Jake Goldenberg’s Auckland dentistry practice is in liquidation. He is angry that financier Flexigroup sold for $20,000 mortgaged equipment costing $377,000. He is being sued for the shortfall on Flexigroup’s loan.
He is not the only one unhappy. Liquidators of his former Ponsonby business report they have been contacted by a large number of clients who paid in advance for dental work not yet done. They stand as unsecured creditors.
Flexigroup is a secured creditor of Mr Goldenberg’s business Total Health Dentistry Ltd. Flexigroup financed purchase of surgical dental equipment by Mr Goldenberg’s company, taking security over equipment supplied. Mr Goldenberg guaranteed payment.
Secured creditors stand outside the liquidation process. Their remedy is to seize and sell their secured asset; ranking as an unsecured creditor for any shortfall on sale.
The High Court was told Flexigroup gave notice of repossession in early 2024 after monthly payments stopped.
Learning Mr Goldenberg’s dentistry company had gone into liquidation, Flexigroup invited liquidators to sell the mortgaged equipment on its behalf and to account for the net proceeds. They declined; it was Flexigroup’s problem.
Flexigroup was in a bind.
Cost of de-installing the equipment was likely to be high. Costs of reinstating the premises would be an added cost.
Mr Goldenberg’s landlord gave Flexigroup one week’s notice to remove the equipment, or it would be deemed abandoned and dumped.
Under this tight time constraint, Flexigroup negotiated with an incoming tenant who was setting up a new dentistry practice. The tenant bought at $20,000.
Flexigroup then sued Mr Goldenberg on his guarantee for $377,500 still owing.
In the High Court, Associate Judge Taylor ruled Mr Goldenberg was liable on the guarantee, but did not fix the amount owed; this requires a full court hearing.
Judge Taylor said an explanation is needed about circumstances of the $20,000 sale.
If secured goods are sold at an undervalue, any shortfall otherwise recoverable from the debtor and any guarantor is reduced.
Flexigroup (New Zealand) Ltd v. Goldenberg – High Court (6.12.24)
25.046