Auckland Council v Nine Investments Limited (in liquidation)

[2019] NZHC 2714

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-002709

[2019] NZHC 2714

BETWEEN

AUCKLAND COUNCIL

Plaintiff

AND

NINE INVESTMENTS LIMITED (IN LIQUIDATION)

Defendant

Hearing:	14 October 2019
Appearances:	G Neil and L Hui for Official Assignee as Liquidator J Belthazar for Ms Sahay (Director and Shareholder)
Judgment:	23 October 2019

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by Associate Judge Andrew on 23 October 2019 at 4.00 pm

pursuant to Rule 11.5 of the High Court Rule.

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

AUCKLAND COUNCIL v NINE INVESTMENTS LIMITED (IN LIQUIDATION) [2019] NZHC 2714 [23

October 2019]

Introduction

[1]                 Madhu Sahay is the sole named director and shareholder of Nine Investments Ltd (in liq) (the Company), which was placed into liquidation on 5 April 2019 on the application of the Auckland Council.

[2]                 In these proceedings, the Official Assignee, as the liquidator, has applied for orders under s 266(2) of the Companies Act 1993 that Ms Sahay:

(a)produce all books, records or documents relating to the business, accounts, or affairs of Nine Investments Ltd (in liq) in her possession or under her control; and

(b)produce the documents to the liquidator by delivering them to the officers of Meredith Connell, solicitors, Auckland, within 10 working days of service.

[3]                 Ms Sahay opposes the orders sought on the grounds that she does not hold the documents and that, in the circumstances, it would be oppressive and unreasonable to grant them.

Background facts

[4]                 The registered office of the Company as at the date of its liquidation was  27A Puhinui Road, Manukau, Auckland.

[5]Ms Sahay currently occupies the Puhinui Road property.

[6]                 The Company is the registered proprietor of the property at 15 Regan Road, Papatoetoe. It is the company’s major asset. That property is currently occupied by Ms Sahay’s uncle and subject to a Kiwibank Ltd mortgage guaranteed by Ms Sahay.

[7]                 The property is subject to a sale and purchase agreement (SPA) with the Company as vendor and Nandro Investment Ltd, a company under the directorship of

Deo Singh, as purchaser. At the time the SPA was entered into, Mr Singh was the sole director and shareholder of the Company.

[8]                 The liquidator is investigating the circumstances under which the SPA was entered into as well as the source of the funds used to purchase the Regan Road property. He is also investigating a number of unexplained transactions on the Company’s bank statements, including what he says were transfers of substantial sums to Ms Sahay and to a company under her directorship.

[9]                 On 16 April 2019, the liquidator issued a notice under s 261 of the Companies Act to Ms Sahay requiring her to produce financial statements, accounting reports and other documentation (including bank statements) relating to the Company no later than 3 May 2019. The liquidator says that Ms Sahay has failed to comply with the notice. He also says that she has not supplied a copy of the tenancy agreement for Regan Road property or provided any information to him in relation to the terms of the tenancy.

[10]             In related High Court proceedings CIV-2018-404-1193 (the Related Proceedings) issued in June 2018, Mr Singh challenged Ms Sahay’s status as director and shareholder. Mr Singh has, from time to time, been the sole director and shareholder of the Company.

[11]             On 29 June 2018, orders were made in the Related Proceedings restraining Ms Sahay from carrying out any obligations of the Company (apart from GST returns) or dealing with the Regan Road property.

[12]             The Related Proceedings, to the extent that claims are made against the Company, are stayed.

[13]             The Related Proceedings have been allocated a seven-day hearing commencing on 6 July 2020.

Relevant legal principles

[14]Section 266(1) and (2) of the Companies Act 1993 reads:

266     Powers of court

(1)The court may, on the application of the liquidator, order a person who has failed to comply with a requirement of the liquidator under section 261 to comply with that requirement.

(2)The court may, on the application of the liquidator, order a person to whom section 261 applies to –

(a)attend before the court and be examined on oath or affirmation by the court or the liquidator or a barrister or solicitor acting on behalf of the liquidator on any matter relating to the business, accounts, or affairs of the company:

(b)produce any books, records, or documents relating to the business, accounts, or affairs of the company in that person's possession or under that person’s control.

[15]             Qualifying persons in terms of s 261 include a director (or former director) and shareholder of the company.

