Campbell v Marble Point Winery Limited
[2017] NZHC 1412
•23 June 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2017-409-000091 [2017] NZHC 1412
UNDER the Companies Act 1993 BETWEEN
R C CAMPBELL Plaintiff
AND
MARBLE POINT WINERY LTD Defendant
Hearing: 12 June 2017 Appearances:
J E Bayley for Plaintiff
M J Wallace for S P Dennis (a shareholder) No appearance for defendant
Judgment:
23 June 2017
JUDGMENT OF ASSOCIATE JUDGE OSBORNE [on liquidation application]
Introduction
[1] Richard Campbell and Sheryl Dennis married in 2002, having previously lived together. They permanently separated in November 2014.
[2] In 2006, Ms Dennis’s family trust, the Alpenrose Trust, entered an agreement to purchase vineyard land to be subdivided off a larger block near the Waiau River.
[3] The defendant company, Marble Point Winery Ltd (Marble Point) then developed the vineyard business and a modest sheep operation which subsequently operated on the property. While Marble Point had originally been incorporated in
2005 with Ms Dennis as sole shareholder and director, the structure was
progressively changed. By early 2015, Mr Campbell was both a 50 per cent
CAMPBELL v MARBLE POINT WINERY LTD [2017] NZHC 1412 [22 June 2017]
shareholder and a co-director. In the meantime, the couple had jointly developed the vineyard business.
[4] In this proceeding, Mr Campbell asks the Court to make an order putting
Marble Point into liquidation.
[5] Ms Dennis, as a shareholder in Marble Point, opposes the application.
[6] Marble Point itself (with its two directors taking opposing positions) has taken no step in the proceeding.
Mr Campbell’s grounds of application
[7] Mr Campbell pleads the previous relationship between himself and Ms
Dennis and the breakdown of that relationship.
[8] He pleads that there should be an order putting Marble Point into liquidation for three reasons:
(a) Pursuant to s 241(4)(d) Companies Act 1993 (the Act), Marble Point cannot be appropriately managed rendering it just and equitable that it be put into liquidation;
(b)Pursuant to s 241(4)(a) of the Act, Marble Point is unable to pay its debts; and
(c) Pursuant to s 241(4)(bb) of the Act, Ms Dennis is having Marble Point continue to trade or intends to have it trade while insolvent.
[9] Ms Dennis denies that there are factual circumstances supporting any of the three grounds invoked by Mr Campbell.
[10] Ms Dennis also pleads that she and Mr Campbell are parties to proceedings commenced in the Family Court in January 2016, in which the business of Marble Point is a part of the subject-matter. Ms Dennis further pleads the existence of
another High Court proceeding in which the trustees of family trusts of the couple are parties. She pleads that Mr Campbell has commenced this proceeding for the collateral purpose of exerting pressure on her to settle the Family Court proceeding and the other High Court proceeding.
The just and equitable ground
The statutory ground
[11] Under s 241(4)(d) of the Act, the Court may appoint a liquidator if satisfied that it is just and equitable that a company be put into liquidation.
[12] The leading authority on the just and equitable ground remains the decision of the House of Lords in Ebrahimi v Westbourne Galleries Ltd.1 The judgment of Heath J in Jenkins v Supscaf Ltd, applying Ebrahimi, contains helpful discussion of the jurisdiction in New Zealand.2
[13] Lord Wilberforce in Ebrahimi recognised that it is “impossible and wholly undesirable” to define the circumstances in which an order ought to be made on the just and equitable ground.3 The central significance of a relationship established in mutual confidence which can no longer be maintained was identified by Lord Cross in the same case, where his Lordship observed:4
People do not become partners unless they have confidence in one another and it is of the essence of the relationship that mutual confidence is maintained. If neither has any longer confidence in the other so that they cannot work together in the way originally contemplated then the relationship should be ended — unless, indeed, the party who wishes to end it has been solely responsible for the situation which has arisen.
