Central City Pty Ltd v Montevento Holdings

Background 2When the debts to which the statutory demand relate were incurred, the first defendant, then known as Healthzone Solutions Pty Ltd, was part of a corporate group, the Healthzone Group, involved in the health food industry. Healthzone Solutions supplied the Group's products to wholesale and retail customers. Centurcorp and Wild Thing operated retail health food businesses. Their principal was Mr Peter David Roach. Centurcorp and Wild Thing purchased Health Food Products from Healthzone Solutions. It is not seriously in dispute, for present purposes, that during the period between January 2008 and 28 June 2010, Centurcorp purchased goods for its businesses from Healthzone, in respect of which an amount of $1,102,216.95 was not paid, and Wild Thing similarly purchased goods for its business, in respect of which an amount of $565,585.34 was not paid. 3Mr Roach was also, at all material times, an executive director of Healthzone Solutions and its holding company, Healthzone Limited ("HZL"). Prior to 28 June 2010, other directors of the Healthzone companies invited Mr Roach to assume greater responsibility for, and involvement in, the Healthzone Group, but pointed out that, if he were to do so, he would need to separate himself from his retail businesses, so that it would be seen that he was devoting his time and interests to the Healthzone businesses, and that he was not affected by actual or potential conflicts of interest associated with his involvement in retail businesses that purchased goods from, and were indebted to, Healthzone Solutions. 4Mr Roach deposes to a conversation that he had with other members of the board of Healthzone Limited, as follows: I subsequently recall having the following discussions with members of the board of HZL, in particular Michael Jenkins, who was an executive director of HZL and chief financial officer of HZL at the time (Mr Jenkins), and Michael Wu, who was an executive director of HZL and largest shareholder in HZL at the time (Mr Wu): Me: I really only have 2 options open to me for my disposal of my interests in the stores. (1) to sell to a competitor like Go Vita; or (2) sell to an existing Healthzone banner group operator or a party that will undertake to retain the stores in our network. Wu: We don't want to like [sic] the stores to a competitor and it sends a bad message to our other franchisees. Jenkins: Retaining the stores in our network must be a priority and would provide us with the best outcome. I recall that following those discussions, it was determined to be in the best interests of HZL if my existing businesses that were supplied by Healthzone Group were not sold to a competitor of the group, or a competitor of existing customers of the group, but to an entity that was an existing customer of the Healthzone Group. 5Mr Roach says that, subsequently, an existing Healthzone customer, Gold Mist Health Pty Ltd ("Gold Mist"), was identified as a possible purchaser of the Centurcorp and Wild Thing businesses, and that he had a further conversation with Mr Jenkins and Mr Wu to the following effect: Following the identification of [Gold Mist] as a potential purchaser, I had a conversation with Mr Jenkins and Mr Wu to the following effect: Jenkins: Gold Mist Health (GMH) is the right company for you to sell to. It is important that you have no continued connection with the Healthzone Group following your divestment of interest in your businesses that are supplied by the group. Gold Mist Health should acquire all of your Healthzone related interests completely. The sale should eliminate any interest you have in your existing stores and that includes any residual liabilities that your stores owe to the Healthzone Group, such that there are no outstanding obligations between your businesses and the group following the sale. There must be no possibility of any future conflict of interest arising because of your pre-existing arrangements with the group. Wu: I agree with this. You should proceed with a sale of your interests to Gold Mist Health on this basis. Me: I understand and agree. I will structure my deal with Gold Mist Health accordingly. 6Subsequently, Mr Roach proceeded to negotiate a sale to Gold Mist of the businesses operated by Centurcorp and Wild Thing. He dealt principally with Mr Elwood of Deloitte's New Zealand in connection with that transaction. Meanwhile, he was aware that Mr Jenkins and Mr Wu were contemporaneously involved in negotiations with Gold Mist, for the possible acquisition by Healthzone of the shares in Gold Mist, once the sale of the Centurcorp and Wild Thing businesses to Gold Mist had been completed. 7Mr Roach says that, on or about 28 June 2010, Centurcorp and Wild Thing entered into a contract for sale of business with Gold Mist. The contract in question states the completion date to be 28 June 2010, and identifies as the subject businesses the Wild Food stores at Bowral, Mittagong and Macarthur, and the store known as Healthy Life Liverpool, which was operated by Centurcorp. The vendors were Centurcorp, Wild Thing, and a third company, Wild Food Highlands Pty Ltd, not otherwise engaged in the present dispute. The purchase price was stated to be nil, and the assets and price was apportioned $975,000 to fixtures and fittings; $521,000 to stock; and an amount for "HZL liability", which was blank. The contract defined "nominated debt" as debt specific to Healthzone Limited; by clause 21 it was provided that "the purchaser is accepting the nominated debt of the business as part payment for the businesses". The evidence indicates that the total indebtedness of Centurcorp and Wild Thing to the Healthzone Group, connected with the businesses the subject of the sale, was at that time in the order of $2.8 million. 