Liquidation: Tobem Holdings Ltd v. Grant

 

It had reached a standoff: on one side, Tobem Holdings owed $2.7 million by insolvent childcare operator Kid Country Holdings wanted access to Kid Country’s records suspecting assets had been spirited away prior to liquidation; on the other, Kid Country liquidators Damien Grant and Adam Botterill refused access saying this was simply a challenge to their professional expertise and competence.

Justice Tahana allowed access under strict conditions.

Kid Country Holdings Ltd is a joint venture company controlled by Auckland-based David Lowry and Papamoa-based Paul and Marilyn Hamlyn with investments in childcare centres.  Kid Country’s liquidation followed a dispute with Tobem Holdings Ltd as landlord of premises on Lincoln Road at Henderson in west Auckland.  Kid Country was ordered to pay $2.7 million damages.

Grant and Botterill were appointed liquidators in May 2022 with the benefit of proxies given by two Kid Country creditors owed between them some $7500.  The High Court was told Tobem has no confidence in the liquidators.  It is particularly annoyed that it is owed nearly one hundred per cent of Kid Country’s debt but is saddled with liquidators not of its choice.

Liquidators say Kid Country has no assets.  Tobem wants to know why a number of Kid Country subsidiaries running child care businesses were removed from the companies register prior to Kid Country’s liquidation.  The suspicion is that these were profitable businesses removed from the orbit of Kid Country before liquidation.  Tobem wants access to Kid Country’s records.

Grant and Botterill say they are open to discussions with Tobem about funding a detailed investigation.  In turn, Tobem says it has no confidence in working with the liquidators.  It wants to set its own investigation in train.

Justice Tahana ruled Tobem could view Kid Country documents held by the liquidators.  Commercially sensitive documents are not to go to Tobem directly, but can be viewed in confidence by their investigative team.

Tobem Holdings Ltd v. Grant – High Court (30.11.23)

24.023

Joint Venture: Upland Business Management v. Ghee

 

Investors in an Auckland joint venture property development got a court order freezing family trust bank accounts of fellow investor Teik Huat Ghee alleging he has wrongly misappropriated some of their profit share from a Remuera development.

Family interests associated with Auckland investors Adonis Souloglou and Peter Cossey joined with Mr Ghee in March 2020 to redevelop a site on Upland Road, in Remuera.  Profits or losses were to be split 65 per cent to interests associated with Mr Ghee, 35 per cent to Souloglou/Cossey investors grouped together in a company called Upland Business Management Ltd.

The High Court was told the Upland Road redevelopment generated gross sales of $14.6 million.  The level of profit available for distribution is disputed.  Upland Business investors say their share is $1.8 million.  Mr Ghee says it is in the range of $750,000 - $885,000.  The amount of finance secured against the project requiring repayment before determining profit shares explains the difference.  This difference is hotly disputed.

Upland Business investors allege Mr Ghee has dishonestly claimed his family trust stands as a secured creditor, extracting funds before determining net profits.  They complain that there was no reference to funding from Mr Ghee’s family trust in their 2020 agreement and similarly there was no mention in a feasibility study attached to the agreement.

Upland Business investors allege Mr Ghee has a commercial history of moving assets between companies to defeat creditor claims.  They pointed to unrelated court proceedings where Mr Ghee was described as being a director of some 65 different companies and having been director of a number of failed construction companies.

Justice Whata ordered a freeze on bank accounts held on behalf of Mr Ghee’s family trust with bank statements to be disclosed to Upland Business investors.

The level of profits owed Upland Business is yet to be resolved.  To date, they have received nothing.

Upland Business Management Ltd v. Ghee – High Court (30.11.23)

24.022

SkyCity: SkyCity Entertainment Group v. MPF Parking

 

Auckland’s SkyCity says Macquarie Group is entitled to $188 million compensation on loss of its 29 year car parking concession, following SkyCity’s devastating 2019 convention centre fire. Macquarie argues for at least $240 million.  For aficionados of discounted cashflow analysis, a $52 million difference might lie in the assumptions used.  For Justice Campbell, finding in favour of SkyCity, it was a case of deciding what their car parking contract actually said.  