[14] From the judgments in Ebrahimi and subsequent decisions (including Jenkins v Supscaf Ltd and others) I adopt the following principles as summarised in Heath &
Whale on Insolvency:5
1 Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL).
2 Jenkins v Supscaf Ltd [2006] 3 NZLR 264 (HC).
3 Ebrahimi v Westbourne Galleries Ltd, above n 1, at 379 – 380.
4 At 383 – 384.
5 Heath & Whale on Insolvency (online looseleaf ed, LexisNexis) at [20.25(b)]. Also in Morison’s
Company & Securities Law (online looseleaf ed, LexisNexis) at [53.25(b)].
•This ground enables the court to subject the exercise of legal rights to equitable considerations, which may make it unjust or inequitable to insist on legal rights, or to exercise them in a particular way.
•The superimposition of equitable considerations requires something more than the fact that a company is small or private, which typically may include one or more of the following elements: an association formed or continued on the basis of a personal relationship involving mutual confidence; an agreement or understanding that all or some of the shareholders shall participate in the conduct of the business; and restriction upon the transfer of the shareholder’s interest in the company so that he or she cannot take out his or her stake and go elsewhere if, for example, confidence is lost.
•Because the dissolution of a partnership may also be obtained on “just and equitable” grounds, there is an overlap between the principles applicable in that context and those applicable in the liquidation context.
•A shareholder applicant for the liquidation order is not confined to relying on such circumstances as affect him or her in the capacity of shareholder, but can rely on any circumstances of justice or equity which affect him or her in his or her relations with the company or with the other shareholders.
•The words “just and equitable” are not to be interpreted so as to include matters of the same kind as covered by the other grounds for court-ordered liquidation.
•Applicants who rely on the “just and equitable” clause in the context of a breakdown in confidence must come to the court with clean hands. If the breakdown in confidence between them and the other parties to the dispute appears to have been due to their misconduct, they cannot insist on the company being liquidated if the other parties wish it to continue.
The facts
Persons involved
[15] The key persons or entities involved here are: (a) Marble Point – the defendant company;
(b) Mr Campbell as a 50 per cent shareholder (and director) of Marble
Point;
(c) Ms Dennis, also a 50 per cent shareholder (and director) of Marble
Point;
(d)The trustees of the Alpenrose Trust, a trust settled in June 2003 by Ms Dennis for herself and her children (but with the Alpensee Trust subsequently added) as primary beneficiaries;
(e) The trustees of the Alpensee Trust Ltd, a trust settled by Mr Campbell and Ms Dennis in February 2010 with Mr Campbell, his children and Ms Dennis as primary beneficiaries;
(f) Mr Campbell trading as “Hanmer Rocks”, undertaking plastering and building on behalf of Marble Point in the 2011 to 2015 financial years;
(g)Hanmer Rocks Ltd, a company of which Mr Campbell is sole director and shareholder, formed by him in September 2014 for his contracting work as a plasterer and builder;
(h)Marble Point Winery (2016) Ltd, a company of which Ms Dennis is sole director and shareholder, formed by her in December 2016.
The Marble Point winery
[16] A family trust associated with Ms Dennis’s parents acquired the Marble Point land in mid-2004. That trust subsequently sold the land to the Alpenrose Trust which still owns it.
[17] From 2004, Mr Campbell and Ms Dennis as a couple set about the construction of improvements on the property so as to create a vineyard business (including improvements required for the cultivation of grapes, buildings for wine and restaurant purposes and a residential house).
[18] Marble Point was incorporated as a company on 22 February 2005 to be the entity through which the vineyard business and sheep operation traded. The Alpenrose Trust made an advance to enable Marble Point to commence operations.
[19] Mr Campbell has deposed that the Alpensee Trust was set up to recognise his contributions in improving the property (owned by the Alpenrose Trust). This evidence is not contradicted. As Alpensee Trust was established, it was added as a beneficiary of the Alpenrose Trust. The Alpenrose Trust then made a distribution of a holiday property at Kaikoura to the Alpensee Trust.
