Boult v Cain

[2022] NZHC 2402

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2022-409-000196

[2022] NZHC 2402

UNDER

The Companies Act 1993

IN THE MATTER

of an application to reverse or modify a

liquidator’s decision in the liquidations of Stonewood Homes Limited (in liquidation), Stonewood Homes New Zealand Limited (in liquidation) and Holmfirth Group

Limited (in liquidation)

BETWEEN

JAMES BOULT and BRENT ALFRED METTRICK

Applicants

AND

RHYS JAMES CAIN

Respondent

Hearing:

24 August 2022

Appearances:

G J Ryan for Applicants

J K Stringer for Respondent M J Borcoski for G Ball

Judgment:

20 September 2022

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 20 September 2022 at 11.00 am pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

BOULT v CAIN [2022] NZHC 2402 [20 September 2022]

What is the issue?

[1]    A liquidator’s decision to allow his liquidation committee to inspect documents of the liquidation is being challenged by a director and former director of the company in liquidation.

[2]    Mr Cain is the liquidator of the Stonewood Group of companies. He pursued a claim for damages against James Boult and Brent Mettrick (the directors) in the High Court, alleging they breached director’s duties owed to the companies. That claim was settled when the parties entered into a confidential settlement agreement dated 23 July 2021. The proceeding has been discontinued.

[3]    Mr Cain has agreed to allow the liquidation committee of Stonewood Homes Ltd (in liq) to inspect some of the Court documents relating to the proceeding. The directors do not want the liquidation committee to inspect the documents. They apply under s 284(1) of the Companies Act 1993 to reverse the liquidator’s decision and prevent inspection. They say the liquidator’s decision is wrong and unreasonable, and the Court should intervene and set it aside.

[4]    The kernel of the directors’ objection is they consider the reason the liquidation committee has asked to inspect the Court documents is that it may assist one of its members to pursue a claim against them. That, they say, is a misuse of the liquidation committee’s powers, and is prejudicial to the liquidation.

[5]    The primary issue is whether the liquidator’s decision to allow the liquidation committee to inspect the Court documents should be set aside as wrong or unreasonable because:

(a)the liquidation committee’s request to inspect was not made for a proper purpose; or

(b)the inspection of the documents will be prejudicial to the liquidation.

What has happened

[6]    Geoffrey Ball, David Lee and David Gilbert are the members of the liquidation committee of Stonewood Homes Ltd (in liq), having been elected at a meeting of the company’s creditors on 17 November 2016.

[7]    Stonewood is one of the companies in the Stonewood Group for whom the litigation against the directors was pursued by Mr Cain.

[8]    Mr Boult is a former director of Stonewood, and Mr Mettrick is presently a director of the company.

[9]    On 22 September 2021, Mr Ball and Mr Gilbert met with Mr Cain. They were told that the claim against the directors had been settled but that no money would be paid to the unsecured creditors from the settlement proceeds. They asked Mr Cain to provide the Court documents relating to the claim, but Mr Cain advised them they would need to apply to the Court.

[10]   On 19 January 2022, Mr Ball applied to the High Court for access to the Court file. In his reasons for the request, he stated that he was a director of two companies that were creditors of Stonewood Group companies and they wished to take advice on whether they had a claim against the directors of Stonewood. He said he was aware of other creditors who were also considering such a claim.

[11]   The application for access to the Court file was opposed by Mr Boult, and it was set down to be heard before me on 24 March 2022. During the hearing, I raised with counsel for Mr Ball, Ms Borcoski, whether a request had been made to inspect the liquidator’s documents under s 256 of the Companies Act. The hearing concluded on the basis that Ms Borcoski would take instructions and advise the Court whether there was any correspondence between her client and the liquidator concerning requests for access to the liquidator’s documents, following which I anticipated issuing a decision on the application without a further hearing.

