Commissioner of Inland Revenue v Livingspace Properties Ltd

[2019] NZHC 2213

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2010-409-2323

[2019] NZHC 2213

BETWEEN

THE COMMISSIONER OF INLAND REVENUE
Plaintiff

AND

LIVINGSPACE PROPERTIES LIMITED

Defendant

Hearing:

29 and 30 July 2019

Appearances:

G Neil for the liquidator of Livingspace Properties Limited (in receivership and in liquidation)

J Moss and H Weston for Kristina Buxton

Judgment:

6 September 2019

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

This judgment was delivered by me on 6 September 2019 at 10.00 am, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

THE COMMISSIONER OF INLAND REVENUE v LIVINGSPACE PROPERTIES LIMITED [2019] NZHC 2213 [6 September 2019]

TABLE OF CONTENTS

Introduction  [1]

Background  [11]

The joinder application  [21]

Stay  [41]

Application for leave to apply for an order under s 284(1) of the Companies Act 1993 [45] Application to remove a liquidator pursuant to the Court’s inherent jurisdiction  [59] Summary of conclusions  [71]

Where to from here?  [72]

Introduction

[1]    As will be evident from the intitulment to this proceeding it started life — close to a decade ago — as a conventional application by the Commissioner of Inland Revenue for an order placing Livingspace Properties Ltd (Livingspace) into liquidation for failure to comply with a statutory demand to pay outstanding taxes. This Court made such an order and appointed liquidators on 13 December 2010. On 11 December 2017 the current liquidator, Mr Robert Walker, filed and served an application pursuant to s 266(2) of the Companies Act 1993 for orders for Ms Kristina Buxton’s examination and requiring her to produce certain documentation.

[2]    On 29 May 2018, following a defended hearing, Associate Judge Osborne (as he then was) made an order, the material component of which required Ms Buxton to:1

(a)… produce originals or copies of all books, records and/or documents relating to the business, accounts, or affairs of Livingspace Properties Limited (in liq) (“the Company”) in her possession or under her control, including but not limited to the following matters:

1      Commissioner of Inland Revenue v Livingspace Properties Ltd (in liq) [2018] NZHC 1232 at [38].

(i)any statement of account detailing the transactions between the Company and RFD Finance Limited (RFD);

(ii)any accounting records that RFD must keep as mortgagee in possession of the Company’s mortgaged land, goods or accounts receivable required by s 160 of the Property Law Act 2007;

(together, the Documents)

[3]    On 12 July 2018, Ms Buxton produced what by all accounts was a considerable amount of documentation.

[4]    Having reviewed this, the liquidator and his advisers concluded that there remained “… a substantial amount of books, records and/all documents relating to the business, accounts and/or affairs of [Livingspace] that have not been produced, which ought to be in the possession or control of Ms Buxton”.

[5]    In accordance with leave reserved to him to do so, on 12 October 2018, the liquidator sought an order for the disclosure of additional documentation set out in a schedule that ran to 27 categories of material.

[6]    On 12 November 2018, Associate Judge Osborne issued a minute in relation to this further application. That minute has been overtaken by subsequent events. The liquidator’s application itself is yet to be dealt with.

[7]    On 23 November 2018, Ms Buxton’s solicitors filed and served an application in which Ms Buxton and five other parties sought orders for the joinder of those parties and leave entitling them to apply for an order pursuant to s 284(1) of the Companies Act or the Court’s inherent jurisdiction removing Mr Walker as the liquidator and staying his application for an order for the production of additional documentation until such time as any application for his removal was resolved.

[8]Effectively, that is where matters stand.

[9]    The case was set down for a 1.5-day hearing commencing on 29 July 2019. Shortly before the hearing, it became apparent that the parties were not in agreement

as to its scope and, at their request, I convened a pre-hearing telephone conference. At the conclusion of the conference, I indicated — and later confirmed by minute —that I would hear argument in respect of three matters:

(a)joinder;

(b)stay; and

(c)the standing of Ms Buxton and other parties to apply for an order for removal of the liquidator.

[10]   The hearing proceeded on that basis. The parties’ solicitors filed and served a prodigious amount of material for the hearing (nine bound volumes of material, together with skeletal outlines of submissions). Some of this material was referred to by counsel in argument.

