United Homes (1998) Ltd v Workman

Facts

The Respondents (the Workmans) served statutory demands on the Appellant companies for amounts they claimed were owed to them in their shareholder current accounts. These amounts were based on a set of unaudited accounts for the year ended 31 March 2000 which showed large dividend payments credited to their accounts. The companies applied to set aside the demands, arguing firstly, that there was an agreement that shareholders could not withdraw funds without unanimous consent, and secondly, that the dividends had never been validly declared or paid, so the sums were not due. Shortly before the High Court hearing, the remaining directors approved a different set of accounts for the same period which did not include the dividends and showed much smaller credit balances. The Master dismissed the companies' application, finding no enforceable agreement and that the Workmans had a prima facie right to the dividend amounts. The companies appealed that decision to the Court of Appeal.

Held

1. An unsubstantiated assertion on affidavit of an oral agreement is insufficient to establish a 'fairly arguable basis' for a dispute to set aside a statutory demand.
2. A 'fairly arguable basis' for disputing a debt based on a dividend exists where there is evidence that the accounts showing the dividend were never formally approved by directors, were merely a 'proposal', and the required statutory solvency certificate was not signed.
3. Where a statutory demand is for a sum that includes a genuinely disputed amount and an undisputed amount, the Court may set aside the demand only in respect of the disputed portion to avoid substantial injustice, allowing it to stand for the undisputed balance.

Orders

The appeal is allowed in part; the statutory demands are set aside except as to the undisputed residual balances carried forward from the 1999 accounts, totaling $5,144.40 for United Homes (1988) Limited, $2,780.00 for Tuscany Towers Limited, and $7,206.50 for Heritage Court Developments Ltd.

Cases mentioned in judgment

• Arbridge Developments Limited v Webberley Developments (unreported, HC Auckland, M285-IMOO, 2 May 2000, Master Kennedy-Grant)

  Followed

• Bilbie Dymock Corporation v Patel (1987) 1 PRNZ 84

  Applied

• City Jet Limited v Pratt & Whitney Canada A’Asia (Pty Ltd) (1999) 8 NZCLC 262, 104 Master Faire

  Followed

• Eng Mee Yong v Letchumanan (1980) AC 331

  Applied

• Forge Holding Limited v Kearney Finance (NZ) Limited (unreported, HC Christchurch, 20 June 1995 M.No.149/95, Tipping J)

  Applied

• Jenko International Limited v NZ Dairy Ingredients Limited (unreported, HC Christchurch, M68/00, 22 June 2000, Master Venning)

  Followed

• Queen City Residential Limited v Patterson Co-Partners Architects Limited (No. 2) (1995) 7 NZCLC 260, 936

  Applied

• Tracy Properties Limited v Helen Finley Tracy (unreported, HC Auckland, 7 June 1988, CP933/88, Sinclair J)

  Distinguished

Legislation mentioned

• Companies Act 1993, s290, s290(5), s290(6), s52, s52(2)
• Companies Act 1955