Arjang v NF Global Limited
[2021] NZHC 395
•5 March 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-778
[2021] NZHC 395
UNDER the Companies Act 1993 IN THE MATTER OF
an application to put a company into liquidation
BETWEEN
MICHAEL MOSHE ARJANG
Plaintiff
AND
NF GLOBAL LIMITED
Defendant
STARBOARD CAPITAL SA
ShareholderSKY CAPITAL MANAGEMENT LIMITED
CreditorLD DRAGO MET SRL
CreditorELEONORA SPORT LIMITED
Creditor
Hearing: 15 and 16 February 2021 Appearances:
W Porter and S Campbell for the Plaintiff
W Fotherby/W Potter/J Phillips for the Defendant
and for Starboard Capital SA (shareholder) H L Quinlan for Sky Capital Management (creditor) G Bogiatto for LD Drago Met SRL (creditor)
L Sizer for Eleonora Sport Ltd (creditor)
Judgment:
5 March 2021
Reissued:
9 March 2021
INTERIM JUDGMENT OF ASSOCIATE JUDGE R M BELL
ARJANG v NF GLOBAL LIMITED [2021] NZHC 395 [5 March 2021]
This judgment was delivered by me on 5 March 2021 at 4:00pm
pursuant to Rule 11.5 of the High Court Rules
………………………….
Registrar/Deputy Registrar
Introduction
[1] NF Global Ltd runs an online payment platform. Its customers lodge funds with it and use the platform to transfer funds internationally. It is not however a bank. One of its customers, Mr Arjang, the plaintiff, paid funds to it, but when he directed it to pay money out, it did not do so. He asked for his money back, but it did not pay. He served a statutory demand and brought this proceeding to have NF Global put into liquidation on the ground that it is not able to pay its debts.
[2] Other customers of NF Global with similar experiences have supported Mr Arjang. The claims in this proceeding are:
Mr Arjang €1,261,671.45
Sky Capital Management Ltd €2,059,730.86
Eleonora Sport Ltd €770.712.21 and £4,926,955.70
LD Drago Met srl €318,383.11
€4,410,497.63 and £4,926,955.70
That is about NZ$16,800,000. Starboard Capital SA, NF Global’s shareholder, opposes the liquidation application.
[3] While it accepts that Mr Arjang is a customer and it holds funds lodged by him, NF Global denies that he is a creditor. He is instead a suspect money launderer. It also denies that it is insolvent and says that in any event the court should exercise its discretion not to make a liquidation order.
[4] As for the other customers, it says that LD Drago is also a suspect money launderer. It denies liability to Sky Capital Management. It complains that because Eleonora Sport came into the proceeding late it has not had enough time to give a response.
[5] NF Global’s money laundering suspicions do not give it reason not to pay Mr Arjang and LD Drago. Under the anti-money laundering legislation, it must terminate its business relationship with customers it suspects of money laundering and that means that it must return the funds paid to it. Sky Capital Management has the benefit of an order under s 291 of the Companies Act 1993 requiring NF Global to pay it and that order still stands, notwithstanding NF Global’s appeal. It has had enough time to respond to Eleonora Sport and has not shown any reason why its claim should not be accepted. They are all creditors of NF Global.
[6] A major problem for NF Global is that the bank into which much of its customers’ funds were paid is under insolvency administration in the United Kingdom. NF Global cannot meet its customers’ demands for repayment. It is insolvent.
[7] NF Global says that it has the support of its shareholder, Starboard Capital. That can be tested. It will be given a short time in which to pay its creditors in full. If they are not paid, there will be a liquidation order.
Mr Arjang
[8] NF Global, a registered financial service provider, operates a payment platform. Mr Claude Oberto is its director. Much of its business comes from customers of an English wealth-management company called Northern Fides, with which it is associated. NF Global’s customers use the platform to transfer funds between themselves and to pay third parties. NF Global claims that its payment platform allows for funds to be transferred cheaply and easily.
[9] Since September 2018, NF Global has been the wholly-owned subsidiary of Starboard Capital SA, which is established under Swiss law but has its main office in
London.1 Starboard Capital also owns Northern Fides and another English company, NF Money Ltd. NF Money holds a remittance licence, which allows it to transfer funds to European banks. Mr Oberto says that NF Global uses NF Money to transfer funds within Europe. Starboard Capital provides back-office support for much of NF Global’s functions. NF Global does not itself hold customers’ funds. Funds lodged with NF Global are held in segregated client accounts with correspondent banks. One of them was Ipagoo LLP.
[10] NF Global says that Ipagoo was an electronic money issuer based in the United Kingdom. It was one of the first companies to obtain a licence for e-money services from the United Kingdom Financial Conduct Authority under the Electronic Money Regulations 2011 (UK). Electronic money issuers were subject to special rules for safeguarding funds received from customers. When a customer of NF Global or NF Money opened an account, Ipagoo would create a unique account - an individual International Bank Account Number (IBAN) - for that customer. Customers’ funds would be deposited in the Ipagoo account directly. The customer could view and request a transfer of the funds through the NF Global platform. This was to give the NF Global customers the benefits of an Ipagoo account and electronic money issued by Ipagoo.
[11] As a financial institution, NF Global is a reporting entity under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the Act) and is required to carry out due diligence on its customers, to make suspicious activity reports where required, and to keep proper records. A back-office compliance team in London does much of the due diligence on NF Global’s customers. The team follows UK practice and legislation.2
[12] Mr Arjang lives in Israel but also spends time in Italy. He is a citizen of both countries. He moved to Israel in 2009. He dealt with a Belize company, Richfield Capital Ltd, which used an online trading platform and was associated with the “24option group”. Mr Arjang introduced potential customers to Richfield Capital and
1 It also has an office in Lugano.
2 For example, the UK Financial Conduct Authority’s Financial Crime Guide; Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (UK); Proceeds of Crime Act 2002 (UK).
was paid commissions based on the volume of traders he referred and the value of their trades. He provides a memorandum of understanding (governed by the laws of Cyprus) between himself and Richfield Capital, dated 1 February 2018. He stopped working for Richfield Capital in December 2019.
[13] At the suggestion of his Italian accountant, he opened a personal payment account with NF Global in May 2018. His purpose was to facilitate international transfers to Israel. His evidence includes a copy of a form he filled in by hand. He provided information, including that he was an Israeli citizen and tax resident and that he would be sending funds to “Israel and others” and funds would come from “Israel and others”. He expected to make about 12 transactions a year, and the average amount was estimated at €10,000. He gave his business name as “Arjang Consultant Ltd”, although he says that no such separate entity was ever established.
[14] The form does not set out or incorporate NF Global’s standard terms and conditions of business. Mr Arjang says that he is not subject to other terms and conditions NF Global has relied on. It is for NF Global to show that Mr Arjang has agreed to additional terms and conditions besides those set out in the account opening form he signed. If there were evidence that he had agreed to additional terms, it could be expected to be found in the records of NF Global. It has not put forward any such evidence.3 Mr Arjang’s agreement with NF Global is not subject to the standard terms.