[12]   On 31 March 2022, Ms Borcoski filed a memorandum with the Court advising that Mr Ball  had made  a request  to  see the Court documents  at  the  meeting on  22 September 2021, and that on 24 March 2022 he had sent an email to Mr Cain requesting confirmation whether the documents would be provided. Ms Borcoski also advised she had been instructed to request inspection of the documents under s 256 of the Companies Act. She sought an adjournment of the application then before the Court to enable that to be progressed. Mr Ball’s request for access to the Court file has been adjourned while the request under s 256 has proceeded.

[13]   On 28 March 2022, Ms Borcoski wrote to the liquidator’s solicitors, requesting inspection of the following material pursuant to s 256:

(a)the Court documents; and

(b)the liquidator’s accounting records and other documents of the liquidation.

[14]   I take the letter to have been written on behalf of Mr Ball in his capacity as a member of the liquidation committee, because the following day Mr Gilbert sent confirmation that the request had been made on behalf of the liquidation committee by a majority of its members.1

[15]   The solicitors for the directors wrote to the liquidator’s solicitor on 31 March 2022, opposing the request. It was asserted that Mr Ball, via the liquidation committee, was attempting to obtain access to documents or information that would assist him to take advice or bring a claim against the directors which, it was said, was an improper use of s 256. It was also said that as the claim against the directors was settled, the liquidation committee had no legitimate interest in the Court documents and that to release or allow inspection of them would breach the settlement agreement.

[16]   On 6 April 2022, the liquidator’s solicitors wrote to the solicitors for Messrs Ball, Boult and Mettrick, advising that the liquidator’s preliminary view was that he

1      A liquidation committee may act by a majority of its members under the Companies Act 1993, sch 8, cl 2.

would allow inspection of the Court documents, save for four affidavits which were considered confidential. The liquidator considered that under s 256 he could only withhold inspection of documents by the liquidation committee if there were reasonable grounds to believe that it would be prejudicial to the liquidation. He considered reasonable grounds did not exist for such a belief (except in the case of the four affidavits). In respect of the much broader request to inspect the liquidator’s accounting records and other documents of the liquidation, the liquidator considered that to be unmanageably wide and required narrowing before it could be assessed. The liquidator invited responses to his preliminary decision before a final decision was made.

[17]   On 14 April 2022, the directors’ solicitors provided their response and set out again grounds for opposing inspection of the documents. The grounds advanced can be summarised as:

(a)Allowing inspection would be a breach of the settlement agreement.

(b)The request was really a request by a creditor and not the liquidation committee.

(c)The request was prejudicial to the liquidation as:

(i)the request was being made for an improper purpose; and

(ii)there was the potential for legal action to be taken for breach of the settlement agreement.

(d)If the liquidator was not going to decline the request, he should apply for directions from the Court.

[18]   Mr Ball’s solicitors also wrote on 14 April 2022, commenting on the scope and terms of the proposed inspection.

[19]   On 3 May 2022, the liquidator’s solicitors confirmed his decision to allow inspection by the liquidation committee of the Court documents (apart from the four

affidavits considered confidential). Importantly, given the arguments the directors have advanced before me, the liquidator’s position was stated as:

The point is that, unlike a request under s256(1)(a)(ii), the Liquidation Committee does not need to establish a “good reason” for inspecting the documents. Therefore, its purpose for the request is irrelevant provided that it does not create reasonable grounds for believing the liquidation would be prejudiced.

Even if the Liquidation Committee’s request is for the purpose of advancing claims outside of the liquidation against the Directors, the Liquidator’s view is that reasonable grounds do not exist for believing that would prejudicially affect the liquidation in the context of him being compelled to allow inspection.

As explained, in the absence of any grounds that render inspection to be prejudicial to the liquidation, the Liquidator’s view is that, in accordance with s 256 of the Act, he has a duty to permit inspection …

[20]In upholding his preliminary view, the liquidator also said as follows:

The Liquidator’s decision is that:

(a)The Liquidation Committee will be permitted to inspect the Documents (excluding the Confidential Affidavits).

(b)Inspection will be under the supervision of EY/Wynn Williams, the costs of which will be payable by members of the Liquidation Committee.

(c)The Liquidation Committee will be permitted to take notes of the title, date, and description of documents but not permitted to take any copies or notes of the contents of the documents.

