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Stiassny loses, Wilkinson wins in Westin body corporate dysfunction allegations case

Published 19 August 2011

Justice Rebecca Ellis has ruled in favour of the Westin hotel building’s body corporate in a tit-for-tat spat with the former receivers of developer Nigel McKenna’s management companies.

While the judge was deliberating, BOSIAL (BOS International (Australia) Ltd) assigned its Westin debt ($16.6 million at the date of receivership) to a Sydney-based vulture fund and there was a consequent change of receivers, from Michael Stiassny & Brendon Gibson (KordaMentha Ltd), appointed by BOSIAL, to Tim Downes & Richard Simpson (Grant Thornton Auckland Ltd).

But, lest the new receivers might think the body corporate and the majority of owners on it might not be able to set up their own hotel operation in the building – initially in competition with Westin, now on its own – Justice Ellis said they had every right to do so.

And she said the body corporate wasn’t dysfunctional, the reason the KordaMentha receivers gave for asking the court to appoint an administrator to it.

The majority owners group, representing 116 units in the 173-unit waterfront hotel, had raised the same allegation of dysfunction last year when the body corporate was under the control of the receivers. Mr Stiassny & Mr Gibson turned around to make their allegation after the majority owners group – mostly investors from Malaysia & Singapore who’d been kept in the dark at crucial stages during the demise of Mr McKenna’s Lighter Quay Hotel Management Ltd – gained a majority on the body corporate committee and appointed Graham Wilkinson & his company, Beswick Holdings Ltd, to manage their interests, act as secretary of the body corporate, chairman of the body corporate committee & as building manager. A separate Wilkinson company, Hotel Lighter Quay Ltd, was set up to operate the competing business, Hotel Viaduct Harbour.

Justice Ellis questioned some of Mr Wilkinson’s tactics but broadly found that the majority owners group had appointed him knowing that he stood to gain from their appointment.

The KordaMentha receivers said in their final report in July unit owners were owed $5.6 million at the date of receivership. After the majority cancelled their leases, reducing the Westin operation to about 56 rooms plus commercial areas, rooms owned by those investors had their power switched off and they were unable to gain access to their rooms for 9 months.

Justice Ellis commented: “I think (it’s) fair to say that the circumstances giving rise to the present application are, at their root, of the applicants’ (the receivers) own making. It is, in particular, the actions of Lighter Quay Hotel Management which led to the destruction of the common commercial purpose that had initially united the unitholders & (consequentially) body corporate 384911. Had that purpose not been destroyed, there would be no rival hotel operation.”

The receivers argued in court that the body corporate under Mr Wilkinson’s control favoured the majority investor group. But Justice Ellis, expressed her exasperation during the hearing that the applicant’s case was running in circles and getting nowhere and, basing her comments on a similar Australian case, Filaria Pty Ltd versus the proprietors of a unit plan, said in her judgment: “It seems to me that the requirement that a body corporate act democratically (by majority rule) exists precisely because it may not be possible for a body charged with governing a group of people with potentially disparate interests to exercise its functions in a way that will further those interests equally.

“Even if democracy can be regarded as the model of governance most likely to further the common good, that does not mean that the good of each of its members will or can in all cases be furthered. It is no doubt for that reason that Chief Justice Miles held in Filariathat a body corporate is not rendered ripe for the appointment of an administrator simply because it has failed to act in the interests of a certain group of unitholders. There is thus an additional requirement that its failure to do so be in some way ‘improper’.”

In any case, Justice Ellis said, the receivers had a remedy before them but had chosen not to use it: “The Unit Titles Act contains a specific remedy for minority unitholders who consider that decisions have been made by the body corporate, the effect of which would be inequitable to them. Section 43 has not, however, been invoked by the applicants in this case.”

The judge said she could see nothing in the KordaMentha allegation “that there is something unlawful about decisions being made at extraordinary general meetings rather than by the body corporate committee….. While it may be the expectation that the day-to-day body corporate decisions will be made by the committee, decisions made by majority vote at a properly convened extraordinary general meeting must surely have more, if not equal, legal authority…..

“It is plain that the body corporate is performing its functions, namely maintenance & administration of matters in which the unitholders have a common interest and, in particular, the common property. The body corporate is not deadlocked and, as I have said, no tenable questions of undemocratic or ultra vires actions have been raised.

“While I accept that the circumstances of its operation are unusual (although not unprecedented), any dysfunction or abnormality in them have not been caused by the way in which the body corporate is presently acting. Rather, and as I have already noted, the present situation arises as a result of Lighter Quay Hotel Management’s actions. If, by its actions, it had not destroyed the common commercial purpose that had formerly existed between all the unitholders, the body corporate would not have diverging (let alone competing) interests.

“ The mere fact that body corporate 384911 has made decisions that have the effect of permitting or even facilitating the cancelling owners to pursue their commercial interests does not in my view constitute ‘cause’. That is so even if the competing commercial interests of the applicants are, as a necessary consequence, damaged thereby.”