[20] For the early years ( to 2013), Marble Point predictably traded either at a loss or breakeven. In that period, Mr Campbell began undertaking plastering and building work under the trading name “Hanmer Rocks” as a part of Marble Point’s business. In the 2011 to 2015 financial years, his “Hanmer Rocks” work produced for Marble Point a gross surplus of $284,383.27.
[21] In 2014, the Kaikoura property was sold and proceeds of $446,917.52 were advanced by the Alpensee Trust to Marble Point. The debt remains outstanding. Repayment of the advance is guaranteed and secured by the Alpenrose Trust.
[22] Marble Point is also indebted to the Alpenrose Trust. Unlike Alpensee’s advance, Alpenrose’s various advances have not been the subject of formal documentation. They have been arranged by Ms Dennis from time to time on an ad hoc basis. Bank loans have been repaid through Alpenrose’s advances. Exact figures are not available but Ms Dennis, who has the relationship with Marble Point’s accountants, estimates the debt of Marble Point to Alpenrose as something over $700,000. On the evidence it is clearly not less than that sum.
[23] Since the November 2014 separation, Mr Campbell has been excluded from the Marble Point property by a trespass notice which Ms Dennis caused the Alpenrose Trust to issue at the time of separation. Mr Campbell has not had any input into the subsequent operations of Marble Point. For that period (two and a half years) Ms Dennis has organised such operations as Marble Point has conducted. Mr Campbell, on advice of Marble Point’s lawyers and/or accountants, had Hanmer
Rocks Ltd incorporated shortly before the separation as an entity through which to continue his plastering and building works. He continues in that work.
[24] The latest, finalised financial statements of Marble Point which were produced in evidence are those for the 31 March 2015 year. The value ascribed to assets utilised by the unincorporated Hanmer Rocks venture was $14,263. Marble Point’s accounts for the year ending 31 March 2015 treated the Hanmer Rocks assets ($14,263) as having been transferred out to Hanmer Rocks Ltd and debited to the shareholders’ current accounts.
[25] In the meantime, following separation, the parties became engaged in relation to their property interests in the litigation identified at [10] above. A judicial settlement conference was arranged for December 2016. The conference did not produce a resolution of any issue.
[26] Before the conference, Mr Campbell had ascertained through Marble Point’s bank statements that a number of what appeared to be personal expenses of Ms Dennis (including expenses incurred by credit card) had been debited to Marble Point’s cheque account. It is common ground here that any such personal expenses fall to be accounted for by Ms Dennis. But until the bank debt was repaid through Alpenrose’s advances, the various payments extended Marble Point’s indebtedness, incurring interest charges.
[27] The evidence also establishes that after separation Ms Dennis operated Marble Point, at least to the extent of continuing to trade in its wine stock (including that produced before separation). The assets of the winery (as against those of the Hanmer Rocks part of the operation) were by far the largest part of Marble Point’s assets. In the 31 March 2015 financial statements they are recorded as comprising
$222,730 worth of wine stock on hand and $218,668 of non-current tangible assets (such as restaurant equipment, plant, machinery and vehicles). Ms Dennis gave evidence that the wine stock is valued in the accounts at only its cost of production.
[28] Following the unsuccessful settlement conference, Mr Campbell on
7 December 2016 (through his solicitors) unilaterally instructed Marble Point’s bank
to freeze Marble Point’s bank accounts, with the accounts only to be operated again on joint written authority of the two parties. Ms Dennis’s response, on advice, was to incorporate her own company – Marble Point Winery (2016) Limited, (MPW
2016), which has since utilised Marble Point’s wine stock and tangible assets in order to trade. MPW 2016 has not accounted to Marble Point for any assets sold or otherwise utilised.