8Mr Roach says that he had a conversation with Mr Elwood, to the following effect: Ellwood: Can you provide the figure for the liability in the contract for the sale of your business to Gold Mist Health (that is, the First [Gold Mist Health] Agreement)? Me: You will recall that [Gold Mist] is assuming all if my companies' liabilities to the Healthzone Group up to completion of the agreement which is to be 28 June 2010. The assets of the businesses amount to about $1,600,000 and the net position after assumption of these liabilities will be a negative net asset position of around $1,200,000 (the net position referred to in the preceeding paragraph being the product of $1,600,000 + ($2,800,000) = ($1,200,000)). Healthzone will confirm the value of the liabilities due to it. I will transfer the businesses for no cash consideration on this basis. 9Subsequent to 28 June 2010, Mr Roach was appointed chief executive officer of the Healthzone Group. 10On 23 August 2010, apparently in connection with the proposed acquisition by Healthzone of Gold Mist, Mr Robertson, a director of Healthzone Limited, prepared a balance sheet for Gold Mist identifying the impact on its financial position of the acquisition of the businesses of Wild Foods and Centurcorp. Relevantly, it brings to account inventories at $521,994, which closely corresponds with the amount so allocated in the contract; fixtures and fittings at $975,000, which corresponds with the amount so apportioned in the contract; and accounts payable of $2,807,738, which correlates with the amount that Mr Roach says that the businesses owed the Healthzone Group prior to completion of the contract. 11Healthzone's half-year accounts, for the six months ended 31 December 2009, disclose (amongst balances outstanding with directors' related parties at that date), the sum of $2,127,000 as receivable from entities related to Mr Roach. While this does not correlate perfectly with the sum of approximately $2.8 million to which I have referred, it was, of course, some six months earlier, and a difference, and escalation, in that amount by on-going trading between January and June 2010 would explain it. Healthzone's preliminary financial report, as at 30 June 2010, discloses that receivables from directors' related parties, which had been $2,069,000 as at 30 June 2009, was reduced to nil. It is also worth noting that, whereas receivables from directors' related parties decreased in that way, other receivables and pre-payments increased from $1,861,000 to $4,522,000. 12In the audited annual report for 2010, once again receivables from directors' related parties was shown as having decreased from $2,069,000 in the preceding year to nil, with other receivables and prepayments having increased from $1,113,000 to $3,827,000. The audited accounts also included an account of the acquisition by Healthzone Limited, on 30 June 2010, of 100 per cent of the issued share capital in Gold Mist. The relevant note explained that the purchase consideration was $1 million, together with net identifiable assets acquired at fair value of (negative) $6,617,000. The negative identifiable assets - that is to say, liabilities - included "trade and other payables" of $13,344,000, which, approximately although not by any means perfectly, corresponds with the adjusted liabilities of Gold Mist referred to in Mr Robertson's balance sheet, after inclusion of the $2,800,000 attributable to the assumption, by Gold Mist, of the liabilities of Centurcorp and Wild Thing to the Healthzone Group. 13After 28 June 2010, Healthzone Solutions, according to Mr Roach - and there is no evidence to the contrary - made no demand on Centurcorp or Wild Thing for payment of their previous indebtedness, nor issued any statement or other form of request for payment. In reviewing the books of Healthzone Solutions, in order to inform themselves properly to issue the demands and swear the supporting affidavits, the receivers and managers identified and inspected at least some of the invoices included within the demand. Annexed to their affidavit are many of those invoices, or lists of them, which appear to be copies of the originals - addressed, for example, to Wild Food Macarthur Square. But, amongst them is a reprint of an invoice originally issued on 21 December 2009, addressed as follows: "The Wild Food Macarthur Square Gold Mist Pty Ltd." This indicates that in the books of Healthzone Solutions, by the time the reprint of the invoice was made, the indebtedness formerly associated with Wild Food Macarthur Square was now recorded as being associated with Gold Mist. 14On 29 February 2012, Allens Arthur Robinson, acting for the receivers and managers of HZ SOL, wrote to the solicitors acting for Wild Food and Centurcorp, demanding payment of the sum of $2,790,000. On 13 March, solicitors for Wild Food and Centurcorp responded, disputing the indebtedness, and contending that Gold Mist had assumed outstanding liabilities to Healthzone Solutions as part of the sale of the Centurcorp and Wild Thing businesses. There then followed the issue of the creditor's statutory demands.

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Judgment (6 paragraphs)

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Cases Cited (5)