Earlier stories:

25 July 2011: Westin quits Lighter Quay

15 July 2011: New receivers at Westin management company

8 July 2011: Lighter Quay champion accused, but judge struggles with receivers’ reasoning

8 July 2011: Lighter Quay receivers, now in minority, claim body corporate dysfunctional

4 July 2011: Hotel Viaduct Harbour sign rises beside Westin’s at Lighter Quay

20 June 2011: Room owners set up their own hotel within the Westin

8 June 2011: Lighter Quay body corporate to enter administration

1 November 2010: Receivers say lease termination hasn’t removed 22 rooms from Westin hotel pool

29 October 2010: Westin down to 36 rooms

U: The names behind the action, the week to 17 October 2010, part 3, Lighter Quay Residents Society pursues trail of buyers of 23 Westin units

1 October 2010: 19 more units pulled out of Westin Hotel

2 September 2010: Westin investors withhold levies and sacked staff picket, but judge rejects call for administrator

14 July 2010: McKenna’s Westin management company wound up, unit owners to get possession in month

U: The names behind the action, the week to 11 July 2010, part 6, New receiver appointments at 2 Melview Lighter Quay companies

U: The names behind the action, the week to 11 July 2010, part 3, Residents society pulls second application to wind up Lighter Quay Hotel Management

1 July 2010: Interim liquidators appointed to McKenna’s Westin management company

18 June 2010: Judges in Lighter Quay cases make life harder for investors & other McKenna creditors

11 June 2010: McKenna’s Westin lease & management company insolvent, offers 50% deal to mostly foreign investors, puts off meeting twice & staves off liquidation

U: The names behind the action, the week to 13 June 2010, part 3, Investor’s dispute with McKenna’s Lighter Quay Hotel Management adjourned

U: The names behind the action, the week to 16 May 2010, part 3, Investor’s dispute with McKenna’s Lighter Quay Hotel Management adjourned

U: The names behind the action, the week to 25 April 2010, part 6, Melview The Quays settles with body corporate

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Attribution: Judgment, story written by Bob Dey for the Bob Dey Property Report.

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Lighter Quay receivers, now in minority, claim body corporate dysfunctional

Published 8 July 2011

The receivers of Westin Hotel developer Nigel McKenna’s management company – who’ve failed to reach accord with owners of two-thirds of the hotel units in the 9 months since their appointment – painted the owner group’s champion yesterday as a man intent on fulfilling his own goal of taking control of the hotel for his own commercial purposes.

Last September it was the owners group trying to have an administrator appointed to run the hotel’s body corporate because there was a stalemate in negotiations over ownership & access between them and management company receivers Michael Stiassny & Brendon Gibson (KordaMentha Ltd), who maintained the control of the body corporate Mr McKenna had established through Lighter Quay Hotel Management Ltd.

There have been times in the long-running Westin saga when members of the main owners group, now 114-strong and mostly living in Malaysia & Singapore, felt they weren’t even allowed to contact one another about their investment dispute because of suppression orders made in the Auckland High Court.

But now they are organised – in court, through barrister Philip Skelton, and in taking control of their units through hotel owner & manager Graham Wilkinson.

And now it is the turn of the receivers to call for an administrator, claiming the body corporate is dysfunctional – because Mr Wilkinson has had himself installed as chairman of the body corporate committee (with a majority of 3 against the receivers’ 2 members) and his company, Beswick Holdings Ltd, as building manager and as manager of a second hotel established in the building on 1 July, Hotel Viaduct Harbour.

The lawyers thought they were going to a half-day hearing on the administrator application yesterday before Justice Paul Heath, who had dealt with a number of applications relating to Westin disputes and who, I felt, disadvantaged the investors at crucial points last year through suppression orders. But Justice Heath was working on his judgment in the Nathans Finance Ltd fraud case – to be delivered at 10am this morning – and will then fly to Vanuatu to run a court there for the next fortnight.

So, instead, the application was heard by Justice Rebecca Ellis, whose questioning I found perceptive. Justice Ellis found herself dealing with a revolving argument as she tried to pin down the receivers’ counsel, Bruce Stewart QC, on precisely why the receivers now thought the body corporate was dysfunctional and the hearing ran the full day, with Mr Stewart’s closing to come this morning.

A year ago, when Justice Heath made an order granting the unit owners possession of their rooms and lifted a suppression order he’d made, the judge was critical of the receivers, who he said hadn’t done a few things they ought to have in the first fortnight after their appointment if they wanted him to support their case.

The receivers wanted suppression orders continued and opposed granting the owners access to their units – and the hotel agreement meant they couldn’t let their units on their own account.

Even as Mr Wilkinson opened the hotel-within-a-hotel last Friday, he had to negotiate to get lift security cards, access to the service lift for staff and power to the owners’ rooms.

·         Further details in separate story: Lighter Quay champion accused, but judge struggles with receivers’ reasoning

 

Earlier stories:

4 July 2011: Hotel Viaduct Harbour sign rises beside Westin’s at Lighter Quay

20 June 2011: Room owners set up their own hotel within the Westin

8 June 2011: Lighter Quay body corporate to enter administration

1 November 2010: Receivers say lease termination hasn’t removed 22 rooms from Westin hotel pool

29 October 2010: Westin down to 36 rooms

U: The names behind the action, the week to 17 October 2010, part 3, Lighter Quay Residents Society pursues trail of buyers of 23 Westin units

1 October 2010: 19 more units pulled out of Westin Hotel

2 September 2010: Westin investors withhold levies and sacked staff picket, but judge rejects call for administrator

14 July 2010: McKenna’s Westin management company wound up, unit owners to get possession in month

U: The names behind the action, the week to 11 July 2010, part 6, New receiver appointments at 2 Melview Lighter Quay companies

U: The names behind the action, the week to 11 July 2010, part 3, Residents society pulls second application to wind up Lighter Quay Hotel Management

1 July 2010: Interim liquidators appointed to McKenna’s Westin management company

18 June 2010: Judges in Lighter Quay cases make life harder for investors & other McKenna creditors

11 June 2010: McKenna’s Westin lease & management company insolvent, offers 50% deal to mostly foreign investors, puts off meeting twice & staves off liquidation

U: The names behind the action, the week to 13 June 2010, part 3, Investor’s dispute with McKenna’s Lighter Quay Hotel Management adjourned

U: The names behind the action, the week to 16 May 2010, part 3, Investor’s dispute with McKenna’s Lighter Quay Hotel Management adjourned

U: The names behind the action, the week to 25 April 2010, part 6, Melview The Quays settles with body corporate

 

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Attribution: Court hearing, story written by Bob Dey for the Bob Dey Property Report.

