Spence v R
| Jurisdiction | New Zealand |
| Judge | Peters J |
| Judgment Date | 30 September 2021 |
| Neutral Citation | [2021] NZCA 499 |
| Docket Number | CA279/2020 |
| Court | Court of Appeal |
[2021] NZCA 499
Collins, Duffy and Peters JJ
CA279/2020
IN THE COURT OF APPEAL OF NEW ZEALAND
I TE KŌTI PĪRA O AOTEAROA
Criminal Sentence — appeal against a sentence of five years, three months imprisonment imposed for offences under the Companies Act 1993 and Insolvency Act 2006 — phoenix companies — breach of directors duties — admissibility of evidence based on self-reporting
N P Chisnall and L A Elborough for Appellant
E J Hoskin for Crown
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A The application to adduce fresh evidence is allowed.
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B The appeal against sentence is allowed in part.
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C The sentences imposed on charges 2, 3, 4, 8 and 13 are quashed. A sentence of three years, nine months' imprisonment is substituted on charge 2. The same sentence is imposed on charges 3, 4, 8 and 13, each to be served concurrently with the sentence imposed on charge 2. The sentences imposed on the remaining charges are unchanged.
(Given by Peters J)
Mr Spence appeals against his sentence of five years, three months' imprisonment imposed by Judge D J Sharp on 5 May 2020 for 12 offences under the Companies Act 1993 (Act) and Insolvency Act 2006 (IA). 1 Mr Spence pleaded guilty to the offending following a sentence indication on 23 August 2019. 2
The charges to which Mr Spence pleaded guilty were:
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(a) charges 1 and 7: as a director, failing to comply with a notice given by a liquidator pursuant to s 261 of the Act; 3
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(b) charges 2 and 3: breach of director's duty to act in good faith and in the best interests of the company; 4
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(c) charges 4, 8, and 13: being either the director of or involved in the management of a “phoenix” company as defined in s 386B(1) of the Act; 5
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(d) charges 9 and 12: failing to file a statement of affairs; 6
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(e) charges 6 and 10: participating in the management of a business whilst an undischarged bankrupt; 7 and
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(f) charge 11: misleading or attempting to mislead the Official Assignee. 8
Charge 5 was brought against Ms B, Mr Spence's de facto partner, and is irrelevant to this judgment.
The maximum term of imprisonment for the charges referred to in [2(b)] and [2(c)] above is five years' imprisonment. The maximum term for the charges referred to in [2(d)] and [2(f)] above is 12 months' imprisonment, and for the remaining offending is two years' imprisonment.
The Judge's starting point for the offending was six years' imprisonment. 9 The Judge increased the sentence by six months for Mr Spence's offending whilst bailed on the pre-3 August 2018 offending (the significance of that date is explained below), and by a further six months for Mr Spence's prior convictions. 10 The Judge's discounts for personal mitigating factors and guilty pleas brought the end sentence to five years, three months' imprisonment. 11
Mr Chisnall, counsel for Mr Spence on appeal, submits the sentence is manifestly excessive. In particular, Mr Chisnall submits the Judge's starting point exceeded the available range, that the discount for personal mitigating factors was insufficient, and that the Judge erred in uplifting for Mr Spence's previous convictions. The Crown contests only the first two of these submissions.
The following derives from the summary of facts, on the basis of which Mr Spence pleaded guilty (SOF).
Compass Roofing Limited (CRL), of which Mr Spence was the sole director, was incorporated in December 2011 and carried on business as a roofing contractor.
In August 2015, Mr Spence incorporated Compass Group Limited (CGL), apparently recognising that CRL's financial position was perilous. Mr Spence was also the sole director of CGL.
As at March 2016, Mr Spence's current account with CRL was overdrawn by $154,602.00. CRL's solvency at that date depended on Mr Spence's ability to repay that debt. Absent that, CRL was insolvent.
In late March or early April 2016, Mr Spence instigated the transfer by CRL of its assets to CGL for $15,461.46, when those assets were valued at $148,423, that is at an undervalue of $132,961.54. In addition, and again at Mr Spence's instigation, CRL transferred funds due to CRL to CGL, these sums totalling $147,957.71.
Mr Spence also failed to repay his shareholders current account with CRL, which was overdrawn by $164,828.48.
These events gave rise to charge 3.
On the application of the Inland Revenue Department (IRD), CRL was placed into liquidation on 23 September 2016. On that date, the liquidators issued Mr Spence with a notice in writing under s 261 of the Act. Mr Spence failed to comply with the notice and failed to attend a meeting with the liquidators on 26 September 2016. These matters gave rise to charge 1.