[29] In answer in cross-examination, Ms Dennis stated that Marble Point’s accountants have finalised the statements to 31 March 2016. She did not produce the statements and could not offer any detail of their content. This creates a gap in the relevant financial information, particularly as the Court is unable even to estimate the extent to which MPW 2016 will have to account to Marble Point. It also reflects
– in the absence of disclosure to Mr Campbell before this hearing that the 2016 statements had been so progressed – the fact that there is no significant degree of timely disclosure and co-operation between the co-directors.
[30] In cross-examination of Mr Campbell, Mr Wallace established that in the way the couple had operated during their marriage Mr Campbell was the “on the tools” partner and Ms Dennis dealt with the governance and managed the operational and financial aspects of the business, especially the winery and restaurant business. A thrust of Mr Wallace’s questioning and subsequent submissions was to suggest that in the period after separation Ms Dennis had simply continued that pattern, dealing on her own with the winery assets and Marble Point’s accounting needs. Mr Wallace’s submission in this regard missed the fundamental point that these arrangements, which were during the marriage based on mutual confidence, were no longer appropriate to their circumstances or those of Marble Point itself. That was because of, first, the parties’ dysfunctional relationship from the point of separation and, secondly, Ms Dennis’s practical control of all assets and financial arrangements.
[31] After the unsuccessful settlement conference, the parties through their solicitors continued to pursue without prejudice negotiations. In open correspondence Mr Campbell expressed the view that Marble Point should be wound up. In her solicitor’s letter of 22 December 2016, Ms Dennis expressed “no
objection in principle to the winding up of the company” but stated a preference “to continue to trade” for two reasons:
(a) The principal creditor of Marble Point is the Alpenrose Trust which is an entity related to Ms Dennis; and
(b)The cost associated with liquidation would cause unnecessary expense.
In the same letter, Ms Dennis’s solicitors recorded that because of the freezing of Marble Point’s bank accounts, she would “continue to trade through a company Marble Point Winery (2016) Ltd pending resolution of the proceedings.”
[32] When the parties could not by agreement progress the winding up of Marble
Point, Mr Campbell issued this proceeding.
Analysis
The just and equitable ground
[33] The basis upon which the parties formed and operated Marble Point was within the classic model of mutual trust and confidence recognised in Ebrahimi’s case, with both the shareholders participating in the conduct of the company’s business.
[34] It is also clear that the mutual confidence has long gone. The circumstances are such (because of Ms Dennis’s control of the Marble Point land) that only one of the shareholders can participate in the conduct of Marble Point’s principal business. In this regard the fact that the less significant Hanmer Rocks business is now in Mr Campbell’s control is largely irrelevant as the decision to transfer that business out of Marble Point occurred prior to the parties’ separation.
[35] Even before the takeover of Marble Point’s winery business by MPW 2016, Marble Point was clearly insolvent. Furthermore, on Ms Dennis’s own evidence, no value could be ascribed to goodwill. Since that time, through the ad hoc takeover of
Marble Point’s assets by MPW 2016, Marble Point is defunct as a trading entity. Ms
Dennis accepted that characterisation in answer to a question from the Bench.
[36] The very way in which Marble Point’s assets have since been variously sold and used by only one of the parties calls for prompt and independent investigation and accounting. There is no prospect that these parties in any timely way will be able themselves to effect the necessary investigation in accounting. In answer to another question from the Bench, Ms Dennis stated that her last direct conversation with Mr Campbell had probably occurred in May 2015, although she was not sure.
[37] For Ms Dennis, Mr Wallace submitted that the remaining impediment to a liquidation on the just and equitable ground is a failure on Mr Campbell’s part to come to the Court with clean hands.6 In his synopsis, Mr Wallace put the submission thus:
If the breakdown in confidence or grounds for dispute relied upon are due to the plaintiff’s misconduct, then the plaintiff cannot insist on the company being liquidated if Ms Dennis wishes it to continue.
[38] Mr Wallace identified as “the first significant action by the plaintiff”, Mr Campbell’s freezing of the bank account in December 2016 as an “attempt to bring to a close the trading activity of the company”.