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Lighter Quay champion accused, but judge struggles with receivers’ reasoning

Published 8 July 2011

Justice Rebecca Ellis reserved her decision today on an application by the receivers of Lighter Quay Management Ltd for an administrator to be appointed to the body corporate of the Westin Hotel building, which they no longer control and describe as dysfunctional.

BOSIAL (Bank of Scotland subsidiary BOS International (Australia) Ltd), owed $16.6 million, appointed Michael Stiassny & Brendon Gibson (KordaMentha Ltd) as receivers of Lighter Quay Management in June-July 2010 (first to the company’s bank accounts, then to its assets). Liquidators were also appointed at that time.

Westin developer Nigel McKenna set up Lighter Quay Management and other intermediary companies at the hotel, with the Westin as hotel operator under contract but his own companies as owners of the premises, including commercial operations such as bar,  restaurant & foyer spaces. McKenna companies also controlled the body corporate, held the building management contract and retained a number of the hotel’s 173 rooms.

Things began to change last July, when two-thirds of the unit owners – mostly living in Malaysia & Singapore – got a court order allowing them to take possession of their units. At the time of receivership, they were owed more than $3.5 million in back rent from the 3-year guarantee period which expired on 12 June 2010. The receivers calculated that the unit owners were owed a total $6.8 million.

The receivers paid unit owners $300,000 but, on 1 September, the Asian group removed their units from the hotel pool and Christchurch-based hotel owner & manager Graham Wilkinson took on a role of driving negotiations for a better deal for the group. With a slim majority, he was appointed chairman of the body corporate, his company Beswick Holdings Ltd was appointed body corporate secretary & building manager and, trading under the name Hotel Viaduct Harbour, it began operating a hotel-within-the-hotel last Friday.

In the Auckland High Court yesterday & today, counsel for the receivers, Bruce Stewart QC, said Mr Wilkinson “got himself appointed” by this bare majority as chairman of the body corporate, “settled on a practice where he causes an egm meeting to be convened” then used proxies to win the vote on resolutions on the agenda, followed by resolutions not on the distributed agenda.

Mr Stewart told Justice Ellis: “Mr Wilkinson has secured these wide & far-reaching powers for the predominant purpose of establishing & promoting his private commercial interests in establishing a hotel at the Lighter Quay site.

“To achieve his private commercial goals, Mr Wilkinson has taken over for himself complete control of the body corporate. In pursuing his objectives, Mr Wilkinson is not acting or managing the body corporate or its common property for the common good of all unit owners. He is acting in his interests and pursuing those interests to the detriment of nearly 50% of the unitholders.

“The detriment is self-evident:

The receivers as owners of 16 residential units & the commercial units – restaurant, gym, spa, sundries shop, bar, reception & back office – want the Westin to utilise its commercial units and manage its 16 residential unitsThe position is the same for some 52 other unit ownersMr Wilkinson’s promotion of his commercial interests are detrimental to and damaging to the quality & service/returns which the Westin has achieved as the hotel operatorThe challenge to & potential demise of the Westin’s hotel operation will not be in the interests of the applicants (the receivers) and the other 60 unit owners who have their units placed with the Westin (the difference between 52 in one paragraph and 60 in another is not explained)The activities of Mr Wilkinson, through his control & manipulation of the body corporate, favour improperly his interests & the interest of the majority unit holders over those of the plaintiff, andThis aspect of the matter is underscored by the fact that the cancelling owners (the Wilkinson group) have rejected a proposal from the receivers which would give them a much greater profit share than they were originally receiving under the commercial arrangement that all unit owners entered into freely at the time they purchased their rooms.

“The most sinister aspect of Mr Wilkinson’s operation & activities is his ambition to remove the Westin altogether and to introduce some other hotel brand which, alone, will be the hotel operator on the Lighter Quay site on terms/rates/percentages that will deliver the maximum return to Mr Wilkinson’s interests.”

Justice Ellis probed numerous times to establish what was improper about using properly obtained proxies to secure decisions. The judge also wanted to know where, within a body corporate with competing interests, how that should be dealt with other than a democratic vote producing a majority decision. Mr Stewart suggested a partition order under the Property Law Act, not resolution by majority vote as in a company.

Mr Stewart conceded the same outcome might result from a meeting of the whole body corporate (using proxies) as from a meeting of its committee where Mr Wilkinson had a 3-2 majority, “but if he was genuine about this he’d hold a committee meeting and listen to Mr Stiassny & Mr Gibson… It‘s a more efficient method of conducting body corporate business than calling egms”.

There have plainly been ructions over the intrusion of a competing operator. Mr Stewart mentioned Mr Wilkinson disabling the lift security system so all owners could use the lift and using the management company’s meter to connect power to his group’s rooms without advising the receivers.

However, Philip Skelton, counsel for the body corporate & Wilkinson interests, said the building operators were now working co-operatively.

A curious aspect of Mr Stewart’s earlier submissions was that, if Mr Wilkinson succeeded in ousting Westin and installing a new a 5-star hotel operator “paying $2 million key money, as he has done around New Zealand – the most recent was the Holiday Inn in Wellington, he got rid of the Holiday Inn and brought in Rydges, increasing the profit to the owners he represents” – it would be done to advance Mr Wilkinson’s own interests.

The group of owners Mr Wilkinson represents opened their competing Hotel Viaduct Harbour with room rates as low as $99/night compared to a Westin room at $285/night, which Mr Stewart said “downgrades the hotel, it detracts from the Westin for the 50-60 room owners who remain with the Westin.

“We say the other 45% are being affected by the tactics being employed by Mr Wilkinson to force the Westin out. Mr Wilkinson is offering rooms down there at $99/night, that’s certainly going to prejudice the 45% of unit owners who are not with him. An administrator would be obliged to act more properly in the interests of all unit owners.”