In 2019, Australian investment bankers Macquarie Group agreed to pay SkyCity $220 million upfront for the right to collect car parking fees from SkyCity customers for the next 29 years.  This agreement covered 3200 car spaces: nearly 2000 spaces already available at the main casino site and a further 1200 spaces becoming available on completion of SkyCity’s nearby convention centre.

Six months after signature, convention centre construction was set back years following a fire starting in the building’s roof.

The High Court was told terms of the parking concession contained a formula compensating Macquarie for loss of parking spaces, known colloquially as a ‘ticking fee.’  After the fire, this fee was costing Sky City about $30,000 per day.  Macquarie was still earning revenue from unaffected parking spaces.

In 2022, Macquarie cancelled the concession, as it was entitled to do, because of delays in reinstating car parks at the convention site.  This triggered a contractual right to compensation; part-repayment of the $220 million paid upfront for a 29 year carpark concession which did not run its full course.

Macquarie says it is entitled to $240 million dollars compensation, being the correct value of future cashflows now lost.  This was based on the market value of its concession being valued as at the November 2022 termination date.  SkyCity says valuation date should be October 2019, date of the fire.

The $52 million difference in potential compensation arises because of differing economic conditions three years apart.  Markets and market conditions change.  Macquarie complains that using SkyCity’s date means it is being compensated for cashflows lost since 2022 calculated on a valuation set in 2019 dollars.

Justice Campbell pointed out that their 237 page parking concession contained nine different definitions of ‘compensation sum,’ with differing definitions applying to differing circumstances.  He ruled the relevant date for determining the concession’s ‘market value’ on termination was date of the fire, with discounted cashflow methodology to be used to value future cash flows lost from 2022 to 2048 but discounted to date of the fire in October 2019.

Justice Campbell said Macquarie’s claim to $240 million was based on how it considers the parking concession should have been drafted, rather than how it was in fact drafted.

The High Court was not asked to decide the exact amount of compensation to be paid by SkyCity to Macquarie.  It was asked to rule on how the contract is to be interpreted, with calculation left to an arbitration process.

Evidence was given that Macquarie reserves the right to challenge how the now-interpreted contract is to be applied to its on-going claim for compensation.

SkyCity Entertainment Group Ltd v. MPF Parking NZ Ltd – High Court (30.11.23)

24.021

Building Contract: Wilson McKay v. van Den Anker Construction

 

An Auckland building company could not avoid liability for a subcontractor’s poor roofing work, part of a house renovation, by simply cancelling the contract and walking off the job.

In 2018, van den Anker Construction Ltd contracted with the Jess family to alter their garage, creating additional living space.  A standard-form Certified Builders Association ‘charge-up’ contract was used; its Cost & Margin (Labour Only) Building Contract. 

The family were agreeing to pay for hours worked plus costs of materials and any sub-contractor costs with a nine per cent margin added by den Anker to these extra costs.

The High Court was told the Jess family were overseas for nearly three months while renovations were carried out.  On return, they were dismayed by the standard of work.  They paid some, but not all of den Anker’s invoices.

Den Anker cancelled the contract, refusing to deal with their complaints.

Quality of the work done got a thorough hearing at a District Court trial where den Anker sued on unpaid invoices totalling $49,900.  The trial judge ruled only the roofing work required remedying.  But den Anker’s cancellation of the contract meant the building contract was now at an end and it was not liable for roofing repair costs, she said.

On appeal, the High Court ruled cancellation under the Contract and Commercial Law Act discharged all parties to a contract from future performance but still held them liable for obligations accrued up to the point of cancellation.

At time of cancellation, den Anker was liable to make good deficiencies in the roofing installation.

Jess family were entitled to set off their roof remediation costs of $25,800 against den Anker’s $49,900 unpaid invoices, the High Court ruled.

Evidence was given that while den Anker had invoiced the Jess family for the roofing subcontractor’s work, it had not itself paid the subcontractor’s bill.

Wilson McKay Trustee Company Ltd v. van den Anker Construction Ltd – High Court (30.11.23)

24.020

Land: Son v. Le

 

Having a work colleague join in financing a south Auckland home purchase led to later complications when the colleague vanished without trace to Australia, leaving his name on the title as part-owner.

