Big Tree Nurseries Limited (in receivership) v Big Tree Nurseries Limited (in receivership)
[2019] NZHC 1721
•22 July 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-000415
[2019] NZHC 1721
UNDER the Companies Act 1993 IN THE MATTER OF
the liquidation of BIG TREE NURSERIES LIMITED (IN RECEIVERSHIP)
BETWEEN
BIG TREE NURSERIES LIMITED (IN
RECEIVERSHIP) by its Receiver KEVIN JOHN WHITLEY
Plaintiff
AND
BIG TREE NURSERIES LIMITED (IN RECEIVERSHIP)
Defendant
CIV-2019-404-000416 UNDER
the Companies Act 1993
IN THE MATTER OF
the liquidation of PADDY HANNAN CONTRACTING LIMITED (IN
RECEIVERSHIP)
BETWEEN
PADDY HANNAN CONTRACTING LIMITED (IN RECEIVERSHIP) by its Receiver KEVIN JOHN WHITLEY
Plaintiff
AND
PADDY HANNAN CONTRACTING LIMITED (IN RECEIVERSHIP)
Defendant
CIV-2019-404-000417 UNDER
the Companies Act 1993
IN THE MATTER OF
the liquidation of RESOURCE
TECHNOLOGIES LIMITED (IN RECEIVERSHIP)
BIG TREE NURSERIES LTD (IN REC) v BIG TREE NURSERIES LIMITED (IN REC) [2019] NZHC 1721 [22 July 2019]
BETWEEN RESOURCE TECHNOLOGIES LIMITED
(IN RECEIVERSHIP) by its Receiver KEVIN JOHN WHITLEY
Plaintiff
AND
RESOURCE TECHNOLOGIES LIMITED (IN RECEIVERSHIP)
Defendant
CIV-2019-404-000418 UNDER
the Companies Act 1993
IN THE MATTER OF
the liquidation of DROGUE
CONSTRUCTION LIMITED (IN RECEIVERSHIP)
BETWEEN
DROGUE CONSTRUCTION LIMITED
(IN RECEIVERSHIP) by its Receiver KEVIN JOHN WHITLEY
Plaintiff
AND
DROGUE CONSTRUCTION LIMITED (IN RECEIVERSHIP)
Defendant
Hearing: 10 July 2019 Appearances:
R B Hucker and R Selby for Plaintiff
Judgment:
22 July 2019
REASONS JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 22 July 2019 at 3.00 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar Date……………………..
Introduction
[1]These are four liquidation proceedings being heard together.
[2] The receiver of the four plaintiff companies seeks orders that each of those companies (which are also the four defendants) be placed into liquidation pursuant to s 241(2)(c)(i) of the Companies Act 1993.
[3] The proceedings have been brought in the name of the companies since the right of action is of the company through the receiver.1 It is said that all the companies are insolvent within the meaning of the Companies Act 1993 and it is otherwise just and equitable that they be liquidated.
[4] The receiver, Mr Whitley, was appointed as receiver of all four companies in February 2014 as a result of each of the defendant companies being in breach of the terms of a general security agreement and its obligations to the secured creditor.
[5] Despite the sale of all of the identifiable assets and/or land belonging to the defendant companies, they remain indebted in the amount of $1,937,778.89 to the secured creditor and a further $79,679.76 to the unsecured creditors. The funds held by the receiver only amount to $84,610.
[6] The trustees of the Ponty Family Trust, Messrs Patrick Hannan and Kevin Spicer, have filed a statement of defence to the four applications. The Ponty Family Trust is the majority shareholder in all four companies. That statement of defence was accompanied by an affidavit of Mr Hannan sworn 30 May 2019.
[7] On 5 July 2019, Ms Maniapoto, counsel engaged by Mr Spicer, filed a memorandum advising that Mr Spicer wished to discontinue his involvement in the proceedings and that he no longer supported the filed statement of defence.2
1 Robertson v Oskar [1984] WAR 376, (1983) 8 ACLR 570.
2 Ms Maniapoto also appeared at the hearing to confirm Mr Spicer’s position. She does not represent Mr Hannan and represented Mr Spicer only for the purposes of advising him in relation to the defence filed. She withdrew at the commencement of the hearing.
[8] Mr Hannan did not appear at the hearing. He sent an email to both the Court and the parties dated 5 July 2019 advising that he withdrew from the proceedings “of his own volition”.
[9] In the absence of any active opposition, the hearing proceeded as a formal proof.
[10] At the conclusion of the hearing I granted the plaintiffs’ applications and placed all four defendant companies in liquidation and appointed Mr Steven Khov and Mr Kieran Jones as liquidators.
