Black Dog Consulting Limited
[2023] NZHC 573
•21 March 2023
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2023-485-132
[2023] NZHC 573
UNDER Part 15A of the Companies Act 1993 and Part 19 of the High Court Rules IN THE MATTER
of BLACK DOG CONSULTING LIMITED
(administrator appointed) a duly
incorporated company having its registered office at Level 2, 40 Lady Elizabeth Lane, Wellington
AND
IN THE MATTER
of an application pursuant to section 239AT(3) of the Companies Act 1993 by HEATH LESLIE GAIR of Porirua, administrator, for an order extending the convening period of the voluntary
administration of BLACK DOG CONSULTING LIMITED
Hearing: On the papers Appearances:
D G Dewar for Applicant
Date of Result:
20 March 2023
Reasons:
21 March 2023
JUDGMENT OF McQUEEN J
[1] The applicant is the appointed administrator of Black Dog Consulting Ltd (BDCL). He has applied on a without notice basis for orders:
(a)granting leave to make this application without notice;
RE BLACK DOG CONSULTING LIMITED [2023] NZHC 573 [20 March 2023]
(b)extending the maximum period of 20 working days under s 239AT(2) of the Companies Act 1993 during which the applicant must convene a watershed meeting for BDCL up to and including 19 June 2023;
(c)granting leave to any person who can demonstrate a sufficient interest to apply to the Court to modify or discharge these orders on appropriate notice being given to the applicant and the Court;
(d)determining that the costs of this application are an expense incurred by the applicant in the administration of the company; and
(e)directing notice of these orders is to be emailed to BDCL’s creditors at their last known email address and advertised once in the Dominion Post newspaper.
[2] I granted the application on 20 March 2023. My reasons for doing so now follow.
Background
[3] BDCL carries out construction, carpentry, concreting and earthquake strengthening services throughout the Wellington region. The applicant was appointed administrator on 21 February 2023 by directors’ resolution in view of BDCL’s poor financial position. BDCL commenced trading in 2006 and since 2018 has grown significantly in size due predominately to commercial seismic work in the Wellington CBD. BDCL has one director, Mr Peter Jones, who is also the 100 per cent shareholder. The company made a net profit for the year ending 2021 of $894,404 and a net loss for the year ending 2022 of $74,322. It currently trades with 16 staff and four contractors.
[4] Mr Gair, the administrator of BDCL, is an experienced insolvency practitioner. In his affidavit in support of the application, Mr Gair explains that he is seeking additional time to convene the watershed meeting so that he can complete his investigation into BDCL, resolve outstanding receivables and undertake an asset sale, as discussed further below. His goal is to repay creditors in full and return the company
to its director, or alternatively, put forward a deed of company arrangement to creditors at the watershed meeting.
[5] Mr Gair says that BDCL’s financial position is not what he would consider typical or usual. The company appears to be balance sheet solvent and there is only one overdue creditor, albeit with a significant amount owed, which is Inland Revenue.
[6] Mr Gair says that upon his appointment the company’s financial position showed a positive balance sheet of net $843,411. Total assets are $1,782,404, and total liabilities are $938,996. Mr Gair notes that the Inland Revenue liability includes preferential PAYE and GST payments dating back to June and September 2022 respectively totalling $208,647. The more significant component is the income tax owing for the year ending 2021 of $339,912 plus penalties and interest.
[7] Mr Gair notes that there are substantial accounts receivable owed of $583,955. Two of those receivables are in arrears. One relates to a residential renovation undertaken in Plimmerton which is in arrears to the amount of $347,818. No dispute has been raised with respect to this invoice and Mr Gair understands that finance is presently being sought to pay the invoice in full in the short term. The other receivable in arrears is for $105,863 for work completed in November 2022. This is currently in negotiation with amounts outstanding dating back to the middle of 2022. Mr Gair states that it is safe to assume that had these receivables been paid when due, the company would have paid its due debts (without the resulting penalties and interest).
[8] Mr Gair is also in the process of reviewing the current trading and considers that there is a surplus of vehicles, plant and equipment with respect to current trading requirements. These assets are valued at approximately $751,111 and subject to finance charges of $210,411. Accordingly, Mr Gair believes that there is significant equity that can be realised without affecting the company’s ability to continue to trade. He is in the process of commencing a sales programme through a third-party sale agent, Manheim Auctions.
[9] Mr Gair states that with regard to continued trading during administration, it appears BDCL can cover its weekly and monthly costs including wages and trade
creditor suppliers. As a result, BDCL is continuing to trade while it is in administration, undertaking construction work. Mr Gair indicates that the director is assisting him from an operational point of view and is highly motivated to keep the company from liquidation. Given that there appears to be cash available in the short term to repay the liabilities, Mr Gair believes that this is the best way forward for creditors.
[10] Mr Gair says that the first creditors meeting of BDCL (as required under s 239AN of the Companies Act) was held on 2 March 2023 via Zoom following notice by advertisement in the Dominion Post newspaper and by email to all creditors on 23 February 2023. It was unanimously resolved that Mr Gair continue as administrator and that a creditors’ committee not be formed.
[11] Mr Gair is of the view that significant progress can be made during the period for which the proposed extension of time is sought. He says that he is commencing the Manheim sales campaign in respect of surplus plant and equipment as soon as possible, which is likely to be within the next 14 days. He says that Manheim has advised that the sale campaign process could take approximately two months. In terms of the outstanding receivables, Mr Gair states that BDCL was working with a quantity surveyor and had proposed a construction lawyer to engage in relation to the outstanding receivables, prior to his appointment. Mr Gair believes it will be clear within the next 90 days whether repayment of these outstanding amounts is likely in the short term.