The High Court was told when Hiep Xuan Son did not meet income thresholds demanded by a financier for his proposed 2003 purchase of a family home in Glenveagh Park Drive, Manurewa, his work colleague, Hai Dan Le offered to assist.  Mr Le was the then partner of Mr Son’s daughter.

The agreed deal was that both would apply for a loan and title would be taken in their joint names.  In what was in substance a guarantee with Mr Le having backup security over the land, Mr Son agreed to pay all outgoings for the Manurewa property.

Mr Le came to live rent free with the Son family at Glenveagh Park.  He did not contribute to mortgage payments.  Mr Son paid all costs, including food and power.  Mr Le started making weekly contributions of one hundred dollars for living expenses after living with the family for two years.      

The court was told Mr Le left for Australia in 2007.  Nine years later, Mr Son received a letter from lawyers in Perth representing Mr Le requesting Glenveagh Park be sold and that Mr Le’s half share of the proceeds be remitted to him in Australia.  Subsequent attempts to have Mr Le’s agreement to be taken off the title proved fruitless; he had moved on without leaving contact details with his Perth lawyers.

Mr Son was unable to sell or refinance Glenveagh Park Drive without Mr Le’s signature as co-owner.       

In New Zealand, Justice Tahana ordered Mr Le’s name be taken off the title to Glenveagh Park as part owner, leaving Mr Son as sole owner.

The normal rule is that ownership of land cannot be changed without prior written agreement.  Mr Son said there was an oral agreement with Mr Le that Mr Le’s half share would be transferred into his name at a later date.

Oral agreements for sale of land are enforced if there has been ‘part-performance’ of the oral agreement.  Courts take the view that while the need for written contracts for sale of land is intended to prevent fraud, failure to complete a partly performed oral contract for sale of land on the simple ground that it is not in writing is itself a fraud.

Justice Tahana said the oral agreement was both evidenced and partly performed by Mr Le living at the property rent-free and not at any time contributing to mortgage costs.

Notice of intended New Zealand proceedings was served on Mr Le in Australia after a process server managed to track him down in late 2022.  Mr Le did not defend the claim.

Son v. Le – High Court (29.11.23)

24.019

Estate: re Estate Violet Tata

 

Fifteen years after Violet Tata died, the High Court ordered recovery of estate assets wrongly handed over to a grandson.

Violet Tata died in 2008.  Her only major asset was the family home.  It was over a decade later that a sale was considered.  In the interim, a relative occupied the house.

By this time, Violet’s daughter Donna was the remaining surviving executor.

The High Court was told of a family conference in August 2019 agreeing the house should be sold to a relative, keeping the property in hands of whanau; a Maori tradition.  Whanau were invited to make offers.  An offer at $760,000 from Donna’s son Joseph was the best offer made.

There was evidence the property then had a market value of about one million dollars.  Lawyers acting for Violet’s estate recommended to Donna that all beneficiaries should sign a deed of family arrangement agreeing that Joseph could buy at less than market value.  Donna did not take up the suggestion; whanau had agreed, she said.

Beneficiaries later learnt that not only had Joseph purchased at below market value, but Donna had given him $300,000 cash from Violet’s estate.

Joseph defaulted on a loan secured over his new purchase, resulting in a mortgagee sale.  Whanau lost the family home.  Joseph was set to receive $164,000 after repayment of the mortgage and forced sale costs.

Justice Whata ruled both Donna and son Joseph were liable to return the $300,000 gift to Violet’s estate.  The $164,000 surplus held by the mortgagee’s solicitors also goes to Violet’s estate, he ruled.

Donna was in breach of her duties to beneficiaries by selling at an undervalue and wrongly gifting cash; Joseph at the time was aware of his mother’s wrongdoing.

The court was told Donna died in September 2023.  Administrators previously appointed to oversee management of Violet’s estate were instructed to deduct from any inheritance going to Donna’s estate that part of the $300,000 gift ordered repaid which Joseph fails to repay.

Neither Donna’s estate nor Joseph appeared in court to defend the claim.

re Estate of Violet Tata – High Court (27.11.13)

24.018 

Carbon Credits: Leckie v. Beverley

 

Wellington-based investment bankers Will Leckie and Chris Morrison failed in attempts to block legal action alleging they diverted for their own benefit management of carbon trading investments, bypassing a deal initially negotiated with Anthony and Wendy Beverley.