(d)Inspection will be permitted at any time after 5pm on Friday, 13 May 2022 provided that neither party has made an application to the court under s 284 to review the Liquidator’s decision. If an application is made, the Liquidator will wait for the outcome of that decision before taking any further steps.

[21]This application by Messrs Boult and Mettrick followed.

[22]   The liquidator is indifferent to whether he is required to allow inspection of the documents or not. He says his sole concern is to act in accordance with s 256, and he abides the decision of the Court.

[23]    Mr Ball also abides the decision of the Court, albeit his counsel filed submissions indicating opposition to the application. Mr Ball's approach was not

helpful, given his clear opposition to the application in fact, and because the liquidator has imposed conditions upon the inspection which I understand he does not accept. As I will dismiss the application, there is a risk that the liquidation committee and liquidator may need to come back to the Court to resolve the basis upon which inspection will occur.

The leave application

[24]   Section 284(1) of the Companies Act lists the persons who may make an application to the Court under that section. A director of a company in liquidation may make an application under s 284(1) with the leave of the Court. Mr Mettrick is a director.

[25]   As Mr Boult is not a director, Mr Ryan invited me to find that the term "director of [the] company in liquidation" in s 284 includes a former director. He argues, in the alternative, that the Court should allow Mr Boult to apply under its inherent jurisdiction to supervise liquidators who act as officers of the Court.2

[26]   I can see no justification for interpreting the term director as including a former director and Mr Ryan did not refer me to any authority to support that submission. However, I am satisfied the Court can deal with Mr Boult’s application in its inherent jurisdiction to supervise liquidators and liquidation processes.3 The Court has historically exercised a broad role via its supervisory jurisdiction over liquidations and liquidators.4

[27]   The liquidator does not oppose leave being granted to bring the application, and I satisfied that it raises an arguable issue. I consider it appropriate to grant leave to Mr Mettrick to make the application under s 284(1). As far as Mr Boult is

2      Commissioner of Inland Revenue v Livingspace Properties Ltd (in rec and in liq) [2019] NZHC 2213, (2019) 25 PRNZ 124 and Commissioner of Inland Revenue v Livingspace Properties Ltd [2020] NZHC 1434, [2021] 2 NZLR 252.

3      ANZ National Bank Ltd v Sheahan [2012] NZHC 3037, [2013] 1 NZLR 674.

4      Re Securitibank Ltd (in liq) [1978] 1 NZLR 97 (SC) at 106, and see also Commissioner of Inland Revenue v Livingspace Properties Ltd [2019] NZHC 2213; (2019) 25 PRNZ 124 [Application Decision] at [66]; Commissioner of Inland Revenue v Livingspace Properties Ltd [2020] NZHC 1434; [2021] 2 NZLR 252; and Jindal v Registrar of Companies [2021] NZHC 3268 at [41].

concerned, he shares a common interest with Mr Mettrick and I proceed on the basis the Court can consider his application in its inherent jurisdiction.

The principles that apply to s 284 applications

[28]   The Court will only intervene under s 284(1) to revise and modify an act or decision of a liquidator in limited circumstances. The power will be exercised in cases of fraud, where a liquidator's discretion has not been exercised in good faith, or where the liquidator has acted unreasonably.5 When a liquidator's decision is challenged, the onus of proof lies upon the person challenging.6

[29]   The Court’s approach was described by Mallon J in Vance v Vey Group Ltd, which concerned an application under s 284(1)(b) to reverse a liquidator's decision to admit or reject a debt claim lodged in the liquidation, as follows:7

[13]   In the present case, the question is whether the liquidators' decision to accept the claim was unreasonable. This does not necessarily require the Court to undertake a meticulous examination of the facts and law to determine whether the liquidators' decision can ultimately be determined to be right. The test is whether the decision was unreasonable. A claim that is rejected by a liquidator might still be pursued by seeking leave to commence proceedings against the company. An example of where this may be appropriate is where the liquidator has rejected the claim because it is of such complexity that it should be determined via the usual court processes (which will include discovery and cross examination).