[11]This judgment contains the reasons for my decision.
Relevant legal principles
[12] Pursuant to s 241(4), the Court may place a company into liquidation if it is satisfied that the company is unable to pay its debts or that it would be just and equitable that the company be put into liquidation.
[13] The Court of Appeal in Commissioner of Inland Revenue v Newmarket Trustees Ltd set out the following principles for the exercise of the just and equitable discretion:3
(a)The general policy of the Companies Act 1993 is that insolvent companies should be put into liquidation if sought by a creditor;4
(b)In circumstances where the company was operated unsatisfactorily by the directors the focus is on whether there is any good reason why a liquidation order should not be made;5
3 Commissioner of Inland Revenue v Newmarket Trustees Ltd [2012] NZCA 351.
4 At [23] and [61].
5 At [61].
(c)The ability to investigate the conduct of the directors of the company is part of the principal duty of the liquidator to protect the assets of the company;6
(d)Even where the company has no assets available for realisation, it is appropriate that an order liquidating the company be made to enable investigation to occur;7 and
(e)There needs to be a good reason to exercise the discretion not to liquidate an insolvent company and in circumstances where there is no good reason, liquidation should be the result. The Court described the standard required as being a sufficiently compelling ground of principle or justice to overcome the general policy of the Companies Act with regards to insolvent companies.8
Factual background
[14] The principal assets of the group of companies (that is, the four that are the subject of these applications for liquidation) were four blocks of land located at:
(a)7A Waiu Street, Wainuiomata;
(b)14 Waiu Street, Wainuiomata;
(c)19A and 19B Waiu Street, Wainuiomata.
[15] Mr Whitley was appointed receiver of the four companies on 3 February 2014 under a General Security Agreement dated 5 June 2006. At the time of his appointment, 7A Waiu Street had been used as a clean-fill operation and 14 Waiu Street was still being operated as a clean-fill operation.
6 At [39].
7 At [25(c)].
8 At [65].
[16] Prior to the appointment of Mr Whitley, enforcement orders had been made by the Environment Court against a number of the properties following the successful criminal prosecution under the Resource Management Act 1991 of Mr Patrick Hannan and Paddy Hannan Contracting Ltd by the Hutt City Council. The enforcement orders had been made as a result of Mr Hannan and his companies failing to comply with the terms of resource consents granted to operate the clean-fill sites.
[17]Part of the land had been designated as contaminated by the Hutt City Council.
[18] The properties were not in immediate marketable form upon Mr Whitley’s appointment. As Mr Whitley says in his affidavit, “no-one was interested in acquiring property with extant enforcement orders against it” and which was considered by the Council as “contaminated land”. Mr Whitley has also deposed to, and provided details of, the significant expense that had to be incurred in obtaining resource consents and other legal and physical works to be able to procure the sale of the assets of Paddy Hannan Contracting Ltd (in rec).
[19] Much of the relevant history and background is set out in the judgment of Associate Judge Smith in Mr Hannan’s bankruptcy proceedings, FM Custodians Ltd v Hannan, a decision which was re-issued on 26 November 2018.9 Mr Hannan had been a guarantor of the original loan advanced to Paddy Hannan Contracting Ltd, and the other companies, namely Resource Technologies Ltd, Big Tree Nurseries Ltd and Drogue Construction Ltd, had each agreed to provide a GSA over the assets and undertakings of Paddy Hannan Contracting Ltd.
[20] The judgment of Associate Judge Smith also records that, on 17 March 2014, summary judgment was entered against Mr Hannan and all of the defendant companies for a total of $803,823.19, being the original loan principal of $784,295.64, penalty interest in the sum of $17,349.55 and costs in the sum of $2,178.10
9 FM Custodians Ltd v Hannan [2018] NZHC 3083.
10 At [7].
Analysis and decision
[21] It is clear from the evidence that the companies are insolvent within the meaning of the Companies Act 1993. As noted at [5] above, the level of indebtedness of $1,937,778.89 well exceeds the companies’ assets (virtually nil), and the insolvency test in s 4 has been made out.
[22] The insolvency of the companies is apparent from the receiver’s reports attached to Mr Whitley’s affidavit which include consolidated statements of assets and liabilities for the companies as well as lists of the unsecured creditors who have advised Mr Whitley of claims that they have against the companies. Mr Whitley has advised that the companies are dealt with on a consolidated basis because the companies are grouped together for tax purposes under the same IRD number and due to the cross-collateralised advances made to Paddy Hannan Contracting Ltd (in rec). However, nothing turns on that.