Leckie and Morrison provide investment services to the agribusiness and forestry sectors through their business Lewis Tucker & Co.

The Court of Appeal was told they joined forces with the Beverleys in 2017 to exploit investment opportunities arising from New Zealand’s emissions trading scheme.  A limited liability partnership called Drylandcarbon One Limited Partnership was set up to hold investors’ money.  It was intended investors would receive a return on carbon credits generated from afforestation.  Harvesting and sale of trees was a secondary priority.     

The money pot for Lewis Tucker and the Beverleys was intended to be base fees calculated on capital employed plus performance fees from ongoing operations, all channelled through a management structure they both controlled: DC One H1 Ltd.

Evidence was given that Mr Beverley’s relationship with Messrs Leckie and Morrison broke down irretrievably within months of the first investment partnership being established.  Shortly after, Lewis Tucker & Co set up its own carbon trading fund.

The court was told of Lewis Tucker & Co using publicity material for its new fund similar to that used by DC One’s operations and also transferring staff managing the earlier fund across to Lewis Tucker’s new operations.

The Beverleys sued.  The High Court approved legal action being taken against Messrs Leckie and Morrison in DC One’s name on grounds there was an arguable case that they had misused DC One’s information to set up in opposition, seizing business opportunities otherwise available to DC One, part owned by the Beverleys as joint managers.

Company information from DC One allegedly used to set up Lewis Tucker’s competing alternative fund included the content of investment flyers, the pool of potential investors and details of investment structures likely to attract new investors.

Leckie and Morrison claim this information is generic.  It is general business information known to any knowledgeable business investor, not corporate information particular to DC One, they said.  If the Beverleys have a complaint, they should sue personally, rather than sue through a derivative action in the name of DC One, they said.  It was indicated litigation costs will likely exceed one million dollars.  DC One, part-owned by Lewis Tucker, should not have to bear the cost of legal action against Lewis Tucker, they said.

The Court of Appeal confirmed a High Court ruling that the dispute go to trial, with DC One bearing the Beverleys’ costs.

Leckie v. Beverley – Court of Appeal (17.11.23)

24.017

Fraud: Thompson v. Police

 

Canterbury fraudster Nigel Terrence William Thompson left a trail of victims ranging from an elderly resident in a retirement village to Inland Revenue.  There was little subtlety in his fraudulent conduct, with Thompson’s behaviour including stealing bank card details, selling customer’s cars and not accounting for the proceeds, failing to account for company PAYE to Inland Revenue, and attempting fraudulently to claim tax refunds on his own tax return when no refund was due.

The High Court was told of Thompson committing the bulk of his offences through the car trade.

Thompson set about defrauding taxpayers by not accounting to Inland Revenue for PAYE deductions of some $288,000 owed by his car dealerships trading variously as Nigel Thompson Motor Co Ltd and Nigel Thompson Motor Co (2016) Ltd.  He used company money without authority to pay personal expenses.  He submitted false applications to a finance company, taking money for financing deals on non-existent customer car purchases.

Evidence was given of Thompson contacting TradeMe customers looking to sell their vehicles.  Several customers accepting his offer to sell on their behalf saw Thompson pocket the proceeds.

Business, Innovation and Employment intercepted attempts by Thompson to set up a car dealership in 2018 under a false name.  Registration of a new company was blocked by Companies Office after Thompson was unable to verify the name he listed as director.

The court was told of Thompson committing multiple bank frauds after gaining access to victim’s bank cards.  Victims included his landlord who mistakenly left his wallet at a property Thompson was renting and a retirement home resident employing Thompson to groom her car.  He took $20,000 out of her bank account.

A church group was gulled into giving Thompson a blank signed cheque to pay for registration required on a car the church purchased.  He stole $1100 dollars.     

The level of sentence on conviction proved problematic, given the multiplicity of offences.

The general principle in the Sentencing Act is that similar offences result in sentences for each separate offence running concurrently (with the longest individual sentence setting the total term of imprisonment), while sentences for offences different in kind run concurrently (with each separate sentence being added together to give a total for the term of imprisonment).

