Best Invest NZ Company Limited (in interim liquidation) v Japan Business Consulting Company Limited

[2019] NZHC 1037

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-870

[2019] NZHC 1037

UNDER

The Companies Act 1993

IN THE MATTER OF

the liquidation of Japan Business Consulting Co Ltd and East Wind group of companies

BETWEEN

BEST INVEST NZ COMPANY LIMITED

(In Interim Liquidation) Plaintiff

AND

JAPAN BUSINESS CONSULTING COMPANY LIMITED

Defendant

CIV-2019-404-872

BETWEEN

BEST INVEST NZ COMPANY LIMTED

(In Interim Liquidation) Plaintiff

AND

EAST WIND HOLDINGS LIMITED

Defendant

CIV-2019-404-873

BETWEEN

BEST INVEST NZ COMPANY LIMITED

(In Interim Liquidation) Plaintiff

AND

EAST WIND NOMINEE LIMITED

Defendant

BEST INVEST NZ COMPANY LIMITED (In Interim Liquidation) v JAPAN BUSINESS CONSULTING COMPANY LIMITED [2019] NZHC 1037 [13 May 2019]

CIV-2019-404-874

BETWEEN

BEST INVEST NZ COMPANY LIMITED

(In Interim Liquidation) Plaintiff

AND

EAST WIND MEDICARE LIMITED

Defendant

CIV-2019-404-876

BETWEEN

BEST INVEST NZ COMPANY LIMITED

(In Interim Liquidation) Plaintiff

AND

EAST WIND PROGRAMME LIMITED

Defendant

CIV-2019-404-879

BETWEEN

BEST INVEST NZ COMPANY LIMITED

(In Interim Liquidation) Plaintiff

AND

EAST WIND COMPANY LIMITED

Defendant

Hearing:	On the papers
Appearances:	R Sussock for the Plaintiff
Judgment:	13 May 2019

JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

This judgment was delivered by me on 13 May 2019 at 1:00pm

pursuant to Rule 11.5 of the High Court Rules.

…………………………………

Deputy Registrar

Lowndes Jordan (Rachel Sussock), Auckland, for the Plaintiff

[1]    In these liquidation proceedings Best Invest NZ Company Limited (in interim liquidation) applies for orders that interim liquidators be appointed for Japan Business Consulting Company Limited, East Wind Holdings Limited, East Wind Nominee Company Limited, East Wind Medicare Limited, East Wind Programme Limited and East Wind Company Limited. The interim liquidators of Best Invest NZ Company Limited, Messrs Downes and Moore, propose that they be appointed interim liquidators of the defendants.

[2]    The plaintiff and the defendants are related companies under s 2(3)(c) of the Companies Act 1993.1 Mr Masatomo Ashikaga was the sole director of the plaintiff and all the defendants. He was the sole shareholder of the plaintiff and all the defendants except East Wind Medicare Limited. For that company he held 450 shares in his own right; East Wind Holdings Limited (of which he is the sole shareholder) holds 300 shares; and the remaining 250 shares are held by a Japanese resident.

[3]    Mr Ashikaga died on 21 February 2019. Since his death none of the companies have had a director. No steps have been taken to obtain a grant of administration for his estate. In the absence of any grant of administration, the shares have presumably vested in the Crown under s 22(1) of the Administration Act 1969.2 No-one has taken

1            In this Act, a company is related to another company if—

… (c) more than half of the issued shares, other than shares that carry no right to participate beyond a specified amount in a distribution of either profits or capital, of each of them are held by members of the other (whether directly or indirectly, but other than in a fiduciary capacity);

2            The section says:

22(1) Subject to the provisions of this Act and any other Act, where a person dies without leaving a will that effectively appoints an executor, his or her estate shall, until administration

any steps to appoint a director to replace Mr Ashikaga. He is survived by his widow, Ms Siu Tai Tsai. There is no suggestion that she has any interest in any of the companies or holds any office in them. Because the companies do not have a director, they do not meet one of the requirements for a company under s 10 of the Companies Act 1993.

[4]    In Ohara v Best Invest NZ Company Ltd, investors who had placed money with Best Invest NZ Company Limited brought a liquidation proceeding on two grounds, non-compliance with s 10 of the Companies Act, and the just and equitable ground. They applied for interim liquidators to be appointed. On 16 April 2019 Associate Judge Andrew appointed Mr Timothy Downes and Mr Michael Moore interim liquidators.3 The substantive application is to be heard on 24 May 2019.

[5]    On 9 May 2019 Best Invest NZ Company Limited began these liquidation applications. The statement of claim is the same in each proceeding. The grounds for each application are that the company has persistently or seriously failed to comply with the Companies Act (section 241(4)(b)); the company does not comply with s 10 of the Companies Act (section 241(4)(c)); and it is just and equitable that the company be put into liquidation (section 241(4)(d)). Best Invest NZ Company Limited does not allege that any of the defendants is unable to pay their debts (section 241(4)(a)).

[6]    Best Invest NZ Company Limited pleads that it is a creditor of East Wind Company Limited for $7,174,587.42. So far as the other companies are concerned, the statements of claim say:

21.        There is reason to suspect that the Plaintiff Company may be a creditor of each of the Associated Companies, as the Companies appear to have been run on a co-mingled basis.

