New Zealand Credit Law Bulletin - Vol 7, No 7, October 2007
A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe send a blank email to: nz-bulletin-join@mailman.hattaways.com
Plain language disclaimer:
This bulletin is not legal advice. Do not make decisions on legal matters based on a brief commentary. Instead, get professional legal advice.
In this issue:
- Pacific Consumers’ Behaviour and Experience in Credit Markets, with Particular Reference to the ‘Fringe Lending’ Market
For a better understanding of the thinking of Pacific borrowers, read this report - Directors certify that company is solvent, wind it up, and liquidation completed
What can the unhappy potential creditor do? - Full and final settlement cheque case
Creditors who get this wrong miss out on their money - IRD not happy with liquidator
Has liquidation declared invalid, then winds company up properly and appoints its own liquidator
1. Pacific Consumers’ Behaviour and Experience in Credit Markets, with Particular Reference to the ‘Fringe Lending’ Market
http://www.consumeraffairs.govt.nz/policylawresearch/research/pacific-consumers/report/index.html
The Credit Contracts & Consumer Finance Act came into force on 1 April 2005. A review of the operation and implementation of the Act for the Minister of Consumer Affairs will be completed by 31 March 2008. The report will recommend possible areas where the legislation may need to be amended to improve its effectiveness. (In our view, lenders can expect more change.)
As part of this review, the Ministry has had some research done by Auckland University (Auckland UniServices Limited) on the “fringe lending market”, and its lending to Pacific Island consumers. The research included focus group interviews and 50 individual face-to-face interviews. It focused largely on people of Samoan and Tongan background from South Auckland.
The report says that the Minister of Consumer Affairs intends to convene a summit of individuals and groups with an interest in financial issues and consumers “later in 2007”. “The purpose … would be to bring the wide range of interested business, voluntary sector and community groups, and government agencies together to talk about how current credit law, lending practices, financial education and community and business partnerships operate and new ideas for enhancing this suite of practices/initiatives.” We recommend that lenders and other consumer creditors make an effort to be involved in this summit.
The report quotes other research which “identified 185 fringe lending companies, 94% of which offer cash or personal loans, 43% car loans and 26% debt consolidation loans. In terms of location, a significant number (71) operate in Auckland and are concentrated in South Auckland.
Over half of the total number of fringe lending companies advertise in at least one community or ethnic newspaper with Tongan (Taimi o Tonga) and Samoan (Samoana) papers carrying the most advertisements.”
The anecdotal nature of the report is a weakness. For example, it looks at what people are saying they borrow and spend their money on, rather than on an objective analysis of statements of financial position (which would obviously be much harder to get). As a result, some of its conclusions appear to me to be somewhat doubtful.
However, some of the anecdotes in its 143 pages do make fascinating reading, and overall there is probably value in the exercise. Here are some snippets. If you deal with Pacific customers, you should read this report.
“[The] father, who was president of the malaga [visiting party from Samoa], saw his son arrive in an ‘old bomb’ and the father commented to his son that all other families who had come to bring things for their relative arrived in very flash cars. And here he is, the son of the president of the visiting party arriving in an ‘old bomb’ …the next day the son arrived in a $15,000 car which he had bought under finance the very next day…so that his father can feel proud among his peers that his son was able to acquire such an expensive car.”
“I borrow for personal thing like car, casino, cigarettes, but mainly for family things and church donations. I use my wages most of the time to pay bills but if something extra comes up and I haven’t got the money to pay I’ll borrow the money from fringe lenders. I only go to Tongan lenders...”
“[A] Samoan family’s home was put up for mortgagee sale, yet while I was there talking with the father, the mother returned with her children from delivering their yearly contribution (taulaga) to the church. So how can you explain a family whose home was up for a mortgagee sale and still contributing their resources to the church...?”
“The bank process is always about seven days and then they want lots of information from me...when you are preparing for a funeral you don’t want to go around finding this information and you can’t wait for seven days...The fringe lender is faster to give you money for unexpected things. I know the interest is high but the fringe lender serves the purpose at that time. In my case it got me to my dad’s funeral... I read the contract and signed it, I don’t think I mahino [understand it] so that’s why I borrow with Tongan lenders so they explain to me. It takes too long to take it somewhere for a lawyer to read it with you...”