Background

[11]   Livingspace was incorporated on 3 October 2002. It operated in Christchurch, Dunedin and Invercargill. Its business involved the management of medium and short-term accommodation in those three centres, directed at the large student populations in each, but also catering to the tourist market. Livingspace did not own the properties it managed.

[12]   In the course of its business Livingspace incurred obligations either as principal debtor or as guarantor for the obligations of related parties. Several financiers were involved. Livingspace gave various forms of security over the assets employed in its business.

[13]   Having apparently operated successfully for a number of years, the business began to run into difficulties in mid-2010.

[14]   On 18 June 2010, one of the financiers involved, FM Custodians Ltd, appointed receivers over the chattels located at the company’s Christchurch business. On 21 June 2010, another financier, Equitable Life Insurance Co Ltd, appointed

receivers — as it happens, the same receivers as had been appointed by FM Custodians

— over Livingspace’s businesses in all three centres. A dispute followed as to the legitimacy  of  that  appointment.  On  16  September  2010,  a  third  financier,   RFD Finance Ltd, exercised its security by going into possession of the Dunedin and Invercargill businesses. At this stage, two companies, Castle Operations  Ltd and  Tay Operations Ltd, were incorporated to manage the Dunedin and Invercargill businesses. Livingspace and RFD Finance were related entities. The latter is wholly owned by the trustees of Mr David Henderson’s family trust. Mr Henderson (who is Ms Buxton’s husband) was the sole director of Livingspace at the time.

[15]   That then was the state of affairs on 13 December 2010 when, on the application of the Commissioner of Inland Revenue, an order was made liquidating Livingspace and liquidators, originally Mr David Crichton and Ms Keiran Horne, were appointed by the Court.

[16]   A dispute between Equitable Life Insurance Co and RFD Finance resulted in the latter relinquishing control of the Dunedin and Invercargill businesses on 6 August 2012 and Equitable Life Insurance Co appointing substitute receivers over those businesses.

[17]   On 12 November 2012, the original liquidators, Mr Crichton and Ms Horne, were replaced by the current liquidator, Mr Walker. Mr Walker has, since his appointment, consented to the receivers appointed by Equitable Life Insurance Co continuing to operate the business.

[18]   On 14 February 2014, Livingspace — through the receivers — entered into a settlement agreement with a number of  other  parties  including its  then  director, Mr Henderson, and certain of the financiers, which, I am informed, was intended to resolve a series of issues between the parties. It will be necessary to come back to this settlement agreement.

[19]   The genesis of the current dispute involving the liquidator and Ms Buxton appears to be the liquidator’s determination to investigate whether RFD Finance, in the period during which it was a mortgagee in possession, overpaid itself.

[20]   On behalf of Ms Buxton and the other applicants, Mr Moss questioned the appropriateness of the liquidator investigating that issue. His submission was that the exercise was a waste of time, first because RFD Finance’s entitlements were the subject of the settlement agreement on 14 February 2014 and  secondly  because RFD Securities is secured to the extent of approximately $69 million, which he submitted  “ …  dwarfs  any  claim  that  Mr Walker  might  be  able   to   allege RFD [Finance] received in overpayment whilst a mortgagee in possession”. I do not need to address this point.  As Associate Judge  Osborne ruled in his judgment  of  29 May 2019, the liquidator is entitled to enquire into the issue. In any event, it is not a matter that can be resolved at this stage.

The joinder application

[21]   The present dispute between the liquidator and Ms Buxton and the other applicants has been litigated through the vehicle of the 2010 liquidation proceeding. Associate Judge Andrew has already held that both the liquidator’s application under s 266 of the Companies Act, and the applicants’ application for leave to apply for an order removing Mr Walker as the liquidator, were properly brought as interlocutory applications in the liquidation proceeding in accordance with r 31.35 of the High Court Rules 2016.2 A curious result of that rule is that, technically, neither the liquidator nor Ms Buxton are parties to this proceeding, though I am in no doubt that they are entitled to be treated as such in all respects.

