Motel Holdings Limited v Tairua Pacific Harbour Limited

[2017] NZHC 2327

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2017-419-251 [2017] NZHC 2327

BETWEEN

MOTEL HOLDINGS LIMITED

Plaintiff

AND

TAIRUA PACIFIC HARBOUR LIMITED Defendant

Hearing:	25 September 2017
Appearances:	Mr S Moore for the plaintiff Mr J Savage for the defendant
Judgment:	25 September 2017

ORAL JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

[On application for appointment of interim liquidator pursuant to s 246 of the

Companies Act 1993]

MOTEL HOLDINGS LIMITED v TAIRUA PACIFIC HARBOUR LIMITED [2017] NZHC 2327   [25

September 2017]

[1]      A statement of claim seeking to put the defendant into liquidation was filed on

30 August 2017.  That has been followed by an application for appointment of an interim liquidator.  The application asserts in paragraph 2 that the grounds for the appointment of an interim liquidator are that there is a “strong likelihood of success” that a liquidation order will be made, and that the appointment of a interim liquidator is “necessary and expedient for the purposes of maintaining the value of the assets of the defendant” and that the overall justice of the case favours the making of such an order. The order is sought pursuant to s 246 of the Companies Act 1993.

[2]      The application relates to a company, the defendant, which operates a motel at Tairua under a grant of management rights which it purchased from the plaintiff for a price of approximately $440,000. The plaintiff claims that there have been failures to pay fees or rentals under the arrangements between the parties relating to the motel. It claims that it is owed approximately $70,000 which is overdue.  The defendant claims that it has a partial defence to the claim for the unpaid amounts because it has a set off for approximately $20,000.  It says that that set off arises in substance from it, the defendant, having to make purchases for equipment and otherwise to meet expenses in regard to the motel which the plaintiff is obliged to reimburse it for.

[3]      The debts that are allegedly owing would appear to be attributable to more than one of the individual contracts entered into between the parties. One of those contracts contains a “no set off” provision. That is the contract that relates to the unit which the parties identified as “PU 26” which is the office/owners residence unit.  There is no “no set off” provision in the other agreements.  Apart from the set off defence it is a little unclear what the nature of the defendant’s defence is to the plaintiff ’s claim. The claimed debt has not been made the subject of a judgment entered in general proceedings between the parties.

[4]      In his judgment in Truck and Trailer Holdings Ltd v Skelly Holdings Limited

Associate Judge Osborne said:1

1      Truck and Trailer Holdings Ltd v Skelly Holdings Limited, HC Christchurch, CIV-2012-409-

000541, 11 May 2012.

[7]       Beyond the statutory criteria it has been recognised that there are three main pre-conditions to an interim liquidation:

(i)       There must be a valid winding-up application underway. (ii)        The application will in all probability succeed.

(iii)     The circumstances must be not merely urgent, but also justify the appointment of an interim liquidator.2

[8]       The Court has recognised as three important factors: (a)       Whether the company assets are in jeopardy. (b)       Whether the status quo should be maintained.

(c)      Whether the interests of creditors are safeguarded.3

[9]       These various formulations are ways of measuring whether necessity or expediency are established. They are a "litmus test", not exhaustive.4

[5]      In the limited time that was available to me it has not been possible to enquire into the various issues which Associate Judge Osborne identified as being relevant to see whether the evidence that has been put forward in this case establishes with reasonable precision the grounds that an applicant for an order for interim liquidator must establish. The impression that I have is that there may be a reasonable probability or prospect of the plaintiff establishing that there is actually a debt owed and that it is overdue.

[6]      However the plaintiff would have to also establish in order to succeed on the substantive liquidation application that the company is insolvent.   A key piece of evidence which has been filed by the defendant is the affidavit of Mr Lloyd Murcott a chartered accountant, setting out his views on the solvency or otherwise of the defendant company.  Mr Murcott’s view is that the company is not insolvent on a balance sheet basis.   He does not consider the debt that is owed allegedly by the

defendant to the plaintiff on the grounds that it is “disputed”.  He says that all other

2      Carter Holt Harvey Ltd; Robert Bryce & Co Ltd v Chicken and Food Distributors Ltd (1995) 5

NZCLC 66, 648 (CA).

3      Robert Bryce & Co Ltd.

4      Shen v An Ying International Finance Ltd HC Auckland, CIV-2006-404-3088, 28 July 2006 at

[15].

debts which the company has incurred appear to have been paid on current terms.  It would however be possible for the plaintiff at the liquidation proceedings to establish insolvency even if it could only approve that one debt had not been paid timeously. There is a reasonable prospect that the plaintiff could establish insolvency on the basis

that I have just mentioned.

[7]      The next question is whether the company assets are in jeopardy and whether appointment of an interim liquidator would secure the position for the creditors who would otherwise suffer in the event that the status quo relating to the company was allowed to continue.

[8]      In my view this is a critical matter in the present case. The main assets of this company are the management rights. The management rights continue to be available regardless of the solvency or otherwise of the plaintiff.  So long as the motel business is a viable one the management rights, regardless of whom they are held by, will have value.  If the amount which the defendant paid for the management rights reflects the current market value (even though it is some time ago since the agreement was entered into) there is a substantial asset and it is not going to be lost to the creditors.

[9]      The Court has a discretion whether or not to agree to the appointment of an interim liquidator.  I have been told by Mr Moore that the failure of the defendant to pay current charges under the management rights and related agreements is causing financial distress to the plaintiff.  I accept that that is so but that is not a proper basis for making the appointment of an interim liquidator.   Mr Moore also told me that Mr Fitton who is apparently the principal of the plaintiff company was becoming exposed to liability as a guarantor of debts which the defendants owed to third parties. It is not clear to me that the position that Mr Fitton (as opposed to the position of the plaintiff company) is one that should be taken account of in the current proceeding.

[10]     On balance I do not consider that the serious step of appointing an interim liquidator in this case should be taken.  The application is dismissed.  Costs on the application for appointment of an interim liquidator are reserved.

J.P. Doogue

Associate Judge