Kawarau Falls: Ho v. Peninsular Road

Investors buying into stage one of ill-fated Kawarau Falls development in Queenstown do not have to pay up the Court of Appeal ruled because the full development was not completed as promised.  Refunds were ordered for deposits totalling $10 million dollars.  Creditors funding the project are now forced to resell apartments at prices below original sale values.

Funding issues have plagued the grandiose Kawarau Falls development which promised nearly one thousand extra tourist rooms, boosting Queenstown accommodation by nearly thirty per cent.  It was marketed as a three stage development with promised hotel and conference facility, luxury apartments and serviced apartments.  Seventy overseas buyers signed up for stage one each paying a ten per cent deposit.  Most buyers came from Singapore or Malaysia; none from New Zealand.

Sundry companies in control of the development are now in receivership, or liquidation, or both.  With insufficient working capital to complete the whole project, stage one and its seventy associated sale contracts were hived off into a series of separate companies in 2007 and then 2010 as extra funding was needed.  With stage one completed in April 2011, developers demanded buyers settle up on their purchases.  They refused.

The Court of Appeal ruled buyers are entitled to cancel their contracts and recover deposits paid.  It was an essential term of sale that all three stages of the development be completed, the Court said.  Pricing included a premium of up to 25 per cent to reflect the extensive facilities being available to buyers in a completed development.  With no progress on stages two and three the developers were in breach of contract.

A December 2010 court order prevented any deposits being released to developers before investors had their day in court.  Evidence was given that market values for stage one luxury apartments and serviced rooms have fallen since the original buyers signed up.

Ho v. Peninsular Road – Court of Appeal (9.09.16)

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Debt Compromise: Advicewise v. Trends Publishing

Voting manipulations by directors of financially troubled Trends Publishing caused the High Court to set aside a Part 14 scheme intended to force a debt compromise on creditors.

Media company Trends Publishing suffered a severe downturn in business following the global financial crisis in 2009.  Attempts to source new working capital with a $17.2 million Callaghan Innovation grant has fallen flat with Callaghan alleging fraud and demanding repayment of grant money advanced to date.  A Serious Fraud Office investigation commenced in late 2014 resulted in Trends losing clients and some 60 per cent of its staff leaving.

The High Court was told Trends management implemented a Companies Act Part 14 debt compromise scheme in May 2015 to ease cashflow problems.  If approved by a majority holding 75 per cent of affected debt, a Part 14 scheme is binding on creditors.  Creditors allege they were forced into the scheme with Trends management David Johnson, Paul Taylor and Louise Messer including “insider” creditors in the voting pool to achieve 75 per cent approval.

Evidence was given that debts totalling $3.23 million included in the vote comprised debts owed to Trends management personally or to an associated company controlled by them.  These votes amounted to 75.53 per cent of votes cast, enough to approve the Part 14 scheme on their own.  The Trends Part 14 proposal promised an upfront payment of one hundred cents in the dollar for the first $1000 owed all affected creditors with the balance paid by instalments.  Further working capital was to be injected by an unnamed third party. Justice Heath was told no payments have in fact been made under the Part 14 scheme, despite scheme approval by creditors’ in May 2015.

His Honour set aside the scheme.  There was a deliberate manipulation of the voting system, he said.  The insider creditors should have voted in a different poll separate from other creditors.  Insider creditors had a different interest in the outcome to other creditors.  The High Court was told insider creditors had elected not to participate in any distributions from the proposed Part 14 scheme but nevertheless “reserved the right” to vote. 

Advicewise v. Trends Publishing – High Court (7.09.16)

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Fraud: Burns v. Police

Two years and three months’ imprisonment for dishonesty was upheld on appeal to the High Court following three frauds by Nikita Burns including thirteen false claims for emergency Red Cross funding netting $18,000 after the Christchurch earthquakes.

Described as callous offending striking at the heart of a community in crisis, Burns made multiple applications for Red Cross funding using false names and other people’s addresses.  Her fraudulent applications hindered legitimate applications for support with confused Christchurch residents being asked why duplicate applications were coming from the same address.  Burns twice created false work documents from imaginary businesses to obtain some $28,000 from Social Welfare for relocation assistance.  She was also convicted in relation to a rental car hire, having abandoned the vehicle failing to return it.

The court was told Burns had not previously been sentenced to jail for dishonesty but has numerous previous convictions including twelve offences since January 2007 for dishonestly accessing a computer system.