To which Justice Ellis responded: “It gets back to my question, unless the admininstrator has the power to act without the will of the majority, he’s not going to get very far at all, is he?”

Mr Stewart said the appointment of an administrator would mean “egm’s couldn’t be called for the purposes of passing resolutions which further Mr Wilkinson’s interests”.

But Mr Skelton said the majority of unit owners were getting the body corporate secretary they wanted, adding: “Mr Wilkinson has acted appropriately throughout. He doesn’t try to vote it through at a committee level, he takes it to the body corporate as a whole. The documents show full disclosure was made to all the owners, they gave a direct instruction as to how they wished to vote and the majority rules.”

He said they’d entered a contract with Mr Wilkinson’s company as operator only until the annual meeting in September, when it would be up for renewal, and it was on far lower fees than those Mr McKenna had established for his company.

“Beswick’s contract is $20,000 plus gst/year for body corporate secretary, $50,000 plus gst/year for building management. The McKenna interests were charging $100,000/year, he was clipping the ticket on all these services through his companies, and it was for 10 years renewable, non-terminable, so it’s significantly cheaper than the existing contracts….

“The owners have been sitting round earning no income off their rooms while the receivers are generating $400/day from their rooms, thinking these owners will have to accept their demands and bring their rooms back into the pool….

“We got very close to resolution (with the receivers), what percentage should be paid to the owners of commercial units and what percentage to room owners, and whether there should be a contestable market basis for Westin to remain as the hotel operator.

“Mr Stewart put it without any evidence that Mr Wilkinson is trying to push out the Westin. There are a whole lot of reasons for the owners to want the Westin to stay. They’re not anti the Westin, they’re saying the hotel operator, whoever it might be – and there are lots lining up to be involved – as long as their rates are market rates the owners will consider them.”

Earlier stories:

8 July 2011: Lighter Quay receivers, now in minority, claim body corporate dysfunctional

4 July 2011: Hotel Viaduct Harbour sign rises beside Westin’s at Lighter Quay

20 June 2011: Room owners set up their own hotel within the Westin

8 June 2011: Lighter Quay body corporate to enter administration

1 November 2010: Receivers say lease termination hasn’t removed 22 rooms from Westin hotel pool

29 October 2010: Westin down to 36 rooms

U: The names behind the action, the week to 17 October 2010, part 3, Lighter Quay Residents Society pursues trail of buyers of 23 Westin units

1 October 2010: 19 more units pulled out of Westin Hotel

2 September 2010: Westin investors withhold levies and sacked staff picket, but judge rejects call for administrator

14 July 2010: McKenna’s Westin management company wound up, unit owners to get possession in month

U: The names behind the action, the week to 11 July 2010, part 6, New receiver appointments at 2 Melview Lighter Quay companies

U: The names behind the action, the week to 11 July 2010, part 3, Residents society pulls second application to wind up Lighter Quay Hotel Management

1 July 2010: Interim liquidators appointed to McKenna’s Westin management company

18 June 2010: Judges in Lighter Quay cases make life harder for investors & other McKenna creditors

11 June 2010: McKenna’s Westin lease & management company insolvent, offers 50% deal to mostly foreign investors, puts off meeting twice & staves off liquidation

U: The names behind the action, the week to 13 June 2010, part 3, Investor’s dispute with McKenna’s Lighter Quay Hotel Management adjourned

U: The names behind the action, the week to 16 May 2010, part 3, Investor’s dispute with McKenna’s Lighter Quay Hotel Management adjourned

U: The names behind the action, the week to 25 April 2010, part 6, Melview The Quays settles with body corporate

 

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Attribution: Court hearing, story written by Bob Dey for the Bob Dey Property Report.

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Lighter Quay body corporate to enter administration

Published 8 June 2011

The body corporate of the Westin Hotel at Lighter Quay is likely to go into administration on Friday.

The application of the receivers of Melview Viaduct Harbour Ltd & Lighter Quay Hotel Management Ltd, Brendon Gibson & Michael Stiassny (KordaMentha Ltd), was adjourned in the Auckland High Court yesterday when it came before Justice Paul Heath.

Counsel Bruce Stewart QC said the parties would know by Friday if negotiations had been successful, and on that basis it was set down for mention in court on Friday. Failing agreement, it will go to a hearing on Tuesday 28 June. Alternatively, Justice Heath said general agreement might be reached, leaving discrete issues such as power supply & lift security to be heard at the later hearing.

Counsel for a large group of mostly Asian investors in units in the hotel, Philip Skelton, said he was comfortable with the arrangement, adding: “It’s in everyone’s interest for the hotel to be available for the Rugby World Cup – there’s a goldmine to be made.”

The investor group brought a similar application to put the body corporate into administration last year. It was adjourned in December and subsequently dismissed by consent.

In July last year, Justice Heath ordered that owners of units in the hotel could take possession of their units from 11 August, against the wishes of the receivers. The same day Justice Heath made that order, Lighter Quay Hotel Management Ltd was wound up in another courtroom.

Earlier stories:

1 November 2010: Receivers say lease termination hasn’t removed 22 rooms from Westin hotel pool

29 October 2010: Westin down to 36 rooms

U: The names behind the action, the week to 17 October 2010, part 3, Lighter Quay Residents Society pursues trail of buyers of 23 Westin units

1 October 2010: 19 more units pulled out of Westin Hotel

2 September 2010: Westin investors withhold levies and sacked staff picket, but judge rejects call for administrator

14 July 2010: McKenna’s Westin management company wound up, unit owners to get possession in month

U: The names behind the action, the week to 11 July 2010, part 6New receiver appointments at 2 Melview Lighter Quay companies

U: The names behind the action, the week to 11 July 2010, part 3, Residents society pulls second application to wind up Lighter Quay Hotel Management

1 July 2010: Interim liquidators appointed to McKenna’s Westin management company

18 June 2010: Judges in Lighter Quay cases make life harder for investors & other McKenna creditors

11 June 2010: McKenna’s Westin lease & management company insolvent, offers 50% deal to mostly foreign investors, puts off meeting twice & staves off liquidation

U: The names behind the action, the week to 13 June 2010, part 3, Investor’s dispute with McKenna’s Lighter Quay Hotel Management adjourned

U: The names behind the action, the week to 16 May 2010, part 3, Investor’s dispute with McKenna’s Lighter Quay Hotel Management adjourned

U: The names behind the action, the week to 25 April 2010, part 6, Melview The Quays settles with body corporate

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Attribution: Court hearing, story written by Bob Dey for the Bob Dey Property Report.

