Auckland-based David Stewart Henderson was banned from managing any company for three years expiring March 2025 after mismanaging a Christchurch apartment earthquake remediation leaving creditors unpaid. A claim that his company Cambridge on the Avon Ltd was simply acting as a neutral trustee in the project cut no ice with either the Companies Office or the High Court.
In 2017, Cambridge on Avon purchased six earthquake-damaged apartments on Carlton Mill Road in Christchurch suburb Merivale. The High Court was told a short-term loan was sourced; $2.1 million for six months at 16.75 per cent. Repairs were not completed within this short timeframe. Cambridge on Avon was put into receivership when refinancing fell through and then put into liquidation by an unpaid trade supplier.
The High Court was told that after sale of the partly-finished project, there was nothing left for unsecured creditors owed about $405,000. A subsequent tax investigation resulted in Cambridge on Avon receiving a tax assessment for $181,200 plus penalties of $36,200.
A Companies Office investigation followed. Mr Henderson was in breach of his duties as a director by trading recklessly and failing to keep proper accounting records, it said.
Mr Henderson challenged Companies Office imposition of a three-year disqualification. He claimed Cambridge on the Avon Ltd was not in business, did not have to keep any records and was not required to pay tax since it had tax registration as ‘non-active.’
Justice Davison ruled Cambridge on Avon was in business. It may have held the Merivale property as trustee, he said, but contracts for repair work were negotiated by Mr Henderson in the company’s name.
The earlier arrangement negotiated with Inland Revenue that Cambridge on Avon was a ‘non-active’ taxpayer was a red herring, the court was told. The company’s supposed tax status was of no relevance to questions of Companies Act compliance.
Justice Davison ruled Mr Henderson had traded Cambridge on Avon recklessly, with insufficient working capital. It was reckless to assume the remediation could be finished and the apartments sold within six months. It was also reckless to assume that no replacement funding would be needed. Failing to keep any accounting records had exacerbated the loss to creditors; no cashflow forecasts were possible.
Henderson v. Registrar of Companies – High Court (24.05.23)
23.076
Note: David Stewart Henderson, referred to in this blog post, is not to be confused with South Island property developer and serial bankrupt David Ian Henderson who was prohibited by the High Court from managing any business until December 2022.