[15]Funds were transferred into Mr Arjang’s NF Global account:
21 May 2018 €35,000 17 July 2018 €2,378 17 August 2018 €450,000 December 2018 €490,984 4 January 2019 €370,720 11 January 2019 €105,000 21 January 2019 €53,000
3 See Lord Mansfield in Blatch v Archer (1774) 1 Cowp 63, 98 ER 969 at 65: “It is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted.”
[16] Mr Arjang made the first two transfers himself. The next four came from Richfield Capital. The last came from Fidalpha SA. On the second transfer from Richfield Capital, NF Global asked Mr Arjang for supporting documents. He responded, sending a copy of the memorandum of understanding between him and Richfield Capital which recorded his engagement as a broker and his right to be paid commission. NF Global accepted that information and credited the funds to his on- line account.
[17] NF Global also asked for supporting documents for the €53,000 paid by Fidalpha SA. Mr Arjang gave instructions to his Italian accountant. By 6 February 2019, NF Global was apparently satisfied and had credited the payment to Mr Arjang’s account.
[18] Mr Arjang had bought two high-value Rolex watches in January 2019 with funds held in his NF Global account. These were the only times he was able to draw funds from the account.
[19] In January 2019, Mr Arjang requested a transfer of €150,000 to his Israeli lawyers’ trust account. NF Global asked for more information about his relationship with Richfield Capital. On 6 January 2019, NF Global emailed him that if no documents were received, his account would be blocked. By 29 March 2019, Mr Arjang sent NF Global a letter from Richfield Capital confirming that the payments to him had been made for introductions and marketing services. On 2 April 2019, NF Global advised Mr Arjang that it had unblocked his account and apologised for the delay.
[20]On 3 April 2019, Mr Arjang requested NF Global to make two transfers of
€500,000 each to two Israeli insurance companies. He says that he intended to place the funds with these companies for investment. NF Global asked for supporting documentation. Mr Arjang replied, showing links to the websites for the insurance company and providing documents dated 6 March 2019. They were in Hebrew. In 2020 NF Global had the documents translated into English. They show that Mr Arjang was making payments into savings accounts with the insurance companies.
[21] On 5 April 2019, NF Global asked for more information about Richfield Capital. On 7 April 2019, NF Global cancelled the transfers to the insurance companies. On 8 April 2019 Mr Arjang gave details of customers he had introduced but, for privacy reasons, not the names of the customers. On 3 May 2019, NF Global advised the documents were with its compliance department for evaluation. Mr Arjang provided further documents which he says show the volume of business he generated for Richfield Capital, and how his commissions were calculated. In June 2019 Mr Arjang sent NF Global further information about Richfield Capital.
[22] During this period, Mr Arjang’s account with NF Global remained blocked. On 26 June 2019, Mr Arjang’s lawyer in Milan wrote to Northern Fides in London regarding the failure make the two transfers of €500,000 each to the Israeli insurance companies. There was no response.
[23] An email of 23 July 2019 by a compliance officer in London records a decision to close Mr Arjang’s account. The email gave instructions to the payment team to transfer €1,216,704 from NF Global’s account to an account for Richfield Capital. No fees should be applied. The remaining balance would then be sent back to Mr Arjang. That instruction was not, however, carried out.
[24] The funds were held in Ipagoo. On 24 July 2019, the UK Financial Conduct Authority suspended Ipagoo’s licence to operate, to protect the interests of Ipagoo’s customers. On 1 August 2019, Ipagoo was placed into administration under UK legislation and administrators were appointed.
[25] On 2 August 2019, Mr Arjang received an email sent to all NF Global customers advising that Ipagoo’s regulatory licence had been suspended:
We have had to temporarily reduce the services that are available to you.
… Please be assured that your account remains intact and transfers between users and between accounts are unaffected.
The email did not refer to Ipagoo and did not say that it had been placed in administration. NF Global did not advise Mr Arjang that it had decided to terminate its relationship with him. NF Global continued to charge Mr Arjang monthly fees.
[26] In August 2019, a transaction appeared in Mr Arjang’s NF Global online account, indicating a payment of €1,216,704 was to be paid to Richfield Capital, the reason being given “Account closure”. Mr Arjang emailed, requesting that his name be included instead of Richfield Capital. In later emails he suggested “Return of funds back to origin”.
[27] On 3 October 2019, NF Global emailed Mr Arjang advising that Ipagoo’s regulatory licence had been suspended, but said nothing about Ipagoo being in administration. It apologised for inconvenience and said that they were looking for a solution. The email said nothing about anti-money laundering concerns.
[28] Mr Arjang’s Italian lawyer wrote again on 8 October 2019, demanding the return of all funds that Mr Arjang had paid and threatening proceedings. Mr Arjang instructed English solicitors who wrote to NF Global on 9 December 2019. That letter also demanded repayment to Mr Arjang and threatened the issue of a statutory demand if payment was not made.
[29] On 11 December 2019, NF Global replied to Mr Arjang’s English solicitors. Amongst other things, the letter stated that documents provided by Mr Arjang did not satisfy NF Global’s compliance requests regarding money laundering and that NF Global had informed Mr Arjang of its intention to transfer the funds back to the originating account of Richfield Capital. The letter also advised that Ipagoo was in administration and the funds in the accounts with Ipagoo were not accessible or available to clients. The letter attached correspondence received from Ipagoo’s administrators. The letter gave an assurance that upon release of the funds, the money would be transferred to the originating account and that Mr Arjang would be updated with developments. This was the first time that NF Global had advised Mr Arjang of any anti-money laundering concerns.
[30] On 23 December 2019, the English solicitors sent two statutory demands, one to NF Money and one to NF Global at an office in London and also to NF Global’s then registered office in Auckland. This was a statutory demand under the Insolvency Act 1986 (UK), not a statutory demand under s 289 of the Companies Act 1993 (NZ). The demand did not comply with the New Zealand Act. Mr Arjang does not rely on
it to prove insolvency. NF Money responded, contesting the validity and service of the demand. It also said that it had no contractual relationship with Mr Arjang. NF Global also contested the validity of service and denied any wrongdoing in handling Mr Arjang’s funds.
[31] In 2020, Mr Arjang tried to find out when funds would be released from Ipagoo. The lawyers for the administrators said that funds were held for NF Money but Ipagoo did not consider that Mr Arjang himself had any claim to funds held by it.
[32] Mr Arjang instructed New Zealand solicitors who wrote to NF Global on 26 March 2020. The letter recorded past demands for repayment. A statutory demand under s 289 of the Companies Act 1993 was also sent requiring repayment of
€1,261,671.45. NF Global did not apply to set aside the statutory demand. At the time the statutory demand was served, New Zealand had just gone into Alert Level 4 lockdown because of the COVID-19 pandemic. On 23 April 2020, Mr Oberto emailed Mr Arjang asking him to instruct his lawyers to withdraw the statutory demand.
