Burchell v Registrar of Companies
[2021] NZHC 2656
•6 October 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1147
[2021] NZHC 2656
UNDER Section 329 of the Companies Act 1993 IN THE MATTER
of PBT INVESTMENTS LIMITED and BENGARY LIMITED
BETWEEN
PAUL HAROLD BURCHELL
Applicant
AND
REGISTRAR OF COMPANIES
First Respondent
THE SECRETARY TO THE TREASURY
Second Respondent
Hearing: On the papers Appearances:
JM Glover for the Applicant
No appearances for the First and Second Respondents
Judgment:
6 October 2021
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 6 October 2021 at 3pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors/Counsel:
Clifford James Lawyers, Auckland Registrar of Companies, Auckland
JM Glover, Barrister, Auckland
BURCHELL v REGISTRAR OF COMPANIES [2021] NZHC 2656 [6 October 2021]
Introduction
[1] This matter was called in the Miscellaneous Companies List on 17 September 2021. An application had been made by Mr Paul Harold Burchell as former director to restore PBT Investments Limited and Bengary Limited to the Companies Register pursuant to s 329 of the Companies Act 1993. I made the following oral orders:
(a)PBT Investments Limited and Bengary Limited are to be restored to the Companies Register;
(b)PBT Investments Limited and Bengary Limited are to comply with any requirements of the Companies Registrar in respect of the restoration; and
(c)a short judgment would follow with reasons.
[2] This is the reasons judgment. I first set out the factual background and the relevant provisions before setting out my reasons for considering that restoration is appropriate.
Factual background
Bengary Limited
[3] Bengary Limited was struck off the New Zealand Companies Register on 18 August 2014 following the failure to file its online annual return by the due date in 2014.
[4] Ms Rebecca Ann Black, an administration manager at Cleaver Partners Limited, a professional services firm providing accounting, reporting and related services, has filed an affidavit in support of the application rather than Mr Burchell. Ms Black confirms that she is authorised by Mr Burchell to make the affidavit in support and that, in the course of her employment, she has obtained first-hand knowledge of the matters set out in the affidavit.
[5] Ms Black deposes that Bengary Limited has never traded or otherwise carried on business, operating only as a holding company for wholly owned subsidiaries that trade or otherwise carry on business.
[6] Mr Burchell has been the company’s sole director since Bengary Limited’s date of incorporation on 28 February 1997.
[7] Bengary Limited’s parent company is Bengary Pty Limited, an Australian proprietary company controlled by Mr Burchell and his wife, Margaret Lesley Burchell, and of which Mr and Mrs Burchell are the only company directors.
PBT Investments Limited
[8] PBT Investments Limited was removed from the New Zealand Companies Register on 17 March 2017, again because of the failure to file its online annual return by the due date in 2016.
[9] Since PBT Investments Limited’s date of incorporation on 26 September 2003, Mr Burchell has been the company’s sole director and Bengary Limited has been the company’s sole shareholder.
[10] PBT Investments Limited carries on business as a landlord. It is the registered owner of four Auckland properties on Remuera Road. The rental properties are rented at arms-length to residential tenants. Barfoot & Thompson has been managing the tenancies since prior to 2014. Copies of extracts from Barfoot & Thompson’s rental statements issued to PBT Investments Limited confirm that PBT Investments Limited was carrying on business as a landlord when Bengary Limited was struck off the Companies Register on 18 August 2014.
[11] Rental statements from Barfoot & Thompson further confirm that PBT Investments Limited was carrying on business as a landlord when it itself was struck off the Companies Register on 17 March 2017.
[12] Finally, rental statements are attached confirming that the rental properties continue to be tenanted and are generating income.
[13] Ms Black’s affidavit attaches certificates of title for each of the properties. The certificates of title do not disclose any securities registered against any of the rental properties.
[14] Furthermore, no third party appears to hold a registered charge over the assets of Bengary Limited or PBT Investments Limited with true copies of searches undertaken of the Personal Properties Securities Register in respect of those two entities as at 4 June 2021 annexed to the affidavit.