[22]   That brings me to the first matter for determination, the application for an order joining additional parties.

[23]The parties who seek to be joined are:

(a)Mr Henderson;

(b)Castle Operations;

(c)Tay Operations;

2      Commission of Inland Revenue v Livingspace Properties Ltd [2019] NZHC 366 at [13] and [18].

(d)RFD Finance; and

(e)FTG Securities (another financier).

[24]   Ms Buxton does not herself apply to be joined. Nor does the liquidator. However, as already said, the view I take is that they are entitled to be treated as parties.

[25]   With respect to the positions of all but FTG Securities, the sole basis for their applications is, as Mr Moss put it, that “the documents that Mr Walker has sought under the Further Directions application belong  and  relate  to  them  rather  than  Ms Buxton”. He produced a schedule of the documents sought, indicating that, in each case, at least one of the four applicants concerned claimed that the documents concerned belong to him or it.

[26]   Mr Moss submitted that it was important for Mr Henderson, Castle Operations, Tay Operations and RFD Finance to be joined as parties to this proceeding so as to entitle them to be heard on the liquidator’s application for an order for the production of the documentation sought:3

… because Mr Walker has a track record of using documents for collateral purposes outside of what they have originally been sought for. In other words, the joinder applicants are concerned about what use Mr Walker will put the documents to outside the liquidation of Livingspace. They say they are entitled to be heard on that and whether or not Mr Walker is entitled to the documents at all, and if he is, what quarantining should be put in place around the production and use by Mr Walker.

[27]   The applicants’ claims to some sort of proprietary or possessory rights to the relevant documentation are unchallenged. I am therefore prepared to proceed on the basis that the applicants have legitimate interests in the documentation sought. It is unnecessary for the Court to reach any view as  to the likelihood or otherwise of    Mr Walker using any documentation to which he obtains access for collateral purposes. It is enough for the Court to conclude — as I have — that the applicants have a legitimate interest in the documentation.

3      For  a   more  extensive  exposition  of  the  difficult  relationship  between  Mr  Walker   and   Mr Henderson, see Henderson v Walker [2019] NZHC 2184.

[28]   In advancing  the  application  for an  order  for joinder,  Mr Moss  relied  on r 4.56(1) of the High Court Rules, which provides:

4.56     Striking out and adding parties

(1)A Judge may, at any stage of a proceeding, order that—

(a)the name of a party be struck out as a plaintiff or defendant because the party was improperly or mistakenly joined; or

(b)the name of a person be added as a plaintiff or defendant because—

(i)the person ought to have been joined; or

(ii)the person’s presence before the court may be necessary to adjudicate on and settle all questions involved in the proceeding.

[29]   He referred me to the standard commentaries on the High Court Rules — Sim’s Court Practice and McGechan on Procedure — both of which emphasise that the overarching object of r 4.56 is to ensure that the court has before it, in any proceeding, all persons whose rights may be affected so that the issues raised can be fully disposed of.4  He referred me also to the Privy Council’s judgment in Penang Mining Co Ltd   v Choong Sam5 and the Court of Appeal’s judgment in Newhaven Waldorf Management Ltd v Allen,6 which are to the same effect.

[30]   Ultimately, his submission was that the four applicants have interests in the documentation sought by the liquidator and the use to which it is put, and that that is a proper reason for ordering their joinder.

[31]   Mr Neil for the liquidator submitted that r 4.56(1) has no application in proceedings under pt 31. He began by referring to the commentary in McGechan on Procedure relating to pt 31, which includes the following passage:7

The specific rules for liquidation proceedings under Part 31 of the Rules makes it doubtful that r 4.56 would have any application in this context: Jones v Bay Aviation Ltd (1999) 13 PRNZ 693 at [24].

4      Matthew Casey Sim’s Court Practice (online ed, LexisNexis) at [HCR4.56.9]; and McGechan on Procedure (online ed, Thompson Reuters) at [HR4.56.04].