[33] Mr Arjang began this proceeding on 27 May 2020. NF Global applied for a stay of the proceeding. Powell J rejected NF Global’s arguments that the statutory demand was not validly served, that the debt in the demand was subject to a genuine and substantial dispute and that Mr Arjang’s conduct made the liquidation proceeding inappropriate.4
[34] Mr Arjang’s case is that, having paid NF Global funds that he could transfer on its online payment platform, he is entitled to bring the arrangement to an end at any time and have the funds repaid. There are no contractual terms barring him from closing his account. He does not mind whether the funds are paid to Richfield Capital or himself. Either option is better than NF Global keeping the money. He is a creditor of NF Global for €1,261,671.45, the balance in his account.
4 Arjang v NF Global [2020] NZHC 2455.
The money laundering defence
[35] NF Global does not dispute that at the outset there was a creditor-debtor relationship between Mr Arjang and it. Mr Arjang does not suggest that he paid funds to NF Global for it to hold the funds on trust for him. While an IBAN was opened for Mr Arjang’s funds, NF Global retained control. It decided whether to give effect to Mr Arjang’s instructions to remit funds. It decided which correspondent bank to use. It remained responsible to Mr Arjang to remit or refund amounts up to the equivalent value of his payments to it. It carried the risk if the correspondent bank failed. There is nothing in the arrangements that passes the risk of the bank’s insolvency to Mr Arjang.
[36] But NF Global says that Mr Arjang is a suspected money launderer and that makes a difference. He can no longer call on NF Global for payment and is therefore not a creditor.
[37]Its suspicions are based on an accumulation of circumstances:
(a)While Mr Arjang indicated his transactions on the NF Global account would be in the order of €10,000 each, his payments in were substantially greater.
(b)The description of Mr Arjang’s services in the memorandum of understanding as a retention call centre is inconsistent with the brokering Mr Arjang says he carried out.
(c)Mr Arjang never established the company referred to in the memorandum.
(d)The business for Richfield Capital involved introducing traders to invest in CFD contracts, (contracts for difference) which are highly speculative.
(e)Mr Arjang had a minimum commission of 35 per cent, which increased with the volume of trades. It is difficult to see how investors could benefit when the broker was to be paid such commissions.
(f)Richfield Capital was linked to “24option” which was being investigated by regulatory agencies in the United States, Canada, Russia, the United Kingdom and Cyprus. Its banker, the German Wirecard Technologies GmbH, was the subject of a money laundering investigation.5 The Italian financial regulator (CONSOB) banned Richfield Capital and 24option from trading in Italy. The evidence included a complaint by an Austrian-based consumer rights organisation, the European Funds for Recovery Initiative, to a German prosecutor that customers of 24option had been defrauded. The complaint included references to Richfield Capital.
(g)Mr Arjang did not provide supporting documentation to vouch for the payment of €53,000 from Fidalpha SA.
(h)He bought two high-value Rolex watches.
(i)In light of an explanation given by Mr Arjang’s Israeli lawyers, sending
€150,000 to them seemed to be a device to evade anti-money laundering checks by Israeli banks.
[38] NF Global was not reassured by the information Mr Arjang provided. The compliance team in London sent a “suspicious activity report” on behalf of NF Money to the UK National Crime Authority. This was a suspicious activity report under the UK anti-laundering legislation, not a report under New Zealand’s Act. It gave reasons for suspicion. The report was in evidence for this hearing. It was not in evidence in the hearing before Powell J. NF Global sought the permission of NF Money and the UK National Crime Authority to disclose it in evidence. Associate Judge Smith directed that it could do so.6
5 It has since gone into insolvency administration.
6 Minute of 28 October 2020.
[39] Under ss 46 and 47 of the Act there are restrictions against disclosing whether a suspicious activity report has been made. It appears from Mr Oberto’s evidence that NF Global did not make any report under the New Zealand legislation, mainly because he understood from an earlier occasion that the Police would not act when the report concerned people overseas.
[40] NF Global’s stated concern about Mr Arjang needs to be understood in the light of the law on money laundering. Money laundering is an offence under s 243 of the Crimes Act 1961:
243Money laundering
(1)For the purposes of this section and sections 243A. 244 and 245,—
act includes an omission
conceal, in relation to property, means to conceal or disguise the property; and includes, without limitation,—
(a)to convert the property from one form to another:
(b)to conceal or disguise the nature, source, location, disposition, or ownership of the property or of any interest in the property
deal with, in relation to property, means to deal with the property in any manner and by any means; and includes, without limitation,—
(a)to dispose of the property, whether by way of sale, purchase, gift, or otherwise:
(b)to transfer possession of the property:
(c)to bring the property into New Zealand:
(d)to remove the property from New Zealand
interest, in relation to property, means—
(a)a legal or equitable estate or interest in the property; or
(b)a right, power, or privilege in connection with the property
offence means an offence (or any offence described as a crime) that is punishable under New Zealand law, including any act, wherever committed, that would be an offence in New Zealand if committed in New Zealand
proceeds, in relation to an offence, means any property that is derived or realised, directly or indirectly, by any person from the commission of the offence
property means real or personal property of any description, whether situated in New Zealand or elsewhere and whether tangible or intangible; and includes an interest in any such real or personal property.
(2)A person commits an offence who engages in a money laundering transaction knowing or believing that all or part of the property is the proceeds of an offence, or being reckless as to whether or not the property is the proceeds of an offence.
(3)A person commits an offence who obtains or has in his or her possession any property (being property that is the proceeds of an offence committed by another person)—
(a)with intent to engage in a money laundering transaction in respect of that property; and
(b)knowing or believing that all or part of the property is the proceeds of an offence, or being reckless as to whether or not the property is the proceeds of an offence.
(4)For the purposes of this section, a person engages in a money laundering transaction if, in concealing any property or by enabling any person to conceal any property, that person—
(a)deals with that property; or
(b)assists any other person, whether directly or indirectly, to deal with that property.
(4A)Despite anything in subsection (4), the prosecution is not required to prove that the defendant had an intent to—
(a)conceal any property; or
(b)enable any person to conceal any property.
(5)In any prosecution for an offence against subsection (2) or subsection (3),—
(a)it is not necessary for the prosecution to prove that the defendant knew or believed that the property was the proceeds of a particular offence or a particular class of offence:
(b)it is no defence that the defendant believed any property to be the proceeds of a particular offence when in fact the property was the proceeds of another offence.
…
243A Charges for money laundering
A person may be charged under section 243(2) or (3) in respect of any property that is the proceeds of an offence to which section 243(2) or
(3) applies even though the person who committed the offence—
(a)has not been charged with that offence; or
(b)has not been convicted of that offence.
