Chesterfields Preschools Limited v Commissioner of Inland Revenue

[2017] NZCA 624

IN THE COURT OF APPEAL OF NEW ZEALAND

CA732/2017
[2017] NZCA 624

BETWEEN

CHESTERFIELDS PRESCHOOLS LIMITED
First Appellant

THERESE ANNE SISSON
Second Appellant

AND

THE COMMISSIONER OF INLAND REVENUE
Respondent

Judgment:

(On the papers)

20 December 2017 at 3.30 pm

JUDGMENT OF BROWN J

AThe application for an order for stay of the High Court judgment ([2017] NZHC 3172) is declined.

BThere is no order as to costs.

____________________________________________________________________

Introduction

1. In a decision dated 23 November 2017 the Supreme Court set aside the order of the High Court putting the first appellant (Chesterfields Preschools Limited (CPL)) into liquidation and remitted the proceeding to the High Court for rehearing.[1]

   [1]Chesterfields Preschools Ltd (In Liq) v The Commissioner of Inland Revenue [2017] NZSC 176.

2. Subsequently the respondent, the Commissioner of Inland Revenue, applied under s 246(1) of the Companies Act 1993 for an order appointing an interim liquidator on the ground that it was necessary or expedient to do so for the purpose of maintaining the value of assets owned or managed by CPL. 

3. On 15 December 2017 Associate Judge Matthews made orders placing CPL into liquidation and appointing M G Hollis and W A Somerville as liquidators.[2]  Although the order did not describe them as interim liquidators, it is apparent from the judgment that they were so appointed under s 246(1).

   [2]The Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2017] NZHC 3172.

4. Ms Sisson intends to file an appeal from the judgment of Associate Judge Matthews.  In anticipation of filing that appeal she has lodged, on an urgent basis, an application under r 12(3) of the Court of Appeal (Civil) Rules 2005 seeking a stay of the High Court judgment in order to stay enforcement of the order appointing the interim liquidators as well as interim relief restraining the interim liquidators from taking any further step in the liquidation of CPL pending the hearing of the intended appeal. 

The High Court judgment

1. Section 246 relevantly provides:

   246     Interim liquidator

   (1)If an application has been made to the court for an order that a company be put into liquidation, the court may, if it is satisfied that it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company, appoint a named person, or an Official Assignee for a named district, as interim liquidator.

   (2)Subject to subsection (3), an interim liquidator has the rights and powers of a liquidator to the extent necessary or desirable to maintain the value of assets owned or managed by the company.

   (3)The court may limit the rights and powers of an interim liquidator in such manner as it thinks fit.

   …

2. Associate Judge Matthews referred to the three factors to be considered in relation to an application under s 246 identified in Robert Bryce & Co Limited v Chicken & Food Distributors Limited[3] namely:

   (a)whether the company’s assets are in jeopardy;

   (b)whether the status quo should be maintained; and

   (c)whether the interests of creditors are safeguarded.

   [3]Robert Bryce & Co Ltd v Chicken & Food Distributors Ltd (1990) 5 NZCLC 66,648 (HC).

3. On the basis of the evidence provided to him the Judge concluded that there was clear evidence indicating that Ms Sisson had been negotiating to sell CPL’s property at 854 Colombo Street, Christchurch which, coupled with the uncertainty about the value and terms of sale, established a prima facie case that that asset was in jeopardy.

4. While noting that there was a caveat on the title to the property, the Judge commented that that would not stop CPL entering into contractual arrangements and he was satisfied on the evidence that Ms Sisson was presently intending to do so.  The Judge said:[4]

   The transaction also appears to involve [CPL’s] other asset, its insurance policy as the scheme Ms Sisson proposes involves achieving agreement with the insurer that it will fund the purchase of an alternative building on another site.  I am satisfied therefore that the assets of the company are in jeopardy.

Discussion

[4]The Commissioner of Inland Revenue, above n 2, at [14].

1. On the basis of my consideration of the material filed by Ms Sisson I do not consider that there was any error in the Associate Judge’s conclusion.  The necessity for the order was occasioned by the steps which Ms Sisson appeared to have in contemplation with reference to CPL’s only two assets.

2. However the real basis for Ms Sisson’s current application appears to be a concern that the interim liquidators may themselves take steps to dispose of CPL’s property.  Her application states:

   3.6The interim liquidator may make a decision prior to the rehearing to sell CPL’s property and thereby jeopardise CPL’s chance of negotiating a full settlement of its insurance claim with NZI.  It was on this ground that this Court previously granted a stay of the liquidation of CPL pending further order of the Supreme Court.[5]

   [5]Sisson v The Commissioner of Inland Revenue [2017] NZCA 417.

3. While the order made by the Judge does not incorporate an explicit limitation on the rights and powers of the interim liquidators in terms of s 246(3) to the effect that neither of CPL’s assets is to be disposed of pending the rehearing in the High Court of the respondent’s application for a liquidation order, I consider that such a constraint is implicit in an order under s 246(1).

4. As stated in Elders Pastoral Holdings Limited v New Zealand Ostriches Ltd,[6] the fact that the purpose of the appointment of an interim liquidator is to “maintain” the value of assets owned or managed by the company indicates a requirement that a company’s assets are at risk of diminution in number or value.  An order under s 246 is intended to avoid such an outcome, not facilitate it.  Save in the case of truly perishable property, as contemplated in r 7.56 of the High Court Rules 2016, I do not consider that interim liquidators would have the power to dispose of a company’s property.  There is no suggestion that either the Colombo Street property or the proceeds of the insurance policy are of a perishable nature.

   [6]Elders Pastoral Holdings Ltd v New Zealand Ostriches Ltd HC Rotorua M2/99, 8 February 1999 at 4.

5. In my view the obligation of interim liquidators is similar to that of a provisional liquidator under s 234(1) of the former Companies Act 1955, whose primary duty was to preserve the status quo with the least possible harm to all concerned so as to enable the Court to decide after a proper and final hearing whether or not a company should be wound up.[7] 

   [7]Re Chateau Hotels Ltd [1977] 1 NZLR 381 (SC); and Re Carapark Industries Pty Ltd [1967] 1 NSWR 337 (NSWSC).

6. However if, contrary to my expectation, the interim liquidators were to take steps to either dispose of the Colombo Street property or disburse any insurance proceeds, then it would be appropriate for application to be made either to recall or vary the High Court judgment so as to include an express limitation under s 246(3) of the Companies Act or for a further application to be made in this Court for a stay of execution of the High Court judgment.

Result

1. The application for an order for stay of the High Court judgment ([2017] NZHC 3142) is declined.

1. There is no order as to costs.

Solicitors:
Meredith Connell, Wellington for First Respondent