5      Penang Mining Co Ltd v Choong San (1969) 2 MLJ 52 (PC) at 56.

6      Newhaven Waldorf Management Ltd v Allen [2015] NZCA 204, [2015] NZAR 1173 at [43]–[46].

7      McGechan on Procedure, above n 4, at [HR4.56.17].

[32]   Mr Neil referred to those rules in pt 31 relating to how persons other than the applicant creditor and the subject company may become involved in liquidation proceedings. These are r 31.18, which deals with a person intending to participate for the purposes of supporting the application, and r 31.16, which relates to persons wishing to defend an application. He submitted the drafter’s assumption was clearly that only parties wishing to participate directly in the liquidation application are catered for within pt 31. Mr Neil then went on to refer me to various judgments in which the application of r 4.56(1) of the High Court Rules to pt 31 proceedings was doubted.8

[33]   Rule 31.1(3) provides that the remainder of the High Court Rules only apply in a proceeding under pt 31 to the extent they are not inconsistent with the rules in that part. There is something in the argument that pt 31 provides its own prescriptive rules governing the joinder of parties rendering r 4.56 inapplicable. Rule 31.24 provides that only those persons entitled to apply for the liquidation of the company may be joined as additional or substituted plaintiffs. Rule 31.16 only allows the defendant company, and any creditor or shareholder of the defendant company, to be joined as defendants.

[34]   That said, these rules were clearly drafted with substantive liquidation applications in mind, rather than interlocutory applications under r 31.35. The procedural implications of r 31.35 appear to me to be odd. The purpose of r 31.35 is to ensure all matters relating to a company in liquidation are dealt with on the same court file.9  With  certain exceptions, any miscellaneous applications brought under  pt 16 of the Companies Act are therefore properly brought as interlocutory applications in the liquidation proceeding.10 Such applications are technically part of

8      Jones v Bay Aviation Ltd (1999) 13 PRNZ 693 (HC); and Hickson v Fresh Prepared Ltd HC Auckland CIV-2006-404-6560, 9 November 2007.

9      Sim’s Court Practice, above n 4, at [HCR31.35.2].

10 The exceptions fall into three categories: applications involving allegations of fraud, negligence, misfeasance, or similar behaviour, which are brought under r 31.36; applications under ss 290 (setting aside statutory demands), 294(5) and 295 (voidable transactions), and 299 (setting aside securities/charges) of the Companies Act 1993, which are brought under pt 19 of the High Court Rules 2016 pursuant to rr 19.2(c) and 31.35(4)(b); and applications for directions by a liquidator, which are brought under pt 19 of the High Court Rules pursuant to rr 19.4(a) and 31.35(4)(b).

the liquidation proceeding, even though a final order has been made placing the company into liquidation.11

[35]   Logically, the same procedural rules should apply to such interlocutory applications as apply to substantive liquidation applications. However, it is common for non-parties, such as liquidators and directors, to bring (or be the subject of) miscellaneous applications of this kind. I doubt the drafters of the rules envisaged that such non-parties would, as a matter of course, have to make an application to be joined to the proceeding, although they will invariably have an interest in the disposal of the application. Furthermore, experience suggests that, despite r 31.35, such applications are often brought, without objection, by way of fresh proceedings under pts 18 and 19 of the High Court Rules. Fortunately, this conundrum need not be resolved to deal with the present applications.

[36]   Regardless of whether these applications are determined under r 4.56 or pt 31, the presence of Mr Henderson, Castle Operations, Tay Operations and FDR Finance is not necessary to dispose of the liquidator’s application for an order for the disclosure of additional documentation. Whilst I accept, for present purposes, that they may have legitimate interests in relation to the documentation sought, and that they are entitled to be heard both as to whether the liquidator should be entitled to the relevant documentation and as to any constraints to be imposed upon him, they can be heard without being joined as parties to the proceeding.

[37]   The situation here appears to me to be akin to an application for discovery against a non-party. In such applications, a non-party against whom discovery is sought does not become a party to the proceeding. He, she or it is, however, entitled to be heard in relation to the application. The point is that party status is not necessary in order for the court to allow a non-party against whom discovery is sought to be heard.

[38]   I decline the applications of Mr Henderson, Castle Operations, Tay Operations and FDR Finance for orders joining them as parties to this proceeding. However, I

11     See generally Howard v D N Wilson Co Ltd (1998) 12 PRNZ 553 (HC) at 557–558; and

General Capital & Commerce Ltd v Vague (1998) 12 PRNZ 62 (HC) at 64–66.

propose to order that they have a right of audience for the purposes of the application relating to the provision of documentation.

