BBG Holdings Ltd ((in Liquidation)) v Fatupaito and Bowker as joint and several liquidators of CIT Holdings Ltd ((in Liquidation))
| Jurisdiction | New Zealand |
| Judge | Sussock |
| Judgment Date | 23 July 2021 |
| Neutral Citation | [2021] NZHC 1877 |
| Docket Number | CIV-2020-404-2159 |
| Court | High Court |
UNDER the Companies Act 1993 and the High Court Rules 2016
IN THE MATTER of an application under s 284 of the Companies Act 1993
JUDGE Sussock
CIV-2020-404-2159
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA
TĀMAKI MAKAURAU ROHE
Companies, Insolvency — application for review of a liquidator's decision by a creditor — the creditor's claim had already been rejected by the liquidator — creditor and company in liquidation shared the same director — test for leave — Companies Act 1993 — Companies Act 1993 Liquidation Regulations 1994
B Gustafson and W van Roosmalen-Werie for the Applicant
M Tingey for the Respondents
This judgment was delivered by me on 23 July 2021 at 4.30pm
pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
BBG Holdings Limited (in liquidation) applies for a review of a decision by the liquidators of CIT Holdings Limited (in liquidation) to decline BBG's claim in the liquidation of CIT.
BBG's claim relies on invoices from BBG to CIT in respect of civil works completed by JG Civil Limited. The claim was initially accepted by the CIT liquidators but several years later the decision was reversed, following submissions to the liquidators on behalf of Mr Gregory Olliver that the claim should be rejected. Mr Olliver was the director of BBG and CIT at the time the invoices were issued.
BBG does not accept the basis for rejecting the claim and so has brought this application seeking a review of the decision.
Leave is required for a creditor to apply for review to ensure that liquidators are free to undertake their duties in a cost effective and efficient manner and only appropriate challenges proceed.
The issues for determination are:
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(a) Should leave be granted to BBG as a creditor to bring the application?
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(b) Was it unreasonable for the liquidators of CIT to reject BBG's claim in the liquidation of CIT?
The application involves two entities associated with Mr Olliver and his former wife, Ms Sarah Sparks. It is important to consider the BBG claim in context, so the background facts are set out in some detail below. Mr Olliver and Ms Sparks' business affairs have been described by the Court of Appeal as having a “convoluted legal structure” so unfortunately it is relatively complex. 1
Mr Olliver and Ms Sparks began their relationship in 1997 and married on 18 March 2000. They separated on 4 July 2012 and their marriage was dissolved on 25 August 2014. 2
Over the course of the couple's marriage, a number of properties were purchased in Waimarie Street, St Heliers, through related entities. One of the properties was used as the family home. The other properties (other than those immediately adjacent to the family home) were viewed as a development opportunity.
In 2009, following the global financial crisis, bankruptcy proceedings were brought against Mr Olliver. In order to try and salvage some value for the benefit of the family a plan was devised which was structured as a joint venture between the Waimarie Trust, controlled by Ms Sparks, and the Glover Trust, controlled by Mr Olliver (at least at that time). The discretionary beneficiaries of both trusts included Mr Olliver, Ms Sparks and their children. The joint venture was to be carried out through CIT Holdings, the company for which the respondents are the liquidators.
A short history of the Waimarie properties is set out in CIT Holdings Ltd v Glover No. 2 Ltd and I set it out here: 3
The Waimarie properties — a short history
The properties
[6] When Mr Olliver's insolvency proposal was being pursued in 2009, Mr Olliver and Ms Sparks embarked upon arrangements to have Mr Olliver drop out of both legal and beneficial ownership of assets held by them or their interests.
The Waimarie Joint Venture
[7] Central to their arrangements was a joint venture agreement of March 2009 (the Waimarie JV) to which the Glover Trust and the Waimarie Trust were (through their corporate trustees) parties. (Glover No. 2 subsequently took the Waimarie Trust's place as a party by the deed of novation referred to at [17] below).
[8] The recitals to the Waimarie JV indicate its purposes:
“WHEREAS
A The parties have experience in the acquisition and potential for the Property. The opportunity has arisen to acquire the Property by mortgagee sale. The purchase of that has to be completed as a total package.
B For the purposes of preserving the residential portion of the Property for the benefit of Waimarie and maximising the potential for the residue of the property without prejudicing the residential portion the parties are to form the Joint Venture.
C Glover and Waimarie intend to contribute to the Joint Venture by investing capital and borrowing on current account loans to the Joint Venture on the basis set out in this agreement.”
