Asset Forfeiture: Commissioner of Police v. Cheah

After pleading guilty to methamphetamine supply and sentenced to six year’s jail, Boon Hooi Cheah will have assets seized following a High Court ruling he benefited to the tune of $2.1 million as proceeds of crime.

It is common practice for convicted criminals to negotiate with police how much will be surrendered under the Criminal Proceeds (Recovery) Act.  Cheah chose to go to trial in the High Court, arguing his drug profits were minimal.  Once police have stated their assessment of the gross revenue generated, it is for those convicted to prove revenue came from legitimate sources.

In a 2016 drugs bust, police seized cash and methamphetamine from Cheah’s home in the Auckland suburb of Avondale together with a diary recording drug sales for the previous two months.  Sales averaged $1300 per day.  These figures, extrapolated to cover the seven years police claim he was dealing, resulted in estimated cash sales totalling $2.1 million. Cheah protested.  He said he lived a frugal lifestyle, supported by income from hairdressing and selling cosmetics.  He was previously employed by L’Oreal and claimed he had stockpiled cosmetics given him as reward for being a top sales performer.  No taxable income was declared to Inland Revenue for this supposed employment, or for his drug dealing.  Justice Grice said Cheah was not a credible witness when it came to these explanations.  No allowance was made for the cost of Cheah’s methamphetamine purchases.  The Act allows seizure of ‘proceeds of crime’ not ‘profits of crime’.  Earlier ‘proceeds of crime’ cases have disallowed deductions for dealers’ costs in purchasing drugs for supply; it would lead to practical difficulties determining costs of drug trading in what is a hidden illegal market.

Justice Grice ordered confiscation from Cheah of $378,500 in cash and bank accounts and ordered sale of his half interest in a property on Great North Road in Avondale.

Commissioner of Police v. Cheah – High Court (31.10.18)

18.219

Partnership: Cochrane v. Guardian Trust

While farmer Marcelyn Barnes prided herself on keeping family finances well recorded, her practice of mixing together business and personal transactions in a ‘mish-mash’ through one bank account led to litigation on her husband’s death.  Marcelyn said assets totalling $931,400 were hers; daughter Gillian said the funds were partnership assets to be divided between members of the family.

The High Court was told Marcelyn and her late husband Alan had farmed in partnership at Dannevirke for over fifty years. Marcelyn kept the farm accounts and filed tax returns for both the business and themselves.  Complications arose on Alan’s death in 2013.  Recorded as partnership assets were a $600,000 loan made to son Richard and his wife and $331,400 invested in term deposits.  Marcelyn said these financial assets were personal assets jointly owned by both herself and her late husband; she inherited full ownership by survivorship.  Gillian pointed out they were recorded as a partnership asset; the farming partnership came to an end on Alan’s death and partnership assets do not pass by survivorship. Partnership law sees partnerships dissolved on the death of a partner and each partner’s share treated as their personal property.  If personal property, Alan’s will left a life interest to his widow with Marcelyn entitled to interest only on Alan’s half share of the $931,400 so long as she lived.

Justice Cull ruled the $931,400 financial assets were personal assets of Marcelyn and Alan, not partnership assets.  The loan and term deposits were derived from their personal savings.  Marcelyn inherited her late husband’s share by survivorship.  Recording them as partnership assets was a mistake.  The court was told Marcelyn had no professional expertise in accounting and took a frugal approach to bank charges. Personal and farming transactions were all run through the same bank account.  She was inconsistent in the way she treated partnership assets and personal income for tax purposes.  It made no difference to Inland Revenue; the correct amount of tax was paid.

Justice Cull said evidence the disputed financial assets were personal assets, not partnership assets, was indicated by advice given their lawyer when preparing wills and account authorities signed when opening a joint bank account.

Cochrane v. NZ Guardian Trust Co Ltd & Barnes – High Court (31.10.18)

18.218

Fraud: Worldclear Ltd v. T1 Holdings Ltd

Worldclear looks to have pinned down all but $720,000 of the $4.6 million former employee Richard Witham is alleged to have stolen when fleeing the country in May 2018 for Singapore. Witham is under arrest in Singapore.

Hamilton-based financial service provider Worldclear Ltd was thrown into a spin when it found Mr Witham had disappeared after locking down online access to company bank accounts.  Frantic inquiries identified he had shifted Worldclear funds across to his own bank accounts and left the country with his family.  Within 24 hours, Worldclear’s dropbox account was being accessed from Singapore and company files systematically deleted.  In a hurried court application, Worldclear had freezing orders imposed on all assets Mr Whitlam may have in New Zealand. The High Court was told some $3.45 million has either been recovered or frozen as a result of the court order.

Worldclear is back in court.  More detective work has discovered about $435,000 held in a BNZ account in the name of Retail Guru Ltd.  Richard and Erika Witham are majority shareholders.  Their company is in liquidation.  The $435,000 is a debt owed to Worldclear, the High Court ruled. Retail Guru’s liquidation report discloses that Mr Witham has been arrested in Singapore where he faces criminal charges. There is also an arrest warrant issued by New Zealand authorities.

Worldclear Ltd v. T1 Holdings Ltd – High Court (30.10.18)

18.217

Land: Taylor v. Small

Three years after Geoff and Aria Small built equestrian facilities on their South Auckland lifestyle block, neighbours turned on them.  The High Court dismissed complaints the utilitarian facilities were out of character for the area and refused an injunction for their breach of a restrictive covenant over the land.

The Smalls’ problems have their genesis in a 1994 subdivision of the Taylor family farm on Ingram Road at Ramarama near the southern boundaries of Auckland City.  In 2013, the Smalls purchased a 17.5 hectare lot from the Taylors.  They in turn subdivided their block into seven lots. Restrictive covenants forming part of the Taylor subdivision passed on down into the Smalls’ subdivision.  They restrict owners to a single dwelling together with a farm outbuilding which must be ‘usual and reasonable for … rural use [and of] a pleasing and aesthetically compatible appearance’. When building, owners are required to build a home costing not less than $300,000.

Neighbours are unhappy with the Smalls development. The Smalls have built a 300 square metre stable and barn with accommodation on two levels together with an attached machinery shed.  They allege the equestrian facilities are being used as if it were a home, in breach of the restrictive covenant.  The Smalls have been living there since December 2014.  Neighbours also claim the Smalls’ seven subdivided lots cannot each have a home on them, hampering the Smalls attempts to sell.  By the time their dispute got to court, the Smalls had sold two of their six lots up for sale.