[16]             Section 266 of the Act is the means by which the Court may order that a qualifying person be examined and produce documents. Two distinct bases exist to make such an order. First, the Court may order a person who has failed to comply with a requirement of a liquidator under s 261 of the Act to comply with it.1 Alternatively, the Court, without proof of the failure to comply with an earlier requirement of a liquidator, may order that a qualifying person “produce any books, records or documents relating to the business, accounts or affairs of the company in that person’s possession or under that person’s control”.2

[17]             In relation to the production of documentation under s 266(2)(b) of the Act, the Court in Norrie v Sutich made the following observations:3

(a)It is necessary to keep in mind that exercising the discretion to make an order involves balancing a number of factors including the interests of those against whom the order is sought.4

1      ANZ National Bank v Sheahan [2012] NZHC 3037, [2013] 1 NZLR 674 at [35].

2 At [36].

3      Norrie v Sutich [2013] NZHC 2495.

4 At [28].

(b)What is required is for the applicant to make a proper case for the making of an order.5 As to what is a proper case, the Court cited, with approval, the following extract from the speech of Lord Slynn in British & Commonwealth Holdings Plc (Joint Administrators) v Spicer and Oppenheim:6

The proper case is one where the administrator reasonably requires to see the documents to carry out his functions and the production does not impose an unnecessary and unreasonable burden on the person required to produce them in the light of the administrator’s requirements. An application is not necessarily unreasonable because it is inconvenient for the addressee of the application or causes him a lot of work or may make him vulnerable to future claims, or is addressed to a person who is not an officer or employee of or a contractor with the company in administration, but all these will be relevant factors, together no doubt with many others.

(c)In addition to enabling the liquidator to assemble replacement documents which are part of the company’s records, the statutory power to obtain documents and examine company officers enables another function of the liquidators which is to take proceedings where necessary in the interests of the creditors of the company and others.7 It is for that reason that the authorities also acknowledge that better equipping a liquidator for litigation is a legitimate objective of exercising the power contained in s 266 of the Act.

(d)The powers which are contained in the Act are necessarily broad. They should be given full effect to. They should not go past the point where unfairness results. The power to require directors and others to provide documents is a salutary one.8

(e)Given the circumstances in which liquidators frequently find themselves on taking possession of a company which they have known nothing about previously, they should not have to specify in advance

5 At [29].

6      British & Commonwealth Holdings Plc (Joint Administrators) v Spicer and  Oppenheim [1992] 3 WLR 853 (HL) at 862–863.

7      Norrie v Sutich, above n 3, at [30].

8 At [37].

the very documents that they hope to find by exercising their powers under s 261 and s 266 of the Act.9 The onus is on the respondent to comply with the requirements of the section.10

(f)The powers of liquidators (and those of the Court acting in support of liquidators) are inquisitorial.11

(g)One relevant consideration is the volume of documents overall that the director has possession of.12

Analysis and decision

[18]             Ms Sahay contends that it would be oppressive and unreasonable to make the orders sought. Following an alleged burglary of the company premises (the Puhinui Road property) by Mr Singh and his associates in February 2018, Ms Sahay claims she is no longer in possession or control of any of the documents sought.

[19]             Ms Sahay has sworn and filed an affidavit of documents in the Related Proceedings (which address essentially the same issues the liquidator wants to investigate), in which she says makes it clear that she has conducted all relevant searches of emails and company documents to which she has access and there is nothing further to provide. She is concerned that the liquidator is simply going on a fishing expedition and is not acting impartially as between herself and  Mr Singh.  Mr Singh is a discharged bankrupt, and, in the Related Proceedings, Ms Sahay makes serious and significant allegations of fraud against him.

[20]             However, I reject the submission that to require Ms Sahay to produce the documents sought would be oppressive or unreasonable. It is clear from the evidence that the liquidator, against a background of some confusing and uncertain factual circumstances, has a legitimate and proper interest in investigating the Company’s affairs and matters at issue. This includes the circumstances under which the SPA was

9 At [37].

10 At [61].

11 At [41].

12 At [42].

entered into, the source of the funds used to purchase the Regan Road property, the payment of the deposit and whether the purchase price was at an under-value. I also accept that it is legitimate for the liquidator to be investigating whether or not the transfer of funds from the Company to Ms Sahay, and/or other entities associated with her, amounts to an unauthorised dissipation of company funds.

[21]             I further find that the liquidator has established a proper basis for the making of the orders sought. The liquidator reasonably requires to see the documents to carry out his functions and has provided a sufficient  evidential foundation to  infer that  Ms Sahay is likely to hold at least some of the books, records or documents relating to the business, accounts and affairs of the Company that are the subject of the application. This includes, amongst other matters, the fact that Ms Sahay occupies the former registered office of the Company at Puhinui Road and that, despite repeated requests for the tenancy agreement of the Regan Road property (occupied by her uncle), she has refused to provide it.

[22]             I accept the submission of Ms Hui, for the liquidator, that, in substance, the majority of the documents sought will be documents in soft copy form which are likely to be capable of being found by Ms Sahay through a simple search of the relevant computers. Furthermore, her contention, in her affidavit of documents in the Related Proceedings, that she has no further documents to produce, is not an answer to the liquidator’s application. The Related Proceedings, while relevant, do not extend to all the issues the liquidator is investigating and, for reasons set out below, there is a proper basis to conclude that there are likely to be further documents in Ms Sahay’s possession and control.

[23]             Even if Ms Sahay no longer holds physical records of the company because of the alleged burglary in February 2018, she ought still to be in possession or control of at least the following documents:

(a)Documentation relating to the business, accounts or affairs of the Company generated after 28 February 2018, that is after the date of the alleged burglary and the company records being taken.