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Receivers say lease termination hasn’t removed 22 rooms from Westin hotel pool

Published 1 November 2010

The receivers of Nigel McKenna’s Lighter Quay Hotel Management Ltd, Michael Stiassny & Brendon Gibson (KordaMentha Ltd), said on Friday they would continue to use 22 rooms whose owners got their leases cancelled on Thursday.

Mr Stiassny said in a release to The Bob Dey Property Report the rooms would continue to be used under arrangements put in place after receivership: “Despite the leases for these rooms being terminated via a High Court ruling earlier this week, it is business as usual for the hotel.

“The High Court termination was an expected formality and we are comfortable with the current arrangement which allows the hotel to keep operating. This has been our intention from the start.”

Mr Stiassny said all units in the hotel pool were being paid rent, regardless of individual lease arrangements.

That would leave the operation of the 173-room 5-star hotel at 58 rooms, not the 36 suggested in Friday’s story. However, I was unable to confirm that with Mr Stiassny.

Earlier story:

29 October 2010: Westin down to 36 rooms

 

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Attribution: Receivers’ release, story written by Bob Dey for the Bob Dey Property Report.

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Westin down to 36 rooms

Published 29 October 2010

The new owner of 22 units in the Westin Hotel on Lighter Quay had their leases cancelled by the High Court yesterday, reducing the operation of the 173-room 5-star hotel to just 36 rooms.

A 23rd unit bought by Sanley NZ Ltd in June was not included in today’s order but still seems to be excluded from the hotel pool. 16 of the remaining rooms in the hotel pool are still owned by a company in developer Nigel McKenna’s Melview group.

The receivers of Mr McKenna’s hotel management company – an intermediary which also controls common & commercial spaces in the hotel – took no steps to oppose today’s application, while the liquidators said the hotel was effectively under the control of the receivers so they neither consented to the cancellation nor opposed it.

Mr McKenna’s Lighter Quay Hotel Management Ltd had Michael Stiassny & Brendon Gibson (KordaMentha Ltd) appointed as receivers on 30 June, Shaun Adams & Ian Thursfield (KPMG Ltd) as interim liquidators on 30 June with a permanent appointment on 14 July. Also on 14 July, the unit owners got a court order that they could take possession of their units, but only from 11 August. At that point the owners of 95 units withdrew from the hotel pool, followed by another 19 at the end of September.

Lighter Quay Hotel Management stood between the investors in hotel residential units – mostly from Singapore & Malaysia – and the day-to-day operator, Westin Hotel Management LP. Mr McKenna’s management company holds the lease on common areas of the hotel such as bars & restaurants, but had also not been paying millions of dollars of returns due to the residential unit investors.

The matter has been further complicated by a McKenna company holding letting service rights, preventing the unit owners from leasing out their rooms. 2 other McKenna companies have long-term agreements as the building manager & body corporate secretary. The issues of the long-term rights held by these McKenna companies – 10 years with a 10-year right of renewal, removal only for a breach, and ratcheted fees – went to a High Court hearing on 14 October before Justice Paul Heath, who hasn’t released his decision yet.

Lighter Quay Hotel Management owed investors in the Westin units more than $3.5 million in back rent from the 3-year guarantee period of their investments, which expired on 12 June.

While units still in the hotel pool were earning income from guests, lawyer Philip Skelton said today the unit owners were still not being paid any rent.

The receivers disclosed in their first report, in September, that Lighter Quay Management had guaranteed the debt owed by its immediate parent & owner of commercial spaces in the hotel, Melview Viaduct Harbour Ltd, to BOSIAL (BOS International (Australia) Ltd). That debt stood at $16.6 million at the time of receivership. Lighter Quay Management owed $1.9 million to unsecured creditors and $6.8 million to unit owners (who are also unsecured). The liquidators said in their first report, in August, the combined claims of secured creditors exceeded $29.9 million and those of unsecured creditors (including unit owners) totalled $12 million. The liquidators said Lighter Quay Management had a net deficit of $37 million.

Mr Skelton appeared for the large group of owners who withdrew their units from the hotel pool in August and for the second batch who withdrew in September. He appeared in court today for Sanley, which bought the units owned by London-based fund GDF-I LLP in June. Those units were sold first to Viaduct Apartments Ltd (James Walker, Brisbane) on 29 June and then onsold to Oregon Management Consulting Ltd (Alan Copeman, Orakei), to MKA001 Ltd (Matthew Jones, Northcote Pt), and then to Sina Trustees Ltd (Murray Smith, city) the same day, and the following day to Sanley (4 Chinese shareholders with a Palmerston North address).

Justice Geoffrey Venning said today’s order cancelling the leases was appropriate, in line with Justice Heath’s July decision. What it does, though, is create a pool now of 136 units no longer available to the hotel, and also not able to be rented out by the owners unless Justice Heath decides from his 14 October case that the existing letting arrangement is ultra vires.

With the hotel stock down to 58 rooms until today, the Westin had already been turning customers away. Mr Skelton said the Sanley units were the good ones, all on the sixth floor.

