De facto director: re Delta Shared Services Ltd

Struck-off Cambridge lawyer Murray Osmond claimed to act as consultant only to Delta Shared Services Ltd, now in liquidation insolvent.  Ruled to be a ‘de facto’ director, he was ordered to front up in court explaining what had happened to business assets.

Part of a network of over twenty companies with Osmond in control at the apex, Delta Shared Services owes unsecured creditors some $252,000 according to the liquidators’ most recent report.  Sale of those company assets liquidators managed to track down left a small surplus of only $114 after costs.  With Mr Osmond refusing to assist liquidators in their search for further assets, the High Court ruled he had acted as a ‘de facto’ director and under Companies Act rules was required to front up.

Grahame Graig is named as sole director of Delta Shared.  Mr Osmond said he was not a Delta director, his role was solely to give advice to the company and to carry out some administrative tasks while Mr Craig was ill.   

Associate judge Taylor ruled Mr Osmond was acting as a director.  This followed evidence that Mr Osmond’s home address in Cambridge was also the company’s registered address and that he consistently acted on behalf of the company in negotiations with its landlord and in legal issues which followed. Keeping Delta Shared’s Companies Office file up to date while describing himself as being an ‘authorised person’ indicated he held relevant information about the company, Judge Taylor said. 

Mr Osmond was ordered to hand over to the liquidators all company records he held, to list all documents he is aware of held in other locations and to appear in court for examination on oath about his knowledge of company affairs.

re Delta Shared Services Ltd – High Court (24.02.23)

23.026

Bankruptcy: Bamber v. Official Assignee

Appeals to tikanga Maori did not override bankruptcy legislation allowing Insolvency Service to seize a Rotorua home, evicting Kathleen and Bruce Bamber following their bankruptcy on debts totalling $332,750.

The Bambers claimed it was contrary to Maori custom for them to be removed from their family home.  The two were bankrupted in 2019 on an unpaid debt of about $175,850 owed to the Tahorakuri Trust following their lease of land at Reporoa, near Taupo.

The High Court was told Tahorakuri had taken action to recover monies the Bambers received after subletting Reporoa.

The Bambers lived at Reporoa for a time, later shifting to Wingrove Road, in the Rotorua suburb Owhata.

Justice Harvey said Maori custom can form part of New Zealand common law, but does not override legislation.  The Insolvency Act is clear; bankrupts can be required to surrender any property they own to Insolvency Service for sale to pay creditors.

The Bambers claim to retain possession of their Wingrove Road home on grounds of tikanga Maori was misguided, Justice Harvey ruled.  Within Maoridom; your home or turangawaewae is your ancestral home, your house or whare is where you currently live.  Wingrove Road was where the Bambers currently lived, it was not situated on their ancestral tribal land.  And even if it were, the house could still be seized on bankruptcy by Insolvency Service, he said.

Bamber v. Official Assignee – High Court (23.02.23)

23.025

Real Estate Agent: Marsh v. Goldline Properties

Rules restricting real estate agents from benefitting in a property sale beyond their commission do not apply to subsequent deals done after a sale contract is signed, the High Court ruled in a dispute involving south Auckland property developer Glen William Cooper.

Mr Cooper seeks to cancel sale of four properties by his company Goldline Properties Ltd alleging Counties Realty agent Ian Croft did not disclose he was in league with the buyer, in breach of rules in the Real Estate Agents Act.

The High Court was told Maree Dawn Marsh signed up in mid-2020 to buy four vacant lots from Goldline Properties.  She intended to buy relocatable houses, selling after shifting them on site.  Ian Croft acted for Goldline, selling the vacant lots.  Some weeks later, Ms Marsh turned to Mr Croft for advice and assistance after realising she would not be able to get finance for the project.  She had previous dealings with Mr Croft who had acted as vendor agent when she bought other real estate.  A joint venture agreement designed to advance her new project was signed in July 2020 by Ms Marsh, first with Mr Croft personally and later with his company One Property & Co Ltd.  Goldline Properties gave notice cancelling sale of the four lots to Ms Marsh, stating Mr Croft’s failure to disclose his interest as purchaser as required by the Real Estate Agents Act gave it an automatic right of cancellation.

Ms Marsh registered caveats over the land to protect her rights as intending buyer.  Associate judge Lester ruled the caveats remain.  The conflicts of interest existing when a real estate agent purchases from a vendor client do not arise if the agent gains an interest in the property after the sale, Judge Lester said. 