Relevant legal provisions and principles
[15] The Companies Act provides for the removal and the restoration of companies to the Companies Register. As the Court of Appeal states in Commissioner of Inland Revenue v Commercial Management Limited:1
… the provisions concerning removal of a company are designed to ensure that a company is only removed if there is no good reason for it to continue in existence. The controllers of the company and other interested persons are given the opportunity to object to removal for a range of reasons. But there can be cases where a company is removed from the register as a result of an error or oversight, or where circumstances change and it becomes apparent with the benefit of hindsight that there were good reasons for the company to continue in existence. In such cases, a company can be restored to the register.
[16] Section 328 provides for the circumstances in which the Registrar may restore a company to the Register. As referred to above, the Registrar does not consider that s 328 applies in this case because one of the requirements of that section is that the company applying to be restored has to have been carrying on business at the time of its removal.
[17] If s 328 does not apply, then the company must apply to the Court under s 329. Section 329 provides:
329 Court may restore company to New Zealand register
(1) The Court may, on the application of a person referred to in subsection (2) of this section, order that a company that has been removed from the New Zealand register be restored to the register if it is satisfied that,—
1 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479 at [29].
(a)at the time the company was removed from the register,—
(i)the company was … carrying on business or [a proper] reason existed for the company to continue in existence; or
(ii)the company was a party to legal proceedings; or
(iii)the company was in receivership, or liquidation, or both; or
(iv)the applicant was a creditor, or a shareholder, or a person who had an undischarged claim against the company; or
(v)the applicant believed that a right of action existed, or intended to pursue a right of action, on behalf of the company under Part 9 of this Act; or
(b)for any other reason it is just and equitable to restore the company to the New Zealand register.
(1A) In considering whether to restore a company to the register on the ground referred to in subsection (1)(a)(i) or (b), the court must have regard to the reasons for the company’s removal and whether those grounds existed at the time of removal or exist at the time of the hearing of the application.
(2)The following persons may make an application under subsection (1):
(a)any person who, at the time the company was removed from the New Zealand register,—
(i)was a shareholder or director of the company; or
(ii)was a creditor of the company; or
(iii)was a party to any legal proceedings against the company; or
(iv)had an undischarged claim against the company; or
(v)was the liquidator, or a receiver of the property of, the company:
(b)the Registrar:
(c)with the leave of the Court, any other person.
(3)Before the Court makes an order restoring a company to the New Zealand register under this section, it may require any provisions of this Act or any regulations made under this Act, being provisions with which the company had failed to comply before it was removed from the register, to be complied with.
(4)The Court may give such directions or make such orders as may be necessary or desirable for the purpose of placing the company and any other persons as nearly as possible in the same position as if the company had not been removed from the New Zealand register.
[18] The Court of Appeal in Commissioner of Inland Revenue v Commercial Management Ltd distinguished s 329 from the s 328 process as follows:2
[32] Section 328 contemplates a relatively simple and uncontroversial restoration process where it is apparent that the company should not have been removed from the register having regard to circumstances at the time of that removal, and where no one objects to that restoration. Section 329 enables a wider range of grounds to be invoked, including the broad “just and equitable” ground. It is available in cases where restoration is opposed. In circumstances where s 329 is invoked, and in particular where the “just and equitable” ground is relied on, an evaluative judgment is required. Responsibility for making that judgment is conferred on the court rather than on the Registrar. As is apparent from the structure of these provisions, s 329 is aimed at more complex cases where restoration may or may not be appropriate. A s 329 application is not simply a mechanical procedural hurdle to be overcome before arriving at an inevitable destination.
[19] The Court of Appeal listed six matters that must be addressed in an application following the amendment to the Act inserting s 329(1A). This new subsection requires a court to have regard to the reasons for the company’s removal and whether those grounds existed at the time of removal or exist at the hearing of the application.3 The six matters that are required to be addressed in response to this subsection are:
(a)the ground on which the company was removed;
(b)whether that ground was in fact satisfied at the time of the company’s removal;
(c)the position in relation to that ground at the time of the restoration application;
(d)what steps if any the company and its controllers took to prevent removal from the Register. If no steps were taken, the reason for the failure to do so needs to be explained;
(e)what if anything has changed since the time the company was removed from the Register, which would justify the controllers of the company changing their position on the appropriateness of the company continuing in existence; and
(f)the explanation for any delay between the time when the reason for seeking restoration was first identified, and the making of the application.