Justice Gordon ruled the Taylors’ restrictive covenant controlled the quality and character of buildings, not their density. A single dwelling could be built on each of the lots being sold by the Smalls.  There was evidence the Smalls equestrian facilities fit within the spectrum of other facilities in the district.  The building is usual and reasonable for those keeping horses in a rural area, Justice Gordon ruled.

Neighbours say the equestrian facility should be taken down; the restrictive covenant allows farm outbuildings in conjunction with a dwelling, but there is no dwelling on site.  The equestrian facilities have been used since 2014 as ‘temporary living quarters’.  Justice Gordon ruled the stand-alone equestrian facilities were in breach of the restrictive covenant in the absence of an adjoining home.  No injunction was granted because the Smalls say they intend building a house.  Cooking facilities will then be removed from the equestrian centre, they said.  Cash from the sale of lots in their subdivision is needed to fund their house construction, the Smalls said.

Taylor v. Small – High Court (29.10.18)

18.214

Liquidation: Harnish v. Whittfield

Having purchased a fifty per cent stake in Whitford Properties Ltd at public auction enforcing a court judgment, Owen Harnish is suspicious an avalanche of claims against the company, now in liquidation, will leave his shareholding worthless.  The High Court refused his application to inspect creditors’ claims.

Litigation surrounding Whitford Properties has kept the courts busy in recent years.  The company went into receivership and then liquidation after failed attempts to subdivide 8.6 hectares of rural land near Whitford Golf Club in south Auckland.  Whitford Properties founding shareholder Robert Bruce had his fifty per cent stake in the company forcibly sold to enforce a court judgment against him for an unpaid loan.  Mr Harnish bought the Bruce shares at auction.  At that point, Whitford Properties’ major asset was pending litigation over the manner in which its land was sold when threatened with a mortgagee sale.  A series of court cases saw some four million dollars compensation paid to Whitford Properties’ liquidator.  Whitford’s mortgaged land was sold in 2014 for ten million dollars to interests associated with financier Gregory Hayhow.  The High Court was told this land was then onsold two years later for some $22 million.

Mr Harnish complains the Whitford Properties’ liquidator wrongly re-advertised for creditor claims after receiving the four million dollars compensation.  This resulted in claims by unsecured creditors increasing roughly one hundred fold. What had appeared to be a solvent liquidation with a return for himself as shareholder was now potentially an insolvent liquidation with nothing for shareholders.  He asked the High Court for permission to access the liquidator’s files.  He alleges the liquidator has pre-judged some of these claims, to his detriment as a shareholder.  The liquidator objected.  Associate judge Smith refused access.  The liquidator has the right to control the manner in which creditor claims are assessed.  There was evidence of insolvency practitioners readvertising for creditor claims in some instances.  They have a duty to ensure all creditors are identified.  The court was told two large unsecured claims (one for one million dollars and another for $2.8 million) have been submitted; neither has been yet admitted for payment.  The liquidator’s inquiries as to their legal validity are still underway.  One $100,000 creditor claim submitted after readvertising has already been rejected.

Harnish v. Whittfield – High Court (29.10.18)

18.216

Estate Costs: Gillibrand v. Swanepoel

Chris Gillibrand’s legal action against his solicitor for allegedly not curtailing a ‘hopeless’ legal defence to claims from Bupa for $53,000 owing for care of Chris’ late father did not succeed. He had previously recovered $73,950 damages against the barrister representing him in court.

The $53,000 Bupa debt had blown out to $200,000 with addition of extra costs for his replacement as executor of his late father’s estate together with Bupa Care Services Ltd’s full legal costs responding to what was described as a hopeless defence to its claim for unpaid care costs.  It is rare for a successful litigant to be awarded full legal costs; court regulations usually allow a contribution only.  

A barrister handling his defence was heavily censured for his conduct.  Barrister Andrew Holgate had likened Bupa’s care services to Auschwitz concentration camp and had emailed copies of Chris Gillibrand’s allegations about Bupa’s poor care to the Northern Advocatenewspaper ahead of the trial.

The Court of Appeal was told Chris’ father Gordon Gillibrand required 24-hour care at Bupa’s Dargaville care facility from 2003 after suffering a stroke.  He died eight years later, prematurely because of poor care from Bupa, Chris alleged. When hospitalised, Gordon transferred his farm to a family trust controlled by son Chris.  The full sale price of $505,000 was left in as a loan. Gordon paid Bupa’s rest home fees until his own cash resources ran out, then the family trust made payment on his behalf reducing the debt owed Gordon personally.  The trust stopped paying in 2009; Gordon’s debt to Bupa built up. When he died, Bupa claimed against his estate.  By then, the only estate asset was the balance of the debt owed for the farm purchase. As executor, Chris refused to pay saying variously the debt due from the family trust had been forgiven and that Bupa should not be paid because it was liable in damages for allegedly poor care of his father.  Whangarei solicitor George Swanepoel initially handled the complaint.  As court proceedings became likely, barrister Andrew Holgate took over the file.  He was later subject of a complaint to the Law Society and ordered by the High Court to pay $73,950 damages to Chris for his conduct of the defence to Bupa’s claim.

Chris alleged solicitor Mr Swanepoel was equally to blame. The Court of Appeal ruled Mr Swanepoel was not liable; he had told Chris that he disagreed with Mr Holgate’s litigation strategy and reminded him he could be liable for costs, without explicitly telling him that in the extreme he could be required to pay Bupa’s full legal costs.  The Court of Appeal said Chris Gillibrand chose not to act on Mr Swanepoel’s advice and in any event was unlikely to accept any advice from him no matter how forcefully put.

Gillibrand v. Swanepoel – Court of Appeal (29.10.18)

18.215

Petrol Pricing: Berry v. Petroleum Logistics Ltd

It was commercially absurd to argue wholesaler Petroleum Logistics Ltd had agreed to charge Whitianga reseller Acme Fasteners the ex-Singapore price for petroleum products with no mark-up for shipping, delivery and margin, the High Court ruled.

Peter Berry claimed he had been overcharged more than $140,000 for fuel supplied over the previous five years when sued by Petroleum Logistics in 2017 for account arrears.  The High Court was told payments had been kept up to date for the first four years, then monthly invoices started being paid in rounded amounts before default.  Fuel supplied in bulk to Mr Berry’s Acme Fasteners was onsold to retail customers, mainly fishing and charter vessels operating out of Whitianga.  Acme Fasteners customers were issued with fuel cards allowing them discounts on fuel purchased from pumps both at the wharf and at nearby BP and Mobil outlets.   

