Avoca Holdings Limited (in liquidation) v Dennehy
[2021] NZHC 2443
•17 September 2021
IN THE HIGH COURT OF NEW ZEALAND GREYMOUTH REGISTRY
I TE KŌTI MATUA O AOTEAROA MĀWHERA ROHE
CIV-2021-418-000005
[2021] NZHC 2443
BETWEEN AVOCA HOLDINGS LIMITED
(in liquidation) Plaintiff
AND
DENIS PATRICK DENNEHY
Defendant
AND
RPB SOLUTIONS LIMITED
Second Defendant
AND
BUDDLE FINDLAY
Interested Party
AND
GERARD THOMAS DENNEHY
Interested Party
Hearing: 26 August 2021 Appearances:
A G Stallard for Plaintiff
R A Hearn for Interested Party (Gerard Thomas Dennehy)
Judgment:
17 September 2021
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 17 September 2021 at 11.00 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
AVOCA HOLDINGS LTD v DENNEHY [2021] NZHC 2443 [17 September 2021]
[1] This is an application by the liquidator of Avoca Holdings Ltd (in liq) (Avoca) for directions under s 284(1)(a) and (b) of the Companies Act 1993. The liquidator asks the Court to make directions confirming his decisions to admit an unsecured creditor’s claim in the liquidation by the law firm Buddle Findlay and to reject unsecured creditors’ claims by Denis Patrick Dennehy (Denis Dennehy) and RPB Solutions Ltd.
[2] Upon commencement of the proceeding an application for directions as to service was made. In accordance with an order of 14 April 2021, service of the application was effected upon Denis Dennehy, RPB Solutions Ltd, Buddle Findlay, and Gerard Thomas Dennehy (Gerard Dennehy). Gerard Dennehy is recorded as the sole director and shareholder of Avoca.
[3] Buddle Findlay and Gerard Dennehy support the application. Denis Dennehy and RPB Solutions Ltd have taken no steps in relation to it. The application, therefore, proceeded to a hearing on an unopposed basis.
Background
[4] The business of Avoca included running the Whataroa Hotel on the West Coast of the South Island. Avoca was put into liquidation by order of the High Court on 19 October 2017 and Geoffrey John Falloon was appointed liquidator.
[5] Avoca did not maintain satisfactory records. At the date of liquidation the sole director of Avoca was Gerard Dennehy and he was also the sole shareholder, although this has in the past been subject to dispute by Denis Dennehy.
[6] Avoca owned properties against which substantial arrears of rates were owing. The properties have now been sold and the rates have been paid. A sum of around
$150,000 is being held by or on behalf of the liquidator following the sales. Avoca has no other assets.
[7]Creditors’ claims have been made in the liquidation as follows:
(a)Buddle Findlay for $23,314;
(b)RPB Solutions Ltd for $33,013.43;
(c)Denis Dennehy for $45,988;
(d)Denis Dennehy for $300,000; and
(e)Denis Dennehy for $46,000.
[8] At this juncture, it is relevant to note that Gerard Dennehy and Denis Dennehy are brothers and that RPB Solutions Ltd is a company owned by Denis Dennehy. It will be observed that the total of creditors’ claims exceeds by a substantial margin the balance of funds held by the liquidator and that all but one of the claims has been made by Denis Dennehy or RPB Solutions Ltd.
[9] Gerard Dennehy and Denis Dennehy have been in dispute for many years over the affairs of Avoca. This has resulted in litigation between them, the background to which is set out in a judgment of Ellis J in RPB Solutions Ltd v Avoca Holdings Ltd of 27 May 2010.1 The matter before Ellis J concerned an application by Denis Dennehy for liquidation of Avoca under s 174 of the Companies Act. Ellis J held that Denis Dennehy had no standing to bring the application as he was not a shareholder of Avoca nor an “entitled person”. Whilst it was not disputed he was a former shareholder of Avoca, that did not give him standing to make an application under s 174 in relation to conduct that was alleged to have occurred at least five years after his shareholding was transferred to Gerard Dennehy. On that basis, the claim was struck out as disclosing no reasonably arguable cause of action.2
[10] In the course of her judgment, Ellis J identified the real issue between the Dennehy brothers concerned the ownership of the shares in Avoca and whether Denis Dennehy was entitled to have the legal ownership of the shares transferred back to him. She noted:
[2] Initially the 100 shares in the company were held equally by Denis Patrick Dennehy (Patrick Dennehy) and his brother Gerard Dennehy. The Dennehy brothers were also the original directors of the company. In either