[20] The Court of Appeal referred to three further matters that are required to be identified to allow the Court to determine whether it is “just and equitable” under s 329(1)(b) for a company to be restored to the Register:
2 At [32].
3 At [57].
(a)the steps that would need to be taken to remedy any failures to comply with filing requirements under the Companies Act, (with copies of any documents that need to be filed provided) and if any orders under s 329(3) would be appropriate;4
(b)the financial position of the company both at the time of the removal and the time of restoration;5 and
(c)any outstanding creditors of the company and a sufficient description of its financial affairs for the court to be able to form a view on whether any orders should be made under s 329(4).6
[21] Section 330 relates to the mechanics of restoration, providing that a company is restored to the Register once a notice signed by the Registrar is registered under the Act (s 330(1)) and that once restored a company is “deemed to have continued in existence as if it had not been removed from the Register” (s 330(2)).
Preliminary procedural application
[22] An application for directions as to the conduct of the proceedings was filed together with the originating application for the restoration of the companies and affidavit of Ms Black in support. The interlocutory application for directions sought orders:
(a)that Mr Burchell be granted leave to make the application for restoration pursuant to s 329 of the Companies Act by way of originating application;
(b)that service of the proceedings be dispensed with;
(c)that the order restoring Bengary Limited and PBT Investments Limited to the New Zealand Companies Register be made on the papers; and
(d)any other directions the Court seeks fit to make.
4 At [61].
5 At [62].
6 At [63].
[23]The grounds on which the procedural orders above were sought were:
(a)for PBT Investments Limited:
(i)Mr Burchell is the sole director; and
(ii)Bengary Limited is the sole shareholder;
(b)for Bengary Limited:
(i)Mr Burchell is the sole director; and
(ii)Bengary Pty Limited is the sole shareholder;
(c)Bengary Pty Limited is an Australian company:
(i)which is controlled in even shares by Mr Burchell and his wife,
Margaret Lesley Burchell; and
(ii)whose only directors are Mr and Mrs Burchell;
(d)neither Bengary Limited nor PBT Investments Limited have any secured creditors;
(e)the Registrar of Companies and the Secretary to the Treasury:
(i)were both provided with draft copies of the documents comprising Mr Burchell’s originating application; and
(ii)had each confirmed in writing that they will abide the Court’s decision;
(f)the making of the orders sought secured the just, speedy and inexpensive determination of the application to restore the companies to the Register.
[24] By minute dated 19 August 2021 I directed that the Registrar of Companies and the Secretary to the Treasury were to be served. This was because the correspondence annexed to Ms Black’s affidavit confirming that they had been provided with draft copies of the application and related documents did not attach
copies of the draft documents provided and nor did it confirm that the documents filed with the Court were in the same form.
Is Mr Burchell able to apply?
[25] The applicant in this case is Mr Paul Burchell who was a director of both PBT Investments Limited and Bengary Limited at the time the companies were removed from the Register. Directors at the time a company was removed are one of the categories that s 329(2) provides may apply for restoration.7
Is it just and equitable that the companies are restored to the Register?
[26] The application is made pursuant to s 329(1)(b) on the basis that it is “just and equitable to restore” the company to the Register.
[27] I therefore consider the factors that Commissioner of Inland Revenue v Commercial Management Ltd requires to be addressed.8
Grounds on which companies were removed
[28] Both Bengary Limited and PBT Investments Limited were removed from the Register following the failure to file online annual returns.
Was that ground satisfied at the time of the companies’ removal?
[29] There is no suggestion that the companies were incorrectly removed. There was clearly a failure to file the required online annual returns.
