Action Media Limited (in liquidation) v Mitchell - [2015] NZHC 3121

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV-2014-404-1314

[2015] NZHC 3121

UNDER the Companies Act 1993

IN THE MATTER

of Action Media Limited (In Liqudiation)

BETWEEN

ACTION MEDIA LIMITED (IN LIQUIDATION)

First Plaintiff

AND

HENRY DAVID LEVIN AND VIVIEN JUDITH MADSEN-RIES AS

LIQUIDATORS OF ACTION MEDIA LIMITED (IN LIQUIDATION)

Second Plaintiffs

AND

SEAN WESLEY MITCHELL

First Defendant

AND

FARRY & CO TRUSTEES LIMITED

Second Defendant

Hearing: 20 November 2015

Appearances:

P Murray and P Shackleton for the Plaintiffs P R Cogswell for the Defendants

Judgment:

9 December 2015

JUDGMENT OF THOMAS J

This judgment was delivered by me on 9 December 2015 at 1.00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:………………………….

Solicitors:
Meredith Connell, Auckland.
ACTION MEDIA LIMITED (IN LIQUIDATION) v HENRY DAVID LEVIN AND VIVIEN JUDITH
MADSEN-RIES AS LIQUIDATORS OF ACTION MEDIA LIMITED (IN LIQUIDATION) [2015] NZHC 3121
[9 December 2015]

Cogswell Law, Auckland.

[1] The first plaintiff, Action Media Ltd (in liquidation) (the Company), was incorporated in 2006. It carried on business as a publisher. It ceased trading on 4 May 2010 and was placed into liquidation by special resolution of its shareholders the same day. The second plaintiffs are the liquidators of the Company (the Liquidators).

[2] The first defendant, Sean Mitchell, was a director of the Company and its sole director from 3 January 2007. Together with the second defendant, Farry & Co Trustees Ltd, which is a solicitor’s trustee company, he jointly held shares in the Company.

[3] Unsecured creditors’ claims in the liquidation total $1,172,802.93. There are five creditors, the Inland Revenue (the IRD) being by far the largest creditor. All other creditors are related in some way to the Company.

[4] The amounts owed to the IRD include sums for PAYE, goods and services tax (GST), KiwiSaver employee deductions, KiwiSaver employer contributions, student loan employer deductions and interest and penalties.

[5] The Liquidators say that the Company was unable to pay its due debts from at least 31 July 2007 and was balance sheet insolvent from at least 31 March 2008.

[6] The Company pleads three causes of action, in the alternative, against Mr Mitchell, in respect of recovery of remuneration and other benefits paid to a director, under s 161(5) of the Companies Act 1993 (the Act); recovery of distribution paid to a shareholder under s 56(1) and/or s 56(2) of the Act.

[7] The Liquidators claim that Mr Mitchell, as a director of the Company, breached his duties pursuant to ss 131, 133, 134, 135, 136 and 137 of the Act, and failed to keep adequate accounting records and prepare financial statements in accordance with the obligations set out under s 194 of the Act and s 10 of the Financial Reporting Act 1993. They seek to recover the Company’s loss in compensation. The Liquidators then claim against both defendants seeking to set aside insolvent transactions pursuant to ss 294 and 295 of the Act.

[8] The defendants neither admit nor deny the…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2015] NZHC 3121
Decision Date: 9 December 2015

CaseChat Overview and Summary

The case before the Court was an application for particular discovery brought by the defendants in a proceeding brought by liquidators of a company in liquidation against a former director of the company. The plaintiffs sought to recover sums paid to the former director and to set aside insolvent transactions. The defendants sought particular discovery of notices issued by the liquidators under s 261 of the Companies Act 1993, correspondence between the liquidators and the Inland Revenue, unredacted copies of Inland Revenue case notes and information regarding the inspection of documents held by the liquidators. The defendants argued that the liquidators had a right to require the production of the documents in question and thus had control of them. The Court found that the liquidators did not have a right to require the production of correspondence between the Inland Revenue and the former director, and that the liquidators had no right to require the production of unredacted copies of Inland Revenue case notes. The Court found that the liquidators had a right to require the production of correspondence between the liquidators and the Inland Revenue regarding the company's liabilities. The Court found that the liquidators need not inspect documents at their own offices but could inspect them at the former director's lawyer's office. The Court declined to order the liquidators to strike out a cause of action, declined to order the liquidators to provide particular discovery of certain documents, granted particular discovery of other documents, and ordered that the liquidators inspect documents at the former director's lawyer's office. The plaintiffs were awarded costs of the strike out application which was not pursued.

Orders