“I borrow mainly for family things, unexpected things like funeral….I can’t budget for this but when it happens in your family you have to go to Tonga or contribute money to your family. … I have to host community groups, fundraising groups coming from Tonga. I need to provide food and shelter for this group... [also] family visits – like when my sister came to visit me. All these things makes it hard for me to save and pay my mortgage...especially when some of the interest rates [mean] I pay back 300% on some small borrowings. Tongans like me have small wages which barely covers day to day things, and when you get unexpected things or kavenga (educating kids in Tonga) obligations then you have no option but to borrow.”
“I lost my job and it took me a long time to find another one and so I borrowed to send money to them to help them out…they think we are better off in NZ even when we’re not working…Our families back home don’t pay rent like us…but we do it, it’s our duty.”
“Fa’asamoa whether it is practiced in Samoa or in other countries demands contribution from those who practice it whether towards the extended family, village or district, but fa’asamoa also provides reciprocal support from other members whether they be family members, church groups or friends and members of village people’s social networks. Most of the times, fa’alavelave happen frequently and unexpectedly and people often borrow money from banks and other Finance Companies to be able to finance fa’alavelave. Often people get in debt, especially when the fa’alavelave may be a funeral or wedding or saofai [matai title bestowal]. Some people have fa’alavelave regularly and for some, including some of my own village people they have to go to Finance Companies to borrow money because the banks may not accept their loan applications, as many of them live in rental properties and do not have assets that the banks require as collateral .... Like many Samoans I have borrowed specifically for fa’alavelave and some of my own relatives and also other people from our village association have borrowed from Finance Companies and are still doing now to pay for some of the fa’alavelave over the years. We have had to host some of the fundraising trips from our village in Samoa and that’s one of the main purposes of forming our village association here in Auckland, it provides the opportunity for our village people to come together and network and provide support for our village projects in Samoa.”
“They do read them [contracts] … and they do know ‘If you don’t pay, we’ll take the car back’. They say...’fine, you take the car back’. That’s where they come from and they understand that concept, if you don’t pay you’re going to lose it. They can understand that but nobody tells them ‘we’re going to take the car back and we’re going to sell it for two thousand and not only are you going to lose it mate, but we’re going to sue you for the difference, we’re going to stand back, because we can, we’re going to wait four years and we’re going to let that little counter click over thirty five percent before we file the suit and when we do, we’re going to go and we’re going to lock on to your welfare so there’s no way you’re not going to pay us and we’re going to sue you till you pay. Their [fringe lender’s] recovery rate is very low but over the next twenty years, they will recover, you know, so long as these people (Pacific clients) breathe and so long as these people are on welfare and stay in New Zealand, they will get their money, because the court does what it’s meant to do because they do have judgement against them, there is an order against them, it’s all legal and the finance companies will get their twenty five dollars a week.” (Lenders should note that the new No Asset Procedure for consumer bankrupts will allow most debtors in this situation to get off the hook relatively quickly and painlessly.)
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2. Directors certify that company is solvent, wind it up, and liquidation completed
BLACK V SELWYN DEVELOPMENTS LTD & ANOR HC AK CIV-2007-404-4525 [2007] NZHC 811 (20 August 2007)
Kevin Black owned a property in Selwyn St, Onehunga. He claimed that it was damaged as a result of landscape works undertaken on a neighbouring property in 2002. In 2003, he sued Selwyn Mews Limited, which he believed to be the owner of that property.
In September 2005 Selwyn Mews Limited 's lawyer wrote to the Black's lawyer advising that Selwyn Mews was not the correct defendant. He said the company which should have been the defendant was originally incorporated as Selwyn Mews Limited but had subsequently changed its name to Selwyn Developments Limited. Selwyn Developments Ltd was therefore the correct defendant. However, by that time Selwyn Developments Limited was in liquidation. Selwyn Developments Limited was placed in voluntary liquidation in December 2003. The directors certified that the company was solvent and had no contingent liabilities. The liquidator had filed his final report in March 2005.
There had never been any suggestion by Mr Kells, the director of both the companies, that the wrong company had been sued, so Black didn’t necessarily accept that he had sued the wrong company. However, his lawyers joined Selwyn Developments Limited (in liquidation) as a second defendant, on the basis that it was unclear which company owned the property. Then they applied to the High Court to have Selwyn Developments Limited (in liquidation) restored to the Companies Register so that they could proceed with the District Court proceedings.