Evidence was given that Petroleum Logistics’ supply contract described the ‘wholesale price’ as being that determined by MOPS: an acronym for ‘mean of Platts Singapore’.  This is a reference to pricing benchmarks published by global energy information provider Platts which publishes forward pricing (typically 15 to 30 days forward) for oil products loading in Singapore.  Mr Berry said this was the price he should have been charged for fuel supplied over the previous five years.  Justice Lang said it was a commercially absurd result to have Petroleum Logistics agreeing to supply fuel to a customer in Whitianga at an ex-Singapore price.  The plain words of the contract made it clear MOPS provided the base wholesale price with Logistics expenses and margin to be added in, he ruled.  If there was any valid question over calculation of the wholesale price, it is likely to be raised early in the supply relationship rather than when sued for non-payment.  Acme Fasteners was ordered to pay arrears of $71,300. 

The court was told the price Petroleum Logistics charged Acme Fasteners changed every few days following movements in the price of oil and exchange rates.  Mr Berry was advised every day the supply price changed so he in turn could immediately adjust his retail price.

Berry v. Petroleum Logistics Ltd – High Court (26.10.18)

18.212

Relationship Property: Cossio v. Cossio

After being twice-married to the same man with both marriages subsequently dissolved, Theresa Cossio was in court claiming a share of former husband Mathew’s interests in a waterproofing business based in Avondale, Auckland.

Mathew Cossio has since remarried and now lives in Australia.  He is defending claims in the New Zealand courts that his business interests are relationship property.  Their first marriage, in 1979, was dissolved after three years.  Married again in 1985, they separated 24 years later.  In dispute, is Mathew’s interests in two companies set up by his father: J Cosio Ltd (which owns business premises on Rosebank Road, Avondale) and Permathene Ltd (a business providing geosynthetic waterproofing systems for agricultural, horticultural and construction sites).

Mathew has a 51 per cent shareholding in each company; his sister Jane the remaining 49 per cent.  Mathew says he ‘inherited’ his majority shareholding from his father. The High Court was told Mathew took over the business during his second marriage to Theresa.  This happened when his father sold up, planning to pursue business interests in the United States.  It was not an ‘inheritance’ in the sense that his father had died and left the business to two of his children in his will.

Justice Venning ruled Mathew’s interest in J Cosio Ltd was relationship property.  The default rule in the Property (Relationships) Act is that all assets acquired during marriage are relationship property. Shares in the company were ‘acquired’ when Mathew agreed to buy in, paying his father later.  It did not matter what was the source of funds used for payment.  Dividends subsequently paid out by the company were used to pay his father.

In contrast, shares in Permathene were gifted to Mathew.  Assets received by way of gift are not relationship property.  Theresa’s claim to an interest in Permathene required proof she had helped ‘sustain’ the asset.  Justice Venning said a $30,000 interest free loan made from household savings providing liquidity for Permathene’s operations amounted to a direct contribution which helped ‘sustain’ the business.  This contribution is relationship property, he said.

The case was referred back to the Family Court to determine values for the assets ruled to be relationship property: a majority stake in J Cosio Ltd and the economic value of a $30,000 interest free loan to Permathene Ltd.

Cossio v. Cossio – High Court (26.10.18)

18.211

Director's Duties: Adtraction Marketing Ltd v. Ehrenfeld

Sydney company director Gabriel Ehrenfeld barred by ASIC from managing any Australian corporation for five years from 2016 but not before he had plundered resources out of Auckland advertising agency Adtraction Marketing Ltd.  The High Court ordered repayment of $181,000 wrongly taken from Adtraction, now in liquidation insolvent owing creditors over two million dollars. 

The Australian Securities & Investment Commission’s five year ban followed Mr Ehrenfeld’s failure to comply with Australian corporations law and for what was described as his failure to show any insight or contrition into his behaviour.  This included mismanagement of Australian company Reeltime Media Ltd, a company used by Mr Ehrenfeld to fleece Auckland-based Adtraction Marketing in late 2013.

The High Court was told Mr Ehrenfeld bought into Adtraction Marketing in October 2013.  Adtraction had been operating for some nine years prior to his purchase. He promised big things: greater expertise through his Australian connections, back-office administrative support and an injection of AUD$100,000 fresh capital.  The capital injection never eventuated.  Evidence was given of cash filtered out of Adtraction Marketing almost as soon as he was installed as director.  Over a four month period, $228,500 was transferred to Australia in what Mr Ehrenfeld called a ‘squeeze and release’ methodology.  The ‘squeeze’ amounted to fees charged for provision of administration and financial services together with licensing fees all intended to sharpen cost centre focus; the ‘release’, supposed discounts for improved performance.  Justice Venning ruled there was no evidence to support most of the fees charged by Reeltime Media group.  A series of invoices for the supposed fees was created ex-post after the cash had been transferred and just prior to Mr Ehrenfeld putting Adtraction into liquidation.

Justice Venning ruled there was no commercial justification for $181,000 of the cash moved to Australia.  Many of the services invoiced were not provided.  Mr Enrenfeld was ordered to compensate Adtraction.  He breached duties as a director; failing to act in good faith and in the best interests of the company.

Adtraction Marketing Ltd v. Ehrenfeld – High Court (26.10.18)

18.213

Fraud: Grant v. R

The Court of Appeal forced full disclosure of SkyCity’s recoveries from fraudster Tessa Fiona Grant before reducing her jail term to six years from seven years eight months.  SkyCity recovered $1.4 million of its stolen $1.9 million.

Grant pleaded guilty to two frauds totalling $2.75 million: $1.9 million taken from SkyCity Entertainment’s Hamilton operations whilst finance manager between 2008 and 2014 and $795,000 misappropriated from Waikato Diocesan School for Girls whilst the School’s commercial manager between 2014 and 2015.

The Sky City fraud followed false invoicing, using company cheques to pay personal expenses and misuse of petty cash.  She used the money to pay credit card expenses, construct a $425,400 horse arena at her property and fund her sport as an equestrian.  This fraud came to light following subsequent publicity for similar frauds at Waikato Diocesan:  false invoicing, using School cheques to cover personal expenses and improper use of her corporate credit card.  A contractor asked to verify work supposedly done for Waikato Diocesan, which proved to be subject of a forged invoice, had previously carried out work for SkyCity when Grant was an employee.  He contacted SkyCity, telling it to check its records.