[14]   However, where a liquidator has not acted reasonably (for example, the liquidator did not request or consider relevant evidence or new and relevant evidence is before the Court that was not available to the liquidator), the Court may make a fresh assessment of whether a claim should be admitted.

(footnotes omitted)

The directors’ submissions

[30]   The directors’ case is largely founded on the assertion that the liquidation committee’s request is in fact made so that Mr Ball can consider a claim against the directors. This, it is said, is clear from the terms of the request made by Mr Ball to access the High Court’s file and because the liquidation committee can have no

5      Brookers Insolvency Law & Practice (looseleaf ed, Thomson Reuters) at [CA284.05].

6      Commissioner of Inland Revenue v Hulst (2008) 8 NZCLC 262,266 (HC) at [28].

7      Vance v Vey Group Ltd (in liq and rec) [2022] NZHC 75.

legitimate purpose in seeking to obtain documents relating to a claim that has been settled. It is also noted that Mr Ball has not taken the opportunity to refute the directors’ position and that it appears the liquidator also regards Mr Ball's purpose is to investigate a claim.

[31]   On that basis, the directors submit that in reality the request is not made by the liquidation committee but by a creditor seeking documents from the liquidator, and such a request requires a Court order under s 256(1)(a)(ii).

[32]   Mr Ryan referred to the functions and powers of a liquidation committee and to s 315(2), under which a liquidation committee may:

(a)call for reports from the liquidator on the progress of the liquidation:

(b)call a meeting of creditors or of shareholders:

(c)apply to the court under section 284 and section 286:

(d)assist the liquidator as appropriate in the conduct of the liquidation.

[33]   He submits that the Court must consider whether the liquidation committee’s request to inspect the liquidator’s documents has been exercised for a proper purpose in light of the liquidation committee's functions.8 He argues a request made to further an individual member’s personal interests is not for the purpose of performing the liquidation committee’s functions and is consequently invalid.

[34]   Mr Ryan referred to s 133 of the Companies Act, which provides that a director must exercise a power for a proper purpose. He also referred to ss 179 and 191, which concern the inspection of company documents by a shareholder, creditor and a director where the purpose of the request must (in the case of s 179), or may (in the case of    s 191), be considered.

[35]   While s 256(1)(a)(i) does not express the purpose of a request as a basis of refusal, Mr Ryan submits purpose must still be considered by the liquidator because that is consistent with the authorities that hold that the exercise of a statutory power

8      Bromley London Borough Council v Greater London Council [1983] 1 AC 768 (HL); NZ Kiwifruit Marketing Board v Beaumont [1997] 3 NZLR 516 (CA).

for an improper purpose is not a valid exercise of the power, and because the existence of an improper purpose is, of itself, prejudicial to the liquidation, justifying refusal in terms of s 256(1)(a)(i).

[36]   Mr Ryan submits that a consideration of decisions made under s 256 also support a need for a careful assessment of the purpose of requests for documents.9

[37]   Mr Ryan argues that the existence of an improper purpose behind a request constitutes prejudice to the liquidation such that the request should be denied. He submits it must have been sufficiently clear to Mr Cain that the request was brought for a purpose that was unrelated to the liquidation committee’s functions, such that inspection would be prejudicial to the liquidation. Mr Ryan argues such improper requests require a liquidator to incur costs thus reducing the return to creditors. Further, he submits, it is inevitable documents obtained for an improper purpose will be misused (because the purpose corresponds to the intended use), and such requests will encourage creditors to seek appointment to liquidation committees if they wish to engage in “fishing expeditions” for their own purposes.

[38]   Mr Ryan also argues it cannot have been Parliament's intention that a liquidation committee could use its powers for matters unrelated to the liquidation, and that the tight control on requests for such information by creditors and shareholders under s 256(1)(a)(ii) does not sit comfortably with there being no control on a liquidation committee’s capacity to seek documents.

[39]   Mr Ryan contends that in accepting the liquidation committee’s request, the liquidation faces prejudice because of the potential for a claim by the directors for breach of the settlement agreement. While the settlement agreement does not prevent the liquidator complying with reporting  obligations  under  the  Companies  Act,  Mr Ryan submits that does not allow the liquidator to provide access to documents where there is an improper purpose, and thus no obligation to allow inspection.