244Defence of enforcement of enactment
It is a defence to a charge under section 243 if the person charged proves that the act to which the charge relates was done by that person, in good faith, for the purpose of, or in connection with,—
(a)the enforcement or intended enforcement of section 243; or
(b)the enforcement or intended enforcement of the Criminal Proceeds (Recovery) Act 2009; or
(ba) the enforcement or intended enforcement of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009; or
(c)the enforcement or intended enforcement of the Financial Transactions Reporting Act 1996.
[41] The Criminal Proceeds (Recovery) Act 2009 provides for the forfeiture of property that has been derived, directly or indirectly, from significant criminal activity. Forfeiture is only by court order.
[42] One of the purposes of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 is to detect and deter money laundering and the financing of terrorism.7 The Act imposes compliance obligations on “reporting entities” which include “financial institutions”. NF Global is a financial institution as defined. In the ordinary course of business, it accepts funds from the public which are repayable on demand, it transfers money or value for or on behalf of a customer and it manages the means of payment – including by electronic money.8
[43] As a reporting entity, NF Global is required to carry out customer due diligence under Part 2 of the Act. This includes doing due diligence on customers when they begin their relationship and ongoing customer due diligence. Standard customer due diligence involves obtaining information as to the identity of a customer and verification, information on the nature and purpose of the proposed relationship, and information to assess whether the person should be subject to enhanced customer due
7 Section 3(1)(a).
8 Definition of “financial institution” in s 5(1)(a)(iv) and (v). See also the definition of “reporting entity” in s 5(1).
diligence. Enhanced due diligence may be triggered in a variety of circumstances including s 22(1)(c) and (d):
22 Circumstances when enhanced customer due diligence applies
(1) A reporting entity must conduct enhanced customer due diligence in accordance with sections 23 and 24 in the following circumstances:
...
(c)if a customer seeks to conduct, through the reporting entity, a complex, unusually large transaction or unusual pattern of transactions that have no apparent or visible economic or lawful purpose:
(d)when a reporting entity considers that the level of risk involved is such that enhanced due diligence should apply to a particular situation:
Enhanced customer due diligence includes these requirements (as well as others). Under s 23(1)(a) the reporting entity must obtain additional information as to the source of funds or the wealth of the customer. Under s 24(1)(b), according to the level of risk involved, it must take reasonable steps to verify the information required as to the source of funds and the wealth of the customer. Pecuniary penalties may be imposed for failure to carry out customer due diligence.9
[44] NF Global’s case is that it remained unsatisfied with the information Mr Arjang provided. Its legal submissions referred in part to the position under UK law, but we are concerned with the New Zealand Act. The relevant provision is s 37:
37 Prohibitions if customer due diligence not conducted
(1)If, in relation to a customer, a reporting entity is unable to conduct customer due diligence in accordance with this subpart, the reporting entity—
(a)must not establish a business relationship with the customer; and
(b)must terminate any existing business relationship with the customer; and
(c)must not carry out an occasional transaction or activity with or for the customer; and
9 Anti-Money Laundering and Countering Financing of Terrorism Act 2009, ss 78(a) and 90.
(d)must consider whether to make a suspicious activity report; and
(e)may disclose the possibility of making a suspicious activity report only to a person referred to in section 46(2).
(2)A reporting entity is not prohibited by subsection (1)(a) or (b) from establishing or continuing a business relationship with a customer in respect of an activity that is not specified in section 6(4) in relation to that reporting entity.
[45] NF Global’s position must be that it could not conduct due diligence because its enhanced due diligence obligation required it to obtain verification of the sources of Mr Arjang’s funds and what Mr Arjang provided was not adequate.
[46] Mr Arjang does not accept that. He points out that NF Global was happy to accept his payments in and the explanations he gave with them, but it only started being difficult when he wanted to take money out. The money laundering concerns are only a smokescreen to cover the company’s inability to pay him. For this decision, I assume that NF Global’s concerns are genuine. Given the nature of its business, an online platform for the international remittance of funds without going through the conventional banking system, it may attract some customers who want to use its platform to move the proceeds of criminal activity without attracting attention. Given the penalties for non-compliance, a cautious attitude is understandable. The evidence shows consideration by a compliance team trained in anti-money laundering procedures and reasons recording their concern in the suspicious activity report. The evidence does not suggest that they were acting out an empty charade.
[47] Given that NF Global did not consider that it had been able to carry out the required due diligence, the question is what it should do under s 37. The relevant requirement is under s 37(1)(b) to:
…terminate any existing business relationship with the customer.
There is an exception under s 37(2) for activities not caught under s 6(4) but that does not apply. The relationship here involves financial activities entirely. “Business relationship” is defined:10
10 Section 5(1).
Business relationship means a business, professional, or commercial relationship between a reporting entity and a customer that has an element of duration or that is expected by the reporting entity, at the time when contact is established, to have an element of duration.
[48]Termination involves at least these aspects:
(a)The relationship cannot continue. NF Global can no longer carry out transactions for Mr Arjang. Nor can it continue charging him fees.
(b)It does not require past transactions to be unwound. The termination is prospective only.
(c)If the condition under s 37 is met, NF Global cannot be liable to Mr Arjang for breach of contract for terminating the relationship. That is because of s 9(2) of the Act:
No person is excused from compliance with any requirement of this Act or regulations by reason only that compliance with that requirement would constitute breach of any contract or agreement.
(d)NF Global cannot keep Mr Arjang’s money. The Act does not have a forfeiture provision. Forfeiture of the proceeds of criminal activity is for the court under the Criminal Proceeds (Recovery) Act, not for NF Global. There is no contractual provision allowing it to keep the money on termination. NF Global accepted that on termination it had to pay the money out.
[49] NF Global argued that on termination it had the only say on who should receive the money in Mr Arjang’s account and the correct step was to pay the money back to the source, that is, to pay Richfield Capital €1,216,704, being the total amount paid into Mr Arjang’s account from Richfield Capital. I understand that it expected the funds from Fidalpha SA to go back there. The argument was designed to cut Mr Arjang out of any say in how his account was terminated. At the same time, it did not suggest that Richfield Capital or Fidalpha SA would have any standing to demand payment.
[50] Mr Arjang has tried to meet that by saying that he does not mind if the money is paid to Richfield Capital. The company is still in business and he is confident that it will account to him.
[51] Notwithstanding that, the legal question must be faced about how the termination is to be carried out. On standing, Mr Arjang is obviously entitled to be heard on what happens to the funds paid into his account. If there were no money laundering questions but NF Global no longer wanted him as a customer, he could require NF Global to pay the funds in his account as he directed. When NF Global is required under the Act to terminate the relationship, Mr Arjang remains a customer until the termination is completed. There is no reason to deny him rights to see that the termination is carried out correctly. The Act does not require that a termination be carried out without accounting to the customer. A customer entitled to require the reporting entity to account to them for what it has done with the funds in their account has enforceable rights, which may be the subject of a claim in a liquidation.