Mr McKenna withdrew his opposition to The Fletcher Construction Co Ltd’s bankruptcy case against him on 4 October, had his last-minute offer of $100,000 to keep the case out of the public court list rejected and will face bankruptcy on Wednesday 18 November.

A statutory demand application by the Lighter Quay Residents Society against 3 of the companies in the transfer of units to Sanley has been adjourned to Wednesday 3 November for allocation of a defended hearing date. The residents’ society is chasing about $140,000 in levies for 2009. The residents’ society’s levies are separate from those of the body corporate.

Earlier stories:

U: The names behind the action, the week to 17 October 2010, part 3, Lighter Quay Residents Society pursues trail of buyers of 23 Westin units

1 October 2010: 19 more units pulled out of Westin Hotel

2 September 2010: Westin investors withhold levies and sacked staff picket, but judge rejects call for administrator

14 July 2010: McKenna’s Westin management company wound up, unit owners to get possession in month

U: The names behind the action, the week to 11 July 2010, part 6, New receiver appointments at 2 Melview Lighter Quay companies

U: The names behind the action, the week to 11 July 2010, part 3, Residents society pulls second application to wind up Lighter Quay Hotel Management

1 July 2010: Interim liquidators appointed to McKenna’s Westin management company

18 June 2010: Judges in Lighter Quay cases make life harder for investors & other McKenna creditors

11 June 2010: McKenna’s Westin lease & management company insolvent, offers 50% deal to mostly foreign investors, puts off meeting twice & staves off liquidation

U: The names behind the action, the week to 13 June 2010, part 3, Investor’s dispute with McKenna’s Lighter Quay Hotel Management adjourned

U: The names behind the action, the week to 16 May 2010, part 3, Investor’s dispute with McKenna’s Lighter Quay Hotel Management adjourned

U: The names behind the action, the week to 25 April 2010, part 6, Melview The Quays settles with body corporate

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Attribution: Court hearing, story written by Bob Dey for the Bob Dey Property Report.

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19 more units pulled out of Westin Hotel

Published 1 October 2010

The owners of 19 more units in the Westin Hotel on Lighter Quay had the termination of their leases approved in the High Court on Wednesday.

That takes the total leases terminated to 114 out of the 173 units in the hotel.

Although at that number of rooms the hotel operation would seem marginal, nobody from the receivers of developer Nigel McKenna’s hotel management company was available to comment this week. Partners Michael Stiassny & Brendon Gibson, of insolvency firm KordaMentha Ltd, were out of town until Monday.

The apartment owners’ application to terminate their leases was unopposed when counsel Philip Skelton sought the order from Justice Michael Cooper on Wednesday.

Mr McKenna’s Lighter Quay Hotel Management Ltd had receivers appointed on 30 June, liquidators on 14 July, but with an order that owners of units could take possession of their units only from 11 August.

Lighter Quay Hotel Management stood between the investors in hotel residential units – mostly from Singapore & Malaysia – and the day-to-day operator, Westin Hotel Management LP. Mr McKenna’s management company holds the lease on common areas of the hotel such as bars & restaurants, but had also not been paying millions of dollars of returns due to the residential unit investors.

The residential unit investors have offered to buy the common areas from the McKenna management company, but the receivers have rejected that so far and the stand-off has extended to access.

The matter is further complicated by a McKenna company holding letting service rights, preventing the unit owners from leasing out their rooms. 2 other McKenna companies have long-term agreements as the building manager & body corporate secretary.

A hearing has been set down for Thursday 14 October on the right of the body corporate to enter into these long-term contracts – for 10 years, with a 10-year right of renewal.

 

Earlier stories:

2 September 2010: Westin investors withhold levies and sacked staff picket, but judge rejects call for administrator

14 July 2010: McKenna’s Westin management company wound up, unit owners to get possession in month

U: The names behind the action, the week to 11 July 2010, part 6New receiver appointments at 2 Melview Lighter Quay companies

U: The names behind the action, the week to 11 July 2010, part 3, Residents society pulls second application to wind up Lighter Quay Hotel Management

1 July 2010: Interim liquidators appointed to McKenna’s Westin management company

18 June 2010: Judges in Lighter Quay cases make life harder for investors & other McKenna creditors

11 June 2010: McKenna’s Westin lease & management company insolvent, offers 50% deal to mostly foreign investors, puts off meeting twice & staves off liquidation

U: The names behind the action, the week to 13 June 2010, part 3, Investor’s dispute with McKenna’s Lighter Quay Hotel Management adjourned

U: The names behind the action, the week to 16 May 2010, part 3, Investor’s dispute with McKenna’s Lighter Quay Hotel Management adjourned

U: The names behind the action, the week to 25 April 2010, part 6, Melview The Quays settles with body corporate

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Attribution: Court hearing, story written by Bob Dey for the Bob Dey Property Report.

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Westin investors withhold levies and sacked staff picket, but judge rejects call for administrator

Published 2 September 2010

Singapore & Malaysian investors in Auckland Westin Hotel residential units have failed – so far – to get an administrator appointed to run the body corporate, but Justice Paul Heath hasn’t ruled it out altogether.

 

While there’s a stalemate in negotiations over ownership & access between the investors and management company receivers Michael Stiassny & Brendon Gibson (KordaMentha Ltd), and staff have been given short notice and have begun picketing outside the 5-star Viaduct Harbour hotel, the investors went to court on Wednesday trying to oust the body corporate’s committee.

 

Justice Heath issued his judgment today, acknowledging the investors’ concerns & reasoning but also ruling that, for the moment, there would be no administrator.

 

But he said that could change – the body corporate’s annual meeting is scheduled for Wednesday 8 September and, if anybody got technical about voting rights, he’d review his initial decision.

 

The judge used 5 key words in his ruling: dysfunctional, rational, distrust, diversion & brinkmanship.