9      Levin v Lawrence [2013] NZCA 394; Palmerston North City Council v Farm Holdings (4) Ltd (in liq) [2016] NZHC 2085; and McVitty v Waewaepa Station 2002 Ltd [2016] NZHC 765.

The directors’ underlying premise

[40]   The starting place for my consideration is that this is an application to reverse a decision of the liquidator. It is not a challenge to the exercise of a power by the liquidation committee. The liquidator acted under s 256(1)(a)(i) of the Act. What I am required to  consider  is  whether  the  liquidator  has  acted  in  accordance with s 256(1)(a)(i). To make that assessment, I must determine the meaning of the provision having regard to its text and in light of its purpose and its context.10

[41]   Section 256 is not concerned with the powers of liquidation committees. It provides that a liquidator must keep accounting records and other documents of the liquidation. Under s 256(1)(a)(i), the liquidator must permit those records, and the records and other documents of the company, to be inspected by any liquidation committee, unless the liquidator believes on reasonable grounds that inspection would be prejudicial to the liquidation. In contrast, the Court’s leave is required to give a creditor or shareholder an entitlement to inspect such documents.

[42]I set out the relevant parts of s 256 below:

256     Duties in relation to records

(1)The liquidator of a company must—

(a)      keep accounting records and other documents of the liquidation and permit those records, and the records and other documents of the company, to be inspected by—

(i)any liquidation committee appointed under section 314, unless the liquidator believes on reasonable grounds that inspection would be prejudicial to the liquidation; and

(ii)if the court so orders, a creditor or shareholder; and

(b)     keep the accounting records and other documents of the liquidation, and the records and other documents of the company, for not less than 6 years after completion of the liquidation (or any longer period specified in a notice referred to in subsection (3)).

…

10     Legislation Act 2019, s 10 (1).

(4) A person who fails to comply with subsection (1) commits an offence and is liable on conviction to the penalty set out in section 373(2).

[43]   The leading judgments on the application of s 256 are the High Court decision in Levin v Lawrence11 and the decision of the Court of Appeal that followed.12 While those decisions concerned an application under s 256(1)(a)(ii) by a creditor (not a liquidation committee) to inspect documents of the liquidator, they are relevant because both the High Court and the Court of Appeal discussed the purpose of s 256 and the relationship between s 256(1)(a)(i) and s 256(1)(a)(ii).

[44]   Levin concerned an application by the liquidators of Personal Homes Ltd for an order that the liquidators of Waterman Building Supplies Ltd be directed to permit them to inspect the accounts and records of Waterman. Personal Homes had made an unsecured creditor’s claim in Waterman’s liquidation which had been accepted in a reduced amount. Personal Home’s liquidators wished to inspect the documents to determine if there was a basis for enhancing its claim in the liquidation, and to test conclusions by Waterman’s liquidators that the company had no assets or liabilities, and there were no possible avenues for recoveries on behalf of creditors. Waterman’s liquidators declined the request to make the records available for inspection. They considered the liquidation was complete, and there was no benefit in reopening the liquidation or permitting inspection of the accounts.

[45]   In the High Court, Toogood J considered the plain wording of s 256 implied a presumption against allowing creditors and shareholders to inspect the records of the liquidator and the company in liquidation. He rejected a submission that the Court should not impose a high threshold for disclosure to creditors or shareholders when there was a presumption that a liquidation committee should be permitted to inspect documents and records under s 256(1)(a)(i). He said:13

I do not think the approach to be taken under sub- paragraph (i) assists the applicants under sub- paragraph (ii). Liquidation committees are formed to assist the orderly management of creditor interests in a liquidation, particularly where there are a large number of creditors. It is clear Parliament intended that liquidation committees should be provided with access in the

11     Levin v Lawrence [2012] NZHC 1452.

12     Levin v Lawrence, above n 9.

13 At [36].

ordinary course of events, the only basis for refusal being the liquidator's reasonable belief that inspection would be prejudicial to the liquidation.

