BETWEEN MALCOLM GRANT HOLLIS and RICHARD JOHN NACEY Applicants

[2024] NZHC 2759

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2024-409-000493

[2024] NZHC 2759

BETWEEN

MALCOLM GRANT HOLLIS and RICHARD JOHN NACEY

Applicants

Hearing:	On the papers
Appearances:	C T Jolliffe for Applicants
Judgment:	24 September 2024

JUDGMENT OF DUNNINGHAM J

This judgment was delivered by me on 24 September 2024 at 11 am, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

HOLLIS AND NACEY [2024] NZHC 2759 [24 September 2024]

The application

[1]                 The applicants, Malcolm Grant Hollis and Richard John Nacey (the administrators), apply for orders:

(a)granting permission to proceed on a without notice basis; and

(b)extending the timeframe by which the administrators must convene the watershed meeting for Sustainable Foods Ltd (Administrator Appointed) pursuant to s 239AT(3) of the Companies Act 1993 (the Act) to 22 November 2024.

[2]                 The administrators also seek the following ancillary orders to the order extending the timeframe for a watershed meeting:

(a)that within five working days of the order being granted, the administrators must email a copy of the order to each known creditor’s email address;

(b)granting leave to any creditor or employee to apply to modify the orders made under the application, provided such party gives sufficient written notice of its application to the administrators for modification;

(c)that costs and disbursements of this application be paid out of assets of the company; and

(d)that the administrators are granted leave to apply for further orders if required.

Relevant background

[3]                 The background to this application is set out in the affidavit of Mr Hollis supporting the application. He explains that on 23 August 2024 he and Mr Nacey were appointed as administrators of Sustainable Foods Ltd (the company) by the Board of Directors of the company.

[4]                 The company produces plant-based meat alternatives using sustainably sourced New Zealand grown ingredients. It supplies its products to major supermarkets and other well-known retailers and food services.

[5]                 The appointment of the administrators was made by the Board noting various adverse changes to the sales the company was able to make and increasing debt building up within trade creditors. The Board therefore appointed the administrators with a view to deciding whether the company could be sold on a going concern basis, whether there should be a deed of company arrangement (DOCA) executed and if so, what terms that should be on, or whether the company should be placed into liquidation.

[6]                 The administrators note that at the date of the affidavit being sworn, orders continue to be placed by customers of the company and the administrators are confident that during any extended convening period the company is able to pay its suppliers, its ongoing trading debts, and continue to make products sufficient to meet the orders. The administrators say that, based on the information they have as to costs of the business and revenue stream, they are confident that allowing the company to continue to trade while they complete their investigations is in the best interests of creditors and will not cause a deterioration of the current financial position of the company.

[7]                 The application to extend the timeframe for convening a watershed meeting is made because it will allow the administrators to have “sufficient time to assess whether the company can be sold as a going concern, which we believe is in the interests of the creditors, and for us to put the company to the market.” They say that, as the company is able to meet its debts during the extended period, any extension would have minimal effect on creditors.

Statutory and legal framework

[8]                 The applicants were appointed administrators of the company pursuant to the provisions of the Act. Under s 239AE, the administrators are charged with:

(a)investigating the company’s business, property, affairs and financial circumstances; and

(b)forming an opinion on whether it would be in the creditor’s interests for the company to execute a deed of company arrangement, or for the administration to end, or for a liquidator to be appointed.

[9]                 Under s 239AT, the administrator is statutorily obliged to convene a watershed meeting within a period of 20 working days after the date on which the administrator is appointed.1 However, the Court may, on the administrator’s application, extend the convening period.2 Notice of the watershed meeting must  be given not  less than  five working days before the meeting.3 At that meeting, the administrator is required to provide a report about the company’s business, property, affairs and financial circumstances and to provide an opinion about the three options described above.4 If a DOCA is proposed, they must also provide a statement setting out the details of the proposed deed.

[10]            As the administrators point out in the accompanying memorandum of counsel, there are a number of cases in New Zealand where an extension of the watershed meeting has been allowed. However, as Heath J stated in Re Nylex (New Zealand)

Ltd:5

[A]n application to extend time requires a balance to be struck between the expectation that an administration will be relatively speedy and the need to ensure that undue haste does not prejudice sensible and constructive actions directed towards the object of the regime, namely maximising returns for creditors.

[11]            In the present case, the applicants say that the responsible course of action is to seek the extension now, rather than go to a watershed meeting without having had a chance to fully consider the best outcome for the creditors, meaning that they would inevitably have to adjourn the watershed meeting for 30 working days as allowed by s 239AZ.

1      Companies Act 1993, s 239AT(2).

2      Section 239AT(3).

3      Section 239AU(2).

4      Section 239AU(3).

5      Re Nylex (New Zealand) Ltd HC Auckland CIV-2009-404-1217, 11 March 2009 at [22].

[12]            Having read the application, the supporting affidavit, and the accompanying memorandum of counsel, I am satisfied that the extension of time which is sought (being a further 45 working days from the end of the original convening period) is appropriate. In particular, I accept that this timeframe will allow the administrators to complete a reconciliation of financial records and consider whether the business should be sold on a going concern basis. It will also allow the administrators to assess the best outcome for creditors of the company, including whether a DOCA should be entered into, and on what terms.

[13]            Importantly, I am satisfied the extension will not prejudice creditors as trade creditors, employees and the landlord will continue to be paid by the administrators throughout the extension period and the extension is likely to result in a better return to creditors than if the company was to be placed into liquidation.

[14]            In terms of the application to proceed on a without notice basis, I accept that requiring the application to proceed on notice would cause undue delay. In this case, there are 85 creditors, including employees, and service on all employees and creditors will also involve significant expense. I am satisfied that the affected parties are appropriately protected by the fact they will be entitled to apply to vary any order that the Court makes.

[15]            Accordingly, the orders are granted on the terms sought, as set out at 1.1–1.6 of the originating application.

Solicitors:
Anthony Harper, Christchurch