Prior to sentencing, Grant repaid Waikato Diocesan the money stolen plus interest and its costs.  SkyCity, meanwhile, was taking legal action against Grant to recover its losses.  An out-of-court deal was struck.  This was kept confidential.  At sentencing, the trial judge was told there had been reparations paid, but not the detail. The Sentencing Act allows reductions in punishment where there is ‘any offer of amends’ and ‘compensation to any victim’.

Grant appealed her sentence, saying full credit was not given for the level of reparations paid.  The Court of Appeal required full disclosure.  It did not matter that SkyCity made recoveries in a confidential settlement as part of threatened civil action.  The Court was told Grant paid SkyCity $1.4 million from the sale of her horse trucks and three properties she owned.  Some of these assets had been previously transferred by her to a company owned by her father.

Grant v. R – Court of Appeal (25.10.18)

18.210

Company: Latumbo v. Pacific Auto Carrier

For over two decades Robert Stone and Hohua Hemi built up their business exporting used cars from Japan to New Zealand and other countries.  Now they are at each other’s throats.  Each alleges the other is stripping cash out of the business for their own personal benefit. An Auckland customs broker stands between them left holding $8.8 million, unsure who gets the money.   

The High Court was told the two entrepreneurs own, directly or indirectly, a string of companies, stretching from Japan through the Philippines and the British Virgin Islands, co-ordinating sales and shipment. While business was prospering, operations were managed on an informal basis.  The two have fallen out.  Mr Hemi alleges Mr Stone has misapplied business resources to fund a lavish lifestyle in the Philippines.  Mr Stone alleges Mr Hemi has wrongly used joint business resources to finance expenses in New Zealand.  In particular, he complains Mr Hemi’s Pacific Auto Carrier (NZ) Ltd used joint business and shipping arrangements to run a competing business.  They should both share in Pacific Auto’s profits, he claims. From 2012, Mr Hemi, through Pacific Auto, imported used Japanese cars sold on a door-to-door basis, separate from their well-established importing business.

A 2016 mediation failed to sort out their differences. Next stop; the High Court.  Legal action was taken by Melanie Latumbo, financial controller for Philippines-based iCOMM International Ltd providing back-office services for the Stone/Hemi conglomerate.  She alleged she had been wrongly removed as a director of Pacific Auto, asked to be reinstated and further asked for legal action to be taken in the company’s name against Mr Hemi.  She assured the court she was acting on her own initiative.  Justice van Bohemen said her legal claim was being pursued for collateral reasons; advancing Mr Stone’s personal dispute against Mr Hemi.  It is highly unlikely that Ms Latumbo would have brought these proceedings without Mr Stone’s active support and encouragement, he said.

Ms Latumbo’s claim was dismissed.  The evidence indicated Ms Latumbo had resigned as director of Pacific Auto by October 2014, though no formal letter of resignation was sent in.  Since Ms Latumbo had not proved she was still a director, she could not ask the court to take action in the company’s name against Mr Hemi.

Latumbo v. Pacific Auto Carrier (NZ) Ltd – High Court (25.10.18)

18.209

Insurance: Settlers Crescent Partnership v. IAG

A speculative insurance claim by litigation funder Risk Worldwide New Zealand that commercial buildings in Christchurch could be destroyed twice over in successive earthquakes was dismissed by the High Court.

IAG Insurance was left defending its pragmatic 2011 decision settling claims for damage to two buildings, part of four adjoining buildings in Ferrymead owned by Settlers Crescent Partnership.  All were damaged to varying degrees during the initial sequence of Christchurch earthquakes in 2010/2011.  In what was a pragmatic commercial decision, IAG agreed to pay $10.2 million as if the buildings were destroyed leaving Settlers Crescent to decide whether they might be repaired or replaced.

Some three years later, Risk Worldwide sued in the name of Settlers Crescent arguing IAG assumed further risk when Settlers renewed its insurance policy and this risk eventuated when the June 2011 earthquake in fact destroyed unrepaired buildings on site.  Settlers claimed $1.12 million for further damage.  IAG described this claim as opportunistic; money claimed for a loss which had already been paid.  Settlers said the earlier deal was for anticipated repair costs only.

Justice Gendall ruled the earlier $10.2 million payout was agreed to be in full settlement of Settlers Crescents’ claim as if the buildings were a total loss and would be replaced.  This figure was calculated on an assumed rebuild cost though both parties knew some repair might be possible.  A further payment would amount to double recovery, he said. The buildings could not be treated as destroyed twice over.  It made no difference damage from the June 2011 earthquake occurred under a new policy, Justice Gendall said.

The site is currently vacant.  The buildings in dispute, a large warehouse and a Les Mills gym, were demolished in 2013.

Settlers Crescent Partnership v. IAG New Zealand – High Court (25.10.18)

18.208

Excise Duty: Parkes v. R.

Vintners Stephen and Wendy Parkes were convicted of selling product in breach of the Customs and Excise Act after their Sentry Hill winery in Taranaki was wound up insolvent.  They had no valid grounds to assume any legal right to sell, the High Court ruled.   

Lepperton winery Sentry Hill (2006) Ltd was put into liquidation by Customs in 2016 for unpaid excise duty totalling $281,800.  Mr Parkes agreed to help the liquidator continue operations.  Selling Sentry Hill as a going concern would get a better price.  Mr Parkes later took issue with the liquidator’s refusal to pay him for his time or to pay rent to a family trust owning the site.  He took legal advice and was told he could seize product and hold it as a lien against payment.  Mr Parkes told the liquidator of plans to do so and to sell the product to recover money he claimed was owed. The liquidator responded: no lien could be claimed and Sentry Hill owned the excise licence; only the company could sell. Mrs Parkes applied for an excise licence.  Her application was refused; Sentry Hill held a licence for the site.

Mr and Mrs Parkes were prosecuted after a customs official saw Sentry Hill product for sale at liquor outlets in Waitara and Bell Block.  They admitted selling Sentry Hill wine, claiming legal justification for the sales.

Convicted of defrauding the revenue and each fined $1000, they could not rely on their legal advice as grounds to avoid conviction, the High Court ruled.  Taxpayers are presumed to know the law.  The Parkes’ legal advice related only to the alleged possibilities of claiming a lien. It did not canvas the legalities of any sales.  They knew an excise licence was needed, given their involvement in the industry.  The liquidator had specifically reminded them Sentry Hill held the licence.  The Parkes were also ordered to pay personally $13,670 excise duty evaded with their unauthorised sales.