 

The investors argued the body corporate was dysfunctional, but Justice Heath found it wasn’t. Though the investors mightn’t like the body corporate’s decisions, it couldn’t be said the committee was making them irrationally.

 

The investors – owed more than $3.5 million in back rent from the 3-year guarantee period which expired on 12 June – not surprisingly came to distrust Westin developer Nigel McKenna & his interests. Those interests included a management company (Lighter Quay Hotel Management Ltd) sitting between the hotel operator (Westin Hotel Management LP) & the investors, which owned facilities such as the hotel restaurant, gym, spa & reception areas, body corporate secretary Galway Auckland Property Services Ltd and building manager Galway Property Services Ltd.

 

On the 5-member body corporate committee, 2 members represented proprietors of the serviced apartments, 2 represented the proprietors of the management units (Mr McKenna’s Melview) and one represented Lighter Quay (thus, now, the receivers, who were appointed on 30 June by secured creditor BOSIAL – Bank of Scotland International (Australia) Ltd). Until the receivership, the whole committee had direct links to Mr McKenna & his group, Melview Developments Ltd. Now it’s 3 for McKenna interests, 2 for the Bank of Scotland, still none for the disenchanted investors.

 

Evidence was given during hearings on applications to wind up Lighter Quay that the Westin was making money and paying its dues, but Mr McKenna’s interests weren’t passing it on to the apartment investors. Justice Heath inferred that the McKenna interests had diverted money due to the investors to other purposes.

 

The Asian investors, owning 114 of the Westin’s 173 units, resorted to diversionary tactics of their own, putting levy money for the ground lease & insurance into a solicitor’s trust account for individual payments to be made instead of sending it to the body corporate. Justice Heath said the investors could hardly criticise the committee for failing to pay bills when they’d failed to pay the necessary levies.

 

In short, Justice Heath said: “My impression is that a high level of brinkmanship is being undertaken by both the receivers and the investors. If that were not the case, there would be more serious efforts being taken to negotiate solutions which would meet needs of both groups, namely to maintain the business operated at the hotel in a manner likely to result in beneficial returns to both the receivers’ appointor and the individual unit owners.”

 

The judge went on to say there was no rational reason for distrust of either receiver: “They must, when acting in their capacity as receivers of Lighter Quay, have regard to their duties to unsecured creditors of that company, of which the applicants comprise a number. Yet, because overseas investors are involved, it is understandable – particularly having regard to what has gone before – that they may perceive a degree of partiality on the part of the receivers.”

 

When Justice Heath made the order on 14 July that owners of the Westin units could take possession of their units from 11 August, the receivers opposed the ruling. Their lawyer, Andrew Horne, said allowing knowledge of the cancellation of leases on the units into the public arena would halt bookings beyond 11 August and would affect operation of the hotel.

 

Mr Horne said the hotel chain had limited secondary rights in relation to the rooms and the room owners also had very limited rights: “They can’t operate them themselves, they even have limited rights to pass through the hotel.”

 

Melview built the hotel after entering into a ground lease with Viaduct Harbour Holdings Ltd in November 2006. Of its 173 units, Melview has retained 16 and the owners of 43 haven’t taken any steps in this case.

 

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McKenna’s Westin management company wound up, unit owners to get possession in month

Published 14 July 2010

One Auckland High Court judge ordered today that owners of units in the Westin Hotel on Lighter Quay can take possession of their units from 11 August – against the wishes of the receivers of the Nigel McKenna management company which has stood between the hotel’s highly successful operations and the mostly Asian investors’ bank accounts.

 

Just over half an hour later, another judge ordered the liquidation of that management company, Lighter Quay Hotel Management Ltd, which had been in interim liquidation since 30 June.

 

Neither decision means the hotel will close: the management company owns certain common areas of the hotel and leases its 172 rooms from individual investors, but day-to-day operations are in the hands of Westin Hotel Management LP.

 

Counsel Philip Skelton, for 92 Malaysian & Singaporean investors in 2 groups (and reduced by 3 investors who chose not to continue with the proceedings), said the unit owners were owed $3.8 million when the applications to have Lighter Quay Hotel Management wound up were first made, they still weren’t getting paid and, in the meantime, rent owed to them was going, first, to the receivers and, second, to secured creditor BOSIAL (BOS International (Australia) Ltd).

 

Counsel for the hotel management company have twice secured suppression orders over submissions & evidence at earlier hearings on the liquidation application by another investor in Westin units, GDF-1 LLP (which has recently sold its 23 units), and by the Lighter Quay Residents Society. This morning it was the turn of counsel for receivers Michael Stiassny & Brendon Gibson (KordaMentha Ltd), Andrew Horne, to seek restraint of advertising & suppression of publication until Wednesday 11 August, the date he wanted the case against possession orders adjourned to.

 

Justice Paul Heath rejected the adjournment application, seeing no reason unit owners should be denied possession, and also rejected suppression of any part of the proceedings after Herald on Sunday business editor Maria Slade & I addressed the judge.

 

Mr Horne had argued that allowing knowledge of the cancellation of leases on the units into the public arena would halt bookings beyond 11 August and would affect operation of the hotel.

 

Justice Heath said he wasn’t going to accept such a submission without evidence – of which there was none today and none voiced at previous hearings.

 

In contrast, the judge said all parties in the case, including the unit owners, would work at ways to keep the hotel open.

 

That will require a serious change in attitude. Before receivers & interim liquidators were appointed at the end of June, Mr McKenna had visited Malaysia & Singapore at least twice to try swaying investors in favour of a debt-compromise scheme he was proposing, under which they’d get back half the money they were already owed.

 

Court hearings were told creditors’ meetings were scheduled, only for them to be postponed. Mr Skelton, for the small investors, argued the meeting cancellations only occurred because Mr McKenna was certain to lose the vote. The meeting was cancelled 5 times.