(b)Documentation relating to the business, accounts or affairs of the Company that were discovered by the company and the other parties to the Related Proceeding. In this regard, I note that the liquidator is entitled to be served with all documents in that proceeding, despite it having been stayed against the Company.13 There is no good reason why this documentation should not be provided immediately.

(c)Email correspondence relating to the business, accounts or affairs of the Company from accounts accessible by Ms Sahay (for example, [email protected] and [email protected]). The recent email document attached to Ms Sahay’s affidavit of September 2019 would suggest that she continues to have access to the Nandro Group email account.

(d)Electronic copies of original documents relating to the business, accounts or affairs of the Company that are stored on Ms Sahay’s computer or in some other storage medium (cloud-based or otherwise) that is in her possession or under her control.

(e)Electronic documents relating to the business, accounts or affairs of the Company that were prepared and remained saved (for example, Microsoft Word documents or Excel spreadsheets) on Ms Sahay’s computer or in some other storage medium (cloud-based or otherwise) that is in her possession or under her control.

(f)Electronic accounting records and reports relating to the business, accounts or affairs of the Company stored on Ms Sahay’s computer or in some other storage medium (cloud-based or otherwise) that is in her possession or under her control.

(g)Communications with the mortgagee of the property, Kiwibank Ltd, relating to the company loans.

13     See Nandro Investment Ltd v Wiri Holdings Ltd HC Auckland CIV-2018-404-001193, Minute of Powell J (dated 14 August 2019).

(h)Her personal bank statements showing the source of the monies that were purportedly paid towards the settlement of the Company’s purchase of the property on 3 November 2014.

(i)Her personal bank statements and credit card statements recording the receipt of monies from the Company and the transfer of monies to the Company.

[24]             I do not accept Ms Sahay’s submission that to require bank statements going back prior to the purchase of the property in 2014 would amount to fishing or some illegitimate investigation. The question of the source of the funds for the property acquisition is at issue and, as part of his legitimate investigative functions, I find that the liquidator should have access to the documents he seeks. In any event, as Ms Hui submitted, to the extent that the bank statements contain non-company-related transactions and information, those can of course properly be redacted from the documents to be provided.

[25]             I likewise do not accept the submission that the restraining orders made by this Court on 27 June 2018 in the Related Proceedings, which preclude Ms Sahay from carrying out any obligations on behalf of the Company (except for filing an annual return and a GST return), somehow supports her contention that she is no longer in possession or control of the relevant documents and cannot provide them. The Company is now in liquidation and the orders in no way preclude or provide an excuse for Ms Sahay now producing the documents sought. The orders may have limited the number of documents generated or produced by Ms Sahay, but they do not provide a defence to the liquidator’s application.

[26]Heath J held in Grant v Grewal:14

[15] An order requiring persons associated with a company to produce relevant company records is one that demands close attention from its recipient. Almost invariably, a liquidator comes to administration of the company without prior knowledge of the way its business was conducted. He or she must obtain relevant information from the company’s directors, including its accounting and other records. Without co-operation from those from whom information is sought (whether orally or in the form of

14     Grant v Grewal [2016] NZHC 1564.

documentation) it is almost impossible for a liquidator to reconstitute the affairs of the company and to determine what, if any, action can be taken to maximise returns to creditors.

[27]             Those comments have particular application to this case. The uncertainty about the fate of the Related Proceedings (and whether they will ever proceed to trial) reinforces the need for the liquidator to take steps to investigate all matters at issue and for him to obtain the relevant information from Ms Sahay, a former director.

[28]             I also reject the submission of Ms Sahay that the liquidator has somehow been acting less than impartially in failing to investigate the affairs and role of Mr Singh and concentrating solely on the actions or omissions of Ms Sahay. I note that the liquidator has examined Mr Singh and there is no basis for the allegation that the liquidator, here the Official Assignee, is taking steps to generate unwarranted fees in the liquidation. Even if the liquidator has been focusing his attention on Ms Sahay (with a view to legitimately pursuing his investigation), that provides no excuse for Ms Sahay not producing the documents that he seeks.

[29]             For all these reasons I find that the orders sought by the liquidator should be granted.

Result

[30]             I find that the application by the Official Assignee, as the liquidator of Nine Investments Ltd (in liq), dated 12 September 2019, for orders under s 266(2) of the Companies Act 1993 against Madhu Sahay should be granted.

[31]I order as follows:

(a)Ms Madhu Reshmi Sahay is to produce all books, records or documents relating to the business, accounts or affairs of Nine Investments Ltd (in liq) in her possession or under her control to the Official Assignee, as liquidator; and

(b)Ms Sahay is to produce the documents to the Official Assignee, as liquidator, by delivering them to the offices of Meredith Connell,

level 5, 4 Graham Street, Auckland, within 10 working days of service of the Court’s sealed order made pursuant to [31](a) above.

[32]             As to costs, I accept the submission of the liquidator and find that Ms Sahay should pay costs and disbursements to the liquidator on a 2B basis as fixed by the Registrar.

Associate Judge P J Andrew