1 RPB Solutions Ltd v Avoca Holdings Ltd [2010] 2 NZLR 857 (HC).
2 At [29] and [39].
2000 or 2002 (the relevant date being a matter of disagreement) Patrick Dennehy resigned as a director and transferred his shares in the company to Gerard Dennehy. It is agreed that initially those shares were to be held on trust for Patrick Dennehy by his brother. Whether or not that trust continues today is at the heart of what is now a longstanding dispute between the brothers as to the ownership of the company and the running of the hotel. Gerard Dennehy’s position on that issue is that the relevant shares are now held on trust by him for his parents, not Patrick Dennehy.
…
[34] The inadequacy of the s 174 application as a vehicle for resolving what I perceive to be Mr Dennehy’s real concern becomes equally apparent when consideration is given to the relief that is sought in the application, namely the liquidation of Avoca. Mr Tingey’s submission was that such an order would not, by itself, resolve the core issue between the Dennehys as described above. Rather, putting the company into liquidation would have the effect of deferring the resolution of that central dispute and requiring such resolution somehow to be reached by the liquidator, who would otherwise be unable to distribute the assets of the company.
[11] Although more than 11 years has passed since Ellis J issued her judgment, it appears that Denis Dennehy has failed to establish any entitlement to the shares in Avoca and taken no further Court proceedings to do so.
[12] The creditor claims made by Denis Dennehy and RPB Solutions Ltd were all dated 28 November 2017. On 8 December 2017, Mr Falloon emailed Denis Dennehy acknowledging receipt of the claims on 13 November 2017. In that correspondence Mr Falloon advised Denis Dennehy that he could not admit the claims for payment without full documentary evidence in support of each of them. On 31 January 2018, Denis Dennehy emailed Mr Falloon with further information in support of the claims. In that email he also noted he would “resist” any attempts made by the liquidator to remove caveats he lodged against the properties of Avoca. The information did not satisfy Mr Falloon and he decided to apply to the Court for directions as to his right to reject the claims of Dennis Dennehy and RPB Solutions Ltd.
[13] As will become apparent, the creditor claims made in the liquidation by Denis Dennehy relate to the dispute with his brother. The liquidator’s decision to seek directions was made because of the litigious nature of the Dennehy brothers, the possibility that decisions by the liquidator might be challenged and the likelihood that he might personally be at risk should he distribute the surplus assets of the company in accordance with the decision he had made to reject the creditor claims of Denis
Dennehy and/or RPB Solutions Ltd. In addition, he had received correspondence from Gerard Dennehy which he considered challenged the course of the liquidation. He believes that seeking directions is the most appropriate course to provide oversight over the rejection of the claims by Denis Dennehy and RPB Solutions Ltd and ensure the orderly completion of the liquidation.
Section 284
[14]Section 284 of the Companies Act provides:
284 Court supervision of liquidation
(1)On the application of the liquidator, a liquidation committee, or, with the leave of the court, a creditor, shareholder, other entitled person, or director of a company in liquidation, the court may—
(a)give directions in relation to any matter arising in connection with the liquidation:
(b)confirm, reverse, or modify an act or decision of the liquidator:
(c)order an audit of the accounts of the liquidation:
(d)order the liquidator to produce the accounts and records of the liquidation for audit and to provide the auditor with such information concerning the conduct of the liquidation as the auditor requests:
(e)in respect of any period, review or fix the remuneration of the liquidator at a level which is reasonable in the circumstances:
(f)to the extent that an amount retained by the liquidator as remuneration is found by the court to be unreasonable in the circumstances, order the liquidator to refund the amount:
(g)declare whether or not the liquidator was validly appointed or validly assumed custody or control of property:
(h)make an order concerning the retention or the disposition of the accounts and records of the liquidation or of the company.