[52] The other question is how the funds in the account should be paid out. The Act does not say so expressly.11 Parliament has left this for the courts. The matter needs to be assessed against NF Global’s submission that the funds must be returned to source. Relevant considerations are:
(a)A simple, clear rule is required. Efficient decision-making is required when terminating a business relationship under the Act. Managers in reporting entities may be adept at good anti-money laundering practice, but they cannot be expected to carry out sophisticated legal analysis of facts that are not clearly established to decide where the funds should go. Recourse to legal advice should not be necessary, except to find out what the rule is.
11 The law in the United Kingdom on the other hand allows payment to the person who deposited it, but only after regulatory clearances: The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, reg 31(2).
(b)Reporting entities will want to avoid committing any money laundering offences. Terminating the business relationship offers a way of not breaking the law.
(c)The mental states required for the money laundering offences are knowing, believing or being reckless. Suspicion is not enough.
(d)Information about the customer may lead to suspicion but is unlikely to amount to more. Money launderers do not confess to banks and other reporting entities that their funds come from criminal activity. And while some customers may not give enough information under due diligence, they may still have come by their funds by legitimate means. It would be wrong to put their funds out of their reach. The rule needs to cater for the wrongly suspected and to work in situations of uncertainty.
(e)Sources of funds paid into the customer’s account may be hard to identify or may be unknown. There may be many sources.
(f)Not all the funds in the customer’s account may be suspect, but on a termination the reporting entity is not allowed to keep any of the customer’s funds, however the customer came by them.
[53] The termination of the business relationship calls for a restitutionary response. To avoid the reporting entity being unjustly enriched by retaining its customer’s funds, they should be returned to the customer. The usual circumstances of a termination under s 37, inability to conduct due diligence, do not suggest any different answer. The purpose of the Act is met by the reporting entity disengaging with its customer and returning the money to them. The reporting entity will not offend as it is complying with the Act and will not have the required guilty belief or knowledge. If the customer is not a money launderer, it is unlikely that they will suffer any harm from the funds being returned. If the customer is a money launderer, the return of the funds to them leaves them with the problem they had at the outset, how to launder the funds. Frustrating them by returning the funds may be the best that can be hoped for.
Enforcement to prevent their future offending is for the Police, who may be alerted by a suspicious activity report, but it is not for the reporting entity. The other option, ignoring the customer and paying the funds to the sources, risks doing an injustice to those who have been wrongly suspected. And there are likely to be greater administrative difficulties with paying to a number of source accounts, instead of to the customer.
[54] The requirement to repay the customer may be overridden by restraining and forfeiture orders under the Criminal Proceeds (Recovery) Act 2009. The Police can be alerted by suspicious activity reports, particularly when the reporting entity actually knows that the funds are the proceeds of criminal activity or the information is enough to make it highly suspicious.
[55] Accordingly, when a reporting entity terminates a business relationship with a customer under the Act, it returns the funds to the customer, not to the source, unless the customer directs the funds to be paid to the source. As a matter of prudence, the reporting entity may ask the customer to designate a New Zealand bank account or equivalent (for example, a solicitor’s trust account) as the destination account for the return of the funds. The requirement to repay is subject to any restraining or forfeiture orders under the Criminal Proceeds (Recovery) Act 2009.
[56] NF Global ran an illegal contract argument as a way to defer any repayment obligation. An illegal contract is of no effect.12 To get his money back, Mr Arjang would need to apply for relief under ss 75 – 78 of the Contract and Commercial Law Act 2017. The illegality came under s 72 of the Contract and Commercial Law Act 2017:
72 Breach of enactment
A contract lawfully entered into does not become illegal or unenforceable by any party because its performance is in breach of an enactment, unless the enactment expressly so provides or its object clearly so requires.
[57] Actual money laundering is a breach of an enactment and the object of the Crimes Act 1961 clearly requires that if performance of the contract involves money
12 Contract and Commercial Law Act 2017, s 73.
laundering the contract should not be enforceable. But there is no evidence of actual money laundering here. There may be suspicion but that is all. The Act sets rules to detect and prevent money laundering. When they are followed, the risk of money laundering is reduced. The operation of those rules does not however require the contract between the customer and the reporting entity to be illegal or unenforceable. The Act does not provide for contracts to become illegal or unenforceable. Instead it overrides any inconsistent contractual arrangements, but subject to that the contract remains in force.13 The steps taken by the parties did not involve any breach of the Act. The question of illegality does not arise.
[58] Accordingly, even on NF Global’s view that Mr Arjang is a suspect money launderer who could not satisfy it under enhanced due diligence, Mr Arjang is entitled to have the funds paid to him on the termination of the business relationship. He remains a creditor of NF Global for €1,261,671.45. I repeat something that will already be apparent. While NF Global was not satisfied with its due diligence inquiries, the evidence falls short of showing that the funds in Mr Arjang’s account are in fact the proceeds of criminal activity.
LD Drago Met srl
[59] LD Drago is a Romanian company with its registered office in Bucharest. Its director is Mr Paulo Zeriali of London. In March 2019, LD Drago opened a business payment account with NF Global. Mr Zeriali attaches to his affidavit a copy of an NF Global brochure, giving the following information about a corporate account:
With our corporate account you can have the ability to invest, receive and make payments 24/7 in over 30 different countries to always have under control balances and transactions through our on-line banking platform, having countless MasterCard payments cards for all employees and persons connected completely suitable for international trade and business relations in need of transactions in different currencies.
[60] The account was subject to NF Global’s terms and conditions which are in evidence. There are termination provisions. NF Global can terminate the agreement at any time by giving 30 days’ prior notice. Any available balance in the account will be returned to the user. It can also terminate, with immediate effect on breach of the
13 Anti-Money Laundering and Countering Financing of Terrorism Act 2009, s 9.
agreement by the user or upon the company’s reasonable belief that the user has used or intends to use the services in a grossly negligent manner, or for fraudulent or other unlawful purposes, or if the user refuses to provide all information and documentation requested by the company and the user has not complied with any of the obligations undertaken under this agreement. The contract also allows NF Global to suspend services at any time, with immediate effect, until a user default has been remedied; if the user has provided the company with incorrect or false personal information or a transaction has been declined for any reason by the company; or if the service remains inactive for 90 consecutive days. The user may also terminate the agreement by giving 30 days’ prior written notice. There is nothing in the terms and conditions switching the risk of insolvency of NF Global’s correspondent bank to the customer and NF Global did not suggest otherwise.
[61] LD Drago made payments totalling €318,383.11 to NF Global which were held by Ipagoo. As already mentioned, on 1 August 2019 Ipagoo was put into administration. In November 2019, LD Drago wanted to transfer funds out of its NF Global account. Mr Zeriali says the account did not operate. Mr Zeriali asked NF Global to pay the funds to an account in Bucharest. It did not do so. LD Drago instructed London solicitors, who wrote to NF Global on 22 May 2020. Their letter included a demand for the funds to be repaid. In August 2020, LD Drago’s New Zealand lawyer served on NF Global a statutory demand for the €318,383.11.