22.        The interim liquidators for the Plaintiff Company have received correspondence from various investors in the Plaintiff Company, including investors who are not plaintiffs in the liquidation proceedings of the Plaintiff Company. The correspondence gives the interim liquidators further reason to suspect that there has been a co-mingling of funds between the Plaintiff Company and the Associated Companies.

is granted in respect thereof, vest in the Crown in the same manner and to the same extent as formerly in England in the case of personal property it vested in the ordinary.

3      Ohara v Best Invest NZ Company Ltd [2019] NZHC 850.

[7]    Best Invest NZ Company Limited appears to have carried on business providing financial services. It received substantial funds from Japanese investors and appears to have re-invested those funds. The interim liquidators have obtained repayment of a loan of $1 million made by Best Invest to RPV SPV Two Limited. They hold these funds on trust pending the making of any liquidation order.

[8]    The interim liquidators believe that Ms Tsai may have control of bank accounts of Best Invest NZ Company Limited and the defendants. Shortly after her husband’s death she told two of the plaintiffs in Ohara v Best Invest NZ Company Ltd that there was only $3 in a bank account. I directed her to be served with a copy of the liquidation application.4 The process server attempted service at her home address but was unsuccessful. An occupant told the process server that she no longer lives there. He refused to give any information as to her whereabouts.

[9]    The interim liquidators say that the assets of the defendants are in jeopardy because of Ms Tsai’s apparent ability to access them, even though she is not a director or manager of any of the defendants.

[10]   The interim liquidators of Best Invest NZ Company Limited have clearly obtained some information and have carried out some investigations, but their evidence does not describe in any detail the extent of their investigations or how much information altogether they have obtained. There is no evidence that they have contacted Ms Tsai or that she has provided them with any information. They do not say what company records they have obtained, for example accounting records, financial statements and banking records. I assess their application only on the information they have provided.

[11]   The appointment of interim liquidators is a drastic remedy. Once interim liquidators are appointed, it is almost inevitable that a liquidation order will be made. Applications to appoint interim liquidators must therefore be considered with care and should not be made lightly. In most applications, the plaintiff normally has a straightforward case on the substantive merits. In the typical case the plaintiff is indisputably a creditor and there are clear signs of insolvency. In such cases the court’s

4      Ohara v Best Invest NZ Company Ltd – minute of 3 April 2019.

main inquiry is whether the appointment of interim liquidators is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company. A sound case on the substantive merits is a prerequisite for any application to appoint interim liquidators. That is required to avoid any miscarriage of justice in appointing interim liquidators. If the substantive proceeding should ultimately fail, damage to the business caused by the appointment of interim liquidators may be irreparable.

[12]    There is a weakness in the applications against Japan Business Consulting Company Limited, East Wind Holdings Limited, East Wind Medicare Limited and East Wind Programme Limited. Best Invest NZ Company Limited has not established clearly that it has standing as a plaintiff. The standing requirements for a liquidation application are set out in s 241(2)(c) of the Companies Act. Best Invest NZ Company Limited claims to be a creditor, which includes any contingent5 or prospective creditor6 (section 241(2)(c)(iv)).

[13]   In this case there is no evidence that Japan Business Consulting Company Limited, East Wind Holdings Limited, East Wind Medicare Limited or East Wing Programme Limited have been trading or carrying on any kind of business, or that they have entered into any transactions with Best Invest NZ Company Limited. Bank statements, accounting records or statements of financial position might provide evidence of dealings between Best Invest NZ Company Limited and the other companies, but there is no such evidence here.

[14]    The plaintiff’s claim that funds may have been intermingled is conjectural and speculative. Mr Downes has put in evidence copies of translations of land banking agreements between a Ms Iijima and East Wind Co Limited. Those are clearly documented transactions which may go to show that Ms Iijima is a creditor of East Wind Company Limited, but it is not evidence that funds of Best Invest NZ Company

5            For contingent creditor, see the definition in Re William Hockley Ltd [1962] 1WLR 555:

A person towards whom, under an existing obligation, the company may or will become subject to a present liability on the happening of some future event or at some future date.

6In Re Austral Group Investment Management Limited [1993] 2 NZLR 692, Holland J held that a prospective creditor is a person in respect of whom there is a real prospect of being a creditor (for example someone claiming damages against the company).

Limited have been intermingled with funds of other companies. There is insufficient evidence to show that Best Invest NZ Company Limited has standing as a creditor to apply for these companies to be put into liquidation.

[15]   In the absence of an adequate case on the substantive merits, it is inappropriate to appoint interim liquidators. I reserve leave to Best Invest NZ Company Ltd to renew its application. Further information may come to hand which may show that it is a creditor. It may be able to get around the difficulty by adding a plaintiff with standing. As the substantive case relies on non-compliance with the Companies Act, the Registrar of Companies may be persuaded to be added as a plaintiff.