[46]   Toogood J concluded that a shareholder or creditor seeking inspection must show "some good reason for the Court to order inspection in circumstances where the statutory scheme does not ordinarily permit it”.14 He did not consider good reason had been established on the facts before him.

[47]   The liquidators of Personal Homes unsuccessfully appealed from that decision to the Court of Appeal. In the course of its judgment, the Court of Appeal canvassed the legislative background to s 256. It considered this indicated that s 256(1)(a)(i) was a new provision, widening the availability of records to liquidation committees (formerly called committees of inspection), in a manner consistent with the purposes of the 1993 Act to reduce the role of the Court and increase the supervisory role of liquidation committees.

[48]   The Court of Appeal also considered equivalent statutory provisions in the United Kingdom and Australia were not of assistance and:

[51] But the New Zealand statutory scheme enacted in 1993 differs from the UK and Australian statutory schemes in an important way: there is a (qualified) right of inspection for liquidation committees under s 256(1)(a)(i)

… In New Zealand, there has been, as set out above at [45], a deliberate policy of reducing the role of the Court in the supervision of liquidations.

[49]   What these decisions make clear is that s 256 does not confer a power on liquidation committees to inspect a liquidator’s records; rather, a liquidation committee has a right to do so which is qualified only to the limited extent that the liquidator may refuse disclosure if he believes on reasonable grounds that it would be prejudicial to the liquidation.

[50]   Quite apart from these judgments, which are persuasive, there are other matters which confirm this approach. Liquidation committees are appointed to act with the liquidator,15 and to assist the liquidator where appropriate.16 They have powers to call for reports from the liquidator, call meetings of creditors and shareholders and have

14     Levin v Lawrence, above n 11, at [56].

15     Companies Act, s 314(1)(a).

16     Section 315(2)(d).

standing to apply to the Court under s 284 for general supervisory orders (without leave) as well as orders to comply with liquidation duties.17 A liquidator is required to have regard to the views of the liquidation committee given in writing.18 Clearly, to facilitate the performance of these functions, it is important that a liquidation committee has ready access to complete and accurate information of the liquidator and the company in liquidation.

[51]   Contrary to Mr Ryan's submission, the fact that other sections of the Companies Act concerned with document inspection expressly require, or allow for, consideration to be given to the purpose of the request, but s256(1)(a)(i) does not, is suggestive that there is no requirement on a liquidator to inquire into the purpose of a request for inspection by a liquidation committee. Such a requirement is also not consistent with the fact that the only stated limit on the liquidation committee’s right to inspect is if the liquidator reasonably believes it would be prejudicial to the liquidation.

[52]   While Mr Ryan referred to several Court decisions, which he submits suggest a careful assessment of the purpose of requests for documents under the Companies Act is required, those cases did not concern an application under s 256(1)(a)(i).

[53]   I therefore conclude that the directors’ arguments are based on an incorrect premise that a request to inspect the liquidator’s documents and the documents of the company in liquidation is the exercise of a power by a liquidation committee. In fact, the liquidation committee has a qualified right to inspect such documents, and the liquidator a correlative duty to allow inspection, unless the liquidator believes on reasonable grounds that it will be prejudicial to the liquidation. I therefore turn to the question of prejudice.

The liquidator was right to find inspection was not prejudicial to the liquidation

[54]   There is no suggestion that Mr Cain has acted in bad faith or was wrongly motivated in arriving at his decision to allow the liquidation committee to inspect the

17     Sections 284 and 286.

18     Section 258.

documents.    He had regard to the views of the directors, took legal advice, and followed that advice.

[55]   I agree with the liquidator’s view that he was required to regard the request as having been made by the liquidation committee and not by Mr Ball personally. While Mr Ball did request access to the Court file for his own purposes, both Mr Gilbert and Mr Ball, in their capacity as members of the liquidation committee, requested the liquidator to allow them to inspect the Court documents in September 2021, upon being advised of the settlement. That was well before Mr Ball made his request of the Court. Further, Mr Gilbert has confirmed the request is made to the liquidator under s 256 on behalf of the liquidation committee. I do not consider the fact that Mr Ball has independently sought the documents via the Court disentitles the liquidation committee to inspection via the liquidator.