After the four lots were sold in mid-2020, Mr Croft’s role as agent for the sale was at an end.  Ms Marsh said there was no intention when she purcashed that Mr Croft would be involved in the project.  He became involved as a joint venture participant only at a later date, she said.

Marsh v. Goldline Properties Ltd – High Court (23.02.23)

23.024

Island Grace: Island Grace (Fiji) v. Satori Holdings

Promoted during 2015 in a blaze of publicity, construction of Island Grace resort on Fiji’s Malolo Island now sees the original investors daggers drawn in both the New Zealand and Fiji courts fighting over liability for unpaid development costs with the resort now sold on and trading as Six Senses Fiji. 

Guests at Six Senses are offered luxury accommodation with a nod towards environmental issues, de rigueur for those seeking to justify their conspicuous consumption. No such candy coating for original investors in the Island Grace joint venture.  Secured creditor Sequitur Hotels Pty Ltd has recovered 46 cents in the dollar to date, according to the receivers’ most recent report.  Nothing on the horizon for unsecured creditors.  Further recoveries depend in part on recovery of disputed unpaid calls on capital contributions allegedly due from the resort’s original joint venture investors.  In the mix is New Zealand company Satori Holdings Ltd, corporate trustee of Andrew Griffiths’ family trust holding a 24 per cent stake in the Island Grace project.

The High Court was told their original joint venture was wound down in 2021 on evidence that the project was insolvent. The resort itself was on-sold to interests associated with Sequitur Hotels for FJD 24 million.  Sale at this price left a shortfall to joint venture creditors of FJD 29.7 million.  Satori Holdings share of this shortfall as joint venture participant came to at least FJD 6.1 million, Island Grace claims. 

Mr Griffith claims the 2021 resort sale was at a ‘gross undervalue’ and further claims any dispute about what Satori owes should be heard in Fiji courts.  In New Zealand, Associate judge Andrew put Satori Holdings into liquidation at Island Grace’s request.  Satori was deeply insolvent, he said.  It is a New Zealand registered company and the Island Grace joint venture agreement is governed by New Zealand law.  Courts in New Zealand have jurisdiction, he ruled.

Island Grace alleges Mr Griffith has been running down Satori’s assets in the face of its likely liquidation.  Island Grace raised concerns about Mr Griffith’s moves in Fiji to transfer Satori assets to a Delaware US-based company associated with his wife.

Island Grace is suing in Fiji both Satori and Mr Griffith alleging misrepresentation, misleading conduct and breach of contractual warranties in respect of their joint venture formation.

Island Grace (Fiji) Ltd v. Satori Holdings Ltd – High Court (17.02.23)

23.023

Defamation: Young v. Ross

Twenty years after agreeing to settle out of court a defamation claim alleging he was a credit risk, Hamilton accountant Philip Young filed further legal claims alleging Napier lawyer Philip Ross was in contempt of court and had breached their earlier agreement. Young’s new claims were struck out.

The High Court was told Mr Young sued in 1997, alleging he had been defamed by comments that he was a credit risk; comments made by Mr Ross both on the internet and directly to clients.  This claim was subsequently abandoned with an agreement filed in court in 2000.  Mr Ross agreed to take down the internet comments and both sides agreed to no further publicity.

Two decades later, Mr Young again sued, alleging Mr Ross authored a September 2018 internet blog post publicising events in Mr Young’s life subsequent to his earlier defamation claim.  This included: reference to Mr Young being struck off the register of chartered accountants in 2003 for misconduct, for conduct unbecoming an accountant and for professional negligence or incompetence following investigations into his involvement with a number of finance companies; reference to his bankruptcy in 2003; and reference to his 2006 conviction for assaulting a Hamilton court security guard while resisting being taken into custody after shouting down a community magistrate during a court hearing.  The High Court was told this 2018 blog post was taken down following Mr Young’s complaints, but then later re-posted by a third party.

The High Court ruled Mr Young was unable to enforce the 2000 defamation settlement agreement, even if it had been breached. Mr Young’s subsequent bankruptcy resulted in Insolvency Service taking over all legal rights he then held.  That included all rights contained in the settlement agreement.  It was for Insolvency Service, not Mr Young, to decide whether legal action be taken.

Separately, Mr Young’s Hamilton accounting practice Progressive Accountants Ltd sued claiming it had rights to enforce the 2000 defamation settlement agreement.  Progressive was not party to this agreement.  To sue as a non-party, the Contract and Commercial Law Act required Progressive to prove it was identified in the 2000 agreement by name or description as someone intended to benefit.  Progressive’s claim was struck out.  In what was a short four paragraph agreement between the two protagonists, Progressive was not specified as having any rights.