The High Court dismissed their appeal that conviction was disproportionate.  They said a conviction would prejudice their current jobs.  Mr Parkes now works as a process manager for Fonterra; a job involving overseas travel, he says.  Mrs Parkes is employed in a pharmacy.

Parkes v. R – High Court (24.10.18)

18.207

Asset Forfeiture: Commissioner of Police v. Cho

'Proceeds of crime’ confiscations extend to assets held overseas.  Convicted for possession and sale of class C drugs, Allen Bryan Cho surrendered assets valued at $1.13 million including his interest in US real estate.

Cho was sentenced to ten months home detention in March 2018, having been snared in Operation Ark a police drug surveillance commenced back in 2010.  Police seized cash and motor vehicles in Cho’s possession and had a restraining order placed over a New Jersey property registered in the name of his parents.

In a negotiated settlement under the Criminal Proceeds (Recovery) Act, Cho surrendered cash seized and the cash value of money he put into the New Jersey property.  The US restraining order was lifted so his parents could mortgage the property, raising cash for Cho’s payment.  Police accepted part of the New Jersey purchase was funded legitimately by Cho’s parents.  A 2001 BMW was returned to Cho together with the cash value of his 1992 Nissan Skyline, sold by police after it was seized.

Commissioner of Police v. Cho – High Court (24.10.18)

18.206

Maori: Rewiti v. Maori Women's Welfare League

Legal challenges to Prudence Kapua’s re-election as Maori Women’s Welfare League president failed.  A disaffected minority allege she manipulated constitutional changes to allow her re-election.

Auckland voluntary social worker, Pauline Rewiti led the charge seeking judicial review of changes made to the League’s constitution in 2013.  Justice Ellis was moved to say this challenge was personal.  Ms Rewiti is allied with Ripeka Evans and Materoa Dodd who stood against Ms Kapua in the 2017 League elections.  Another ally is Sharon Reynolds, former general manager of the League. She resigned during Ms Kapua’s first term as president.  Ms Rewiti has been a League member since 2013.

The League currently has about 3000 members.  Founded over 65 years ago under the auspices of Maori Affairs, it was intended to help with social issues arising from the mass movement of Maori from rural areas into cities after the Second World War.  The original constitution was based loosely on that used for the Returned Services Association.

The High Court was told this constitution was amended in 1957, prohibiting the president from serving more than one term.  Some witnesses claimed this was to prevent founding president Dame Whina Cooper continuing in office for life.  A 1978 amendment allowed presidents to run for office again, but not for consecutive terms.  Then in 2002, another amendment saw presidents again limited to only one three year term.  Ms Rewiti claimed a subsequent 2017 amendment allowing multiple terms was invalid.  She alleges it was sneaked through without proper notice and that Ms Kapua’s subsequent re-election is unlawful.

Justice Ellis said ‘due notice’ of constitutional changes means ‘adequate notice’ and adequate notice was given.  The 2017 amendments involved some 180 changes to the League’s constitution.  Drafting was a collaborative process with a committee working through the existing constitution clause by clause.  Draft changes were sent out to regions for consultation.  “Due notice’ does not mean each and every one of the 3000 members need to be aware of and understand every proposed change, Justice Ellis said.  It is sufficient they are aware of what is proposed and can engage if they wish.  To suggest Ms Kapua manipulated the process and secretly made the term limit change for her own future benefit is simply not plausible, Her Honour said.

This is not the first time League presidential elections have wound up in court.  In 2011, Destiny Church co-founder Hannah Tamaki successfully challenged attempts to remove her name from the ballot.  

Rewiti v. Maori Women’s Welfare League Inc – High Court (19.10.18)

18.205

Confidential Information: Donovan Group v. Reid

Whangarei steel fabricators Donovan Group descended on a new start-up established by former general manager Haemish Reid armed with a High Court order to seize all evidence of confidential information and customer data allegedly taken by Mr Reid when he left Donovan Group four months previously.

The High Court was told Mr Reid left Donovan Group in May 2018.  He had been employed for over six years.  Donovan designs, manufactures and constructs steel-framed buildings under its Coresteel brand.  When giving notice, Mr Reid said he wanted to ‘take a new direction and face new challenges’. Donovan Group alleges this new direction involves setting up in direct competition using confidential information taken from the company.  The High Court was told Mr Reid set up Smartsteel Buildings Ltd in conjunction with former Donovan roofing sub-contractor, Brett Waldron.  Smartsteel was established at the time Mr Reid was giving notice.  Donovan Group alleges Mr Reid and Smartsteel are using confidential information about its client database, suppliers, pricing and construction methods all in direct breach of a confidentiality clause in Mr Reid’s employment contract. Evidence was given of client information on Mr Reid’s company smartphone being manipulated before the phone was surrendered when he left.  There was also evidence of critical information on the company’s database being deleted.

Justice Toogood ruled Donovan Group had a strongly arguable case that Mr Reid, Mr Waldron and their companies were making use of confidential information.  Donovan Group claims the actions of Mr Reid and Mr Waldron amount to conversion of confidential information and conspiracy by unlawful means to damage its business. Justice Toogood authorised Donovan Group to seize without notice any equipment and electronic records they held containing confidential information.  Ongoing use of this information was prohibited.

In the last twelve months, Donovan Group appointed to its board directors resident in Australia and Hong Kong.

Donovan Group NZ Ltd v. Reid and others – High Court (19.10.18)

18.204

Relationship Property: Mortyne & Ruke v. Moana Supertee

With the benefit of hindsight it was not a good idea using their Australian company to buy a New Zealand property.  After splitting up, Warwick Mortyne and Tracey Ruke are having trouble selling their Ahipara home as part of a relationship property settlement because it is owned by an Australian company that no longer exists.  Moana Supertee Pty Ltd has been struck off the Australian register   

The High Court was told the couple set up Moana Supertee while living in Queensland, to hold property investments.  They were joint directors and joint shareholders. In 2011, they purchased a site on Poseidon Way in Ahipara, Northland, later moving a relocatable house onto the site and shifting from Australia to live there.  Title to the section was put in the name of Moana Supertee.  They put their own money into moving a house on to the property and lived on site rent free, but paid all outgoings.  The fact the company owning the site was at law a separate legal person from themselves only became clear when their marriage came to an end in 2013.  Intentions to sell Poseidon Way and divide the proceeds foundered when it was realised Moana Supertee could not sign any legal documents; it no longer existed having been struck off the Australian companies register as an inactive company.