[39]   Mr  Moss  did  not  persist  with  the  application  for  an   order  joining   FTG Securities for the purposes of the liquidator’s further application for disclosure, because that company does not claim any interest in the documentation.

[40]   As he correctly submitted, FTG Securities may seek leave to apply for an order for Mr Lawson’s removal in any event.

Stay

[41]   In the amended notice of application dated 15 January 2019, Ms Buxton and the other applicants seek a stay of enforcement of the Court’s order dated 29 May 2018, and a stay of the liquidator’s further application dated 12 October 2018, pending the resolution of any application for an order removing Mr Walker as liquidator.

[42]   During the course of the hearing, Mr Neil for the liquidator volunteered that Mr Walker accepted it would be inappropriate for him to take any further steps in relation to the enforcement of the 29 May 2018 order, or in relation to his 12 October 2018 application, pending  the  resolution  of  any  such  application.  In  view  of  Mr Walker’s assurance — offered in his capacity as an officer of the court — I do not regard it as necessary to make a formal order for a stay.

[43]   Had Mr Walker not offered that assurance, I would have been inclined to the view that a stay was appropriate, and I record that the Court would expect that if    Mr Walker were to consider that the circumstances had changed and proposed to take steps to enforce the Court’s order or any other similar step he would notify Ms Buxton and the other applicants of his intention so as to ensure that she has an opportunity to come back to the Court and renew her application for a stay.

[44]That, it appears to me, is sufficient to dispose of this aspect of the case.

Application for leave to apply for an order under s 284(1) of the Companies Act 1993

[45]Section 284(1) of the Companies Act provides:

(1)On the application of the liquidator, a liquidation committee, or, with the leave of the court, a creditor, shareholder, other entitled person, or director of a company in liquidation, the court may—

(a)give directions in relation to any matter arising in connection with the liquidation:

(b)confirm, reverse, or modify an act or decision of the liquidator:

(c)order an audit of the accounts of the liquidation:

(d)order the liquidator to produce the accounts and records of the liquidation for audit and to provide the auditor with such information concerning the conduct of the liquidation as the auditor requests:

(e)in respect of any period, review or fix the remuneration of the liquidator at a level which is reasonable in the circumstances:

(f)to the extent that an amount retained by the liquidator as remuneration is found by the court to be unreasonable in the circumstances, order the liquidator to refund the amount:

(g)declare whether or not the liquidator was validly appointed or validly assumed custody or control of property:

(h)make an order concerning the retention or the disposition of the accounts and records of the liquidation or of the company.

[46]   It is well settled that, under that section, the court may make an order removing and replacing a liquidator where the circumstances justify such a step.12

[47]   It is  common  ground  that  none  of  Mr  Henderson,  Castle Operations,  Tay Operations or RFD Finance fall into any of the categories of persons identified in the opening sentence of s 284(1). FTG Securities, however, claims to be a creditor of Livingspace.

[48]In support of FTG Securities’ application, Mr Moss contended:

12     Hyndman v Newson [2014] NZHC 2513 at [5].

5.6FTG is a creditor (or at the very least a prospective creditor) of Livingspace. The evidence is:

5.6.1Livingspace provided an all obligations deed of guarantee and indemnity dated 19 October 2009 to Secured Finance Limited/ Secured Lending Limited (SFL/SLL) in favour of the indebtedness of a company called Tasman Resources Limited (TRL) (Guarantee).

5.6.2The following day, TRL borrowed $236,251 from SLL/SFL. Livingspace was named as a guarantor on the loan agreement dated 20 October 2019 (Loan).

5.6.3FTG purchased a number of debts and securities owned by SFL/SLL on 15 March 2013, including all debts and securities owed by TRL to SFL/SLL. A deed of assignment was entered into between FTG and SLL/SFL.

5.6.4The Loan remains outstanding. As at 20 December 2018, the balance outstanding was $537,286.26. No repayments have been made since this date.

