AA Auckland Carriers (2011) Limited v Benson

[2015] NZHC 2348

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-2123 [2015] NZHC 2348

UNDER THE

Companies Act 1993

IN THE MATTER

of a Statutory Demand dated 21 August
2015

BETWEEN

AA AUCKLAND CARRIERS (2011) LIMITED

Plaintiff

AND

STEWART JAMES BENSON Defendant

Hearing:	25 September 2015
Appearances:	Mr L Ponniah for plaintiff Mr Benson in person
Judgment:	25 September 2015

ORALJUDGMENT OF ASSOCIATE JUDGE J P DOOGUE [on Costs]

AA AUCKLAND CARRIERS (2011) LIMITED v BENSON [2015] NZHC 2348 [25 September 2015]

[1]       Mr  Benson  served  a  statutory  demand  on  the  applicant,  AA Auckland Carriers (2011) Limited based upon an order which had been made in the Disputes Tribunal on 4 August 2015.  Mr Benson gave notice that he was going to enforce the order and the applicant stated in response that it would be applying for a hearing.  It gave this last advice on 14 August 2015.   On 28 August Mr Benson served the statutory demand on the applicant.  The applicant then filed the present application and three grounds were set out in the application.  The first was that there is doubt that the debt is owing because there is a potential procedural challenge available to the applicant about a procedural irregularity that vitiated the proceedings before the Disputes Tribunal.  The second is that the applicant is a solvent company and is able to meet its debt as they fall due and that it has deposited the sum of $2,629 as security for costs with its lawyers.   A third ground is that the statutory demand process is being oppressively used “as a debt collection device and is an abuse of the insolvency process under the Companies Act”.

[1]      There has been an exchange of correspondence and communications between the parties the upshot of which is that the applicant has paid in to Mr Ponniah’s firms trust account the amount in dispute, presumably on terms that it will be available to meet the debt subject to contingencies such as making an application for re-hearing of the Disputes Tribunal decision.  Because of the making of that payment it would appear that the requirements of s 289 of the Companies Act has been satisfied in that the applicant has secured payment of the debt pursuant to s 289 (2).  The applicant’s position was that having done that there was no need for it to obtain an order and that the  originating  application  was  otiose.     It  however  sought  costs  against  the respondent.   The respondent does not object to the originating application being discontinued but objects to paying any costs and considers that he ought to be paid costs.

[2]      The position is that the case is analogous to those that are dealt with under Part 15 of the High Court Rules which with r 15.23 establishing a presumptive setting that on a discontinuance costs are to be paid by the discontinuing party.

[3]      Mr Ponniah invited me to consider the merits of the application which the company had made.  While that is not usually done because the Court obviously has not heard / entered on a defended hearing of a discontinued proceeding, there are some conclusions that the Court can come to concerning the merits in this case.  The first concerns the question of whether there is a substantial dispute about the debt. The fact is that as at today there is a valid and effective Disputes Tribunal order directing that the applicant ought to pay the amount in question.  It is not open to this Court to embark upon a consideration of whether that order ought, and is likely to be, in due course set aside for procedural irregularities.

[4]      The second concerns the question of the payment of the security into the trust account of the applicant’s solicitors.  The point has been reached where the payment in the trust account has been made the subject of an agreement as to security has been reached since the originating application was filed.  That is to say that before the applicant issued these proceedings there was a debt owing and there was no security given.  After the filing of the originating application security was provided. The timing of the giving of the security is of significance.  The third point concerns the applicant’s statement that it is a solvent company.  I agree with respect with the reasoning of the Court of Appeal in the case of AMC Construction Limited v Frews

Contracting Ltd:1

[10]     To establish that a statutory demand ought to be set aside on the grounds of solvency it could not be sufficient to establish that the company was arguably solvent.  Inability of a company to pay its debts constitutes a ground for appointment of a liquidator under 2 241(4).  The purpose of the demand procedure is to enable the creditor to take advantage of the statutory presumption in s 287, by which, if the demand is not met, the company is presumed to be unable to pay its debts.   To rebut that presumption, the company must prove that it is able to pay its debts.  Where neither of the grounds in s 290(4)(a) or (b) apply, a demand ought not to be set aside, so as to avoid an inquiry into the company’s solvency, solely on the grounds that the company is arguably solvent.   To allow that would be to subvert the statutory process.

[5]      That is therefore to say, that the solvency of the company is not relevant on an application to set aside a statutory demand.

1 AMC Construction Limited v Frews Contracting Ltd (2008) 19 PRNZ 13.

[6]      The last point concerns the complaint that the procedure is being used as a debt collection device.   It has long been recognised by the Courts that while the Court itself is concerned with the solvency of the company the reality is that making a  threat  to  seek  a  declaration  of  insolvency  by  way  of  a  liquidation  order  is frequently used as a debt enforcement method.   Proceedings generally are not objectionable for that reason.

[7]      Standing back and looking at matters overall, the position is that the applicant which has a judgment against it, or the equivalent of a judgment in the Disputes Tribunal was served with a statutory demand.  It then took proceedings to set aside the statutory demand and after doing so gave the security which would entitle it to successfully resist the statutory demand.  In my view what has occurred here is that the applicant has effectively conceded the relief which the respondent insisted upon before the proceeding could be discontinued.  However I accept that given the time frames that apply where a statutory demand is used that the Court should be slow to criticize the debtor for taking steps to give security or otherwise to meet the obligation.  For those reasons I conclude that in the circumstances of this case costs

should lie where they fall and there will be no order made in favour of either side.

J.P. Doogue

Associate Judge