In the District Court, Thompson was sentenced to three years seven months’ imprisonment.  This was reduced to three years’ imprisonment on appeal to the High Court.  Thompson’s frauds against his companies and the PAYE fraud against Inland Revenue should have been treated as connected offences sufficiently similar to result in concurrent sentences, Justice Hinton ruled.

Thompson v. Police – High Court (17.11.23)

24.014

Disqualification: Registrar of Companies v. Andrews

 

Raymond Anthony Andrews has been permanently prohibited from ever again managing a company after conviction multiple times for bankruptcy offences together with associated convictions for fraud, forgery and tax evasion.  He is now aged 74 and enrolled as a law student.

Andrews has remained bankrupt since 2008.  Creditors owed some $684,700 in that bankruptcy were left unpaid.

Insolvency legislation prohibits individuals, whilst bankrupt, from running a business.

The High Court was told of Andrews contemptuously ignoring rules governing his bankruptcy, being convicted in 2013, 2017 and 2019 of operating businesses whilst bankrupt.  He defrauded both customers and suppliers.

Conviction in 2013 for the first series of offences followed offending in Tauranga and the northern half of the North Island.  His 22 month jail sentence did not deter subsequent offending.

Business revenue, which should have been declared, was hidden from Insolvency Service. In one instance, Andrews used his daughter’s bank account without her knowledge to hide cash.   

He was sentenced to terms of imprisonment three times, the longest sentence being in 2019: six years and six months.  He was released on parole in 2022.

When permanently banning Andrews from ever again managing a company without prior court approval, Justice Hinton said he had shown complete disregard for the law and for his bankruptcy.  Andrews had shown no remorse, she said.  His offending had not lessened over time, it had escalated with longer prison sentences imposed for subsequent convictions.

Permanent prohibition is uncommon.  Andrews is only the second person to be permanently barred from managing a company.

Registrar of Companies v. Andrews – High Court (17.11.23)

24.016

Eric Watson: Kea Investments v. Wikeley Family Trust

 

A USD123 million judgment against Sir Owen Glenn’s Kea Investments was obtained by fraud the High Court ruled, curtailing attempts by entrepreneur Eric Watson in league with Australian resident Ken Wikeley to tie up Kea’s legal team in expensive litigation at a time when Kea is struggling to recover GBP129 million an English court ordered Watson pay Glenn.

In 2018, Kea Investments successful sued Mr Watson in the United Kingdom for fraud in relation to their earlier joint investments.  He did not roll over and pay up.  Mr Watson served time in jail for contempt of court following his initial failure to hand over business records.

Four years later, Kea Investments was surprised to receive a letter demanding payment of USD123.7 million, supposedly court-ordered damages for breach of contract.  A Kentucky court had ruled Kea Investments was in breach of a joint venture agreement with Ken Wikeley’s family trust, described as the 2012 Coal Agreement.  Kea had no knowledge of any such agreement and had not taken part in any Kentucky court hearing.  It was told notice of the proposed hearing had been sent to Kea’s office in the British Virgin islands.

Kea had to move smartly.  Wikeley’s family trust was looking to seize cash in Kea’s bank accounts.

Attempts to get a rehearing in Kentucky failed.  Kea had notice of the hearing, but failed to turn up, the court said.

Kea sued in New Zealand, where Wikeley Family Trustee Ltd is registered.

It alleged Mr Watson conspired with Mr Wikeley, using fraudulent Kentucky litigation and threats to wind up Kea Investments in order both to get information about Kea’s assets and to frustrate Kea’s attempts to recover money as ordered by United Kingdom courts.    

Justice Gault ruled the supposed 2012 Coal Agreement was a forgery.

There was evidence of the agreement being a ‘cut and paste’ photocopy of sundry other documents.  Page numbers were not sequential.  Terminology and currency amounts were not consistent throughout the document.  Circumstances of Mr Watson’s signature as witness to the agreement raised suspicions.

Kea Investments had no record of any negotiations prior to the 2102 agreement despite clauses in the agreement making reference to a prior feasibility study and due diligence.

A US lawyer with expertise in the mining industry gave evidence that terms of the 2012 agreement were non-sensical. Kea was supposedly committing to pay substantial annual ‘royalties’ for the next twenty years regardless of whether any project got underway.  Kea was also agreeing to loan at least USD75 million to Mr Wikeley for twenty years at three per cent.