5.6.5The Guarantee has not been discharged. The obligations on Livingspace are principal obligations and it is liable for the full amount of TRL’s indebtedness, firstly to SLL/SFL, and now FTG.

(Footnotes omitted.)

[49]   An applicant for leave under s 284(1) bears the burden of satisfying the court that it is entitled to such leave. In the case of FTG Securities, that translates into establishing that it is a creditor of the company.

[50]   FTG Securities claims to be a creditor by reason of an assignment of indebtedness owed by Livingspace to Secured Finance and Secured Lending by deed of assignment of debts and securities dated 15 March 2013.

[51]The term “creditor” is defined in s 240(1) of the Act as follows:

(1)In this Act, unless the context otherwise requires,—

creditor means a person who, in a liquidation, would be entitled to claim in accordance with section 303 that a debt is owing to that person by the company; and includes a secured creditor only —

(a)for the purposes of sections 241(2)(c), 247, 250, and 289; or

(b)to the extent of the amount of any debt owing to the secured creditor in respect of which the secured creditor claims under section 305 as an unsecured creditor.

...

[52]Section 303 of the Act provides:

303     Admissible claims

(1)Subject to subsection (2), a debt or liability, present or future, certain or contingent, whether it is an ascertained debt or a liability for damages, may be admitted as a claim against a company in liquidation.

(2)Fines, monetary penalties, sentences of reparation, orders, and costs to which section 308 applies are not claims that may be admitted against a company in liquidation.

[53]   Mr Neil did not contradict the narrative description of the relevant transactions set out in Mr Moss’ submission as quoted above.

[54]   He did emphasise that FTG Securities had not filed a proof of debt as an unsecured creditor in the liquidation. But that in itself cannot be determinative of whether FTG Securities is or is not a creditor because s 240(1) of the Act refers to a person entitled to claim, as opposed to a person who has claimed.

[55]   Mr Neil submitted, contrary to Mr Moss’s submission, that the documentary evidence indicates that Livingspace was released from any liability it  had  to Secured Lending and Secured Finance. This, he contended, occurred pursuant to a deed of assignment of debt and security dated 13 September 2010,  whereby  Secured Finance and Secured Lending assigned the security agreements guaranteed by Livingspace to RFD Finance in consideration of a payment of $300,000 payable to Secured Finance and Secured Lending by Livingspace.

[56]   Clause 4.4 of that deed of assignment provided that in consideration of the transfer of the security agreements to RFD Finance, Livingspace was released from all liability under the security agreements. There is evidence supporting the transfer of the $300,000 from Livingspace to Secured Finance and Secured Lending.

[57]   This is compelling evidence that any liability Livingspace may have had to Secured Finance and Secured Lending came to an end on 13 September 2010, meaning there was no indebtedness to assign to FTG Securities on 15 March 2013.

[58]   In short, I am not satisfied that FTG Securities is a creditor of Livingspace and entitled to seek leave under s 284(1) of the Companies Act on that basis.

Application to remove a liquidator pursuant to the Court’s inherent jurisdiction

[59]   That brings me to the alternative argument that the Court may grant leave to any of the five applicants (including FTG Securities) in the exercise of its inherent jurisdiction. Mr Moss submitted on their behalves that the Court has such jurisdiction to remove a liquidator as part of its supervisory function in relation to liquidations. He referred to Heath J’s judgment in ANZ National Bank Ltd v Sheahan, where his Honour discussed the Court’s inherent jurisdiction to supervise liquidators, who act as officers of the Court.13 Heath J specifically referred to s 284(1) and observed that Parliament did not intend, by enacting that section, to exclude the Court’s inherent jurisdiction. As Mr Moss emphasised, Heath J was dealing with an application by a party that did not fall within any of the categories of persons outlined in s 284(1).14

[60]   Mr Neil submitted that to allow the applicants to seek leave to apply under     s 284(1) by the exercise of the Court’s inherent jurisdiction would cut across the clear wording of the Companies Act, which restricts the categories of persons able to make such an application. He relied upon Mallon J’s judgment in Official Assignee v Norris, and the decisions and commentary referring to that case.15

[61]   Neither Official Assignee v Norris, nor any of the authorities referred to in that case, rule out the possibility of resorting to the court’s inherent jurisdiction. They merely express doubt on the point. Furthermore, Official Assignee v Norris was

13 ANZ National Bank Ltd v Sheahan [2012] NZHC 3037, [2013] 1 NZLR 674 at [127]–[129] and [137], relying on Re Securitibank Ltd (in liq) [1978] 1 NZLR 97 (SC) at 106.

