Cannasouth Bioscience Limited (in liquidation) - [2024] NZHC 1970

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2024-419-174

[2024] NZHC 1970

UNDER Part 19 of the High Court Rules 2016 and the Companies Act 1993

IN THE MATTER OF

the liquidation of Cannasouth Bioscience Limited (in liquidation)

AND

an application by GARRY CECIL WHIMP and BENJAMIN BRIAN FRANCIS as

liquidators of CANNASOUTH BIOSCIENCE LIMITED (IN LIQUIDATION)

Applicants

Hearing: On the papers

Counsel:

K K Kommu for Applicants

Judgment:

17 July 2024

JUDGMENT OF O’GORMAN J

This judgment was delivered by me on 17 July 2024 at 3 pm pursuant to r 11.5 of the High Court Rules 2016.

Registrar/Deputy Registrar

…………………………………

Solicitors:
Sharp Tudhope, Tauranga

Re CANNASOUTH BIOSCIENCE LTD (IN LIQUIDATION) [2024] NZHC 1970 (17 July 2024)

[1] The applicants are Garry Whimp and Benjamin Francis, as liquidators of Cannasouth Bioscience Ltd (in liquidation) (Cannasouth Bio). This application relates to a resolution to be voted on at a creditors’ meeting of Cannasouth Bio set down for 12 pm on 19 July 2024. At that meeting, the creditors are due to vote on resolutions to confirm the appointment of the applicants as liquidators, or to appoint other liquidators in their place, and to appoint a liquidation committee.

[2] This application concerns how to deal with a related creditor’s intended votes at that meeting, under s 245A of the Companies Act 1993 (the Act). Section 245A(1) requires the liquidator to disregard a related creditor’s vote on a resolution at the meeting of creditors, unless the Court orders otherwise. Section 245A(2A) provides that a related creditor may apply for a court order within 10 working days of the meeting, so long as the creditor gave the requisite advance notice in writing to the liquidators about their intention to vote and to apply under s 245A.

[3] The liquidators have received such as notice in advance of the 19 June 2024 meeting. They have filed a without notice originating application seeking directions under s 284 of the Act to preserve the status quo until the outcome of the related creditor’s application is known. The liquidators propose that, until those applications are determined:

(a)the applicants will remain the appointed liquidators of Cannasouth Bio, pursuant to the special resolution of shareholders dated 6 June 2024; and

(b)the applicants will be entitled to carry out their duties and exercise their powers as liquidators in the liquidation of Cannasouth Bio.

Relevant background

[4] Cannasouth Bio is part of a group of companies, including Cannasouth Ltd, Cannasouth Cultivation Ltd, Eqalis Group New Zealand Ltd, Eqalis Pharmaceuticals Ltd, Eqalis Innovations Ltd, RestoreMe Clinic Ltd, A-Script International Ltd, CBD Isolates Ltd, Eqalis IP Ltd, Grow BOP Ltd, lce-X International Ltd, Mahana Island

Therapies Ltd, Midwest Pharmaceuticals NZ Ltd and Q-Safe International Ltd (collectively, the Cannasouth Companies).

[5] The Cannasouth Companies produced cannabis-based medicines and ingredients. The role of Cannasouth Bio was to sell such products, being licensed to do so.

[6] On 28 March 2024, the applicants were appointed administrators of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2024] NZHC 1970
Decision Date: 17 July 2024

CaseChat Overview and Summary

Garry Cecil Whimp and Benjamin Brian Francis, as liquidators of Cannasouth Bioscience Limited (in liquidation), applied for an order to preserve the status quo of the liquidation until the outcome of a related creditor’s application under section 245A of the Companies Act 1993 (the Act) is known. The application was made in the context of a creditors’ meeting scheduled for 19 July 2024, where the creditors were to vote on resolutions to confirm the liquidators’ appointment or to appoint other liquidators, and to appoint a liquidation committee. The application sought to disregard the vote of a related creditor under section 245A(1) of the Act unless the Court ordered otherwise. Section 245A(2A) of the Act provides that a related creditor may apply for a court order within 10 working days of the meeting if they gave the requisite advance notice in writing to the liquidators about their intention to vote and to apply under section 245A. The liquidators received such notice and filed a without notice originating application seeking directions under section 284 of the Act.

The court considered whether it had jurisdiction to make the orders sought under section 284 or under section 245A(1), particularly given the pre-emptive nature of the application and the clear default position under section 245A that the related creditor’s vote is to be disregarded. The court also weighed the balance of convenience and the interests of justice in preserving the status quo, considering factors such as the liquidators’ familiarity with the company, the limited assets available, the potential for related party transactions to be scrutinised, and the creditors' ability to coordinate their interests. The court concluded that there was not a good reason to override the default position provided for under section 245A, which was specifically designed to reduce the scope for company shareholders and related parties to defeat the interests of creditors at creditors’ meetings. The court was also concerned that deferring the effect of the creditors’ vote would disadvantage the non-related creditors in addressing the related creditor’s application under section 245A. Additionally, the court found that the jurisdictional requirements in section 245A(2B) were not substantiated in terms of no unreasonable prejudice to the non-related creditors. Ultimately, the court declined the application.

Orders