There was never any demand for payment of the stated annual royalties over the nine year life of the supposed contract prior to the Kentucky litigation, Justice Gault commented.

Justice Gault ruled the Kentucky judgment was obtained by fraud.  The 2012 agreement was fictitous.  He imposed a world-wide order blocking attempts by Wikeley’s family trust to enforce the Kentucky court judgment.

Kea was ruled entitled to recover all its legal costs.

Evidence was given that Mr Wikeley previously attempted to avoid any adverse ruling from New Zealand courts by changing residence of his family trust to Kentucky and by assigning benefit of the Kentucky court judgment to a newly formed company having as its place of business a ‘virtual office.’  Justice Gault ruled these moves invalid and of no legal effect.

Kea Investments Ltd v. Wikeley Family Trustee Ltd – High Court (17.11.23)

24.015

Director: Homestead Bay Trustees v. Fiordland Experience Group

 

When Hong Kong investors learnt Andrew Guest was secretly sharing in commissions paid on development of land at Homestead Bay near Queenstown, they sued.  Their dispute came to a head after interests associated with Guest were given the right to buy sections in a future development at discounted prices.

Investors in Homestead Bay Trustees Ltd consider they have been done over royally.  With Mr Guest having triumphantly announced his supposed success in marketing twelve lots comprising first stage of the Homestead subdivision, Mr Guest then had Homestead Trustees agree to a lucrative deal on further subdivision gaining the right to buy twelve lots at up to 2/3rds of valuation and to buy a further six lots for ten dollars apiece.

The High Court was told Mr Guest was a director of Homestead Trustees when Fiordland Experience Group was given exclusive marketing rights in 2014 for sale of Homestead’s first stage subdivision.  Mr Guest did not disclose he had an interest in Fiordland Group though long-time colleague Roy Toms.  The two were looking to parlay funds generated from the earlier sale of Fiordland Air into lucrative joint venture opportunities.

Evidence was given that Fiordland Group was in line for commissions totalling some $900,000 on sale of the first twelve lots.  Homestead was billed after Mr Guest advised in December 2014 all lakefront lots were sold for a total of $14.4 million.  Homestead was later to learn that only nine sales at that time were ‘definitely confirmed.’  Fiordland Group was slipped in as ‘purchaser’ of the remaining three.

Unbeknown to Homestead, interests associated with Mr Guest were billing Fiordland for a half share of commissions.    

In 2016, Homestead Trustees marketing arrangements with Fiordland were recast.  Commissions payable to date were fixed at $600,000.  Further remuneration was to come from a cut-price deal giving Fiordland an option to buy lots in the next stage.

The High Court was told there was again no disclosure by Mr Guest as director of Homestead Trustees that he had an interest in Fiordland.

It wasn’t until 2021 that further development of the Homestead subdivision gathered momentum.  Learning of Mr Guest’s undisclosed share of the earlier commission, Homestead Trustees challenged the cut-price deal.  Fiordland lodged a caveat over the further subdivision to protect its claimed right to buy.

Justice Campbell ordered the caveat removed.

By suing for alleged loss of profits, Fiordland Group had surrendered its right to enforce the option.  The contract was cancelled.

In addition, Justice Campbell ruled Homestead has a strong argument to set aside the option because of Mr Guest’s failure to disclose his Fiordland interest to Homestead Trustees.  Companies have three months from the date they are aware of any director’s undisclosed conflict of interest to set aside an impugned contract.  Disclosure must be made to all shareholders.

Mr Guest’s liability to pay damages, if any, requires a full court hearing.

Homestead Bay Trustees Ltd v. Fiordland Experience Group Ltd – High Court (16.11.23)

24.012

Debt: Lucas v. Avetar Properties Ltd

 

In the midst of a relationship property dispute, Scott Lucas tried to put his former partner’s Ashburton property company into liquidation, failing because he was not a company creditor for the $226,000 claimed.

The High Court was told Lucas and his former partner Julianne Taylor are involved in a relationship property dispute after their six year relationship came to an end in 2019.  Ms Taylor owns properties in Tancred Street, Ashburton, through her company Avetar Properties Ltd.

