Court orders $750,000 debt be repaid

The Jack's Point development in on the shores of Lake Wakatipu, near Queenstown. Photo / NZME.

A property developer's family trust that bought 9000sq m of land in an exclusive Queenstown subdivision must repay $740,000 to liquidators after losing a High Court fight that involved fraudulent changes to accounts.

Businessman Chris James in 2006 set up a family trust which soon after bought a property in Jack's Pt, that calls itself an "emerging settlement and resort village" on the shores of Lake Wakatipu.

One of his companies, James Developments (JDL), lent $740,000 to the trust to help with this purchase of the property.

JDL went into liquidation three years later, owing at least $1.7 million.

Shortly before liquidators were appointed, James amended the company's accounts so the $740,000 transaction was recorded as JDL repaying earlier advances rather than making a loan.

The trust records were also amended to reflect this apparent situation, with the debt changed to be due to James personally.

JDL's liquidator believed this "correction" was a device to remove the $740,000 from the company and launched High Court action in 2012 to recover the funds from the trust.

James and the trustees of his family trust later admitted the amending of the records was incorrect but still claimed the liquidator was time barred from recovering the money.

The liquidator, Grant Reynolds, argued this was not the case.

Justice Rachel Dunningham, in her decision, called the change in the accounts a "deliberate, if unsophisticated, device" to remove the asset from JDL's balance sheet.

She was satisfied that neither the trustees nor JDL believed there was a proper basis for amending the accounts.

"Given their knowledge of the true circumstances, the combination of the trustees' resolution confirming the accounts, including the recategorisation of the $740,000 as owing to Mr James, not JDL, coupled with the changes to JDL's accounts, was fraudulent.

"The steps taken to implement the resolution were intended to remove an asset of JDL from the accounts of JDL and the trust so that the creditor would not be aware of it and would be deprived," she said.

"In my view, there can be little doubt that the removal of the $740,000 liability from the accounts of the trust was dishonest," Justice Dunningham said.

Although the dishonesty was later found out, the judge said it led the liquidator to assume for some time that the company had no assets to pay its creditors.

The judge said that the concealment of the debt would not have been reasonably discovered until the start of 2011, which meant the liquidator had six years from then to make a claim on the $740,000.

Because the action was filed within this time, judgment was entered against the trust for $740,000, with interest applying to it from mid-2012.