[56]   I also do not accept the directors’ submission that the liquidation committee can have no legitimate interest in the Court documents as the claim against the directors has settled. Because the claim was settled on terms that do not see the creditors receive any payment, a strong justification for the request exists. A liquidation committee has fiduciary obligations to creditors and shareholders.19 It is consistent with its duty that the liquidation committee would seek to inspect the Court documents to understand the basis upon which the Court proceedings were pursued and settled. While Mr Ball is personally interested in obtaining that information, and has been prepared to look to other avenues to get it, all other creditors could be expected to be similarly interested. Depending on what that inspection reveals, there are several possible avenues the creditors might pursue to improve their positions in the liquidation.

[57]   The directors are critical that in correspondence, the liquidator's solicitor suggested that a request by a creditor for the purpose of potentially formulating its own claim against directors was not objectionable as a matter of principle, citing Body Corporate 194481 v Mason.20 That case concerned a request made under

19     Lynne Taylor and Grant Slevin The Law of Insolvency in New Zealand (Thomson Reuters, Wellington, 2016) at [25.4], 692.

20     Body Corporate 194481 v Mason [2016] NZHC 2858.

s 256(1)(a)(ii), not s 256(1)(a)(i). Mr Ryan argued the liquidator is not entitled to consider, in determining a request for inspection by the liquidation committee, whether a creditor of the company who happens to be a member of the liquidation committee could obtain the documents by order of the Court under s 256(1)(a)(ii). However, it is plain the liquidator did not base his decision upon Body Corporate 194481 v Mason. He found he had no grounds to refuse a request by a liquidation committee to inspect liquidation documents unless there was prejudice to the liquidation.

[58]   The directors argue that prejudice to the liquidation may arise as they may bring a claim against the liquidator for breach of the settlement agreement, founded on the decision to allow the liquidation committee access to the Court documents. There is no prospect of the directors mounting a realistic claim against the liquidator for breach of the settlement agreement. The settlement agreement acknowledges the liquidator has disclosure obligations and would incur no liability for complying with them. The liquidator will be further protected by the ruling of this Court that he was right to allow the liquidation committee to inspect the documents.

[59]   The directors’ argument that there may be prejudice because the liquidator will incur costs in dealing with improper requests falls away, as I do not consider the liquidation committee’s request to be improper.

[60]   Finally, the liquidator’s conclusion that disclosure would not prejudice the liquidation is not one that the Court would easily interfere with, and I will not do so in this case. The liquidator is undoubtedly in the best position to determine whether inspection by the liquidation committee would prejudice the liquidation. As Toogood J noted in Levin v Lawrence:

[54] The Court is required to exercise a supervisory jurisdiction over liquidations and to intervene when it is appropriate to do so. But the statutory regime under the Companies Act favours allowing liquidators to make business decisions which they, as the persons appointed to exercise statutory responsibilities, are better qualified than the Courts to make. Without abrogating its supervisory obligations, the Court should be slow to intervene when matters of judgment and assessment on commercial matters are concerned …

(footnotes omitted)

Conclusion

[61]   The liquidator was correct that the liquidation committee is entitled to inspect the Court documents subject only to the liquidator believing, on reasonable grounds, that inspection of some documents would be prejudicial to the liquidation. The liquidator has found that inspection would not be prejudicial to the liquidation, with limited exceptions. The directors have failed to satisfy me that his decision was either wrong or unreasonable. Whether the matter is considered in terms of s 284(1) or the Court’s inherent jurisdiction, there is no basis to interfere with the liquidator’s decision.

Result

[62]The directors’ application is dismissed.

[63]   As the liquidator and Mr Ball agreed to abide the Court’s decision, there shall be no order as to costs.

O G Paulsen Associate Judge

Solicitors:

White Fox & Jones, Christchurch Wynn Williams, Christchurch

Saunders Robinson Brown, Christchurch