Black argued that Kells and the liquidator, Williams, either knew or were on notice as to the possibility of a claim against the company. Kells was aware of the proceedings against Selwyn Mews Ltd. Since he was also a director of Selwyn Developments he could be expected to know which of the companies owned the land from which the alleged nuisance had arisen.
On 8 March 2005, Black’s lawyer wrote a somewhat confusing letter addressed to "the liquidators of Selwyn Mews Limited" (which wasn’t actually in liquidation) which apparently went to Williams. It outlined the nature of the District Court proceedings and sought to have the claim admitted in the liquidation. The judge in the High Court felt that this was enough to put him on enquiry as to whether there was a creditor whose claim required to be investigated. It should have “caused him to at least respond to Mr Dale's letter with some basic questions.”
He restored the company to the register, revoked the liquidator's final report, and appointed new liquidators.
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3. Full and final settlement cheque case
CIR V KADESH FARM LIMITED HC ROT CIV-2006-463-000019 [2007] NZHC 716 (27 July 2007)
Liquidators were appointed to Kadesh Farm Ltd on 12 June 2006 on application of the Commissioner of Inland Revenue. Just over two weeks later, the directors and shareholders of Kadesh applied for an order terminating the liquidation on the grounds that Kadesh's debt to the Commissioner and the liquidators' costs had been paid, and that it had no other unsecured creditors.
The liquidators consented subject to a debt to Allied Finance Limited being paid in full, and to all of their costs and disbursements being paid. Allied Finance Limited also consented.
On 26 November 2006, the directors of Kadesh wrote to the liquidators enclosing a cheque for $3,044.09. This was their estimate of a reasonable sum to settle the liquidators' claim. The letter said that if this cheque was banked they would take that as acceptance that it was full and final payment of the account. Some three weeks later, the liquidators' solicitors wrote back saying that the cheque was accepted as partial payment, not full and final settlement. The cheque was banked.
In this type of case there is no “accord and satisfaction” if the creditor makes it clear that the banking is not acceptance of that stipulation. That will clearly be the case if the creditor tells the debtor before or at the same time as banking the cheque that it is not accepted in full and final satisfaction. If the cheque is banked before the creditor tells the debtor that the condition is rejected, the banking may be considered evidence that the creditor accepts the debtor's terms, depending on the facts. The delay in advising that the term was not accepted is one of the factors to be taken into account. Delays of ten and six days have been found to be too long a delay.
In this case, the judge had no evidence of the date that the liquidators banked the cheque. The judge said that if the cheque was banked within a day or two of the letter rejecting Kadesh's terms, and the delay only because the liquidators' wanted to have their solicitors prepare their response, there was probably no accord and satisfaction.
The judge therefore asked the parties to advise when the cheque was banked. It turned out that the liquidators' solicitors wrote back to the directors by letter dated 18 December 2006 and the cheque was banked the next day. There was therefore no agreement to accept the cheque in satisfaction of the larger disputed sum. The final acts of the case are reported in CIR V KADESH FARM LIMITED HC ROT CIV 2006-463-000019 [2007] NZHC 823 (22 August 2007) http://www.nzlii.org/nz/cases/NZHC/2007/823.html
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4. IRD not happy with liquidator
The Inland Revenue Department served a statutory demand for $41,082.04 on All Works Wellington Ltd on 26 April 2007. On 30 May 2007 the shareholders of All Works put the company into liquidation. Some time later, in response to questions from the IRD, the supposed liquidator, Mr Zhang, provided a copy of this resolution and a document headed "Consent to Act" by which he consented to be appointed as liquidator of the company. This "Consent to Act" form, however, was dated 5 June 2007 at 10.30am, six days after the company was put into liquidation.
It is established law that, "[a] resolution of shareholders appointing a liquidator will not be effective if, at the time of its passing, there is not a consent in writing of the liquidator proposed to be appointed by the resolution at the time the resolution is passed."
The IRD applied for a declaration that the liquidator was not validly appointed and this was granted by the High Court. The Court also said that the resolution purporting to place the company into liquidation was ineffective. The liquidation of a company commences at the time and date on which a liquidator is appointed.
However, the company was immediately placed into liquidation, anyway, on the IRD’s petition. New liquidators were appointed.
