Matrix Homes Ltd ((in Liquidation)) v Tawa Ltd Partnership

• Jurisdiction: New Zealand
• Judge: Gwyn J
• Judgment Date: 28 April 2022
• Neutral Citation: [2022] NZHC 848
• Docket Number: CIV-2021-485-364
• Court: High Court

UNDER the Land Transfer Act 2017 and the Companies Act 1993

IN THE MATTER OF an application under section 143 of the Land Transfer Act 2017 and an application under Part 16 of the Companies Act 1993

Between

John Marshall Scutter as liquidator of Matrix Homes Limited (in liquidation) and Matrix Homes Limited (in liquidation)

Applicant

and

Tawa Limited Partnership

Respondent

[2022] NZHC 848

Gwyn J

CIV-2021-485-364

CIV-2021-485-361

IN THE HIGH COURT OF NEW ZEALAND

WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA

TE WHANGANUI-A-TARA ROHE

Insolvency — applications to have certain transactions set aside as voidable transactions and for an order that a caveat not lapse — transactions at undervalue — definition of “transaction” — caveat granted by contract — Companies Act 1993 — Limited Partnerships Act 2008

Counsel:

K P Sullivan and D P MacKenzie for the Applicant

M Colson QC and C J Houlahan for the Respondent

JUDGMENT OF Gwyn J

TABLE OF CONTENTS

Introduction	[1]
The entities	[10]
The contract	[17]
Relevant subsequent events	[24]
The liquidation	[27]
The insolvent transaction	[29]
Issues for determination	[50]
Is there a transaction in terms of s 292(3) of the Act?	[52]
What constitutes the transaction?	[52]
Were the payments advances or pre-payments under the contract?	[53]
Discussion	[71]
Were the credit invoices a transaction for the purposes of s 292(3) of the Act?	[101]
Discussion	[103]
Was there a creditor/debtor relationship between Tawa LP and Matrix?	[110]
Conclusion on insolvent transaction	[116]
Transaction at undervalue	[117]
Discussion	[128]
The caveat	[132]
Discussion	[146]
The Tawa LP charge	[161]
Conclusion on Tawa LP Charge	[168]
Result	[169]
Costs	[172]

Introduction

1 These proceedings concern two related applications by the liquidator of Matrix Homes Limited (in liquidation) (Matrix), to have certain transactions set aside as voidable transactions, pursuant to s 292 of the Companies Act 1993 (the Act), and for an order that a caveat not lapse.

2 The applications arise from a contract dated 27 September 2016 between Matrix and Tawa Limited Partnership (Tawa LP) for the construction by Matrix of 11 duplex style modular apartments (the apartments), to be sited at 4 William Earp Place, Tawa, Wellington.

3 The applicant in both proceedings is the liquidator of Matrix, Mr John Scutter. Mr Sutter seeks:

• (a) That the voidable transactions be set aside and an order made for payment by Tawa LP to Matrix of $2,167,619.

• (b) An order that a caveat placed by Matrix over a property at 4 William Earp Place, Tawa, not lapse.

• (c) An order setting aside the security interest registered by Tawa LP on 29 May 2018 over 17 of the apartments, as voidable, under s 293 of the Act.

4 The liquidator's position is that credit invoices issued by Matrix to Tawa LP allowed Tawa LP to take ownership of the apartments, that were Matrix's property. Without the issue of the credit invoices, Tawa LP and its shareholders would have remained creditors of Matrix, in the amount of $3.3 million.

5 In the alternative, the liquidator says that the transfer of the apartments to Tawa LP was at an undervalue and falls within either s 297 and or s 298 of the Act.

6 Tawa LP's primary defence is that the payments relied on by the liquidator were pre-payments made under the building contract between Tawa LP and Matrix, not shareholder advances, as the liquidator contends.

7 Second, Tawa LP says that, even if the liquidator is correct that the payments were advances by Tawa LP's shareholders, Tawa LP was not a creditor of Matrix and the credit invoices for those payments did not allow Tawa LP to receive more towards satisfaction of its debt than it would have done in the company's liquidation. The requisite causal link did not exist.

8 Finally, Tawa LP says the transfer of the apartments to Tawa LP was not at an undervalue as the apartments were significantly defective and Tawa LP had to spend $2. 1m to put them into a saleable state.

9 In relation to the application that the caveat not lapse, Tawa LP says that Matrix does not have a caveatable interest in the property and the caveat should lapse.

The entities

10 Tawa LP is a limited partnership, registered under the Limited Partnerships Act 2008 on 8 August 2016. Its general partner is Tawa Developments Ltd. Sean Murrie and Joseph Hannah are the directors of Tawa Developments Ltd and hold 70 per cent and 30 per cent, respectively, of its shares.

