Cannasouth Ltd
[2024] NZHC 1495
•6 June 2024
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2024-419-000114 [2024] NZHC 1495
UNDER Sections 239AM, 239ADO of the Companies Act 1993 and Part 19 of the High Court Rules IN THE MATTER OF
CANNASOUTH LIMITED,
CANNASOUTH BIOSCIENCE LIMITED, CANNASOUTH CULTIVATION LIMITED, EQALIS GROUP NEW ZEALAND LIMITED, EQALIS PHARMACEUTICALS LIMITED, EQALIS INNOVATIONS LIMITED, RESTOREME CLINIC LIMITED, A-SCRIPT INTERNATIONAL LIMITED, CBD ISOLATES LIMITED, EQALIS IP LIMITED, GROW BOP LIMITED, ICE-X INTERNATIONAL LIMITED, MAHANA ISLAND
THERAPIES LIMITED, MIDWEST PHARMACEUTICALS NZ LIMITED and Q-SAFE INTERNATIONAL LIMITED
(Administrators appointed)
Continued overpage
On the papers Counsel:
T Cooley and K R Lydiard for Applicants
Judgment:
6 June 2024
JUDGMENT OF VAN BOHEMEN J
This judgment was delivered by me on 6 June 2024 at 5:15 pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar Date……………………………..
RE CANNASOUTH LIMITED [2024] NZHC 1495 [6 June 2024]
AND IN THE MATTER OF an application by BENJAMIN BRIAN
FRANCIS and GARRY CECIL WHIMP as
Administrators of CANNASOUTH LIMITED and CANNASOUTH
CULTIVATION LIMITED
Applicants
Solicitors/Counsel:
Brookfields Lawyers, Auckland K R Lydiard, Auckland
[1]This application was put before me at midday on 6 June 2024.
[2] It seeks orders in relation to watershed meetings related to the voluntary administration of Cannasouth Cultivation Ltd (CCL) and Cannasouth Ltd (Cannasouth) and related companies (the Companies) that are to take place at 10 am on 7 June 2024.
[3] The applicants are Mr Francis and Mr Whimp, the administrators of the Companies. They seek leave to commence the proceeding by originating application and, because of the urgency of the situation, apply without notice.
[4] Because of that urgency, I am deciding the application on the papers and, of necessity, give brief reasons.
[5] Mr Francis has sworn an affidavit in support of the application which explains the background to and reasons for the application. Mr Cooley, counsel for the applicants has also filed a memorandum in support.
Orders sought
[6] The application seeks to put in place alternative arrangements to those provided for s 239E(2)(d) of the Companies Act 1993 if the watershed meetings on 7 June 2024 for CCL and Cannasouth end without resolutions that the companies execute a deed of company arrangement (DOCA).
[7] In particular, the application seeks orders that the voluntary administration of the CCL and Cannasouth not end if the watershed meetings for those companies do not execute DOCAs, as would ordinarily be the case in accordance with s 239E(2)(d). Instead, the application seeks orders that, if watershed meetings end without the adoption of resolutions that the companies executes DOCAs, the voluntary administration of the Companies will end on the later of:
(a)10 working days after the watershed meeting;
(b)the determination of any application for orders by the applicants that their vote as administrators of a related creditor of each CCL and Cannasouth be taken into account;
(c)any other application made pursuant to s 239AM of the Companies Act in respect of the watershed meeting.
Reasons for application
[8] In advance of the watershed meetings, the administrators have issued a report stating that the DOCAs proposed for the companies provide an equal or better outcome in respect of all Companies when compared to a liquidation. On this basis, the administrators’ opinion is that the Companies’ creditors should vote in favour of the DOCAs.
[9] As explained by Mr Francis, if the watershed meeting for Cannasouth ends without a resolution adopting a DOCA, there is a risk that all of the Companies will be placed in liquidation. Similarly, if the watershed meeting for CCL ends without a resolution adopting a DOCA, the outcome will be worse for the creditors of that company and the Companies as a group than the outcome for creditors under the DOCAs.