Evidence was given of each paying part of their income into an Avetar bank account during their relationship, with the account used for personal and household expenditure.

After they parted, and with a Family Court relationship property hearing scheduled, Mr Lucas claimed he was owed some $226,000 by Avetar Properties.  He sued, seeking to put Avetar into liquidation.

Mr Lucas said the debt claimed from Avetar arose from a 2012 contract recalibrating equity holdings in a company called Annona Holdings Ltd.  Companies Office records state Mr Lucas and Ms Taylor are currently 50/50 shareholders of Annona.  The 2012 deal saw a third shareholder being bought out.  Avetar was not a party to the Annona equity reshuffle.

To succeed in his application to have Avetar Properties into liquidation, Mr Lucas had to prove he was a creditor of Avetar and that Avetar was insolvent, unable to pay its debts.   

Associate judge Paulsen ruled there was no evidence that Mr Lucas advanced any funds to Avetar at the time of the Annona restructuring.  The evidence was that Mr Lucas’ history of payments to Avetar amounted to no more than regular periodic payments as contributions to shared living expenses.

Avetar financial statements signed off by Mr Lucas at a time when he was a director did not list him as creditor for the amount now claimed.

In any event, Avetar is solvent, Judge Paulsen ruled.  The court was told Avetar has net equity of some $67,500 in its Ashburton properties, mortgage payments are current and Avetar has $23,000 in the bank.

Lucas v. Avetar Properties Ltd – High Court (16.11.23)

24.013

Relationship Debt: Johnson v. Johnson

 

Whilst married, Craig and Maria Johnson enjoyed funding running to millions of dollars from what amounted to a private bank: the Abel Trust; a family trust controlled by Craig’s father.  On divorce, legal argument whether various Trust transactions were gifts or loans led to further argument whether Trust loans Maria was never aware of were relationship debts.

After a 25 year marriage, the two had acquired a substantial portfolio of assets beyond their family home including an apartment at a Fiji resort, a chain of pre-schools, an interest in a kiwifruit operation in China and units in a hedge fund called the Carpe Diem Absolute Return Fund managed by Craig, formerly a banker with National Bank.

Argument over what assets were or were not relationship property was eventually sorted by agreement.  Responsibility for debts was the next sticking point.

When determining value of relationship property, funds from Abel Trust identified as relationship debts could be deducted from relationship assets.  This would see Maria notionally liable for a half share of any Abel Trust funding considered relationship debt.

Maria argued funds advanced to Craig from Abel Trust were not loans, they were gifts.  The High Court was told of a two-tier arrangement: interest was charged on Trust funding advanced for commercial operations; funding for personal expenditure by Craig and Maria was interest free, repayable on demand.  There was no expectation that demand would ever be made, Maria said.  They were de facto gifts, she said.

Both the High Court and the Court of Appeal ruled that even if there were a possibility on demand loans might later be forgiven, wording was critical.  In their relationship property dispute, any advance in the form of a loan, on demand or not, was to be treated as a loan, not a gift.         

Maria then argued there was no clear paper trail for $3.6 million of Trust lending such that she didn’t know what lending was being used for what purposes.  Craig and the Trust were arbitrarily allocating funding to such purposes as house renovations counting this funding as a relationship debt, she alleged.

Forensic analysis of Trust accounting records managed to track most payments.

The source of some $550,000 spent on renovations to their family home including installation of a swimming pool, much of the work done decades previously, proved particularly contentious.  The Court of Appeal allowed only half this cost as a relationship debt owed Abel Trust.  The passage of time, the lack of records and the context justified this arbitrary result, the court ruled.

In addition, the court ruled some $600,000 advanced by Abel Trust for investment in offshore kiwifruit operations in China known as Global Hort was a relationship debt.  The two had agreed this investment was a relationship asset, albeit considered by both as being of little value.  Trust records clearly identified the flow of funds used to buy into Global Hort.  Since this asset was agreed to be a relationship asset, financing its purchase was a relationship debt, the court ruled.