(2)The powers given by subsection (1) are in addition to any other powers a court may exercise in its jurisdiction relating to liquidators under this Part, and may be exercised in relation to a matter occurring either before or after the commencement of the liquidation, or the removal of the company from the New Zealand register, and whether or not the liquidator has ceased to act as liquidator when the application or the order is made.
(3)Subject to subsection (4), a liquidator who has—
(a)obtained a direction of a court with respect to a matter connected with the exercise of the powers or functions of liquidator; and
(b)acted in accordance with the direction—
is entitled to rely on having so acted as a defence to a claim in relation to anything done or not done in accordance with the direction.
(4)A court may, on the application of any person, order that, by reason of the circumstances in which a direction was obtained under subsection (1), the liquidator does not have the protection given by subsection (3).
[15] Section 284(1)(a) is a mechanism by which a liquidator and certain other persons may apply to the Court for guidance in relation to the conduct of the liquidation. As noted by the authors of Heath and Whale on Insolvency:3
The nature of a liquidator’s duties means that, on occasion, difficult legal or commercial decisions may need to be made by him or her. On legal points, the liquidator is entitled to seek directions from the High Court under s 284(1)(a) of the Act.
[16] Section 284(1)(b) empowers the Court to confirm, reverse or modify any act or decision of the liquidator.
[17] It has been held that a liquidator faced with a difficult decision whether to admit a claim may seek guidance from the Court under s 284(1) of the Act.4 One circumstance where it has been recognised that it is appropriate for a liquidator to seek directions is if there has or may be a challenge to the liquidator’s decision as unreasonable or made in bad faith.5
[18] Important in the present context from the liquidator’s perspective is s 284(3), under which the making of a direction with respect to a matter concerning the exercise of the powers or functions of liquidator will provide a liquidator who acts in accordance with it with a defence to a claim in relation to anything done or not done in accordance with the direction.
3 Heath and Whale on Insolvency (online ed, LexisNexis) at [22.1] (footnote omitted).
4 Stotter v Equiticorp Australia Ltd (in liq) [2002] 2 NZLR 686 (HC); Re CWT Holdings Ltd (in liq)
(2005) 9 NZCLC 263,917 (HC); Vlasic v Zelande Ltd [2019] NZHC 2152.
5 Finnigan v Butcher [2012] NZHC 810.
My approach
[19] I raised with counsel at the hearing whether Mr Falloon had ever formally rejected the claims of Denis Dennehy and RPB Solutions Ltd as required by s 304(4) of the Companies Act. Mr Stallard argued that the statement of claim was sufficient in this regard containing, as it does, clear statements to the effect that the claims had been validly rejected. For the reason I set out below, I do not need to decide if that is sufficient for the purposes of s 304(4). Plainly after service of the proceeding Denis Dennehy could be in no doubt as to the liquidator’s position that he rejected the claims and was seeking the Court’s approval to that course. Mr Dennehy has taken no steps to oppose the Court doing so.
[20] In my view, whether the liquidator has given notice of rejection of the claims of Denis Dennehy and RPB Solutions Ltd does not prevent me determining this application. Ultimately, the question is whether the claims of Denis Dennehy and RPB Solutions Ltd should be admitted or rejected in the liquidation. That decision can be appropriately determined as a direction under s 284(1)(b) (to confirm, modify or reverse the liquidator’s decision to reject the claims) or under s 284(1)(a) (directing the liquidator to reject or admit them). In either case Denis Dennehy and RPB Solutions Ltd have had an opportunity to be heard on the matter and taken no steps.
[21] Adopting the second approach, I consider the Court is required to determine what is the correct direction to make based on all the information that has been put before it.6 It is to that exercise I now turn.
The claims
[22] Buddle Findlay’s claim for $23,314 is for legal fees incurred by Avoca in its defence of liquidation proceedings. It is supported by narrated invoices which appear reasonable on their face. Neither Gerard Dennehy nor the liquidator take issue with the claim and it should be admitted.
6 John Farrar and Susan Watson (eds) Company and Securities Law in New Zealand (2nd ed, Thomson Reuters, Wellington, 2013) at [31.5.4]; Re CWT Holdings Ltd (in liq), above n 4.