 

Mr McKenna’s focus was plainly on his own business’ future at that time – and the compromise scheme was all about a payments schedule for past monies due, not future operations.

 

While counsel over the past 4 months have urged judges to delay & to suppress – on the unsubstantiated theory that dire predicaments would arise if anybody outside the immediate parties got to know what was happening – the task of ensuring a smoother future minus the McKenna element seems to have been ignored.

 

Even in the fortnight of receivership, Justice Heath said today, the receivers hadn’t done a few things they ought to have if they wanted him to support their case.

 

Justice Heath told Mr Horne (counsel representing the receivers): “You’ve not taken any steps (to inform the court of their position, until an application last night for an adjournment). Why should I hear from you today when you haven’t taken any steps? I suspect this is all about negotiating positions.”

 

Mr Horne: “The question is whether to provide possession in 4 weeks. A hotel can’t in good faith take bookings if there’s a possession order. The receivers were appointed 2 weeks ago and are putting together a proposal to restructure the hotel (more probably, the hotel ownership, leasing & payment paths).”

 

Justice Heath: “It’s a bit rich coming the day before the hearing. I imagine the hotel chain could take control.”

 

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Interim liquidators appointed to McKenna’s Westin management company

Published 1 July 2010

Nigel McKenna’s Lighter Quay Hotel Management Ltd – the middleman at the Westin Hotel on Auckland’s Viaduct Harbour – had interim liquidators appointed to it yesterday afternoon.

 

Associate Judge Roger Bell stopped short of making a full liquidator appointment after counsel for Lighter Quay, Bruce Gray QC, sought time to exercise rights of appeal. The judge agreed that a full appointment now could render a successful appeal nugatory.

 

Mr Gray unsuccessfully employed submissions to sway the judge against liquidation, such as the public interest in having this hotel operating for the Rugby World Cup next year – submissions which had been suppressed at an earlier hearing at the request of Lighter Quay’s previous counsel.

 

Yesterday’s decision followed the fifth cancellation of a meeting of Westin unit owners, cancelled each time with a clear majority opposed to a proposal by the company to pay arrears of rent – and rates payments to the city & regional councils collected by Lighter Quay but allegedly not passed on – over a period of 6 years.

 

The appointment of Shaun Adams & Ian Thursfield (KPMG Ltd) as interim liquidators followed the appointment last Friday of Brendon Gibson & Michael Stiassny (KordaMentha Ltd) as receivers of the company’s bank accounts, but not of its assets.

 

Lighter Quay Hotel Management plays an intermediary role at the Westin, as lessor of the 172 hotel units which were mostly bought by small investors in Malaysia & Singapore. Mr McKenna’s management company also owns spaces such as restaurants, bars & function rooms. The hotel is operated on a day-to-day basis by Westin Hotel Management LP.

 

The application to wind Lighter Quay up was brought by GDF-I LLP, owner of 23 units in the hotel. Counsel Mark Davies told the court yesterday the London-based fund had sold its units on Tuesday, but retained an interest in the court action.

 

It was supported by a group of individual investors from Malaysia & Singapore, represented by Philip Skelton, who said the group had grown from 81 owners of 96 of the Westin’s 172 units at the previous call to 110 owners this time.

 

Mr Gray told the judge liquidation of the company would be “pointless & destructive of value – pointless because its only assets are secured to secured creditors and therefore there is nothing available in the company to meet claims made by Mr Skelton’s clients, destructive of value because this company owns common areas, fixtures & fittings in units, including those owned by clients of Mr Skelton, and operates the hotel pursuant to a contract with the Westin.

 

“Either receivership or appointment of a liquidator will lead to the contract with Westin being lost.”

 

Mr Gray said there was the public interest to be considered: “It has contracts in place for the Rugby World Cup next year. Those contracts will be terminated and it’s not clear what else will be available for a venue for the cup, and there is public interest in sensible arrangements being made for this hotel to continue. There is now no longer any prospect of any funds being available to unit owners of Lighter Quay.”

 

What Mr Gray didn’t tell the judge was that receivers had already been appointed. Other counsel learned of that shortly before the judge returned in the afternoon to deliver his decision.

 

Mr Skelton said his clients were owed $2.8 million when their liquidation applications were filed, and they believed voidable preference issues had arisen because, although the residential unit owners weren’t being paid in full, Mr McKenna’s owner of the hotel’s commercial units was being paid. On top of that, deductions had been made for council rates but the owners had learned those bills hadn’t been paid.

 

He said there was speculation that Westin would leave, but the hotel was operating at 110% of budget: “It isn’t a given that because the (McKenna) company is insolvent the business is insolvent…. Some commercial arrangement might be entered into (with the unit owners).”

 

To Mr Gray’s request that opportunity still be given for a meeting of unit owners to be held, Associate Judge Bell said: “In my view this court has no place in substituting its views for those of creditors who are adamantly opposed to the application, and accordingly this application is not arguable and is doomed to fail. I therefore see no useful purpose in allowing the application to run. On that basis then, the consequences are the stay application would be set aside. There will be orders to liquidate the company.”

 

At that point, Mr Gray sought the adjournment to enable an appeal and the liquidation order wasn’t made. Instead, the judge made the interim liquidation appointment on condition that Lighter Quay lodges an appeal with the Court of Appeal by Monday 5 July, gets its documents in by Friday 9 July and applies for an urgent fixture.

 

GDF-I LLP obtained Overseas Investment Office approval in June 2007 to invest $319.4 million in assets being developed by McKenna companies Peninsula Road Ltd (Kawarau Station Falls Resort stages 2-3, Queenstown) & Melview Viaduct Harbour Ltd. GDF-I LLP is an intermediary investment vehicle established to hold a portfolio of hotel & resort assets on behalf of Global Destinations Fund I LP, an internationally owned investment fund.

 

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