[39] The criticism of Mr Campbell is unjustified. By December 2016 the parties’ mutual confidence in the operation of Marble Point had been missing for over two years. There is no realistic prospect that it will again exist. The bank accounts for that period show that under Ms Dennis’s control Marble Point had been realising assets and covering personal expenses without any accounting to the other shareholder. In those circumstances, the freezing of the bank accounts cannot be criticised as inappropriate. It has been well recognised that for conduct to be characterised as disentitling in this context, it must be conduct which created or materially contributed to the deadlock between the parties rather than conduct which
is symptomatic of a deadlock which has already come into existence.7 If Mr
6 A requirement as recognised in the commentary in Heath & Whale on insolvency above at [14].
7 See the final bullet-point in the Heath & Whale commentary set out at [14] above.
Campbell’s conduct is properly categorised, it falls into the period after the breakdown in confidence had occurred.
[40] Finally, there are the two reasons Ms Dennis gave for rejecting liquidation in December 2016 despite “in principle” having no objection to that course (save on these two grounds). Her first ground was that she preferred to have Marble Point continue to trade given that her trust (the Alpenrose Trust) is its principal creditor. That was not a sound reason at the time it was stated and it is even less so now. The concept of some benefit accruing to Ms Dennis’s Trust at a time when Marble Point was not accounting for realisations to Mr Campbell points to an unrecognised conflict in Ms Dennis’s positions through the different interests she was protecting. Ms Dennis’s second reason similarly does not bear scrutiny. What Ms Dennis perceived in December 2006 to be an “unnecessary expense” of liquidating Marble Point is in fact a justified expense having regard to the proper investigation and accounting required as a result of the way the company has operated since separation. The point was well made by Gendall J in Fox v Jubilee Management
Ltd8 where His Honour observed:
[A]s a result of their relationship break down, there had developed a complete impasse between the plaintiff and Mrs Fox and a deadlock in the management and operation of the defendant company had arisen. The … ground advanced for Mrs Fox in opposition to the liquidation order sought however, related simply to the likely costs of liquidation and a query as to whether these were indeed necessary here … [With] respect, the issue of the costs of liquidation in my view does not provide a complete answer to the present application based as it is on a complete dead lock between the parties and a state of total dysfunction in the operation of the defendant company.
[41] The liquidators proposed by Mr Campbell are experienced insolvency practitioners whom this Court has frequently appointed as liquidators. They have signed a consent under s 282 of the Act confirming that they are independent and that neither is disqualified under s 280 of the Act.
Other grounds of application
[42] It is unnecessary that the Court determine the application in terms of
Mr Campbell’s alternative grounds (identified at [8](b) – (c) above). I would, if
8 Fox v Jubilee Management Ltd HC Palmerston North, CIV-2008-454-000935, 6 March 2009 at
[21] – [22].
necessary, have found that Marble Point is unable to pay its debts in terms of s 241(4)(a) of the Act. In the event, Marble Point’s insolvency (in both the balance sheet and cash flow senses) is a matter which contributed to the defunct state of Marble Point as recognised in my earlier findings.
Costs
[43] Costs and disbursements should follow the event. It is appropriate that costs be on a 2B9 basis. That is reflected in the order I will make.
Orders
[44] I order:
(a) There is an order putting Marble Point Winery Limited into liquidation.
(b) The liquidators appointed are Wayne John Deuchrass and Iain Andrew
Nellies.
(c) The liquidators’ remuneration is approved in accordance with their
consents dated 22 May 2017, subject to s 284 of the Companies Act
1993.
(d) The liquidators are authorised to act individually pursuant to s 242 of
Companies Act 1993.
(e) Sheryl Patricia Dennis is to pay to the plaintiff the costs of this proceeding on a 2B basis together with disbursements to be fixed by
the Registrar.
9 High Court Rules, Category 2 under r 14.3(1) and band B under r 14.5(2).
(f) This order is timed at 3.00 pm.
Associate Judge Osborne
Solicitors:
Rhodes & Co, Christchurch
M J Wallace, Christchurch
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