There had been no formal agreement, but business records supported Amy Lam’s claim that payment of $320,000 to her daughter-in-law’s business was not an equity contribution, it was a loan repayable on demand after Amy’s son and daughter-in-law separated.
The High Court was told daughter-in-law Shunyan Ye, also known as Sharon Yip, signed up in August 2022 to buy a superette and Lotto outlet in Albany on Auckland’s North Shore.
Ms Lam and Ms Ye both put in cash; Ms Lam’s contribution of $320,000 sourced from a one year loan she took out from a private money-lender, at a high interest rate.
Ms Ye set up a company to run the superette, Phenix Y Ltd, with each of them listed as a fifty per cent shareholder.
Associate Judge Cogswell ruled there was no evidence that either had provided any equity capital; documentary evidence and financial statements indicated all working capital came from shareholder loans to the company.
If it were equity capital, Ms Lam’s $320,000 would be locked into the company with no right to repayment on demand.
Ms Ye had online access to Ms Lam’s bank account. Narrations made by Ms Ye in her mother-in-law’s bank account described periodic payments by their company to Ms Lam as ‘shareholder loan repay.’
This supported Ms Lam’s claim that her $320,000 funding was a loan to their company.
WeChat discussions between the two at a time when Ms Lam’s initial one year borowing had to be rolled over provided further evidence that her $320,000 paid to their company was a loan.
Judge Cogswell held Phenix Y Ltd liable to now repay the $320,000 received, less sundry periodic repayments made to date.
If payments to Phenix Y by each shareholder were an equity investment, the norm for a small closely-held company would be to record this fact in a written shareholders agreement setting out shareholder rights.
Lam v. Phenix Y Ltd – High Court (20.03.26)
26.111