11 Matrix was incorporated as Domino Housing Limited on 10 March 2014. Its purpose was to construct affordable, factory-build modular-style houses. The houses were to be constructed in Matrix's factory and then moved to the purchaser's site. Mr Murrie was initially the sole director and shareholder of Matrix. From December 2014, Matrix had a range of directors, but Mr Murrie remained its largest shareholder.

12 Mr Murrie and Mr Hannah met in 2014. On Mr Murrie's invitation, Mr Hannah became involved in Matrix.

13 Mr Hannah and Mr Murrie were interested in undertaking a property development to showcase a duplex design. Matrix's Shareholders' Agreement prevented it from undertaking property developments, except with the unanimous consent of its shareholders. Mr Hannah and Mr Murrie therefore decided to advance a property development outside of Matrix.

14 Mr Murrie was the registered proprietor of a property at 4 William Earp Place, Tawa, Wellington. 1 He and Mr Hannah agreed by way of a Heads of Terms of Agreement 2 that Mr Murrie would contribute the property at 4 William Earp Place and Mr Hannah would contribute $500,000 in exchange for a 30 per cent stake in Tawa LP.

15 They reached broad agreement in December 2015, but Tawa LP was not registered until 8 August 2016.

16 Tawa LP had trouble raising funds from banks and, consequently, the partners loaned it further funds over time. The shareholding in Tawa LP eventually became 56.5 per cent for Mr Murrie and 43.5 per cent for Mr Hannah.

The contract

17 Tawa LP contracted with Matrix on 27 September 2016 to build 11 two-storey duplex apartments for a development on the property at 4 William Earp Place (the contract).

18 The contract provided:

• (a) The development was to consist of 11 duplex style modular apartments (22 units in total). 3

• (b) For a fixed price of $2.75m (including GST) plus any variations (original contract price) 4

• (c) The Property was the place where the apartments were to be built, or located after they were built. 5 The Property was identified as 4 William Earp Place, Tawa, Wellington. 6

• (d) The building of the apartments was expected to start on October 2016 and end by 15 February 2017. 7 Matrix's margin for the project was to be 30 per cent. 8

• (e) Progress payments were to be made on the completion of predefined stages. 9 All amounts were inclusive of GST.

• (f) The contract allowed Matrix to render invoices “at any time after a relevant stage of completion is reached”. 10 Payment in full was required within five working days of the invoice being delivered 11 and introduced the payment regime under the Construction Contracts 2002. 12

• (g) Progress payments were to be made 10 working days after the issue of an invoice. 13

• (h) Tawa LP was entitled to immediate possession of the apartments once it had paid Matrix the final contract price. 14 The requirement to obtain a Certificate of Practical Completion was deemed “N/A” by the parties. 15

• (i) Matrix could allow Tawa LP to take possession of the apartments prior to full payment, provided Tawa LP provided Matrix with “such security

  as [Matrix] may reasonably require for payment of any unpaid or disputed amounts”. 16

• (j) Tawa LP granted and agreed to execute a registrable, all-obligations mortgage to Matrix to secure its payment obligation under the contract. 17

• (k) Matrix was provided with a discretion to register a caveat against the title to the property, in respect of its interest as mortgagee. 18

• (l) Tawa LP was to be liable for any costs incurred by Matrix as a result of any default in making payment. 19

19 Each of Mr Murrie, Mr Hannah and Tawa LP paid amounts to Matrix:

• (a) $1,937,000 from Mr Murrie (between 8 February 2017 and 3 October 2017).

• (b) $565,000 from Mr Hannah (between 22 March 2016 and 27 January 2017).

• (c) $830,000 from Tawa LP (between 30 May 2017 and 6 July 2018).

20 No invoices were rendered by Matrix under the contract between 27 September 2016, the date of the contract, and 31 March 2018.

21 Matrix rendered three invoices to Tawa LP in April 2018 (the credit invoices), as follows:

• (a) INV-3467 dated 1 April 2018 for a credit of $1,937,000, described as “Transfer loan amount to invoice”.

• (b) INV-3468 dated 1 April 2018 for a credit of $565,000, described as “Transfer loan amount to invoice balance”.

• (c) INV-3469 dated 15 April 2018 for a credit of $830,000, described as “transfer balance of shareholder loans to customer credit” (referred to by Mr Scutter as the “Pre-Payment Invoice”).

22 In April 2018, Matrix rendered three invoices to Tawa LP for the final contract price (the contract invoices), as follows:

• (a) INV-3307 dated 15 April 2018 for $2,833,669.96.;

• (b) INV-3342 dated 15 April 2018 for $109,634.40.

• (c) INV-3460 dated 24 April 2018 for $54,314.59.

23 Matrix did not receive any cash flow from the contract invoices. The contract invoices are all recorded as paid, with no balance owing by Tawa LP. The liquidator's evidence is that Tawa LP appears to have been treated as having paid the contract invoices through the credit invoices and the pre-payment invoice, as detailed at [21] above.

Relevant subsequent events

24 In April 2018 Tawa LP obtained ownership of the...