[62] In response to Mr Zeriali’s evidence, NF Global says that after LD Drago wished to transfer most of its funds out of its NF Global account. On 6 November 2019 NF Global asked who the beneficiary of the transfer would be and whether there was any particular reason for the transfer. LD Drago responded that the accounts to which the funds would be sent belonged to it. It also said that it was not satisfied with the service level and it was risking losing business and investment opportunities because of the slowness in service. It preferred to keep its money in a different account.
[63] NF Global’s compliance team reviewed the IBAN for the proposed transfer. The IBAN belonged to Citibank, not Telfinance, the name given by LD Drago. LD Drago gave an explanation in response. It also provided a letter from
DealDefenders, a Delaware corporation, explaining that it provided escrow services for the telecommunications industry. The letter stated that LD Drago was in good standing and that one of the named accounts was a pooled account which DealDefenders maintained for customers of Telfinance LLC. NF Global says that it was concerned because such an account hides the ultimate beneficiary of the funds. It did not accept that LD Drago operated in the telecommunications industry. It believed that it was a tourist company. NF Global asked for more information. It was not satisfied with LD Drago’s response, which included articles of association, an escrow agreement and a bilateral agreement with B & V Group srl, a Bulgarian corporation with its office in Sofia. NF Global’s enquiries suggested that B & V Group was not in the communications industry. It instead placed people in jobs, focusing on recruitment to Italy. Funds were to be remitted to Sierra Leone, but that was not referred to in the agreement with B & V Group. NF Global did not consider that the agreement was an adequate explanation for the lump sum payments into LD Drago’s account.
[64] NF Global’s position is that LD Drago had not satisfied it under enhanced due diligence. It accepted that it could close the account, given the uncertainty about the source of funds. It considered that it would be entitled to return the funds to the accounts they came from. Mr Oberto says that NF Global was in the process of closing the account on 23 March 2020 when LD Drago requested that the closure request be cancelled and the funds returned to the account so that the funds were available for use. On 23 March 2020, NF Global confirmed that the outgoing transaction request had been cancelled as requested.
[65] NF Global’s position is that the uncertainty regarding the source of LD Drago’s funds has not been resolved. As to the statutory demand by LD Drago, NF Global applied to set it aside.14 In December 2020 it withdrew its application but without prejudice to either party’s ability at any later stage to advance their position or make any argument that would have been made in the application. Costs were reserved. The withdrawal was with a view to matters being argued in this proceeding, as being more efficient.
14 CIV-2020-404-1646.
[66] LD Drago’s case is that the terms and conditions for its account allow it to terminate the agreement by giving notice. It requested termination by its English lawyers’ letter of 22 May 2020, if not earlier. As 30 days have passed, NF Global now owes it the funds held in the account. On the other hand, NF Global says that LD Drago has not satisfied it under enhanced due diligence. That means that the obligation under s 37 of the Act to terminate the business relationship has been triggered and it must return the customer’s funds to the customer, as with Mr Arjang. The contract requires that on termination the customer’s funds are returned to the customer. While the Act overrides contractual terms, there is nothing in the Act requiring NF Global to send funds anywhere else when terminating under s 37.
[67] Accordingly, LD Drago is a creditor of NF Global for €318,383.11 and is entitled to immediate payment. That is the case even under NF Global’s claim that it could not carry out the required customer due diligence.
Sky Capital Management Ltd
[68] Sky Capital Management Ltd is a Hong Kong software development company incorporated in March 2018. The people behind the company are Russian. A Mr Zinchenko, originally from Tajikastan but now living in Dubai, has invested significant funds in the company. Sky Capital opened a euro currency account with NF Global in June 2019. Like other creditors in this case, Sky Capital Management experienced difficulties with NF Global acting on instructions to pay money from funds in its account. In 2020, Sky Capital Management instructed New Zealand lawyers who made demand on its behalf for repayment of the funds held
– €2,059,730.86. The lawyers served a statutory demand for that amount. NF Global applied to set it aside. I upheld the statutory demand.15 I made an order under s 291(1) of the Companies Act 1993, requiring NF Global to pay Sky Capital Management the amount of the demand by 18 September 2020. NF Global did not pay. It has appealed my decision. I understand that the point being run on appeal is that NF Global could risk liability for dishonest assistance if it were to pay Sky Capital Management.16 The appeal is to be heard in June 2021.
15 NF Global Ltd v Sky Capital Management Ltd [2020] NZHC 2196.
16 See [47] – [50] of my judgment.
[69] NF Global has not raised any money laundering concerns about Sky Capital Management. Nor does it say that Sky Capital Management’s funds were lodged in an Ipagoo account. Since my decision upholding the statutory demand, NF Global has not tried to demonstrate solvency by paying the amount of the debt into a solicitor’s trust account or equivalent. The appeal does not relieve NF Global from complying with the order to pay the amount of the demand, unless relief is granted pending appeal.17 As NF Global has not applied for relief pending appeal, the order remains in office, unless set aside on appeal. Under the order Sky Capital Management is a creditor of NF Global for €2,059,730.86 plus any unpaid costs.
Eleanora Sport Ltd
[70] Eleanora Sport Ltd is an English company with its registered office in Huddersfield, West Yorkshire. The man behind the company is Massimo Cellino, an Italian. It is the holding company through which he bought and later sold the Leeds United Football Club. Eleanora Sport opened two accounts with NF Global, one in euros and the other in sterling. The evidence does not say when the account was opened. In October 2020, Eleanora Sport instructed NF Global to transfer €620,712 to its account with an Italian bank, and also to transfer £4,738,857 to the same bank. NF Global did not action the request.
[71] An email of 22 November 2020 from NF Global to Eleanora Sport referred to requests for information as to the sources of Eleanora Sport’s funding, including Eleanora Sport’s shareholder, the Italian company Eleanora Immobiliare spa. Eleanora Sport provided a supporting letter from its Huddersfield chartered accountants, including copies of Eleonora Sport’s financial statements. Despite further information provided by Eleanora Sport, NF Global did not action the request. Eleanora Sport instructed English solicitors to deal with the matter. They emailed NF Global on 5 December 2020, asking for an explanation why the funds had not been transferred from the account.
[72] An email from NF Global, dated 17 December 2020, advised the English solicitors that it had asked Eleanora Sport for further information and documents to
17 Court of Appeal (Civil) Rules 2005, r 12.
support a request, and it alleged that Massimo Cellino had withdrawn the payment request for the €620,712 and the £4,738,857. Eleanora Sport instructed other English solicitors who wrote to NF Global on 18 December 2020 advising that Mr Cellino had not withdrawn his payment requests and advising that Eleanora Sport no longer wished to conduct further business with NF Global. The accounts were to be closed, and the funds held in those accounts were to be transferred to Eleanora Sport’s Italian bank account.