Under New Zealand law, the High Court has power to reinstate struck-off companies.  But these rules do not apply to foreign companies like Moana Supertee owning property in New Zealand.  If a New Zealand registered struck-off company owns land, this land reverts to the Crown under the old feudal concept of escheat.  Again, this does not apply to foreign companies owning land in New Zealand.  Government lawyers in Wellington said: nothing to do with us, contact Australia.

The High Court at Whangarei was told similar escheat rules apply in Australia for land held by struck-off companies.  The ownerless land vests in either the Australian Securities Investment Commission (ASIC) or the Australian federal government. Lawyers for Mr Mortyne and Ms Ruke had written to ASIC who replied reinstatement required the former directors to be living in Australia.  But the New Zealand courts could transfer the land to Moana Supertee’s former director/shareholders if it wanted, ASIC said.  Faced with ASIC’s response, Justice van Bohemen in the New Zealand High Court said he had no power to do so.  New Zealand company law does not allow such a transfer in respect of foreign-registered companies.  Neither does trust law; Moana Supertee as the supposed trustee no longer exists.  Mr Mortyne and Ms Ruke have to work through the Australian legal system and its Corporations Act to unravel their problem.

Mortyne & Ruke v. Moana Supertee Pty Ltd – High Court (16.10.18)

18.202

Lease: Precinct Properties v. OMV

OMV’s disputed cancellation of its Deloitte House lease in Wellington after the 2016 Kaikoura earthquake saw the High Court accept that misrepresentations over building earthquake ratings could justify cancellation.

Precinct Properties is claiming unpaid rent in excess of one million dollars from oil and gas conglomerate OMV New Zealand Ltd. OMV was signed up as tenant on a lease running to November 2020.  Tenants were locked out of Deloitte House for four months after the Kaikoura earthquake to enable damage assessment.  OMV refused to return having taken alternative commercial space in central Wellington.  OMV cancelled its Deloitte House lease, saying the building was ‘untenantable’.  Precinct says the OMV lease contains a ‘pay now argue later’ clause.  It sued for summary judgment, saying there was no dispute that ongoing rent is still payable. OMV says the lease no longer exists; there were valid grounds for cancellation.

Associate judge Johnston ruled OMV has an arguable defence that should go to a full trial.  When OMV signed up for its lease extension to 2020 it was told Deloitte House had a 100 per cent New Building Standard (NBS) rating; low risk for earthquake damage.  Engineering surveys undertaken for Precinct Properties after the Kaikoura earthquake identified Deloitte’s NBS rating was most likely in the range 36-60 per cent. This rating classifies Deloitte House as an earthquake-risk building.  OMV could not undertake its own survey.  Precinct did not allow OMV’s engineers beyond those parts of Deloitte House open to public access.  Deloitte House may be structurally sound, Judge Johnston said, but a full trial with detailed engineering reports is required.  Misrepresentations over earthquake ratings can justify lease cancellations.  

The High Court was told Precinct Properties wrote down the value of Deloitte House from $46.3 million to $20.2 million following the earthquake.  It subsequently sold Deloitte House to Prime Properties Ltd for $10.2 million.

Precinct Properties Holdings Ltd v. OMV New Zealand Ltd – High Court (15.10.18)

18.203

Tax: Inland Revenue v. Yorke

Michael Yorke’s attempts to claim tax debts were not his but those of a relative with the same name failed when he was bankrupted by Inland Revenue.

Michael Philip Graeme Yorke (born in 1958) shares the same name as his son (born in 1980).  Mr Yorke senior previously lived at Haruru in Northland.  When sued by Inland Revenue for unpaid income tax and arrears in student loan repayments Mr Yorke senior did nothing.  Armed with a default judgment for $46,400, Inland Revenue took steps to bankrupt him.  Mr Yorke then turned up in court, claiming the debt was not his.  The court file named him as operating an internet website service when he had never run any such business; he had been a truck driver and was now on ACC.  He alleged the debt was owed by ‘his nephew’ having the same name and who now lived in Australia.  Further evidence at a later court hearing identified that the ‘other’ Mr Yorke with the same name was in fact his son and that the claimed tax debt was owed by Mr Yorke senior.  Mr Yorke senior’s signature on court documents matched the signature on a student loan application he alleged belonged to ‘his nephew’.  He was bankrupted on both the unpaid student loan and the income tax arrears.

Associate judge Bell explained to Mr Yorke the effect of his bankruptcy is to wipe his tax debts.  As an ACC beneficiary, he did not have sufficient income to avoid bankruptcy through instalment payments with a summary instalment order.

Inland Revenue v. Yorke – High Court (15.10.18)

18.201

Family Trusts: MJ Romanes Trust v. JC Romanes Trust

The High Court refused to liquidate a partnership of mirror family trusts controlled separately by estranged husband and wife.  Better they come to some agreement, or failing that have the Family Court unravel their business affairs as part of a relationship property dispute, Associate judge Bell ruled.

Jo and Mike Romanes separated after thirty years marriage.  Two years on, settlement of relationship property issues has become acrimonious. Major assets include a Rotorua ‘hobby farm’ called Big Hill Farm having an estimated value of some four million dollars and properties on Kawau Island and at Lawrence in Otago.  Big Hill is owned by a partnership of two family trusts: the MJ Romanes Trust and the JC Romanes Trust.  Big Hill was used as the family home.  The Romanes personally did not have any rights of ownership.  A Family Court ruling held they had rights to occupy Big Hill as tenants.  It granted a tenancy order allowing Jo to live on the property until relationship property rights were resolved.  She has to meet occupation outgoings.  Mike’s family trust is appealing the tenancy order.

Mike, through the MJ Romanes Family Trust, took steps to wind up their family trusts partnership.  Jo alleges this was done out of spite, to defeat her court-imposed tenancy order.  Unusually, Mike asked their partnership be liquidated using the Companies Act.  This asks the court for appointment of an outsider to take control of partnership assets, sell up and divide the proceeds. Each of the family trusts has a half share in surplus partnership assets.  Neither Jo nor Mike are beneficiaries of their own family trusts.  As is common with mirror family trusts, each is a discretionary beneficiary of their spouse’s family trust.

Judge Bell put any Companies Act liquidation order on hold.  The warring spouses must first consider other options, he said.  One option is a Partnership Act dissolution.  Any one partner can give notice under the Partnership Act dissolving their partnership.  The partners themselves then arrange for assets to be sold, to outsiders or to themselves, without the cost of a court-appointed official overseeing a sale.  Jo alleges Mike wants a Companies Act liquidator doing the job so her estranged husband can buy up partnership assets without her having a say and then forcing her out of Big Hill.  An alternative option, Judge Bell said, is to have their business partnership unwound as part of the relationship property dispute currently filed in the Family Court.