Burns v. Police – High Court (7.09.16)

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Company: Hay v. Peregrine Estate

Peregrine Wines prides itself on award winning pinot noir wines from its central Otago vineyard but red stains on the floor came from blood-letting between directors after the High Court ordered majority shareholders buy out the minority at $2.62 million, one million dollars more than the majority thought the shares were worth.

Two directors of Peregrine Wines stood toe-to-toe in early 2013 arguing over the value of a 25.14 per cent minority interest held by Greg Hay’s family trust.  Mr Hay was looking to sell at $3.25 million.  Fellow director Fraser McLachlan countered offering to buy at $1.56 million.

The High Court was told each agreed to follow buy-out rules in the company constitution with Mr McLachlan agreeing majority shareholders would buy at “fair value” as fixed by a valuer appointed by the Institute of Chartered Accountants.  Associate judge Matthews said Mr McLachlan later became aware that Peregrine’s constitution would force him to buy at the valuer’s assessed fair value, even if he didn’t agree with this figure.  Mr McLachlan vigorously lobbied valuer Julie Millar from BDO’s Christchurch office arguing the minority interest’s value should be discounted since it did not give control of the company.  She refused, saying Peregrine shares should be valued as if the company were a quasi-partnership giving the 25.14 per cent minority interest a value of $2.62 million.

Mr Hay sued, requiring Mr McLachlan buy at the valuer’s assessed figure.  Judge Mathews ordered Mr McLachlan pay.  He could not challenge the merits of Ms Millar’s professional opinion.  The assessed fair value was her professional opinion even though she had taken legal advice before deciding there should be no minority interest discount.  Mr McLachlan protested he had a contrary legal opinion saying there should be a minority discount. 

Hay v. Peregrine Estate – High Court (5.09.16)

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Fraud: R. v. Love

Former professor at Victoria University’s School of Business and prominent kaumatua Ralph Heberley Ngatata Love was convicted of obtaining $1.38 million by deception in diverting funds from a central Wellington office development constructed for the benefit of Wellington and Taranaki Maori.  Authorities were alerted when Love’s name surfaced on the periphery of a tax fraud investigation.

Love was chairman of the Tenths Trust in late 2006 when it was negotiating with property developers over development of its commercial sites in Pipitea Street, central Wellington.  After purchasing neighbouring properties from government for one million dollars, Tenths was in a strong negotiating position.  It is now part owner of a completed office building on the combined sites worth some $80 million with a rent roll of about $6.5 million.

An Inland Revenue investigation during 2010 into a GST fraud being perpetrated by two Wellington accountants alerted authorities to Love having an unexpectedly large amount of spare cash.  Love and his partner Lorraine Skiffington passed $1.5 million through the two accountants tax fraud scheme on the advice of a Mr Shaan Stevens who himself was subsequently convicted as being a party to the GST fraud.

The High Court was told Love deceived the Tenths Trust during negotiations for the office development in Pipitea Street.  Love let the trustees think negotiations were still in progress when he had already agreed a deal with the developers, a deal which included a separate side arrangement requiring staged payments of three million dollars to a company called Pipitea Street Development Ltd.  Evidence were given that the developers were very cautious about this side deal and sought reassurance as to where the money was going.  They were told it was to meet prior Treaty settlement expenses.  A total of $1.35 million was paid under this side deal before original plans for the development were restructured.  The three million dollars had been promised as a premium to get leasing rights to the Pipitea site.  Plans to lease were canned when it was later decided the developers and the Tenths Trust would instead become joint owners of the completed development.

The court was told $1.385 million paid under the side deal was used to repay in part a $1.8 million mortgage taken out weeks previously by Ms Skiffington and Love to buy a house at Moana Road, Plimmerton.

In court, Love denied any knowledge of the side deal or use of the money to help finance the Moana Road purchase.  Justice Lang ruled the evidence indicated otherwise.  Love did not disclose to the Trustees the developers’ offer to pay a three million premium for a right to lease Pipitea Street.  A law firm acting on behalf of the Trust during negotiations was kept in the dark about the full extent of any side deal.  Emails made it clear Love was involved in negotiations over the side deal.  A draft copy of the side deal was found in waste paper picked up by a document destruction company from Love’s home in 2012.  Trustees of the Tenths Trust were not told of the side deal and the developers were asked to keep details confidential.  In 2008 Love contacted lawyers acting for the developers upset and annoyed that one of their staff inadvertently included a draft of the three million side deal when posting documents to lawyers acting for the Trust.            

R. v. Love – High Court (1.09.16)

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