[23] I am also satisfied that there are no reasons for my discretion to be exercised in a way declining to order liquidation. On the contrary, it would be wrong in the circumstances of this case for the Court to allow insolvent companies to trade or to be returned to the control of their shareholders. Furthermore, the ability in this case for the liquidators to investigate the conduct of the directors of the companies as part of the principal duty of liquidators to protect the assets of the companies clearly favours liquidation orders being made.
[24] I also accept the submission of the plaintiff that an investigation into the conduct of the directors of the company, Paddy Hannan Contracting Ltd, is warranted in order to ascertain how they allowed the company to reach the position of allowing the clean-fill to be operated to such an extent in a breach of regulatory requirements that enforcement orders were issued by the Hutt City Council, including criminal prosecution.
[25] Furthermore, as the plaintiff submits, any residual liability the companies have for breaches of enforcement orders will come to an end as a result of the conclusion of the liquidation process.
[26] As noted above, Mr Hannan and Mr Spicer have withdrawn their statement of defence. It is thus not necessary for me to address the grounds of defence advanced (now withdrawn). However, for completeness, I make the following brief comments.
[27] In my view, none of the defences raised provided any valid basis for declining to make orders for liquidation.
Jurisdiction for receiver to make application for liquidation
[28] In my view, the receiver clearly had the power to make the applications to liquidate the companies.
[29] The receiver had express powers conferred on him by the General Security Agreements under which he was appointed to initiate proceedings on behalf of the companies and to use the name of the companies. The proceedings were of course required to be brought in the name of the companies (which they were) since the right of action is of the company through the receiver.
[30] Section 14(1) of the Receiverships Act 1993 gives statutory recognition to the powers that are expressly contained in a security instrument. Under cl 25(c)(xi) of the relevant GSAs, the receiver here was expressly authorised to use the name of the companies.
[31] In my view, the receiver had the express power in these proceedings to issue proceedings in the name of the companies. In any event, it has been recognised that a receiver has the power to apply to the Court for a liquidation order of the company to which he has been appointed.11
Allegations concerning the conduct of the receivership
[32] I agree with the submission of the plaintiff that this ground does not afford a defence to the liquidation proceedings.
11 See Lynne Taylor and Grant Slevin The Law of Insolvency in New Zealand (Thomson Reuters, Wellington, 2016) at [21.6.1] citing with approval the approach of Re Emmadart Ltd [1979] Ch 540 (Ch) at 547; and see also Peter Blanchard and Michael Gedye Private Receivers of Companies in New Zealand (LexisNexis, Wellington, 2008) at [12.02].
[33] There has been no application made by the shareholder defendants of the companies to limit the receiverships under s 35 of the Receiverships Act, nor has any application been made to provide court supervision of the receiverships under s 34.
[34] To the extent that the shareholders consider that there might be a right or entitlement to make an application or to challenge any decision made in the receivership (including the fees incurred) they have always had the standing to do so but have to date not done so.
[35] The plaintiff further accepts that in any event the rights conferred by s 34 – 35 of the Receiverships Act stand apart from and survive the liquidation of a company.
Discretion to liquidate
[36] The views of individual creditors are of course not determinative of whether an order for liquidation should be made. Here, there was (up until the statement of defence was withdrawn) only one shareholder opposing the liquidation and the secured creditor was supportive of the proceeding.
Result
I confirm the orders that I made on 10 July 2019 as follows. I order that:
(a)Each of the four defendant companies are placed into liquidation.
(b)I appoint Mr Steven Khov and Mr Kieran Jones as liquidators of all four defendants. The terms and conditions of the liquidators’ appointment and their rates of remuneration are as set out in their consents to act dated 9 July 2019.
(c)The liquidators are to apply, at the conclusion of the liquidation, for court approval of their overall remuneration.
(d)My orders placing the four defendant companies into liquidation were timed at 10.35 am on 10 July 2019.
Costs
[38] As to costs, I order that Mr Kevin Spicer and Mr Patrick Hannan, in their capacity as trustees, are to pay costs to the plaintiffs on a 2B basis in the sum of $8,251. That sum consists of costs on a 2B basis as calculated in the schedule filed by the plaintiffs at the hearing (but making deductions for items 11, 50 and 29, as well as the sealing order disbursement).
[39] Both Mr Spicer and Mr Hannan, in their capacity as trustees, are jointly and severally liable for the costs of $8,251 in accordance with r 14.14 of the High Court Rules 2016.
[40] I further order that Mr Hannan, in his capacity as trustee, is to pay an additional sum of $1,338 in costs to the plaintiffs. That includes items 11, 50, 29 and the sealing order disbursement as set out at the plaintiff’s schedule.
Associate Judge P J Andrew
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