Dalton v Mackley

[2021] NZHC 2329

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-000760

[2021] NZHC 2329

UNDER

the Companies Act 1993

IN THE MATTER

of the liquidation of Carbon Group Limited (in liquidation)

BETWEEN

SIMON DALTON and MATTHEW PETER KEMP

Applicants

AND

NEIL MACKLEY

Respondent

Hearing:

2 August 2021 (by AVL)

Appearances:

K Kommu for Applicants

B J Norling and C T Zhang for Respondent

Judgment:

7 September 2021

INTERIM JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 7 September 2021 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

DALTON v MACKLEY (Interim Judgment) [2021] NZHC 2329 [7 September 2021]

[1]    The applicants are the liquidators of Carbon Group Ltd (in liq) (Carbon Group), having been appointed by shareholders resolution on 9 February 2021. They are in dispute with the respondent (Mr Mackley) over ownership of certain assets they say Carbon Group purchased from Mr Mackley prior to liquidation. They want to take possession of the assets but Mr Mackley will not allow it.

[2]    The applicants seek a ruling from the Court to determine the dispute. The means they have chosen is an application for directions under s 284(1)(a) of the Companies Act 1993. It provides the Court may on the application of the liquidator (and certain others) give directions in relation to any matter arising in connection with the liquidation. Although framed as an application for directions, the applicants ask the Court to rule that Carbon Group owns the assets and to order Mr Mackley to deliver up the assets to them. Specifically, the orders sought are the following:

(a)A direction that the following assets, as set out in the purchase order from the Company to the Respondent dated 27 April 2015, are owned by the Company:

(i)Air Compressor;

(ii)Heavy Duty Motorcycle Lift;

(iii)     1975 Ducati 750GT (B5BWA) (7AT05708X13754315);

(iv)     1995 Bimota BB1 (BB1-00084);

(v)Lambretta D150 (1);

(vi)Lambretta D150 (2);

(vii)Vespa 90SS;

(viii)Italjet Formula 125 (ZJTFR2000T0080033); and

(ix)Various tools

(together the “Assets”);

(b)within 2 working days of the above direction being made, that the Assets be handed up by the Respondent to the Applicants, free of any encumbrances, to an address nominated by the Applicants in Auckland.

[3]    The application was to be heard on 2 August 2021. Shortly before the hearing, Mr Mackley raised the issue whether the Court can make the orders sought under

s 284(1)(a). On 29 July 2021, Powell J made a direction that the hearing on 2 August 2021 would address only the following issue:

whether the Court has jurisdiction under s 284(1)(a) of the Companies Act 1993 to grant directions of the scope and nature sought by the applicants.

[4]    The word “jurisdiction” can be used in several senses.1 I understand the question I am to answer is whether, properly interpreted, the orders sought by the applicants are ones the Court may make under s 284(1)(a) of the Companies Act in the circumstances of this case.

Background

[5]    Carbon Group was incorporated by Robert and Tracy Alloway on 12 March 2014. Initially they were the company’s only shareholders and directors, but as at August 2014 the shareholders were Mr and Mrs Alloway as trustees of certain trusts. They remained the company’s directors at the date of liquidation.

[6]    Mr Mackley was a mechanic and from around April 2014 began working for Carbon Group.

[7]    In early 2015, Mr and Mrs Alloway travelled to the United States and there met Joseph Whelan who was the owner of a business, VJ Moto Plc (VJ Moto). After their return to New Zealand an agreement was reached to purchase the assets and brand of VJ Moto. A company was incorporated in the United States to acquire the business of VJ Moto.  The purchase price was paid by the issue of shares in Carbon Group to  Mr Whelan. Mr Whelan remained to manage the business. It appears the arrangement with Mr Whelan was concluded by 1 April 2015.