As at the date of the SOF, claims by creditors in CRL's liquidation totalled $641,391.51, of which the liquidators had recovered only $37,026.84, Mr Spence having paid $17,546.15 of that sum.
At all material times, CGL traded under the following names: “Compass Roofing”, “Compass Group” and/or “Compass Roofing Group”. The effect of CGL doing so was to render it a phoenix company within, as we have said, the definition of s 386B(1) of the Act.
It is an offence for a director, Mr Spence, of a “failed company” (CRL in this instance) to be a director of, or directly or indirectly concerned in the management of, a phoenix company. 12 Mr Spence's directorship of CGL was thus an offence, giving rise to charge 8.
CGL itself began experiencing financial difficulties. Again, Mr Spence instigated the transfer by CGL of its assets to another company he had incorporated, Caspian Engineering Ltd (CEL).
On 1 April 2017, CGL sold its assets to CEL for $92,639.16. Those assets being valued at $139,750, on its face this sale was at an undervalue of $47,110.84.
To compound matters, CEL paid only $77,101.50 of the purchase price, and even that sum derived from CGL. In short, CGL transferred its assets to CEL for no consideration, and thus in reality incurred a loss of $139,750.
Moreover, Mr Spence cited CEL's bank account as the account to which debtors of CGL should pay sums due for work done by CGL. The sums so diverted totalled $159,244.87, although $77,101.50 was applied as per the previous paragraph. Accordingly, the net loss to CGL was $82,143.37.
Mr Spence and Ms B also drew $532,972.70 from CGL, this sum being paid into their joint account of which only $154,256.98 was repaid, leaving a deficit of $378,715.72. Apparently Mr Spence and Ms B applied much of this to pay wages, in an apparent attempt to avoid CGL's PAYE obligations to the IRD.
These events gave rise to charge 2.
Again, an order was made for the winding up of CGL on the IRD's application.
On 10 July 2017, the liquidators issued Mr Spence with a notice in writing pursuant to s 261 of the Act. Mr Spence did not comply with the notice (charge 7), but rather sent offensive and abusive emails to the liquidators.
Claims by creditors in CGL's liquidation, including the IRD for $111,678.12, are not less than $388,860.12. As at the date of the SOF, the liquidators had recovered $127,777.72.
Although Ms B was CEL's sole director, the SOF records that Mr Spence was in control of the company. Having transferred CGL's undertaking to CEL, Mr Spence advised clients there would be no change to the business, and CEL continued to use the same website and logo, and to trade under CRL's trading names. These events gave rise to charge 4.
Mr Spence was adjudicated bankrupt on 13 February 2018.
Mr Spence failed to file a statement of affairs with the Official Assignee, being an offence pursuant to s 433(1)(a) of the IA.
Also, in breach of s 149(1)(a) of the IA, Mr Spence continued to take part in the management of CEL, being an offence under s 436(1)(b).
These acts/omissions gave rise to charges 6 and 9.
Mr Spence was charged with the above offending on 3 August 2018.
Thereafter, Mr Spence continued to participate in the management of CEL (charges 10 and 13); sought to mislead the Official Assignee (charge 11); and again failed to file a statement of affairs (charge 12).
Lastly, it appears from the Judge's sentencing indication that CEL was itself placed into liquidation which we expect must have occurred sometime in 2018 or 2019.
As appears below, the lead offending at sentencing was that under s 138A of the Act. Section 138A was enacted in 2014. It is one of the few offences under the Act for which the maximum sentence of five years' imprisonment is reserved.
A breach of s 138A is proved if a director exercises his or her powers or performs his or her duties as a director in bad faith, believing that his or her conduct is not in the best interests of the company concerned, and knowing that his or her conduct will cause the company “serious loss”. In short, the offending requires dishonesty.
The extent of the loss Mr Spence caused to CRL and CGL is unclear. The Judge's sentencing indication is to the effect the Crown calculated it at $952,526.00, with other losses said to take the total to more than $2.4 million.
It is not apparent to us how those sums were calculated but, at the very least and on our reckoning, the loss occasioned by the sales at undervalue and the diversion of funds totalled $502,812.62. This takes no account of the failure to repay the overdrawn current accounts. A failure to repay might constitute a breach of s 138A depending on the circumstances prevailing at the time the funds were drawn. Certainly Mr Spence and Ms B must have known they would never repay the more than $500,000 they drew from CGL, so that would constitute a...
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Spence v R
...COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA CA279/2020 [2021] NZCA 499 BETWEEN SAM OLIVER SPENCE Appellant AND THE QUEEN Respondent Hearing: 24 August 2021 Court: Collins, Duffy and Peters JJ Counsel: N P Chisnall and L A Elborough for Appellant E J Hoskin for Crown Judgment: 3......