[16]   On the other hand, I am satisfied that Best Invest NZ Company Limited has standing as a creditor for its applications against East Wind Company Limited and East Wind Nominees Limited. Mr Downes has exhibited bank account details showing payments of $7,174,587.42 by Best Invest NZ Company Limited to East Wind Company Limited. He has also shown payments between Best Invest NZ Company Limited and East Wind Nominees Limited of about $1,250,000.

[17]   Given the amounts of the payments by Best Invest NZ Company Limited to East Wind Company Limited and East West Nominee Limited, it may be assumed that those companies held and may continue to hold assets corresponding in value to those payments. Those companies are however in limbo, as there is no director. The interim shareholder, the Crown, is unlikely to appoint a director. Given the void in management and control of the company, there is a risk of assets disappearing. The interests of creditors should be protected on an interim basis until the court can consider the substantive merits of the liquidation applications. In short, Best Invest NZ Company Limited has established the ground for appointing interim liquidators under s 246 of the Companies Act.

[18]   Best Invest NZ Company Limited has applied without notice. I accept that applying without notice is appropriate here, as the experience with service of the liquidation application against Best Invest NZ Company Limited shows that there is no-one to respond to the applications. There is, however, a procedural defect in the interlocutory applications. Each application has a certificate under the old form,

whereas it should continue a certificate in the new form.7 The orders made in this decision will not take effect until applications showing the appropriate certificate are filed.

[19]    The interim liquidators have such of the powers in Part 16 and Schedule 6 of the Companies Act as are required to take possession of, protect and realise assets of the companies. While the interim liquidators may receive claims, they are not to process them or to distribute assets to creditors.

[20]   Messrs Downs and Moore have provided written consents under s 282 of the Companies Act and have certified that they are not disqualified from holding office as liquidators. There is an obvious efficiency in the interim liquidators of Best Invest NZ Company Limited also acting as interim liquidators of East Wind Company Limited and East Wind Nominee Limited.

[21]   In CIV 2019-404-633 an accounting practice, Icon Accounting Service Ltd, has applied to liquidate East Wind Company Ltd. It says that it is a creditor for

$1,496.50 for unpaid accounting fees. Its application has its first call on 24 May 2019. It is likely to seek the appointment of another liquidator. That should not stand in the way of Messrs Downes and Moore acting as interim liquidators. Icon’s claim is very small; it is so small that by itself it would not warrant a liquidation, which would be a disproportionate remedy. It would be very inconvenient to have different liquidators for East Wind Company Ltd and for other Ashikaga companies.

[22]Messrs Downes and Moore have provided proposed rates of remuneration:

(a)Liquidators/partners  $450 - $600 an hour;

(b)Senior managers/associate directors $350 - $450 an hour;

(c)Accountants  $125 - $350 an hour;

(d)Support staff  $100 - $140 an hour.

7      See Form G 32 in the Schedule 1 of the High Court Rules.

[23]   The top rate for liquidator/partners is above current market rates for court- appointed liquidators. The circumstances of the Ashikaga companies do not seem to raise any unusual challenges for experienced insolvency practitioners. I see no reason to approve rates above those normally approved when liquidation orders are made. The maximum rate for a liquidator/partner is $550 per hour. That aside, I approve the proposed rates.

[24]   Messrs Downes and Moore are reminded that they should keep separate records for their work as interim liquidators for each of the companies, Best Invest NZ Company Limited, East Wind Company Limited, and East Wind Nominee Limited. That is because under s 278 of the Companies Act the expenses and remuneration of a liquidator are payable only out of the assets of the company, not out of the assets of related companies.

[25]   The proceedings should of course be served on the registered office of each defendant company. I also direct the plaintiff to make reasonable efforts to bring the proceeding to the knowledge of Ms Tai Tsai. If nothing else works, copies of the proceedings should be left in the letterbox of her Glenfield home, even if she is no longer in occupation.

[26]   All proceedings are to be called on 24 May 2019 at 10.00 am, even if all preliminary steps have not been carried out. That is to allow the applications to be managed with Icon Accounting Service Ltd’s application and with the application to put Best Invest NZ Company Ltd into liquidation.

[27]I make these orders:

(a)Messrs Downes and Moore are appointed interim liquidators of East Wind Company Limited and East Wind Nominee Limited pending further order of the court.

(b)They have such of the powers of liquidators in Part 16 and Schedule 6 of the Companies Act as are required to take possession of, protect and

realise assets of the companies. While they may receive claims, they are not to process them or to distribute assets to creditors.

(c)I approve their proposed rates of remuneration, except that the maximum rate for liquidators/partners is $550 per hour (exclusive of GST).

(d)Their remuneration for acting as interim liquidator for each company shall be paid from the assets of that company.

(e)The above orders will take effect when the plaintiff files applications that comply with form G 32. The Registrar is to record the time of the orders as the time that the amended applications are filed.

(f)The applications to appoint interim liquidators of Japan Business Consulting Company Limited, East Wind Holdings Limited, East Wind Medicare Limited and East Wind Programme Limited are dismissed, but without prejudice to the plaintiff applying again if it can show on new evidence a basis for appointing interim liquidators.

(g)Leave is reserved to apply for further directions.

…………………………………..

Associate Judge R M Bell