14 See ANZ National Bank Ltd v Sheahan, above n 13, at [97].

15 Official Assignee v Norris [2012] NZHC 961, [2012] NZCCLR 10 at [17]–[34]; Walker v Gibbston Water Services Ltd [2014] NZHC 494 at [32]–[44]; Williams v Registrar of Companies [2015] NZHC 3217 at [26]; and Insolvency Law & Practice (online ed, Thomson Reuters) at [CA284.02].

decided before ANZ National Bank Ltd v Sheahan, and none of the subsequent authorities referred to Heath J’s judgment.

[62]   Inherent jurisdiction is a difficult concept. Essentially, it is the jurisdiction that a superior court of record has by reason of being such. The classic description of inherent jurisdiction is that of Sir Jack Jacob:16

… residual source of powers, which the court may draw upon as necessary whenever it is just or equitable to do so, in particular to ensure the observance of the due process of law, to prevent vexation or oppression, to do justice between the parties and to secure a fair trial between them.

[63]   Although there is ample room for debate as to the precise scope of the Court’s inherent jurisdiction (to be contrasted with the inherent powers of all courts), one thing is absolutely clear. Where the legislature has clearly and unambiguously prescribed the Court’s jurisdiction in relation to a particular area of substantive law, there is no scope for the Court to call on its inherent jurisdiction to claim jurisdiction beyond the four corners of the legislative prescription (except perhaps in extreme circumstances such as those contemplated by Cooke P in Taylor v New Zealand Poultry Board).17

[64]   Although the legislature has identified certain categories of persons who are entitled to seek leave to apply under s 284(1) of the Companies Act, the Court’s supervisory jurisdiction over liquidations and liquidators is an area of law — or, rather, equity — where the Court has historically exercised a broad role.18 While pt 16 of the Companies Act was in part intended to reduce the degree of court involvement in the day-to-day conduct of liquidations,19 the language used by Parliament suggests that room was deliberately left for the Court to continue exercising its supervisory role where necessary.20 Certainly, one area where the Court must retain broad jurisdiction is preventing misconduct by its officers, and a liquidator is an officer of the Court.

16 I H Jacob The Inherent Jurisdiction of the Court (1970) 23 CLP 23 at 51.

17 Taylor v New Zealand Poultry Board [1984] 1 NZLR 394 (CA) at 398.

18 See generally Ian Fletcher The Law of Insolvency (5th ed, Sweet & Maxwell, London, 2017) at [1-024], which describes the equitable origins of the Court’s supervisory jurisdiction over liquidations.

19 Companies Bill 1990 (50-1) (explanatory note) at ix; and see Walker v Gibbston Water Holdings Ltd, above n 15, at [29].

20 See Companies Act 1993, s 284(2).

[65]   It seems clear that the categories of potential applicants identified in s 284(1) are those who, in the ordinary course, are likely to be affected by the actions of a liquidator. Here, I find it difficult to see how the interests of Mr Henderson, who was the director of Livingspace up until about two weeks prior to its liquidation (at which time he ceased to be a director by operation of law because he was adjudicated bankrupt21), are likely to be any less affected than those of a “director of a company in liquidation”. The basis upon which any of the other applicants might be able to persuade the Court to exercise its inherent jurisdiction in their favour are less obvious.