Young v. Ross – High Court (17.02.23)

23.022

Maori Land: Nicholas v. Ta Whaiti-A-Toi Trust

Described variously as a shack, a shed and a house, the dwelling on Maori freehold land in the North Island West Urewera mountains became the central focus in a tug-of-war between members of the extended Martin whanau.  Phyllis Nicholas, who renovated and maintained the house, was entitled to rights of occupation extending out to 2066 over the claims of other Martin whanau, the Court of Appeal ruled.  

The property was carved out of about one hectare of forestry by Phyllis Nicholas and her husband, the court was told.  At that time, the land was leased to the then Ministry of Forests.  Ms Nicholas’ wider whanau (the Martin family) are beneficial owners of the land, held by trustees as Maori freehold land.

Evidence was given that after 2003 her brother Reo Martin and his immediate whanau progressively took up occupation of the property, eventually forcing out Ms Nicholas.  By 2019, Reo’s son Danny was in occupation.  He was removed by police after threatening a cousin who had begun building next door.  Phyllis moved back.  Escalating disputes over rights to occupy saw trustees ask for a court ruling.  They wanted the building removed.

In 1989, Mrs Nicholas and her husband were given informal consent by one of the trustees to move a shed on to the property.  The two subsequently upgraded the shed; concreting the dirt floor, adding a kitchen and bathroom, and installing new windows and doors.  They and their immediate family were regular visitors, spending time at the property.  Extended whanau also stayed for periods.  Phyllis paid for power and insurance.   

With agreement of the trustees back in 1990, Ministry of Forests as the then leaseholder had issued a licence to occupy recorded initially in the name of Phyllis’ brother Frank, later amended to be in the name of the Martin whanau with Frank specified as the ‘responsible caretaker.’ 

The Court of Appeal ruled Phyllis Nicholas’ personal right of occupation arose from terms of her original agreement with trustees when negotiating with Ministry of Forests.  There was no dispute that she had complied with all the trustees’ requirements, including compliance with Whakatane District building requirements.  Having incurred costs in renovating and maintaining the property she was entitled to enforce terms of the occupation licence, giving her rights of occupation through to 2066.

Nicholas v. Te Whaiti-Nui-A-Toi Trust – Court of Appeal (16.02.23)

23.021

Insolvency Proposal: re Ian George Fistonich

Saved from immediate bankruptcy, the High Court approved a part payment scheme put up by Accent on Construction’s Ian Fistonich offering creditors six cents in the dollar over five years and the chance to potentially benefit from a disputed claim against Premier Legal Finance Limited Partnership, an entity associated with Graeme Halse of Auckland law firm Foy & Halse.   

Mr Fistonich is insolvent, under threat of bankruptcy on personal guarantees given to creditors of Auckland-based Accent on Construction Ltd.  Accent was propelled into receivership in November 2018 by Premier Legal claiming some $2.1 million.

Bankruptcies can be avoided with a part payment scheme of arrangement provided they are approved in each case by a majority of creditors holding between them 75 per cent of claimed indebtedness and court approval is given.

The High Court was told of a fraught creditors meeting in June 2022 where Premier Legal’s vote against the proposed scheme was disallowed.   Premier Legal claims to be owed one million dollars by Mr Fistonich personally.  If allowed, this vote against would have scuppered the scheme resulting in Mr Fistonich’s likely bankruptcy.  The meeting chair said Premier Legal’s debt was disputed; Mr Fistonich has filed legal proceedings against Premier Legal alleging negligence and breach of contract.

Evidence was given this claim against Premier Legal relates to mortgages held over a property owned by Zlato Trust, a trust associated with Mr Fistonich.  Premier Legal said this claim is purely speculative, lacks merit and is without substance.  Mr Fistonich is simply trying to prevent loss of his family home, it says.

Associate judge Taylor put on hold the bankruptcy application against Mr Fistonich subject to the agreed part payment scheme being honoured and proceeds of any successful claim against Premier Legal also being paid across to his creditors.

re Ian George Fistonich – High Court (8.02.23)

23.020

Bankruptcy: re Rebecca Kennedy

Bankrupt with creditors owed nearly one million dollars and also charged with fraud offences totalling some $1.7 million dollars Rebecca Kennedy, also known as Sarena Walker, has been banned for life from managing any business.