[9] The “Property” referred to in the Waimarie JV was defined as comprising a number of properties, which I will refer to as the first tranche properties.
[10] The parties agreed that the Waimarie Trust would contribute “capital” and that the Glover Trust would contribute the Property. The Waimarie JV included the following further provisions:
“1. Interpretation and definition
…
“Percentage interests” means for Waimarie (yet [sic] having contributed to be [sic] cash equity to the Joint Venture) a 60% share, which shares shall include the distribution or transfer in specie of the residential portion of the Property, and for Glover a 40% share.
“Property” means the properties set out in the schedule.
“residential portion” means the property (more or less) set out as the first listed in the schedule [being a reference to 22 to 24 Waimarie Street].
“2.3 Upon the commencement date:
(a) Waimarie shall contribute the initial capital of $2,000,000.00;
(b) Glover shall contribute the Property. The Property to remain in the name of the Glover owned company, CIT Holdings Ltd (‘CIT’), for so long as the Property or any part of it remains part of the assets of the Joint Venture. The beneficial ownership of the Property and other assets of the Joint Venture shall be determined in accordance with the terms of this agreement and not by reference [sic] the title to any part of the Property or the shareholding of CIT.
6. Termination
6.1 This agreement shall terminate upon the transfer of the residential portion to the Waimarie free of any encumbrance and completion of the realisation by sale of the remainder of the Property. On the completion of the transfer of the residential portion and all sales of the remainder of the Property any remaining cash assets shall be divided between the parties in proportion to their respective percentage interests in completion of the termination of the Joint Venture.”
(I will refer to cl 2.3(b) as “the beneficial ownership clause”).
[11] The Waimarie JV concludes with an entire agreement clause which strips any prior understandings of all force or effect and provides that the JV agreement constitutes the sole understanding of the parties with respect to the subject matter. In other words, the correct construction of the agreement is to be derived from the words used in the written document read in their context but not (by reason of the entire agreement clause) from any previous written or oral discussions or understandings.
[12] On 9 March 2009, CIT bought the first tranche properties funded by the Waimarie Trust's $2,000,000 and an advance from the Bank of New Zealand (BNZ) of $6,750,000. The bank loan was secured by a first ranking mortgage over the first tranche properties and a General Security Agreement (GSA) over CIT's present and future property. Ms Sparks, as director of CIT, signed the mortgage and GSA documentation.
[13] The following month, April 2009, the Glover Trust and the Waimarie Trust entered into an agreement supplementary to the Waimarie JV. The supplementary agreement recorded the purpose:
A The parties are parties to a Joint Venture known as the Waimarie Joint Venture pursuant to an agreement dated March 2009.
B A further opportunity has arisen in respect of adjacent properties to those acquired under the joint-venture.
C Waimarie intends to contribute further capital to the Joint Venture on the basis set out in this supplementary agreement.”
(The gap in paragraph A, with a date omitted, is as it appears in the document).
[14] In the supplementary agreement the Waimarie Trust agreed to contribute further capital of $1,675,000 which the joint venture was to apply to the purchase of further properties (which I will refer to as the second tranche properties). The supplementary agreement repeated in materially identical terms the beneficial ownership clause of the Waimarie JV.
[15] In April 2009, CIT purchased the second tranche properties for $1,650,000.
[16] The BNZ was not notified of the purchase of the second tranche properties but those properties became subject to the GSA as after-acquired property of CIT.
In the latter half of 2010 the relationship between Ms Sparks and Mr Olliver began to deteriorate and the couple separated in July 2012. Unbeknownst to Mr Olliver, Ms Sparks settled the Glover No. 2 Trust and executed a suite of documents for the purpose of transferring the second tranche of properties from CIT (of which she was a director at the time) to Glover No. 2 Limited, as trustee for the trust. By deed of novation Glover No. 2 replaced the Waimarie Trust as a party to the Waimarie JV. At the same time, Ms Sparks executed a declaration by Glover No. 2 that it held the second tranche of properties on a bare trust for CIT.
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Bbg Holdings Limited (in Liquidation) v Fatupaito and Bowker As Joint and Several Liquidators of Cit Holdings Limited (in Liquidation)
...HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE CIV-2020-404-2159 [2021] NZHC 1877 UNDER the Companies Act 1993 and the High Court Rules 2016 IN THE MATTER of an application under s 284 of the Companies Act 1993 BETWEEN BBG HOLDINGS LIMITED (in li......