Madsen-Ries v Candy

[2015] NZHC 1229

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2014-470-191 [2015] NZHC 1229

UNDER

the Companies Act 1993

IN THE MATTER

of the liquidation of Coastal Crane Hire
Ltd

BETWEEN

VIVIEN JUDITH MADSEN-RIES AND HENRY DAVID LEVIN AS LIQUIDATORS OF COASTAL CRANE HIRE LTD (IN LIQUIDATION)

First Plaintiffs

COASTAL CRANE HIRE LTD (IN LIQUIDATION)

Second Plaintiff

AND

ROBYN SHERRIE CANDY Defendant

Hearing:	4 June 2015
Counsel:	K M Wakelin and F P Everard for Plaintiffs No appearance by or on behalf of Defendant
Judgment:	4 June 2015

JUDGMENT OF BREWER J

This judgment was delivered by me on 4 June 2015 at 1:30 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Solicitors:             Meredith Connell (Auckland) for Plaintiffs

(Copy to Defendant in person)

MADSEN-RIES & ORS v CANDY [2015] NZHC 1229 [4 June 2015]

Introduction

[1]      The  defendant,  despite  having  been  served,  has  not  filed  a  statement  of defence within the number of working days required by the notice of proceeding. The plaintiffs seek judgment by default accordingly.

[2]      The proceeding has been listed before me for formal proof, and the plaintiffs have filed affidavit evidence.  The onus is on them, pursuant to r 15.9, to establish to my satisfaction each cause of action relied on and, so far as damages are concerned, to provide sufficient information to enable me to calculate and fix them.

[3]      This  judgment  decides  the  applications  for  judgment  by  default  on  the plaintiffs’ first, fourth and fifth causes of action.  Associate Judge Bell, in setting the case down for a formal proof hearing, recognised that the second and third causes of action, being alternatives to the first cause of action, do not need to be considered unless the plaintiffs do not cross the threshold necessary for me to be satisfied on the first cause of action.

Background

[4]      The first plaintiffs are the liquidators of the second plaintiff, appointed by the Commissioner  of  Inland  Revenue.     The  defendant  is  the  sole  director  and shareholder of the second plaintiff.

[5]      I will refer to the second plaintiff, in liquidation, as the second plaintiff.   I

will refer to it as “the company” when dealing with events pre-liquidation.

[6]      The case against the defendant is simple.   It is that from, at the latest, the financial year ended 31 March 2007, the company traded while insolvent within the definition provided by s 4 of the Companies Act 1993 (“the Act”):

4        Meaning of “solvency test”

(1)      For the purposes of this Act, a company satisfies the solvency test if—

(a)      The company is able to pay its debts as they become due in the normal course of business; and

(b)      The value of the company’s assets is greater than the value

of its liabilities, including contingent liabilities.

[7]      The affidavit of Mr Levin1  makes it clear that from this date the defendant continued to withdraw monies for her personal benefit despite the result that the company could not discharge its obligations to the Commissioner of Inland Revenue for PAYE,2 GST,3 income tax4 and child support employer tax.5   The debts owed by the company to the Commissioner increased steadily until, at the date of liquidation, they amounted to $205,754.28.  The amounts drawn by the defendant exceeded this total.  Mr Levin puts them at $311,810.49.

First cause of action: overdrawn current account

[8]      The  first  cause  of  action  is  to  the  effect  that  the  monies  drawn  by  the defendant and amounting to $311,810.49 were advances by the company having the effect of overdrawing the defendant’s current account to that amount.

[9]      I note that by letter dated 31 March 2014, the second plaintiff demanded this sum from the defendant. The defendant has made no reply.

[10]     Mr Levin has set out in his affidavit the reasons why he concludes that this sum cannot be explained other than by advances by the company on current account. He accepts the possibility of other legal pigeonholes, hence the existence of the second cause of action6 and the third cause of action.7   However, the most plain and obvious reason for the financial benefits accruing to the defendant in the relevant period is  that  she was  given  advances  by the  company in  debit  of her current

account.

1      Affidavit of Henry David Levin, sworn 28 May 2015.

2      First default in the period ended 31 August 2003. Consistent defaults from the period ended

30 September 2006 to the period ended 31 May 2009.

3      First default in the period ended 30 September 2005. Consistent defaults in various periods up until the period ended 31 January 2009.

4      Defaults in the periods ended 31 March 2008 and 31 March 2011.

5      First default in the period ended 31 May 2008. Consistent defaults in various periods up until the period ended 31 August 2009.

6      Transactions at undervalue.

7      Transaction for inadequate consideration.

[11]   I am satisfied, for the reasons advanced in the plaintiffs’ synopsis of submissions, that the advances were not by wage or salary.  Nor could they be, given the evident financial position of the company during the period in question.

[12]     I am satisfied that the plaintiffs have established the first cause of action.

Fourth and fifth causes of action

[13]     The fourth and fifth causes of action arise out of the same facts which I have found established for the first cause of action.  The defendant was at all times the sole shareholder and director of the company.  From the end of the 2007 financial year (at the latest) the company was insolvent.  Nevertheless, under the control of the defendant, it kept on trading.  The company failed to make the taxation payments due to the Commissioner, thereby enabling the defendant to draw funds for herself and to delay the inevitable collapse of the company.

[14]     Directors  of  companies  have  duties  towards  their  companies  which  are fiduciary and fiscal.   Breach of those duties can result in obligations to pay compensation.

[15]     The fourth cause of action alleges that the defendant breached her duties as a director of the company to act in good faith and in what she believed to be the best interests of the company.8

[16]     The statement of claim particularises the breaches by the defendant of these duties.9    Mr Levin’s affidavit provides the evidence and the plaintiffs’ synopsis of submissions persuasively ties the two together.

[17]     I am  satisfied  that  the  cause of action  is  made out.   As  a result  of the defendant’s breach of duties, I am satisfied that the company incurred a loss to the Commissioner  in  the  sum  of  $201,896.12,  represented  by  her  claim  in  the liquidation, plus the Commissioner’s Court costs in petitioning for liquidation in the

sum of $3,858.16. A total of $205,754.28.

8      Companies Act 1993, s 131.

9 Statement of claim dated 24 October 2014, at [57].

[18]     As to the fifth cause of action, that goes to s 135 of the Act, namely that the defendant breached her duties to the company not to cause or allow the business of the  company  to  be  carried  on  in  a  manner  likely  to  cause  serious  loss  to  the company’s creditors.

[19]     I am satisfied on the evidence and reasoning set out above that this cause of action  is  made out  also.   The sums  of money claimed  are the same,  and  total

$205,754.28.

Decision

[20]     The plaintiffs have satisfied me that the defendant owes the second plaintiff

$311,810.49 by reason of her overdrawn current account with the company.  Demand has been made, and not satisfied.  I give judgment for the second plaintiff in that sum plus interest from the date of liquidation in accordance with s 87 of the Judicature Act 1908.

[21]     I am satisfied also that the defendant breached her duties under s 131 and s 135 of the Act and I make declarations to that effect.

[22]     I  am  further  satisfied  that  on  the  fourth  and  fifth  causes  of  action,  and pursuant to s 301(1)(b)(ii) of the Act, the defendant should contribute to the assets of the second plaintiff by way of compensation the sum of $205,754.28, plus interest from the date of liquidation in accordance with s 87 of the Judicature Act 19078.

[23]     I make orders accordingly.

Costs

[24]     The plaintiffs are entitled to costs.  I fix these on a 2B basis.  They may be calculated by the Registrar in the event of disagreement.

Brewer J