With Kennedy’s 2015 bankruptcy due to be discharged automatically in 2018, Insolvency Service asked the High Court to restrict her future commercial activities.  She was a significant risk to the public, Insolvency Service said.  She had attempted to conceal bank accounts, trying to hide some $500,000, and was obstructive by changing her name and travelling outside New Zealand without Insolvency Service permission.

At Insolvency Service request, the High Court discharged Kennedy from her bankruptcy but imposed a lifetime ban from her directly or indirectly taking part in any business or from being employed by a relative.

In 2018, Kennedy was ordered to repay $653,000 stolen in a Wellington property swindle.  She had previously been convicted in Australia of fraud offences.

re Rebecca Kennedy – High Court (3.02.23)

23.019

Valuation: Reynolds v. Finnigan

 Receivers Peri Finnigan and Boris van Delden are potentially liable for damages in excess of $150,000 after Dayle Walker forced business colleague Joanne Young out of their Auckland early childhood business Learning Ladder in a March 2018 pre-packaged receivership.  

The High Court was told management differences between Walker and Young saw Dayle Walker use a secured loan over their Howick business assets to call in receivers who took control of the business.  One day later, receivers sold the childcare centre assets to a new company controlled by Dayle Walker, cutting out Joanne Young who alleged assets were sold on the cheap at her cost.

Nearly one week of conflicting valuation evidence in the High Court saw divergent views on Learning Ladder’s value.

Chartered accountant Eric Lucas took the orthodox view; current value is assessed by analysing historical financial data.  He valued Learning Ladder at between $450,000 and $500,000.  Receivers sold Learning Ladder assets to Ms Walker’s new company at $470,000.  Most of that money went to Ms Walker and her husband in repayment of their $430,000 on demand loan to Learning Ladder.

Michael Nimot valued Learning Ladder at $760,000. Operational efficiencies could improve business profitability, he said.  The possibility of future cost savings should be taken into account when assessing current value.

Justice Walker took future cost savings into account. Wage costs are the biggest single line item for early childhood centres.  The High Court was told staff costs at Learning Ladder were high by industry standards, even taking into account staffing levels required by childhood centre regulations.  Potential savings saw Learning Ladder have a market value of around $700,000 as at March 2018, she ruled.

Receivers are liable to pay compensation if they sell assets at an undervalue.

Rather than selling at $470,000, the best price receivers should have obtained was between $625,000 and $643,000 Justice Walker ruled.  For a trading business like a childcare centre there is no obligation to get full market price, she said.  There are too many uncertainties should receivers be left in control for an eleven to twelve week marketing programme; key staff may leave and customers take business elsewhere while receivership costs continue to rise.

Reynolds v. Finnigan – High Court (1.02.23)

23.017

Negligence: Buchanan v. Tasman District

Keith Marshall, former CEO of Nelson City Council, sued Tasman District recovering some $270,000 damages for negligent pool inspections of his award-winning home on Eight Eight Valley Road at Wakefield. More than ten years after issuing a code compliance certificate for the pool and also making subsequent inspections, Tasman District changed its mind in 2019 saying pool fencing was non-compliant when the property was put up for sale.

Residential swimming pools are regulated under the Fencing of Swimming Pools Act.  To prevent drownings, pools must be adequately fenced to block access by young children.  Councils are required to inspect pools every three years.  

Keith Marshall and Louise Buchanan purchased their 2.9 hectare lifestyle block at Eight Eight Valley in 2008 for $780,000.  They pulled the property from sale in 2019 after Tasman District advised gates to pool surrounds did not comply.  There had been no alterations since the original compliance certificate was issued back in 2006.

In the High Court, Justice Palmer ruled Tasman District liable in negligence for failing to carry out proper pool inspections.  Determining damages; what was the market value of Eighty Eight Valley in 2008 if it was then known that pool fencing was non-compliant?  Tasman District said market value would be about five per cent less; the property would be less desirable to families with young children.  The valuer acting for Ms Buchanan and Mr Marshall said the remediation work required had the effect of ‘butchering’ what was an award-winning home.  Justice Palmer ruled the market value as at time of purchase in 2008 was $195,000 less than the $780,000 paid.

Tasman District was also ordered to pay about $50,000 for costs of remediation which included lengthy negotiations with Tasman District.  General damages of $25,000 were added for distress and humiliation caused by the dispute.  Mr Marshall told the court publicity about the pool dispute would likely hinder any possibility of future employment as chief executive of a local authority.      

Buchanan v. Tasman District Council – High Court (1.02.23)

23.018