Chandra v Shephard - [2013] NZHC 2816

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2013-485-689 [2013] NZHC 2816

UNDER Part 18 of the High Court Rules

IN THE MATTER of the Companies Act 1993

BETWEEN ANUSHEEL CHANDRA First Plaintiff

PETER ROBERT SEWELL Second Plaintiff

ANDIAIN BRUCE SHEPHARD AND CHRISTINE MARGARET DUNPHY Defendants

Hearing: 12 September 2013

Counsel: C F J Reid and J W McDougall for Plaintiffs
K P Sullivan for Defendants

Judgment: 25 October 2013

JUDGMENT OF GODDARD J

This judgment was delivered by me on 25 October 2013 at 12.00 pm, pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:
Gibson Sheat, Wellington for Plaintiffs
DLA Phillips Fox, Wellington for Defendants

CHANDRA v SHEPHARD [2013] NZHC 2816 [25 October 2013]

[1] The plaintiffs sought a hearing of a preliminary question which, if determined in the affirmative, will resolve the substantive proceeding in this matter. To this end the parties filed an agreed statement of facts and an agreed bundle of documents, and stated the preliminary question in the following form:

Does the Successor Company Notice dated 16 May 2013 comply with the requirements of s 386D of the Companies Act 1993?

[2] The proceeding itself is an application under s 386D of the Companies Act

1993 (the Act) seeking an exemption from the prohibitions contained in s 386A(1) of the Act and an order from the Court permitting the plaintiffs to act as directors of the successor companies.

[3] By way of relief, the plaintiffs seek either:

(a) a declaration that the successor company notice dated 16 May 2013 complies with the requirements of s 386D of the Act.

Or an order granting permission to each of the plaintiffs to: (b) be a director of the successor companies;
(c) directly take part in the promotion, formation or management of the successor companies; and

(d) directly take part in the carrying on of a business that has a similar

name as the failed company’s pre-liquidation name.

[4] The agreed statement of facts and agreed bundle of documents contain all relevant evidence. In addition, there is a bundle of authorities which include
academic papers on phoenix companies,1 and decisions on the purposive approach to

1 Trish Keeper “Phoenix Companies” (paper presented to the New Zealand Law Society Business Insolvency Intensive Conference, April 2007) at 117 and Lynne Taylor “The Regulation of Director Involvement in Phoenix Companies Under Sections 386A to 386F of the Companies Act 1993”, NZ Universities LR, Vol 23 (2008) 23 NZULR 111.

be taken to interpreting legislation, particularly in relation to s 33 of the Interpretation Act 1999,2 as well as a copy of the decision of McKenzie J in Groves v TSSN Ltd (in liquidation).3

Background events

[5] The first and second plaintiffs are company directors and were previously directors of a failed company (as defined by s 386B of the Act); viz Command Services Limited (in liquidation) (the failed company).

[6] The failed company was incorporated on 22 October 1993 and carried on business as a…

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.

Continue reading Chandra v Shephard

Details

AGLC: Chandra v Shephard [2013] NZHC 2816
Case: [2013] NZHC 2816
Decision Date: 25 October 2013

CaseChat Overview and Summary

The case of Chandra v Shephard involved a preliminary question regarding the interpretation of the Companies Act 1993. The plaintiffs, directors of a failed company, sought to act as directors of three successor companies. They filed a notice under section 386D of the Act to exempt themselves from the prohibitions of section 386A. The central issue was whether the plural "companies" could be used in interpreting the singular "company" in section 386D. The plaintiffs argued for a purposive interpretation to allow multiple successor companies to acquire the failed company's business.

The Court examined the legislative intent behind the phoenix company provisions, which were designed to prevent the abuse of company structures by directors to defeat creditors' interests. Goddard J concluded that interpreting "company" to include the plural was consistent with the purpose of the legislation and previous case law on statutory interpretation. The Court found that a purposive interpretation that allowed multiple successor companies to benefit from the exemption in section 386D was appropriate in this case. The liquidators supported the plaintiffs' application, having considered the sale of the business to the successor companies to be in the creditors' interests.

The Court granted the plaintiffs permission to act as directors of the successor companies and to be involved in their promotion, formation, and management. The decision allowed the plaintiffs to continue their involvement in the businesses that had been part of the failed company, subject to the conditions of the Companies Act.

Orders