IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-002852 [2013] NZHC 1418

BETWEEN	JML LIMITED (IN LIQUIDATION) First Plaintiff

AND	JILL MEIKLE and WYNDHAM TRUSTEES LIMITED
First Defendant

AND	CLIFFORD DESMOND MEIKLE Second Defendant

Hearing:	13 June 2013

Appearances:	D M Hughes for Plaintiff
T S P Bowler for Defendants

Judgment:	13 June 2013

JUDGMENT OF VENNING J

Solicitors:	Kensington Swan, Auckland
Neilsons Lawyers, Auckland

JML LIMITED (IN LIQN) v MEIKLE [2013] NZHC 1418 [13 June 2013]

[1]       The plaintiff is a duly incorporated company which is in liquidation.   The second  defendant  Mr  Meikle  was  at  all  material  times  the  sole  director  of  the plaintiff.  The first defendant is a Trust.  It is the sole shareholder of the plaintiff.  At all material times the second defendant was also the sole director of a company CDM Limited, formerly Meikle Transport Limited.   That company is also in liquidation.

[2]       Prior to liquidation Mr Meikle effectively operated the plaintiff and CDM in the business of storage and cartage of general goods.

[3]       On 24 October 2012 CDM and the plaintiff entered a sale and purchase agreement under which CDM agreed to sell and the plaintiff agreed to purchase the business of CDM.   The purchase price was $955,000.   It was financed by an on demand loan from CDM to the plaintiff.   On or about 1 November 2012 CDM’s assets were transferred to the plaintiff.  The plaintiff remains indebted to CDM for the $955,000.

[4]       In  December 2012  the  plaintiff agreed  to  sell  its  assets  to  a  third party purchaser.  The purchase price was $1.775 million.  That sale was settled in February
2013.  Following settlement of the sale the plaintiff made a shareholder distribution of net sum of $715,000 to the first defendant Trust.

[5]       As the plaintiff company is in liquidation, its claim was instigated in its name by its liquidators.  It alleges that at the time of that distribution the plaintiff failed to satisfy the solvency test under the Companies Act 1993.

[6]       On 7 May 2013 the first defendant Trust resolved to put the plaintiff into liquidation.  The liquidators consider that the plaintiff had unsecured creditors as at the date of liquidation of approximately $1.06 million.  There are insufficient funds in the plaintiff to repay those unsecured creditors, including CDM.  CDM is itself in liquidation.

[7]       The plaintiff seeks relief against the first defendant Trust on the basis that it is entitled to recovery under s 56 of the Companies Act and on the basis of a breach of s 52 of the Companies Act.

[8]       Following the distribution of the $715,000 to the first defendant Trust it appears the money was subsequently transferred in whole or in part,  to a bank account in the name of Mrs Prisk, who is Mrs Meikle’s mother.   Mrs Prisk is deceased but the account was apparently jointly operated by her and Mrs Meikle.

[9]       The liquidators applied ex parte for freezing orders.   After hearing from counsel Woodhouse J made freezing orders restraining the defendants from dealing with the funds held in the account of Mrs Prisk and other related and ancillary orders.  The ancillary orders required the defendants to inform the plaintiff through the liquidators of the amounts paid by the plaintiff to the Trust, details of all accounts to which the Trust had transferred the funds and any funds held by any other person which formed part of the funds received by the Trust as a result of the sale.

[10]     Subsequently the liquidators and their advisers learned that the moneys had been paid out of the Prisk bank account on the same day that the orders were made before they were formally advised to the defendants.   After receipt of counsel’s further  memorandum  dealing  with  that  matter  the  Court  made  a  further  order directing a further freezing order in relation to a bonus bond holding account in the name of Mrs Meikle, which was understood to be the recipient of part at least of the funds that were intended to be frozen.

[11]     As is usual the freezing orders provided the defendants could apply to the Court to discharge or vary the order and confirmed the order was to have no effect after 13 June unless on that day the order was continued or renewed by the Court.

[12]     The defendants filed papers formally opposing the continuation or renewal of the freezing orders on the grounds:

they were vexatious, oppressive and unnecessary;

          that the applicants had failed to make full disclosure to the Court;

          the applicants had failed to make proper inquiries in relation to travel plans of the defendants that were referred to in the application;

          the personal circumstances of the defendants – the defendant Mr Meikle and

particularly Mrs Meikle;

          there was no risk of dissipation of the funds because the defendants had offered to provide information in relation to certain Australian bank accounts;
and

          that  the  defendants  were  entitled  to  obtain  advice  before  paying  over  a

balance on $350,000 that they had agreed to pay to the applicants.

[13]     The background to the last matter is that following the liquidation Mr Meikle met with the liquidators and had agreed to arrange to pay over $550,000 of the
$715,000 distributed by the plaintiff.   Two hundred thousand was paid over but before the balance $350,000 was paid over events rather overtook matters when the liquidators became concerned at the developments they considered placed the funds at risk.   Mr Meikle took the view he and the first defendant were entitled to take advice before paying the balance of the agreed sum.