MJ Romanes Trust v. JC Romanes Trust – High Court (12.10.18)

18.198

Refinancing: Wallace Homes v. Pearlfisher Trustee

Auckland property developer Wallace Homes has to pay lender Pearlfisher Trustees fees totalling $345,000 on a refinancing deal Wallace claimed it never committed to.  Preliminary paper work signed by Wallace Homes was at law a contract committing Wallace to payment of loan establishment fees, even when it did not take up the loan.

Wallace Homes Ltd is currently undertaking an 18-property residential development at Mangere Bridge.  A $9.5 million credit line was sourced from Spinnaker Securities Ltd. Wallace directors were looking to refinance the Spinnaker debt.  Using broker Rachel Wang, Wallace opened discussions with second-tier lender: Pearlfisher Trustee Ltd.  As is common commercial practice, Pearlfisher sent an ‘indicative offer’ to Wallace. This enables borrower and lender to iron out commercially acceptable terms before time and money is spent working up a formal agreement.

The High Court was told this first indicative offer was not accepted.  Wallace negotiated down fees to be charged by Pearlfisher and in turn was willing to accept a higher interest rate.  A second ‘indicative offer’ was made.  It prescribed a $10,000 work fee payable ‘on acceptance of the indicative offer’, an arrangement fee of $100,000 payable ‘upon issue of a formal letter of offer’, and an establishment fee of $245,000 payable ‘upon acceptance of a formal letter of offer’.  Wallace signed this $9.85 million ‘indicative offer’.  A formal offer followed.  Wallace directors signed.  Two days later lawyers for Pearlfisher sent Wallace Homes a comprehensive Finance Facility Agreement for signature.  Wallace refused to sign, pulling out of the deal.  Spinnaker’s intention to charge a break fee for early repayment of its loan caused Wallace to reconsider its refinancing plans.  Wallace paid Pearlfisher’s $10,000 work fee, but refused to pay any more. Final contract terms were never agreed, Wallace said.  At best, there was only an agreement to agree.     

Associate judge Andrew ruled Wallace Homes was liable to pay Pearlfisher’s claimed further fees of $345,000.  Fee levels had been hammered out before the second ‘indicative offer’ was sent.  The second ‘indicative offer’ together with the signed offer set out the essential terms agreed.  Once signed by Wallace, Pearlfisher was committed to what was a conditional agreement to provide finance.  Wallace was committed to paying the agreed fees regardless of whether any loan was drawn down.  Pearlfisher’s later Facility Agreement, rejected unsigned, only fleshed out the essential terms agreed earlier.

Wallace Homes Ltd v. Pearlfisher Trustee Ltd – High Court (12.10.18)

18.197

Relationship Property: re Estate Rogers

John Rogers was ordered to pay $228,500 to his late wife’s estate after the High Court found he tried to defeat estate claims made by her children from an earlier relationship when he gave away proceeds from selling the Te Kauwhata family home: $100,000 given to a Michelle Ryder and the rest to his business, Portage Plumbing Ltd.

Shirley Anne Rogers died in 2013.  She had been married to John for a decade.  He was named as executor of her will and sole beneficiary.  The High Court was told John took no steps to get probate.  He just dealt informally with all her assets.  Three of Mrs Rogers children from an earlier relationship signalled they would be making a Family Protection Act claim against her estate. Getting no useful information from their stepfather, they had the Public Trust appointed to take control.  The High Court was told attempts by lawyers acting for Mrs Rogers’ three children were actively obstructed by Michelle Ryder when trying to get information about the Kopuku Road sale.  Lawyers later identified the proceeds had gone to Ms Ryder personally and to Mr Roger’s business.  Justice Powell ruled these payments were made for the purpose of defeating the stepchildren’s Family Protection claim.

To recover funds, the Public Trust made a Property Relationship Act claim on behalf of the estate.  Mr Rogers did not appear in court to defend this claim.  Justice Powell ruled the total value of the Rogers’ relationship property at the time of Mrs Roger’s death in 2013 was $457,069: being the equity in their Kopuku Road home and the value of his company, Portage Plumbing Ltd.  Mrs Rogers estate was entitled to half: $228,500.  Ms Ryder and Portage Plumbing were ordered to repay the money wrongfully received.  Mr Rogers is personally liable to make up the balance to ensure his late wife’s estate receives the full $228,500.

Companies Office records show Mr Rogers now lives in Taupo.

re Estate Shirley Anne Rogers – High Court (12.10.18)

18.199

Tax: Shortt v. Inland Revenue

Conviction and sentence of ten months home detention and 200 hours community service for tax fraud by Phillip Robert Shortt was confirmed on appeal with Justice Brewer saying this sentence was on the lenient side.

Shortt argued the trial judge was biased against him because he offered no evidence in defence.  A negative inference was wrongly drawn, Shortt said.  On appeal, Justice Brewer said Inland Revenue’s evidence was overwhelming and Shortt’s lawyer was invited by the trial judge to make submissions before sentence was passed about his client’s failure to give evidence.

Shortt, described as being very knowledgeable about tax affairs, was convicted on charges of GST and PAYE fraud.  He set up shell companies which were then billed exorbitant amounts for work which Justice Brewer described as not amounting to anything.  Some $46,400 was claimed in GST refunds.  Inland Revenue paid out $18,800 before becoming suspicious.  The PAYE fraud involved failure to account for $11,800.

Shortt v. Inland Revenue – High Court (12.10.18)

18.200

Leaky Home: Grant v. Ridgway Empire Ltd

Compensation totalling $474,100 was ordered for saying an Auckland home did not leak, when it did.  Damages are awarded for innocent misrepresentations inducing purchasers to buy.

Aaron Ridgway denied liability for comments made prior to his company selling in 2009 a three-level Clifton Road townhouse overlooking Takapuna beach to Jill Grant for $1.46 million.  Before signing up she asked him directly whether the building leaked. He said it didn’t.  He did not qualify his answer.  There had been repairs to the building in the past after water ingress was discovered, but Mr Ridgeway said he was unaware of any further leaks at the time he made the statement.