[8]    At around the same time, Mr Alloway had discussions with Mr Mackley about him acquiring shares in Carbon Group and it was agreed Mr Mackley would do so. On 27 April  2015,  a  sale  and  purchase  agreement  was  entered  into  between  Mr Mackley as seller and Carbon Group as buyer, the terms of which included:

1      Commerce Commission v Viagogo AG [2019] NZCA 472, [2019] 3 NZLR 559 at [44]-[54].

(a)Mr Mackley would sell certain assets, consisting principally of motorcycles and equipment, to Carbon Group for a purchase price of

$41,350;

(b)the purchase price for the  assets  would  be  paid  by  the  issue  to  Mr Mackley of 41,350 ordinary shares in Carbon Group;

(c)the issue of the shares was conditional upon Mr Mackley entering into a shareholder agreement with the other existing shareholders of Carbon Group;

(d)ownership of the assets would pass to Carbon Group upon confirmation of the issue of the shares to Mr Mackley; and

(e)the agreement was conditional on Mr Mackley being party to an individual employment agreement with Carbon Group at the settlement date (27 April 2015).

[9]    On 27 April 2015, Carbon Group issued a purchase order to Mr Mackley listing the assets, the price of each asset, and noting the amount paid for them was $41,350.

[10]   The applicants’ position, supported by the evidence of Mr Alloway, is that the agreement was completed and Carbon Group became the owner of the assets.

[11]   Mr Mackley’s position is that ownership of the assets never passed to Carbon Group because of:

(a)the non-fulfilment of conditions in the agreement that:

(i)he was to enter into a shareholders agreement with the other existing shareholders. Mr Whelan, who was then one of the shareholders of the company, did not sign such an agreement; and

(ii)he and Carbon Group did not enter into an individual employment agreement by 27 April 2015 or at any later time;

(b)essential terms of the agreement were never fulfilled because:

(i)no documentation necessary for the transfer of title of the assets from him to Carbon Group was ever completed;

(ii)Carbon Group failed to issue a transfer of the shares to him;2 and

(c)on 23 March 2021, through his lawyers he validly cancelled the agreement and is under no obligation to perform it further or hand over the assets to the liquidators.

[12]   Mr Mackley stopped working for Carbon Group in around December 2019. He has in his possession some, but not all, of the assets that were the subject of the sale agreement. He says:

(a)the “various tools” claimed by the liquidators were not listed under the sale agreement;

(b)the air compressor is not in his possession; and

(c)the 1995 Bimota BB1 is also not in his possession and was in the possession of Carbon Group.

[13]   The applicants, by their lawyers, wrote to Mr Mackley on 22 February 2021 requiring him to allow the assets to be uplifted by 26 February 2021. Mr Mackley did not do so. Correspondence  passed  between  the  parties’ lawyers  culminating  on 23 March 2021 with Mr Mackley’s lawyers purporting to cancel the sale agreement. The applicants did not accept the cancellation and this application followed.

2      Mr Norling addressed me as to the formalities under the Companies Act 1993 to give effect to the transfer of shares. I do not need to consider those matters to answer the question that is before me.

The applicants’ submissions

[14]   The applicants argue a liquidator may use the 284(1)(a) procedure to determine substantive disputes with third parties concerning contractual and property rights. They rely on Finnigan v Butcher,3 Re CBL Insurance Ltd (in liq),4 Commercial Factors Ltd v Dalton,5 and Roscoe v Cryptopia Ltd.6 Cases relied upon by Mr Mackley for the contrary view7 are, the applicants contend, distinguishable or decided upon a basis other than a lack of jurisdiction.

[15]   In the alternative, the applicants contend the directions sought could be made under s 284(1)(g) which provides the Court may, “declare whether or not the liquidator was validly appointed or validly assumed custody or control of property.”

[16]   As a second alternative, the applicants ask the Court to treat their application as one for summary judgment. This, they say, is consistent with the objectives of the High Court Rules 2016 and would not prejudice Mr Mackley.