[23] The claim by RPB Solutions Ltd for $33,013.43 is said to be the amount of an outstanding invoice dated 1 April 2008. The evidence is that Denis Dennehy occupied the Whataroa Hotel during the period July 2007 until February 2008 when he was evicted by the Police acting on the instructions of Gerard Dennehy. During that period Denis Dennehy had used RPB Solutions Ltd to operate the hotel. He contends that RPB Solutions Ltd is owed for expenses relating to inventory, equipment, insurance and building improvements prior to its eviction. A statutory demand was issued by RPB Solutions Ltd in respect of its invoice on 14 April 2008 but that was never followed up with any proceedings. Avoca’s position has always been that it is not liable for the claim.
[24] The liquidator’s position is that the claim is not credible and is time-barred. The authors of Company and Securities Law in New Zealand note:7
It is only those claims that are legally enforceable against a company that are admissible as claims in its liquidation. As a general rule, the principles applicable in determining the enforceability of a claim made in a liquidation are the same as those applicable if the creditor had brought an action against the company to enforce that liability. Examples of inadmissible claims include statute-barred debts …
[25] For present purposes it is sufficient the claim by RPB Solutions Ltd was already statute-barred as at the date of liquidation. In those circumstances the liquidator should reject the claim.8
[26] The first claim by Denis Dennehy for $45,988, is a credit balance in his current account as at 31 March 2003 which he says remained owing as at the date of liquidation. There was a current account credit in the name of Denis Dennehy in the financial statements of Avoca as at 31 March 2003 but he has provided no evidence as to the position at the date of liquidation. I have seen amongst the bundle of documents provided by the liquidator later accounts of Avoca making no reference to the current account credit. Avoca’s position was that this amount was used to pay a debt owed by Denis Dennehy to Avoca. The liquidator has made enquiries but has been unable to find any evidence to support the claim as at the date of liquidation. There does not appear to have been any steps taken by Denis Dennehy to recover the shareholders’
7 At [31.8.10] (footnotes omitted).
8 Limitation Act 1950, s 4 and Limitation Act 2010, s 59(1).
current account since March 2003 and any claim to do so must now be statute-barred. The liquidator should reject the claim.
[27] The second claim by Denis Dennehy is for $300,000. This claim is said to relate to a 50 per cent beneficial interest in the net assets of Avoca. It concerns the dispute between Gerard Dennehy and Denis Dennehy as to the ownership of the shares in Avoca. As was noted earlier, in her judgment Ellis J noted this claim could only be resolved by Court proceedings focused directly on that issue.9 No steps have been taken since then to resolve the claim. In any event, it is not a claim against Avoca admissible as a claim in the liquidation. Any claim concerning ownership of the shares in Avoca is between the Dennehy brothers. The liquidator should reject the claim.
[28] The final claim by Denis Dennehy is for $46,000 and is said to be the value of a property at 80 Main Road, Whataroa held on trust by Avoca for him as detailed in a Deed of Trust of April 2002. No signed Deed of Trust has ever been provided by the liquidator to support the claim and Denis Dennehy confirms in an email to the liquidator that no signed Deed of Trust exists. There is an insufficient evidential foundation to support this claim. This claim, again, relates back to the dispute between Denis Dennehy and Gerard Dennehy as to the rights of shareholders and cannot be determined by the liquidator. The liquidator should reject this claim.
Result
[29] Under s 284(1)(b) of the Companies Act I confirm the liquidator’s decision to admit the claim of Buddle Findlay in the liquidation in the amount of $23,314.
[30] I direct pursuant to s 284(1)(a) of the Companies Act the liquidator should reject the claims of Denis Dennehy and RPB Solutions Ltd in the liquidation.
9 RPB Solutions Ltd v Avoca Holdings Ltd, above n 1, at [33] and [34].
[31] The liquidator is entitled to costs of the proceeding on a 2B basis plus reasonable disbursements which are to be paid from the assets of Avoca.
O G Paulsen Associate Judge
Solicitors:
Buddle Findlay, Christchurch
Mr G P Dennehy, Corcoran French, Christchurch
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