[14]     The matter was set for review and hearing this morning.  Yesterday afternoon counsel for the defendants filed a memorandum to advise that, for the reasons set out in an updating affidavit of Mr Meikle, namely the stress these proceedings were causing him and more particularly Mrs Meikle, and the effect on her health, the defendants wished to avoid a further protracted hearing.   He sought to reach an agreed position with the liquidators.  The memorandum recorded a proposal put to the liquidators whereby the money now in the bonus bonds account be paid to the respondents’ solicitors trust account on terms to be agreed by the parties and subject to an expenditure allowance which would allow for the deposit for the purchase of a truck and trailer by Mr Meikle.   Mr Meikle deposed that he was looking to work again in the transport industry.   He intended to purchase a second-hand truck and

trailer.   The cost was $120,000 plus GST.   He intended to obtain finance for the purchase but would need a deposit of at least 25% of $30,000.  He also needed to pay the GST in the sum of $18,000.  He proposed that as a means forward.

[15]     After further discussion this morning, matters have really not advanced much further than that.  The liquidators’ position is that they are not able to consent to a proposal that funds such as that sought by Mr Meikle be released to him for the purposes of purchasing the truck and further, they say that there is a sum of 20,000 odd thousand dollars, or at least the balance of that, available to the Meikles for living expenses.  They consider these proceedings should be substantially advanced before further funds are applied to the defendants.

[16]     The first issue for the Court is whether or not the freezing orders should be extended past today.  In his affidavit filed in support of the opposition Mr Meikle has raised a number of factors.  He objects to a number of the matters that the liquidators referred to in their affidavits to support the application for freezing order.

[17]     On my review of the papers a lot of the matters which are seen as potentially contentious do fall away to one side.  I do not, for instance, consider it particularly relevant that the Meikles have made arrangements to travel overseas or that Mr Meikle has recently opened a bank account in Australia.  The Meikles have family in the United States and Australia which explains the travel and also, in part at least, explains the bank account in Australia, although I observe the liquidators’ point that the bank account has only recently been opened.

[18]     The most concerning feature from the Court’s point of view is the matter deposed to by Mr Lawrence.  At a meeting with Mr Meikle on 13 May, Mr Meikle advised him that the money distributed to the Trust had been transferred to his mother-in-law’s bank account to prevent the IRD from accessing the funds as he had previously had funds deducted by the IRD from his account.  That conversation is not necessarily accepted fully by Mr Meikle, but the matter has not been directly addressed.  I note that the Commissioner of Inland Revenue supports the liquidators’ proceedings and the application for freezing order.

[19]     On the material before the Court, the Court is satisfied at this stage that the liquidators have a good arguable case in the claim they bring against the defendants. There is also clear evidence that the defendants have assets inside the jurisdiction of New Zealand.   Importantly, on the information before the Court at present, the applicants satisfy the Court that there is a risk of disposition of those funds as evidenced by the movement of those funds from the first defendant Trust’s bank account to the bank account of Mrs Prisk and then perhaps coincidentally, the movement of those funds from that bank account to the bonus bonds. Taken with Mr Meikle’s knowledge of the ability of the IRD to access such funds, it suggests that there is a risk of disposition of those funds.  That supports both the freezing order previously made and a continuation of the freezing order.

[20]     To a large extent that is effectively recognised by Mr Meikle and the other defendants by the position they have adopted and by the proposals they have now put forward for the return of the bonus bond funds and the balance sum held in the Prisk account.

[21]     The next matter is to identify the funds still in issue.  During the course of the discussions this morning counsel produced a letter of 31 May from the defendants’ solicitor which set out the distribution of the $715,000 that had been paid out from the sale of the business. That records as follows:

(a)	Amount paid to the liquidators	$215,000 (The additional $15,000 over the $200,000 paid by Mr Meikle is the sum paid in advance on the initial appointment of the liquidators)

(b)       Held in bonus bonds                                                               $330,000 (c)       Paid to trade creditors                                                               $40,000 (d)       Prisk account                                                                            $15,000 (e)       Cash                                                                                          $20,000 (f)       Paid to former landlord to settle a dispute                                $90,000

(g)	Funds and applied and spent on living expenses to that date of $5,000.

[22]     I record Mr  Bowler’s advice, which seems logical with respect, that the amount of $20,000 has been further reduced since 31 May.

[23]     For the reasons given above I am satisfied that the $330,000 held in the bonus bonds and the $15,000 in the Prisk account should remain subject to the freezing order.