[12] Mr Gair also states that should the watershed meeting be required to be convened within the 20 working day statutory timeframe, he would not be in a position to make a recommendation to creditors as required under s 239AU of the Companies Act. He says that this would lead to a liquidation of the company, increasing liabilities (e.g. staff notice and redundancy) and create uncertainty in relation to receivables and retentions which may lead to a shortfall to creditors.
Without notice application
[13] The application is made on a without notice basis. As I address below, the relevant time periods are short. In my view, requiring service of the application on any
interested parties at this interim stage would cause unnecessary delay. As noted above, Mr Gair, as administrator, considers that interested parties (particularly creditors) are likely to benefit from the extension sought, and that there will be no prejudice to them. Notably, if any party considers they are prejudiced, they will have the right to challenge the orders made on notice. In these circumstances, I was satisfied it was appropriate to dispense with service and accordingly I granted the application.
Extension of the convening period under s 239AT of the Companies Act 1993
[14] Section 239AT(1) of the Companies Act requires an administrator to convene a “watershed meeting” within the “convening period”, which is the period of 20 working days after the date of the administrator’s appointment and includes any period for which it is extended.
[15] A watershed meeting is a creditors meeting called by the administrator to decide the future of the company and, in particular, whether the company and the deed administrator should execute a deed of company arrangement.1
[16] The administrator must give notice to creditors of the watershed meeting during the convening period. That notice must be accompanied by a number of other documents, including a report from the administrators, as set out in s 239AU of the Companies Act.
[17] In the present context, the convening period is 20 working days following 21 February 2023, which was the day on which the administrator was appointed. Thus, the watershed meeting must be convened by no later than 21 March 2023. The watershed meeting must be held within five working days following expiry of the convening period, as required by s 239AV of the Companies Act. Thus in this case, without the extension, the administrator would have to hold the watershed meeting by 28 March 2023.
[18] Section 239AT(3) of the Companies Act permits the Court to extend the convening period on the administrator’s application. This Court has confirmed that the
1 Companies Act 1993, s 239AS.
power to extend should be exercised in light of the purpose of the voluntary administration regime and the duties imposed on administrators.2 Those objectives are set out in s 239A of the Act and include the administration of a company in a way that maximises the chances of the company continuing in existence, or results in a better return for the company’s creditors and shareholders that would result from an immediate liquidation of the company.
[19] This Court has held that this approach requires a balance between the expectation that administration will be a relatively speedy and summary matter on the one hand, and the requirement that undue speed should not be allowed to prejudice actions directed towards maximising the return for creditors and any return for shareholders.3 Courtney J held in Re DSE (NZ) Ltd that the appropriateness of an extension is, self-evidently, a fact-specific determination. I have had regard to the factors described by Courtney J in determining the current application.4 Courtney J also noted that a review of recently decided cases at that time demonstrated that periods of extension of the convening period had been quite variable.5
[20] I am satisfied on the affidavit evidence filed by Mr Gair in support of the application that the three factors particularly relevant in the present case relate to:
(a)the time needed to execute an orderly process of disposal of assets;
(b)the time needed for thorough assessment of a proposal for a deed of company arrangement; and
(c)more generally, where time is likely to enhance the return for unsecured creditors.
[21] I accept the applicant’s submission that these factors apply to the objective of allowing the company to continue to operate after a deed of company arrangement is
2 Re Nylex New Zealand Ltd, HC Auckland, CIV-2009-404-1217, 11 March 2009; Re DSE (NZ) Ltd [2016] NZHC 36; Re Kumfs Group & Ors [2019] NZHC 2552; and Re Advanced Building and Construction Ltd [2021] NZHC 937.
3 Re Kumfs Group Ltd & Ors, above n 2, at [13].
4 Re DSE (NZ) Ltd, above n 2, at [14].
5 At [15].
entered into. It is significant that BDCL is owed a substantial amount of money from its customers and the applicant is taking steps to recover those receivables. The application is also selling company plant and equipment excess to the requirements of the company’s current operation, to receive funds.
[22] I consider that the 90 day extension sought in this case appropriately takes into account the factors described above. The 90 day extension period will allow sufficient time for BDCL to recover funds from its customers and also to sell plant and equipment. An extension of the convening period will also permit sensible steps to be taken in an orderly manner and allow a meaningful report to creditors once more is known about the effectiveness of actions taken. I am satisfied that the extended timeframe is necessary for the administrator to effectively undertake these steps and therefore this is consistent with the speedy and summary objectives of administration. I also accept that it is likely that the availability of funds to the company would tend to benefit the creditors as it will improve creditor returns, whatever the outcome of the watershed meeting.
[23] The grant of an extension of time to the convening period was made accordingly.
Result
[24]Accordingly, I made the following orders:
(a)granting leave to make this application without notice;
(b)extending the maximum period of 20 working days under s 239AT(2) of the Companies Act 1993 during which the applicant must convene a watershed meeting for BDCL up to and including 19 June 2023;
(c)granting leave to any person who can demonstrate a sufficient interest to apply to the Court to modify or discharge these orders on appropriate notice being given to the applicant and the Court;
(d)determining that the costs of this application are an expense incurred
by the applicant in the administration of the company; and
(e)directing notice of these orders is to be emailed to BDCL’s creditors at their last known email address and advertised once in the Dominion Post newspaper.
McQueen J
Solicitors:
Thomas Dewar Sziranyi Letts for Applicant
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