[10] The administrators’ concern that DOCAs might not be adopted arises from the fact that many of the creditors of CCL and Cannasouth are related companies. Ordinarily, the votes of related company creditors are not counted in a vote to adopt a DOCA because of s 239AM(1) of the Companies Act. That section provides that an administrator must disregard a related creditor’s vote on a resolution at the creditors’ meeting unless the court orders otherwise.
[11] The related creditors have given notice in accordance with s 239AM(2) of their intention to apply to the court for an order that their votes be taken into account. However, those applications will not have been decided by the time of the watershed meetings. The administrators are concerned that, without the votes of the related creditors, the DOCAs might not be adopted.
Discussion
[12] The application is made in accordance with s 239ADO of the Companies Act, which provides that the Court may make any order that it thinks appropriate about how pt 15, which includes s 239E, is to operate in relation to a particular company.
[13]As Edwards J said in Re Logan in relation to s 239ADO:1
The overriding principle is that the Court should only exercise the power to ensure that the objectives of Part 15A are maintained in the case of a particular company.
(footnotes omitted)
[14]The objectives of Part 15A are set out in s 239A. They are,
…to provide for the business, property, and affairs of an insolvent company, or a company that may in the future become insolvent, to be administered in a way that—
(a)maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b)if it is not possible for the company or its business to continue in existence, results in a better return for the company’s creditors and shareholders than would result from an immediate liquidation of the company.
[15] As Mr Cooley notes, in Jones v Williams, Isac J granted similar orders in relation to a watershed meeting for a company in administration that faced similar circumstances.2 Isac J was satisfied that there is a nexus between the order sought by the applicants and the purposes of s 15A. He noted:3
Further, as the applicants are essentially trying to preserve their position pending the determination of their application regarding the status of their votes in the watershed meeting, the current application is not dissimilar to an application for an interim injunction. In the circumstances of the present case, the same considerations may be viewed as a helpful guide to the exercise of the Court's discretion under s 239ADO, namely whether there is a serious issue to be tried, where the balance of convenience lies, and the overall justice of the case.
[16]Applying those considerations, Isac J granted the orders.
1 Re Logan [2020] NZHC 647 at [8].
2 Jones v Williams [2023] NZHC 2344.
3 At [8].
[17] For similar reasons, I am satisfied that the orders sought in the present case should be granted. However, as ordered below, I direct that the orders be served by email on creditors as soon as possible and that copies of the orders are made available to creditors at the watershed meetings.
Result and orders
[18] Leave to commence the proceeding by way of originating application is granted.
[19]Pursuant to s 239ADO(1) of the Companies Act 1993, I order that:
(a)The voluntary administration of Cannasouth Cultivation Limited (administrators appointed) (CCL) not end by operation of s 239E(2)(d) of the Companies Act if the watershed meeting on 7 June 2024 ends without a resolution that CCL execute a deed of company arrangement (DOCA), until the later of:
(i)10 working days after the watershed meeting;
(ii)the determination of any application for orders by the applicants that their vote as administrators of a related creditor of CCL be taken into account;
(iii)any other application made pursuant to s 239AM of the Act in respect of the watershed meeting.
(b)The voluntary administration of Cannasouth Limited (administrators appointed) (Cannasouth) not end by operation of s 239E(2)(d) of the Companies Act if the watershed meeting ends without a resolution that Cannsouth execute a DOCA, until the later of:
(i)10 working days after the watershed meeting;
(ii)the determination of any application for orders by related creditors of Cannasouth that their vote be taken into account;
(iii)any other application made pursuant to s 239AM of the Act in respect of the watershed meeting.
[20]I also make orders:
(a)dispensing with service of the application and supporting affidavit prior to the orders being made;
(b)directing that a copy of these orders be served, via email, on the creditors as soon as possible, and that copies of the orders be available to creditors at the watershed meetings;
(c)reserving leave for the applicants and any party adversely affected by this order to apply to the Court for variation of this order on 24 hours’ notice; and
(d)directing that costs of this application on a solicitor/client basis are an expense incurred by the applicants in the administration of the Companies.
G J van Bohemen J