[24]     That really leaves the issue of the Meikles’ ordinary living expenses, which are provided for in the previous order of the Court and the interpretation of clause
5(c) of the order, which provides that the order does not prohibit the defendants from dealing  with  the  assets  for  the  “purpose  of  ...  disposing  of  assets,  or  making payments,  in  the ordinary course of  your business,  including business  expenses incurred in good faith”.

[25]     As to ordinary living expenses there is at present at least sufficient funds from the balance of the $20,000 held in cash by the defendants and controlled by the Meikles to meet their ordinary living expenses at present.   There should also be sufficient at least at present to satisfy the payment of legal expenses related to the freezing order, which is provided for by existing clause 5(b) of the order.

[26]     The real issue remains Mr Meikle’s proposal that the further sum of $30,000 be released from the frozen funds to enable him to purchase the truck and trailer. The rationale for that is that it will enable him to earn an income and without that, once the balance of funds held in cash is depleted, further recourse will have to be had to the Court to release more of the frozen funds to meet the living expenses.

[27]     As matters developed this morning Mr Meikle was also prepared to forgo the request for further funds to meet the GST component of the purchase.  Mr Bowler also submitted that if the request was not able to be accommodated then Mr and Mrs Meikle might seek a further sum of money for the expenses of their travel overseas.

[28]     I am told from the Bar that Mr Meikle has contracts in place which would enable him to earn income if the funds were released.  As noted counsel relies on clause 5(c) to justify the payment of that $30,000.

[29]     Clause 5(c) is a standard provision attached to a number of freezing orders. The purpose of it is to ensure that a party that might be subject to a freezing order can reasonably carry on existing businesses and to ensure that the freezing order does not have the effect of effectively shutting such businesses down.  It is directed at the continuation of the ordinary course of such businesses.  What Mr Meikle is proposing is effectively to obtain funds to start up and establish a fresh business because of the circumstances he now finds himself in.   I am not convinced or persuaded by counsel’s submissions that clause 5(c) applies to the particular circumstances of this case.   It does not authorise  the deduction of the $30,000 sought.

[30]     That is not to say that the Court would never approve such an application. The position simply is that at present clause 5(c) does not authorise the release or use of the $30,000 and I am not satisfied there is sufficient information currently before the Court to allow it to authorise the deduction of such further sum of $30,000 from the funds that are, in my judgment, properly frozen.

[31]     The Court can see the practical advantage to all parties of Mr Meikle being in a position to earn an income which would reduce the need for him to apply to the Court for a further distribution or a release of further funds from those frozen to meet the living expenses of Mr Meikle and Mrs Meikle.  I am sure that the liquidators will also see the practical advantage of that.

[32]     However, as I say, at present there is not sufficient information before the Court about the proposed business contacts, or income that might be earned from it etc. to enable the Court to authorise the release of the money sought.  I do not accept the counter advanced by Mr Bowler for the defendants that if that was not granted then  a  further  $6,000  or  $7,000  will  need  to  be  released  for  additional  travel expenses for their (already booked and paid for) trip to the United States.

[33]     The defendants are entitled to ordinary living expenses.   They will have ordinary living  expenses  in  the  United  States  just  as  they have  ordinary living expenses in New Zealand.  There may be a slight difference in those expenses but at the end of the day they are ordinary living expenses.  Again, at present, I see no reason why they could not be met from the balance of the $20,000 cash presently held.  In the event they are insufficient then a further application can be made to the Court to release or discharge further funds.

[34]     It is in all parties’ interests to have the substantive proceedings in this case resolved as soon as possible.  To that end I propose to keep this matter under review. There will be a telephone conference before me at 9.00 am on 27 June 2013. At that telephone conference I expect counsel to be in a position to advise the Court of an agreed timetable for the resolution of the substantive proceedings.

[35]     I also invite counsel between now and 27 June to discuss the issue of Mr Meikle’s proposal in relation to the purchase of the truck further.  That will require Mr Meikle to  provide further information  to  the liquidators  of the kind  I have referred to.   That information may need to be reduced to affidavit form and, if necessary, I reserve leave for Mr Meikle to renew the application for release of those funds at the telephone conference before me at 9.00 am.

[36]     The existing freezing orders, as relevant,  remain in place until further order of the Court, save that they are now specifically directed to the funds now held in the bonus bonds and the $15,000 in the Prisk account.   The bonus bonds are to be redeemed and the sum of $330,000 paid forthwith to the trust account of Neilsons Lawyers.  It is to be held on interest bearing deposit in the name of both the plaintiff and defendants.  Similarly the $15,000 currently held in the Prisk account is to be released and paid forthwith to Neilsons Lawyers and held on the same conditions.

[37]     For the avoidance of doubt and to clarify the Bank’s obligations, once those funds are paid through to Neilsons Lawyers, the freezing orders will be discharged in relation to their accounts currently affected by the freezing orders.

[38]	I reserve the issue of costs.

Venning J

Addendum

[39]	I invite counsel for the liquidator to file a draft order for approval to address the above.

Venning J