[66]   In any event, where allegations of misconduct are made, the Court should not trifle over the standing of the party bringing the complaint. The Court has an obligation to uphold the good standards of its officers. Of course, consistent with Parliament’s intention that applications under s 284(1) should only be brought with the leave of the Court, any use of the inherent jurisdiction should be made in the same manner. That was the approach suggested by Dunningham J in Walker v Gibbston Water Holdings Ltd.22

[67]   The approach to granting leave under s 284(1) was explained by Associate Judge Lang (as he then was) in Trinity Foundation (Services No 1) Ltd v Downey:23

[21]      I take the view that s 284 provides a filtering mechanism, and is designed to ensure that leave to challenge the acts and decisions of a liquidator is only given in appropriate cases. A creditor seeking leave under s 284 therefore needs to do more than merely demonstrate that its claim is sustainable. Instead, the creditor will need to show that it has an arguable case. In this context an arguable case will have two characteristics. First, it must have a credible factual basis. Secondly, there must be a reasonable likelihood that, if the claim is established, the Court will disturb the act or decision in question. The Court is likely to take this step only if the act or decision is unreasonable.

[22]      If this standard is applied, the object of the legislation will be met, because truly meritorious claims will be granted leave. Leave will not be granted, however, in circumstances where, even if the claim is established, it is unlikely that the Court would interfere with the act or decision in question. In this way the section strikes a balance between preserving the rights of meritorious claimants, whilst at the same time ensuring that the assets of a

21 Sections 151(2)(b) and 157(1)(c).

22 Walker v Gibbston Water Services Ltd, above n 15, at [44].

23  Trinity Foundation (Services No 1) Ltd v Downey (2005) 9 NZCLC 263,917 (HC), confirmed by the Court of Appeal in Trinity Foundation (Services No 1) Ltd v Downey (2006) 3 NZCCLR 401 (CA).

company in liquidation are not frittered away as a result of claims that are unlikely to succeed.

[68]   The strict nature of the leave requirement addresses Mr Neil’s floodgates argument concerning allowing individuals outside those specified in s 284(1) to seek leave to bring applications. The Court will only entertain properly founded allegations, in order to spare unsecured creditors the unnecessary expense that would be incurred if the liquidator were required to respond to frivolous complaints.

[69]   On those bases, I conclude that the Court has inherent jurisdiction to entertain applications for leave to apply for the removal of a liquidator, including by persons who do not fall within the categories identified in s 284(1) of the Companies Act. If leave is granted, the application to remove the liquidator would proceed under the inherent jurisdiction and not under the Companies Act, although the principles developed in relation to s 284(1) will likely be relevant to the exercise of the Court’s discretion.

[70]   That of course paves the way for Mr Henderson and the other applicants to seek such leave, but does not grant them leave.

Summary of conclusions

[71]In summary:

(a)I decline the applications made by Ms Buxton,  Mr  Henderson,  Castle Operations, Tay Operations and RFD Finance for an order joining those parties (other than Mrs Buxton) as parties to this proceeding.

(b)I direct that Mr Henderson, Castle Operations, Tay Operations and RFD Finance be served with all documents associated with the liquidator’s renewed application for the production of documents, and that they should have the right to file notices of opposition to that renewed  application  and  the  right  to   appear   (in   the   case   of Mr Henderson either personally or through counsel; and in the case of the corporate entities, through counsel) to oppose the application and

to seek any orders they may regard as appropriate with regard to confidentiality or the use to which any documentation produced should be put.

(c)I conclude that the Court has inherent jurisdiction to remove a liquidator and to entertain applications for leave to apply for such removal by persons who do not fall within the categories identified in s 284(1) of the Companies Act.

(d)I direct that any application for leave pursuant to the inherent jurisdiction is to be filed and served within 15 working days of the date of this judgment.

(e)I reserve costs, not having heard from counsel in relation to these. My expectation is that counsel will be able to resolve costs. However, if they cannot, then they may revert to me by memorandum and I will deal with them on the papers.

Where to from here?

[72]   It is important that any application by Mr Henderson (or any of the other applicants) is dealt with promptly. Accordingly, assuming that an application (or applications) is made, and any notices of opposition are filed and served, I direct the Registrar to liaise with counsel with a view to setting those applications down for hearing. My expectation is that it (or they) will be set down during the last quarter of 2019. It (or they) is to be set down for a full day. Rule 7.39 is of course to apply.

Associate Judge Johnston

Solicitors:

Canterbury Legal, Christchurch for the applicants

Meredith Connell, Auckland for the liquidator of Livingspace Properties Ltd