[73] On 18 January 2021, New Zealand solicitors served NF Global with a statutory demand under the New Zealand Companies Act 1993, requiring payment of
€770,712.21 and £4,926,955.07. NF Global had until 1 February 2021 by which to file and serve an application to set aside the statutory demand. It made no such application. It has not given any evidence in response to Eleanora Sport.
[74] At the hearing, its counsel suggested that it had not had enough time to respond to Eleanora Sport. NF Global is, however, experienced at receiving statutory demands and applying to set them aside under s 290 of the Companies Act.18 It has also dealt with a liquidation application by an Italian family, the Fresias. In my minute of 4 February 2021 I gave NF Global added time in which to give evidence in response to Eleonora Sport, but it did not do so. The absence of any response from NF Global suggests that it has no reason to refuse to pay Eleanora Sport. The evidence shows that it is a current creditor of NF Global for €770,712.21 and £4,926,955.07.
The Parete evidence
[75] Mr Arjang’s evidence includes an affidavit by Mr Donato Parete, a trusts advisor of Milan. He was associated with the Northern Fides group from 2013 to December 2019. He says nothing specific about the creditors in this case but expresses general concern about the way the group operated, including complaints from customers about not being able to access their money in NF Global accounts. Mr Oberto says that Mr Parete has fallen out with NF Global and that the complaints came from the compliance functions being tightened up. He suggests that Mr Parete
18 As well as the applications referred to in this decision, it also applied to set aside a statutory demand issued by a Mr Tinnazi. That matter was resolved.
may be behind the creditors’ complaints in this case. I have considered the claims by each creditor on the evidence given by that creditor and NF Global’s response without regard to Mr Parete’s evidence.
Is NF Global unable to pay its debts?
[76] In most liquidation applications brought on the ground that the company is unable to pay its debts, the creditor relies on the presumptions of insolvency under s 287 of the Companies Act 1993, especially non-compliance with a statutory demand under s 289. But a creditor is not required to rely on those presumptions.19 Evidence of insolvency can be established by other proof. In Re Taylors Industrial Flooring Ltd, the English Court of Appeal found that the company was insolvent when it had failed to pay invoices where there was no dispute as to the indebtedness.20 Insolvency may be inferred when a company does not pay an undisputed debt.
[77] In this case there are four creditors owed approximately $16,800,000 who have all made demands for the funds they put into NF Global to be repaid. The most recent demand was Eleanora Sport’s. NF Global has not shown good reason why the creditors should not be repaid. In the case of the customers where it raises money laundering concerns, it accepts that it must repay. In the case of Mr Arjang, it raises a question as to the payee, but not as to its liability. It is not seriously arguable that it does not have to pay the creditors in this case. It has not, however, shown any ability to pay sums which it recognises are due. While it has appealed my decision upholding the statutory demand of Sky Capital Management, it has not demonstrated its solvency, for example, by paying the sum into its solicitors’ trust account. It has not suggested any good reason for not paying Eleanora Sport.
[78] The evidence shows an explanation for non-payment, the failure of its correspondent bank, Ipagoo. It has been unable to obtain any funds from Ipagoo or to direct Ipagoo to make any payments as directed by its customers. But that may not be a complete explanation. The funds of some customers, Sky Capital Management and
19 Companies Act 1993, s 288(2).
20 Re Taylor’s Industrial Flooring Ltd [1990] 8 BCC 44 (EWCA), citing Cornhill Insurance plc v Improvement Services Ltd [1986] 1 WLR 114 and Re a Company (1950) 94 SJ 369.
Eleonora Sport, were not held in Ipagoo but they also have not been repaid. The inability to access funds in Ipagoo is more than a temporary cash-flow difficulty. It has lasted since July 2019.
[79] NF Global put in evidence its financial statements for the year ending 31 March 2019. These were not completed until August 2020. The statement of financial performance shows a loss and also a loss for the year before. The statement of financial position shows a negative equity of $1,351,000 with a deterioration from the negative equity of $1,000,000 the year before. It was able to keep trading only with the support of its shareholder. The balance sheet shows advances made by related companies. While these are shown as current liabilities, I was told that Starboard Capital and Northern Fides would not call up their loans.
[80] The balance sheet shows liabilities to customers of $11 million. Creditors in this case are some $16.8 million. Not all of them put money into NF Global before 31 March 2019. Still, it may be wondered how many other customers NF Global has besides those in this case.
[81] A letter of Starboard Capital of 28 January 2021 refers to a further loan to NF Global of £1,000,000 made in December 2019. That aside, NF Global has not given any updating information as to its financial position, including management accounts. If NF Global’s financial position had improved since 31 March 2019, it would have wanted to tell the court. Its silence suggests that it has not.
[82] Because there is adequate evidence that NF Global is unable to pay its debts, it is unnecessary to rely on the presumptions under s 287, but I record that the presumption arises in light of these matters:
(a)NF Global did not comply with Mr Arjang’s statutory demand of 26 March 2020. He began this proceeding within the 30 working days under s 288(1) of the Companies Act;
(b)LD Drago’s statutory demand of 31 August 2020; and
(c)Eleanora Sport’s statutory demand of 18 January 2021.
[83] There may be a technical objection to the last two, as they were served while this proceeding was pending. Section 288(1) says:
On an application to the court for an order that a company be put into liquidation, evidence of failure to comply with a statutory demand is not admissible as evidence that a company is unable to pay its debts unless the application is made within 30 working days after the last date for compliance with the demand.
Here the proceeding was already pending when the demands were served and it may be objected that the presumption can only be applied in a proceeding started after the time for compliance has expired. That however misses the purpose of the subsection. It is directed against stale statutory demands. If a company already facing a liquidation application on the insolvency ground is served with another statutory demand by another creditor, it can hardly complain that it will be considered presumptively solvent if it does not comply with the demand.
[84] A presumption as to insolvency also arose under s 291(2) of the Companies Act when NF Global did not comply with my order to pay Sky Capital Management:
For the purposes of the hearing of an application to put the company into liquidation pursuant to an order made under subsection (1)(a), the company is presumed to be unable to pay its debts if it failed to pay the debt within the specified period.
[85] NF Global’s evidence does not rebut any of these presumptions as to insolvency. Under s 241(4)(a) of the Companies Act, NF Global is unable to pay its debts.
Mr Arjang’s application under s 288(5) of the Companies Act 1993
[86] As a fall-back, Mr Arjang filed an application under s 288(5) for leave to apply for liquidation, in case the court held that he was no more than a contingent or prospective creditor:
An application to the court for an order that a company be put into liquidation on the ground that it is unable to pay its debts may be made by a contingent or prospective creditor only with the leave of the court; and the court may give
such leave, with or without conditions, only if it is satisfied that a prima facie case has been made out that the company is unable to pay its debts.
That was because NF Global disputed that Mr Arjang was a current creditor.