Position in relation to that ground
[30] The applicant accepts that the companies had failed to file the annual returns. The evidence explains that this arose because of a miscommunication in the annual services to be provided by his accountancy firm, Cleaver Partners Limited. Ms Black’s affidavit confirms that the scope of the annual services provided by Cleaver Partners
7 Companies Act 1993, s 329(1)(a)(i).
8 Commissioner of Inland Revenue v Commercial Management Ltd, above n 1.
Limited has been enlarged to expressly include filing of annual online returns for any New Zealand registered company in respect of which Cleaver Partners Limited may be providing professional services to Mr Burchell.
Steps taken to prevent removal or reason for the failure
[31] As explained above, the failure to file the annual returns was inadvertent with steps now taken to prevent that in future.
What changes, if any, have there been that affect the appropriateness of the company continuing in existence?
[32] PBT Investments Limited is the registered owner of four Auckland properties which are rented to arms-length tenants. These tenancies and continuing occupation of the rental properties have been managed by Barfoot & Thompson since prior to 2014. Evidence that the tenancies are continuing was annexed to the affidavit of Ms Black showing that they continue to generate income. There appears therefore to be no change since the company was removed and it appears to be appropriate for the companies to continue in existence.
Explanation for any delay between the time when the need for restoration was first identified
[33] It is not clear from Ms Black’s affidavit when it first became clear to Mr Burchell that the companies had been struck off. Ms Black records that during the course of her employment in 2018 she was asked to apply to restore PBT Investments Limited and that it was at that stage that she discovered that Bengary Limited had also been removed from the Companies Register. Steps were then taken throughout 2019 and early 2020 to seek restoration of the two companies pursuant to the Registrar of Companies’ powers under s 328.
[34] The Registrar then advised Ms Black that the Registrar would not be able to restore Bengary Limited pursuant to s 328 as it was a holding company and was not carrying on business at the time it was removed.
[35] The delay is therefore explainable to a certain extent although it would have been helpful for Mr Burchell to have provided evidence as to why he did not make an objection at the time the companies were initially removed (or why the intended removal did not come to his attention).
Summary on reasons for removal
[36] From the above six factors, it is clear that the reasons for removal related to miscommunication. Steps have been taken to address this and, for the purposes of determining whether it is just and equitable to restore the companies to the Register, this factor does not count against restoration.
Further factors relevant to the “just and equitable” ground
[37] As set above, the Court of Appeal listed three further factors that are to be addressed in determining whether it is just and equitable to restore the companies to the Register under s 329(1). I discuss those matters below.
What steps, if any, need to be taken to remedy any failures to comply with filing requirements under the Companies Act?
[38] The Registrar of Companies has not indicated any steps that need to be taken to remedy the failure to file annual returns. In the orders made, I included an order that PBT Investments Limited and Bengary Limited are to comply with any requirements of the Registrar in respect of the restoration. I therefore leave it to the Registrar to determine whether there are any steps necessary.
What was the financial position of the company both at the time of removal and at the time of restoration?
[39] The companies appear to be in a similar position at the time of removal and when applying for restoration as there have been no changes to the ownership of properties and they are not rented to third parties.
Are there any outstanding creditors or any other matters in relation to the financial affairs of the company that are relevant to restoration?
[40]The affidavit by Ms Black confirms:
(a)that the certificates of title to the properties owned by PBT Investments Limited do not record any securities being registered against them; and
(b)no third party holds a registered charge over the assets of Bengary Limited or PBT Investments Limited with copies of searches of the Personal Properties Securities Register annexed to the affidavits.
[41]Evidence is also provided of the continuing rental of the properties.
[42] I have no concerns therefore about the financial affairs of these companies in terms of restoration.
Registrar of Companies and Secretary to the Treasury
[43] Both the Registrar of Companies and the Secretary to the Treasury have been served and have confirmed to the solicitor for Mr Burchell, Mr Miles Edwards, that they will abide by the Court’s decision whether to restore the companies to the Register, with copies of their email correspondence being annexed to an affidavit filed by Mr Edwards.
Conclusion
[44] For the reasons set out above and as ordered on 17 September 2021, I consider that it was appropriate for the companies to be restored to the Companies Register.
Associate Judge Sussock
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