CP Asset Management Limited v Grant

[2012] NZHC 2573

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-2498 [2012] NZHC 2573

UNDER  the Companies Act 1993

IN THE MATTER OF     the liquidation of NZ Properties Holding

Limited (in liquidation)

BETWEEN  CP ASSET MANAGEMENT LIMITED Applicant

ANDDAMIEN GRANT AND STEVEN KHOV Respondents

Hearing:         By memoranda

Counsel:         R B Hucker for applicant

B J Norling for respondents

Judgment:      5 October 2012

(SUPPLEMENTARY) JUDGMENT OF LANG J

This judgment was delivered by me on 5 October 2012 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

CP ASSET MANAGEMENT LIMITED V DAMIEN GRANT AND STEVEN KHOV HC AK CIV-2012-404-

2498 [5 October 2012]

[1]      On 30 August 2012 I delivered a judgment requiring the liquidators of New Zealand Properties Holding Limited (in liquidation) (“the liquidators”) to pay costs to the applicant on a category 2B basis together with disbursements as fixed by the Registrar.[1]

[1] CP Asset Management Ltd v Grant and Khov [2012] NZHC 2228.

[2]      On  6  September  2012,  counsel  for  the  liquidators  filed  a  memorandum seeking clarification as to whether the costs were payable by the liquidators personally.  He also pointed out that the Court has the power under reg 16(a) and (b) of the Companies Act 1993 Liquidation Regulations 1994 to direct that costs are to be added to the applicant’s proof of debt, or paid out of the assets of the company as an expense of the liquidators.

[3]      I then invited counsel for the applicant to file a memorandum responding to the issues raised by counsel for the liquidators.  I am grateful to counsel for filing memoranda in response and reply as directed.

[4]      I observe at the outset that the liquidators ought to have raised these issues much  earlier.    To  the  extent  that  I  have  made  an  award  of  costs  against  the liquidators,  I consider I am now functus officio.   This is because the applicant perfected my earlier judgment by sealing the order for costs against the liquidators on 6 September 2012.  For that reason I do not consider that it is now open to me to revisit my earlier conclusion that the liquidators should be required to pay costs to the applicant.

[5]      Had I been able to do so, however, the argument that the liquidators now advance is not strong. They rely principally upon observations made by the Supreme Court in Mana Property Trustees Ltd v James Developments Ltd.[2]In that case the liquidators  of  a  company  had  permitted  litigation  in  which  the  company  was involved to continue after it was placed in liquidation.  The company was ultimately unsuccessful in the litigation, and the opposing party sought an  award of costs against the liquidators personally.  The Supreme Court noted[3]  that the party to the

litigation was the company, and not the liquidators personally.  The liquidators had

made their decision to permit the litigation to continue in their capacity as agents of the company, having taken over the conduct of the company’s affairs from its directors.

[2] Mana Property Trustees Ltd v James Developments Ltd [2010] NZSC 124; [2011] NZLR 25.

[3] Ibid at [9].

[6]      The Court also observed[4]  that a non-party such as a director or liquidator is not at risk of a costs award other than in exceptional circumstances.  The liquidators rely on this observation, and contend that exceptional circumstances do not exist in the present case to justify an award of costs against them.

[4] Ibid, at [10].

[7]      The obvious difficulty with this argument is that the company was never a party to the proceeding.  The respondent was, and has always been, the liquidators. It was necessary for the liquidators to be named as respondent because the applicant sought orders reversing or modifying the decisions they had made rejecting the applicant’s proof of debt and refusing to call a meeting of creditors.  For that reason the observations of the Supreme Court in Mana have no bearing on the issue to be determined in the present proceeding.

[8]      I consider that it remains open to me, however, to treat the memorandum dated 6 September 2012 as a fresh application seeking directions under reg 16 as to the manner in which the liquidators are to meet their obligation to pay the costs I have ordered.  Regulation 16 provides as follows:

16       Costs of proceedings relating to a liquidator’s decision on claim

Where any creditor applies to the Court under section 284(1)(b) of the Act for an order reversing or modifying the decision of a liquidator to reject the creditor’s claim, the Court may, if it thinks fit, —

(a)     Allow any costs of any creditor to be added to his or her claim:

(b)     Allow any costs of any party to be paid out of the assets of the company, such costs being deemed to be expenses of the liquidator:

(c)     Order any costs to be paid by any party to the proceedings other than the liquidator.

[9]      I do not consider it open to me to make an order under reg 16(a).  If I was to

direct that the costs were to be added to the applicant’s proof of debt, the award of

costs would effectively become the responsibility of the company.  The order would therefore alter the incidence of costs as finally determined by the Court.  Depending on the extent to which the liquidators are able to realise funds for the benefit of unsecured creditors, it would also leave the applicant exposed to the risk that they would not be paid their costs either in full or in part.

[10]     The same risk arises in relation to any order that the Court might make under reg 16(b) directing the costs to be paid out of the assets of the company.   The applicant would, however, be in a slightly better position than it would be if it was the recipient of an order under reg 16(a).  This is because liquidators’ expenses are paid in full before any payment is made to the unsecured creditors.

[11]     The applicant argues that reg 16 applies only in relation to non-legal costs, but  I  do  not  accept  that  submission.     The  regulation  is  headed  “Costs  of proceedings”.  This suggests, in my view, that the regulation is clearly designed to include any award of costs that the Court might make in a proceeding where a creditor seeks to reverse or modify a liquidator’s decision relating to a creditor’s claim.

[12]     I therefore accept that it would be possible for the Court to direct that the liquidators are to pay the costs awarded in the present case as an expense incurred by the liquidators.  I am not attracted to that argument, however, largely for the reasons set out in my previous judgment.

[13]     I  have  already  held[5]   that  the  liquidators  could  easily  have  avoided  the prospect of an adverse award of costs in two ways.  First, they could have deferred acceptance of the proof of debt until such time as the applicant provided sufficient supporting material.   It was not necessary for them to reject the proof of debt on

10 April 2012, the first working day after the liquidators had asked the applicant to provide further material in support of its proof.   They should not have acted so quickly to reject the proof of debt once they sought further information from the applicant  on  5 April  2012.    Instead,  they  ought  to  have  given  the  applicant  a reasonable opportunity to provide that information.

[5] CP Asset Management, above n 1 at [17] to [19].

[14]     Secondly, the liquidators could have rescinded or suspended their decision to reject the proof of debt once the applicant provided further information in support of the proof on 1 May 2012.  Instead, the liquidators sought further information but also confirmed their stance in relation to the rejection of the proof of debt.  I have already held that the applicant was justified in issuing this proceeding once the liquidators took that step.

[15]     As a result, I remain of the view that the liquidators should be required to meet the award of costs, and that the other creditors should not be required to bear that burden.  I am therefore not prepared to make the orders that the liquidators now

seek.

Lang J

Solicitors:

Hucker & Associates, Auckland

Waterstone Associates, Auckland