Marua Road Ellerslie under the Criminal Proceeds (Recovery) Act provided he received $500,000 from a forced sale.

Mr Han was sole director and shareholder of Tiny Big World Ltd, owner of Marua Road.  Companies Office registration describes the company’s business as internet consultancy. Police told the High Court Marua Road was used by members of the Head Hunters gang to store vehicles.  Earlier court cases identified vehicles were purchased to launder profits from gang dealing in methamphetamine and ephedrine.  Police said Tiny Big World purchased Marua Road in 2015 for $1.024 million. Mr Han said his cash for the purchase came from China. Jia Sun contributed $730,000 towards the purchase price.  Mr Sun was imprisoned after convictions in 2015 on charges of possession and supply.

Mr Han told the High Court he was in China at the time of the Marua Road purchase.  Mr Sun was his business manager, organising renovations and finding tenants.  Mr Han denied meeting or having any contact with Head Hunter members occupying Marua Road.  An agreed settlement between Police and Mr Han, approved by the High Court, sees Marua Road sold with $500,000 paid to Mr Han, the balance forfeited to government.

Commissioner of Police v. Hines – High Court (10.09.18)

18.177