Johnson v. Johnson – Court of Appeal (15.11.23)

24.011

Estate: Gamble v. Schepens

 

Having a life interest in his parents Northland farm following their death, John Schepens treated the property as his own with scant regard for the ultimate beneficiaries: his three nieces.  The High Court appointed a firm of Whangarei solicitors to take over control of the farm.

The High Court was told of the Schepens family’s pioneering efforts across several generations breaking in difficult land at Waimatenui, near Waipoua forest.  Back in 1974, John Schepens was gifted part of his parents’ property to farm on his own account.

After both his parents died, John’s sister and her children contested terms of their parent’s wills in a Family Protection Act claim.  They received increased bequests.

John (and a second trustee) were left in control of his parents’ remaining farm, held in trust: for John as life tenant and should he die before his sister she would have possession as life tenant; and on the death of them both, full ownership would pass to his sister’s four daughters.

He operated his own farm and his parents’ farm, now held in trust, as one farming unit.  They are adjacent to each other.

Evidence was given that John did not seek or follow advice from successive trustees appointed to act as a second trustee of his parents’ testamentary trust.  These trustees allowed John to act unilaterally.  The farm had been family property.  Not being immediate family, it was difficult for them to intervene without John’s acquiescence.

The court was told of John taking a hostile attitude toward estate beneficiaries, claiming that his sister did not have any life interest as successor to himself and further claiming that he held the ‘trump card’ and could dissolve the trust at any time.  None of this was correct.

In August 2022, John was convicted of charges under the National Animal Identification and Tracing Act for failing to register some 500 cattle.  A year earlier he had received a written warning from Primary Industries under the Animal Welfare Act.     

Three of his nieces, as final beneficiaries of the estate, became concerned.  The estate farm had become rundown; fencing not maintained, fertiliser not applied.  Stock had been sold and grazing rights granted.  John owed the Trust nearly $360,000; primarily proceeds from selling stock, money which John retained and recorded as a debt he owed the Trust.

The Justice Andrew ruled it was inappropriate for John to remain as trustee.  There was a conflict between his personal interests and his duties as trustee.  He was removed, replaced by a trustee company controlled by a firm of Whangarei solicitors.  The current second trustee was also removed, with his agreement.

Justice Andrew indicated the new trustees should be looking to recapitalise the Trust in order to put the farm back into proper working order by recovering the $360,000 debt owed by John.

The court was told John is now aged 68 and has retired from farming.  Justice Andrew expressed the hope that the new trustees and the nieces as trust beneficiaries would continue to recognise John’s long attachment to the family farm as they proceed to regularise farming operations.

Gamble v. Schepens – High Court (13.11.23)

24.010

Hobson Towers: Cummins v. Body Corporate 172108

 

Disputed remediation costs for Hobson Towers in Auckland’s central business district has raged for more than ten years with owner of the top floor, Manchester Securities Ltd, now in liquidation and the company’s controlling shareholder Robert Cummins facing bankruptcy.  Cummins complains that Manchester is bearing a multimillion dollar cost including new roofing that should be shared with lower level owners.   

Their remediation dispute kicked off in 2010, eventually leading to legal argument about application of a Unit Titles Act scheme of arrangement intended to settle repair costs.  Manchester Securities and Mr Cummins have been engaged in near mortal combat with Hobson Towers’ body corporate through numerous rounds in both the High Court and the Court of Appeal.

In 2020, Manchester was put into liquidation for non-payment of body corporate levies.  Becoming involved in a personal capacity along the way, Mr Cummins was ordered to pay $33,800 costs to the body corporate.  It now seeks to bankrupt Mr Cummins for non-payment.

He asked the High Court to put this bankruptcy application on hold.  He says that he can exercise rights held by his company Manchester Securities such that he has a claim against the body corporate which exceeds the $33,800 debt claimed by the body corporate from him; claimed rights amounting to several million dollars, he says.     

Associate judge Johnston refused both to delay the bankruptcy hearing and to allow an appeal from his ruling.

Even if Mr Cummins can prove he has the right to stand in the shoes of Manchester and sue the body corporate, Manchester itself has no immediate right to sue because it is first required to go to arbitration and there is no immediate prospect of that happening, he said.

The body corporate’s application to have Mr Cummins bankrupted requires a further court hearing.

Cummins v. Body Corporate 172108 – High Court (10.11.23)

24.009