[87] As I have already set out, notwithstanding NF Global’s money laundering suspicions, it is not seriously arguable that Mr Arjang cannot demand payment of the funds held by NF Global on the termination of a business relationship under s 37 of the Act. Accordingly, it is not necessary to deal with the application under s 288(5). But, if it were necessary, I would have granted leave, given the clear evidence of the insolvency of NF Global. I would not have relied on any presumptions as to insolvency but would have relied on the failure to pay or show an ability to pay the debts of Sky Capital Management and Eleanora Sport. There is enough merit in Mr Arjang’s claim to allow him to seek NF Global’s liquidation, even if his claim were contestable.
Exercise of the discretion
[88] Even if an ability to pay debts to creditors is established, the court has a residual discretion not to make a liquidation order. Associate Judge Johnston gave a helpful summary of the principles in Rathmore Properties Ltd v Hawk Packaging Ltd:21
(a) If the plaintiff in winding up proceedings can establish that he, she or it is a creditor of the defendant, and that the defendant is insolvent in the sense that it cannot pay its debts, then an order will ordinarily follow;
(b) The Court does however retain a residual discretion and may refuse to make an order even where those threshold tests are met;
(c) That discretion is not one that the legislature has seen fit to impose constraints on, and nor should the Court fetter it by, for example, seeking to develop an exhaustive set of circumstances in which it will be exercised;
(d) The burden is on the party – invariably the defendant – contending for the exercise of the discretion to establish that the circumstances justify that;
(e) For several reasons, including the policy consideration that the liquidation process would be undermined if the Court were to exercise its discretion liberally, this discretion should be exercised sparingly;
(f) The proper exercise of the discretion requires the Court to have regard to all relevant considerations;
21 Rathmore Properties Ltd v Hawk Packaging Ltd [2020] NZHC 323 at [36].
(g) In the most common case involving a company that is insolvent, the important factors are likely to include the following:
(i) public policy considerations such as that companies that are insolvent should not be permitted to maintain registration, and that it is in the public interest that there should be a proper level of scrutiny in relation to such companies conducted by a liquidator as an officer of the court;
(ii) any public policy considerations that may count against a winding up order such as a public interest that may be served by the company’s continued existence notwithstanding its solvency;
(iii) any particular factors justifying a winding up such as the nature and scope of the risk that the insolvent company’s ongoing existence is likely to pose to the public and existing or potential creditors;
(iv) Any particular factors that may count against a winding up order such as whether any risk to the public and existing or potential creditors can be mitigated or avoided or whether the company may be more valuable to shareholders or creditors if not wound up;
(v) the apparent reasons for the company becoming insolvent including whether the court perceives there to be any evidence of fraud or other unlawful activity on the part of those responsible for its governance or management;
(vi) the likely outcome on a winding up to the extent that this can be assessed;
(vii)the views of any creditors before the court.
[89] I add that often the court will be persuaded not to make a liquidation if those opposing can show that there is some alternative that offers a better outcome for both the company and stakeholders. Sometimes the prospect of a prompt and orderly realisation of assets and the payment of creditors may be more efficient than a liquidation with the associated sales of assets at lower prices and costs of running the liquidation. There are also statutory alternatives, compromises with creditors under Part 14 of the Companies Act and voluntary administration under Part 15A.
[90] NF Global holds out the completion of Ipagoo’s administration as offering prospects of paying the creditors. That is, however, too speculative. The completion of the administration of Ipagoo will require a hearing in the High Court in London for directions to be given. It will be something of a test case, as it is the first time an electronic issuer has been put into administration. There will be matters of statutory
interpretation on which the court will give rulings. The parties could not advise when such a hearing might take place. NF Global could not say how much might flow to its creditors. As not all its customers’ funds were lodged in Ipagoo and it is not able to pay its customers, the administration is not likely to clear all its liabilities. There is no reason to be confident that under the administration any of the creditors in this case would be paid in full or promptly.
[91] NF Global used the discretion part of the case as another opportunity to attack Mr Arjang. It cited “ex turpi causa non oritur actio” and “one who comes to court must come with clean hands”. It submitted that Mr Arjang could not rely on his own misconduct to persist with the liquidation application. He was also criticised for using the liquidation process when his claim was subject to a bona fide dispute.
[92] These arguments were another way of rerunning the unsuccessful arguments that Mr Arjang was not a creditor of NF Global. Mr Arjang is not a proved money launderer. There may be a basis for concern, but the law’s remedy is that the funds must be returned to him. NF Global’s insolvency arises out of its refusal or inability to return the funds. There is nothing improper or inequitable in a creditor seeking liquidation when the company cannot pay.
[93] Matters supporting the liquidation of NF Global are: the liquidation is supported by creditors, but no creditors have opposed; the debts are significant; the creditors are based overseas and are less able to deal with the company than if they were in New Zealand; their interests stand to be better protected by an insolvency practitioner appointed to carry out the liquidation; the affairs of the company require investigation in the interests of creditors; and there is a real risk of harm to others if NF Global continues to receive funds from the public, including those overseas, when it is not able to repay them.
[94] There is, however, one aspect which counts against an immediate liquidation order. NF Global claims to have support from its shareholder and from Northern Fides. It has put in evidence letters from those two companies, each of which says:
We further confirm that we shall continue to support NF Global to ensure that NF Global continues to deliver the high standard of services to its customers without disruption.
That is, of course, not a binding undertaking. Nevertheless, Starboard Capital should be given the opportunity to show how good its support is for NF Global. If it wants to avoid liquidation for its subsidiary, it can inject funds to pay creditors. There will be a short reprieve to see if creditors can be paid.
[95] I will not make an immediate order for liquidation but will adjourn the proceeding until the companies liquidation list on Friday, 23 April 2021 at 11.45 am, for Starboard Capital and Northern Fides to provide funds to NF Global to clear the liabilities recognised in this decision. Payments are to be made into foreign currency accounts in New Zealand banks, as nominated by the creditors’ lawyers. In the case of Sky Capital Management, the funds are to be held subject to an undertaking by Sky Capital Management’s lawyers that they will not disburse the funds pending a decision by the Court of Appeal on NF Global’s appeal against my decision on the statutory demand or without the consent of NF Global or further order of this court.
[96] At the adjourned date, Mr Arjang should provide proof of advertising, and each creditor will be required to provide a fresh certificate as to non-payment of the debt under r 31.21 of the High Court Rules 2016. NF Global should appreciate that paying only some of its creditors may not be enough to stop a liquidation order. And it should not count on being given more time to pay. I will hear submissions as to costs.
…………………………………….
Associate Judge R M Bell
Solicitors:
Wynn Williams (Shane Campbell), Auckland, for the Plaintiff
Meredith Connell (William Potter/William Fotherby/Jessica Phillips) for the Defendant Anthony Harper (Harriet L Quinlan), Auckland, for Sky Capital Management Ltd George Bogiatto, Auckland, for LD Drago srl
Buddle Findlay (Luke Sizer), Wellington, for Eleonora Sport Ltd
Copy for:
William Porter/Jeremy Johnson, Bankside Chambers, Auckland, for the plaintiff
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