Ms Grant purchased one of five connected townhouses. Entities associated with Mr Ridgeway have owned four of the townhouses at various times.  The High Court was told water leaks from a third floor deck on the townhouse purchased by Ms Grant were discovered by Mr Ridgeway in 2004 when he carried out kitchen alterations.  The deck surface was replaced.  After her purchase, Ms Grant discovered leaks in the ceiling below the repaired third floor deck.  Flashings had deteriorated.  Replacement of the entire deck and adjoining walls was needed.  When repairs got underway, it was discovered water damage had spread further than earlier thought.  After protective shrink wrap on the building was removed at the conclusion of Ms Grant’s repair, Mr Ridgeway complained water was leaking into his adjoining unit.  Further investigation identified long-term water damage to Mr Ridgeway’s unit, damage which pre-dated Ms Grants purchase.

Justice Palmer ruled Mr Ridgeway’s negative response to the question of whether the building leaked was an unqualified representation of a material fact that induced Ms Grant to purchase.  He was liable for the consequences.  He did not qualify his answer with an honest explanation of his experience with the property.  Damages were awarded against Mr Ridgway’s company, Ridgway Empire Ltd, under the Contract and Commercial Law Act.  Damages of $474,100 were calculated on $186,800 for remedial work done, $66,600 for professional fees and Council consents, $195,500 for further remedial work required and $25,000 damages for stress and anxiety.

The High Court was told there is an ongoing dispute between Ms Grant and Mr Ridgway over damage arising from her earlier repair and the adequacy of proposed further repairs.  Shrink-wrap remains over her townhouse, obscuring all sea views. 

Grant v. Ridgway Empire Ltd – High Court (11.10.18)

18.196

Insolvency: re Kiwi Deposit Building Society

Set up by Lachlan Williams and Scott Macaw and used by off-shore investors to park European property holdings, Kiwi Deposit Building Society is insolvent with Society banking customers getting back less than sixty cents in the dollar on their $26 million deposited. Off-shore investors complain their property investments have been snatched off them.

Taking advantage of wider latitudes now allowed under the Building Societies Act, Kiwi Deposit was set up in 2009.  In what was a bespoke operation, Williams and Macaw were the driving force behind 19 of the 20 corporates signing up as founding Society members.  The twentieth was Aequus Trust Pte Ltd, based in Singapore.  Kiwi Deposit’s auditor was signalling potential cashflow difficulties as early as the Society’s 2010 annual report.

Society membership was sold to off-shore investors on the basis that they could hold ‘tracking shares’ which linked returns to specific assets.  Danish interests took up tracking shares tied to property interests they owned variously in Sweden and England.  A Swiss asset management company fronted for the true owners.  The ultimate beneficial owners have not been disclosed.

The High Court was told Kiwi Deposit management decided to dissolve the Society in 2013.  The dissolution resolution stated that Kiwi Deposit was solvent.  It appointed Paul Sargison and Simon Dalton as trustees to wind down the business.  They found much of the Society’s assets were tied up in unsecured loans and shareholdings in unprofitable overseas businesses.  Offshore property holdings tied to Danish tracking shares were sold off. The Society proved to be insolvent with insufficient funds to repay in full Society creditors, including its depositors, with no return for Society members which includes those holding tracking shares.

The Danish interests sued, alleging they had first claim on sale proceeds from ‘their’ property holdings.  Associate judge Bell ruled Society creditors had priority.  Off-shore property assets were owned by the Society. Danish investors’ rights were as members of the Society through their holdings of tracking shares.  As shareholders, the Danish interests ranked behind Society creditors.  It made no difference that Kiwi Deposit is being dissolved, rather than liquidated. Attempts to liquidate the Society have proved fruitless; a member resolution is not possible because a majority of corporate members have been struck off and no longer exist, and no creditor has taken steps to force liquidation.

Danish investors can proceed with their claim alleging trustees sold property assets at an undervalue, Judge Bell ruled.  But any proved shortfall recovered will go first to Kiwi Deposit creditors still unpaid, not the Danish investors, he pointed out.

re Kiwi Deposit Building Society – High Court (5.10.18)

18.195

CBL: re CBL Insurance Ltd

Interim liquidators of CBL Insurance did not have the power to cut a deal with Gibraltar-based Elite Insurance Ltd which would have seen some 85 per cent of CBL’s cash sent offshore to wind back CBL’s reinsurance obligations.  Better that all CBL creditors get a say, Justice Courtney ruled.

CBL has been in limbo for most of the year after interim liquidators were appointed at the request of insurance regulator, the Reserve Bank.  There has been feverish behind-the scenes activity with attempts to restructure CBL without it formally going into liquidation.  Not all creditors have agreed with proposals put forward.

Interim liquidators Andrew Grenfell and Kare Johnstone from McGrathNicol asked the High Court whether they had power to approve a deal with Elite Insurance on behalf of CBL, without other creditors having to approve.  Evidence was given that Elite is CBL’s biggest creditor.  CBL is registered in New Zealand but its greatest exposure is as reinsurer of risks written in overseas jurisdictions.  Much of that business is reinsurance of French construction industry risks underwritten by Elite.  It was intervention by the Gibralar regulator in 2017, requiring Elite to wind down its business, that led to concerns in New Zealand about CBL’s financial stability.  The court was told CBL’s ‘tail’ of reinsurance liabilities could run on for at least ten years.  The interim liquidators proposed crystallising CBL’s potential liability to Elite by commuting the reinsurance contract; cash and other assets would be transferred to Elite and in return Elite would have no further claims against CBL. Details of the proposed commutation agreement were suppressed.  Justice Courtney disclosed Elite is CBL’s largest creditor, accounting for about 68 per cent of its liabilities.  The intended deal would see 85 per cent of CBL’s cash heading offshore, together with release of collateral held with US insurers and the National Bank of Samoa. Doubts were expressed about the possibility of getting any of this back if the commutation agreement were successfully challenged on CBL’s liquidation, given that Elite itself is in financial difficulty.

The normal role of interim liquidators is to preserve the status quo. The proposed commutation agreement sees some 85 per cent of CBL’s cash paid to the company’s largest creditor at a time when the impact on other creditors is unknown or, at least, disputed, Justice Courtney said.  Creditors dispute the amount claimed by Elite and the value of assets intended to be transferred.  The proposed commutation agreement went beyond what the Companies Act permitted interim liquidators to do, Justice Courtney ruled.  Any deal should either be voted on by all creditors as part of a scheme of arrangement or be left to a liquidator should the company go into liquidation, she decided.  Liquidators are required to act in the interest of all creditors.

Post judgment note: CBL Insurance was placed into liquidation in November 2018.  Andrew Grenfell and Kare Johnstone from McGrathNicol were appointed liquidators.

re CBL Insurance Ltd – High Court (1.10.18)

18.194