The respondent’s submissions

[17]   For Mr Mackley, Mr Norling argues the primary “direction” sought in this case is a substantive ruling as to the ownership of the assets. That, he submits, goes beyond the powers of the Court under s 284(1)(a). He also argues the Court ought not, upon application under s 284(1)(a), curtail contractual and/or property rights. He relies on decisions of the New Zealand Courts as well as the Australian Courts which, he submits, concern statutory provisions in substantially similar terms to s 284(1)(a).8 It is important, he submits, that there be consistency of approach between the Australian and New Zealand jurisdictions.9

3      Finnigan v Butcher [2012] NZHC 8101.

4      Re CBL Insurance Ltd (in liq) [2018] NZHC 2547, [2019] 2 NZLR 262.

5      Commercial Factors Ltd v Dalton [2019] NZCA 78, [2020] NZCCLR 1.

6      Ruscoe v Cryptopia Ltd (in liq) [2020] NZHC 728, [2020] 2 NZLR 809.

7      Re  HIH  Casualty  and   General  Insurance  (NZ)  Ltd  HC  Auckland   CIV-2003-404-2838   17 December 2003; McGreal Flooring Coverings Ltd (in liq) v McGreal [2014] NZHC 2884 and Madsen-Ries v Greenhill [2016] NZHC 3188; [2017] NZCCLR 6.

8      Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, (1991) 5 ACSR 673 (NSWSC); Re Ansett Australia Ltd (No 3) [2002] FCA 901; (2002) 115 FCR 409 and Kelly (Liquidator), in the matter of Halifax Investment Services Pty Ltd (in liq) v Loo [2021] FCA 531 [Kelly v Loo].

9      Kelly v Loo, above n 8, at [26]-[28].

[18]   Mr Norling also submits it would not be appropriate to convert this proceeding into a summary judgment application. He argues, if the proceeding was commenced without a proper foundation the appropriate course is to dismiss it. Further, he says there are procedural and practical impediments to the approach suggested and the case is not appropriate for summary judgment in any event.

Discussion

The meaning of s 284(1)(a)

[19]I set out s 284 in full below:

284     Court supervision of liquidation

(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.

(2)The powers given by subsection (1) are in addition to any other powers a court may exercise in its jurisdiction relating to liquidators under this Part, and may be exercised in relation to a matter occurring either before or after the commencement of the liquidation, or the removal of the company from the New Zealand register, and whether

or not the liquidator has ceased to act as liquidator when the application or the order is made.

(3)Subject to subsection (4), a liquidator who has—

(a)obtained a direction of a court with respect to a matter connected with the exercise of the powers or functions of liquidator; and

(b)acted in accordance with the direction—

is entitled to rely on having so acted as a defence to a claim in relation to anything done or not done in accordance with the direction.

(4)A court may, on the application of any person, order that, by reason of the circumstances in which a direction was obtained under subsection (1), the liquidator does not have the protection given by subsection (3).

[20]   The meaning of s 284(1)(a) must be ascertained from its text and in light of its purpose. Section 5(1) of the Interpretation Act 1999 provides:

5.Ascertaining meaning of legislation

(1)The meaning of an enactment must be ascertained from its text and in the light of its purpose.

(2)The matters that may be considered in ascertaining the meaning of an enactment include the indications provided in the enactment.

(3)Examples of those indications are preambles, the analysis, a table of contents, headings to Parts and sections, marginal notes, diagrams, graphics, examples and explanatory material, and the organisation and format of the enactment.

[21]   Section 284(1)(a) is a mechanism by which a liquidator and certain other persons may apply to the Court for guidance in relation to the conduct of the liquidation. It has a long legislative pedigree10 and allows the Court to make a wide variety of orders in its supervisory jurisdiction over liquidators. In Re CBL Insurance Ltd (in liq) Courtney J said the general purpose of a liquidator’s application for directions is as is described in Heath and Whale on Insolvency, as follows:11

10 See for instance Companies Act 1955, ss 241(3) and 248(1); Companies Act 1933, ss 193(3) and 248(1) and the discussion in Re GB Nathan & Co (in liq), above n 8, at 675 tracing the history of such statutory provisions.

11   Re CBL Insurance Ltd (in liq), above n 4, citing Paul Heath and Michael Whale Heath & Whale  on Insolvency (looseleaf ed, Lexis Nexis) at [22.1] and [22.8(c)].

The nature of a liquidator’s duties means that, on occasion, difficult legal or commercial decisions may need to be made by him or her. On legal points, the liquidator  is  entitled  to  seek  directions  from  the  High  Court  under  s 284(1)(a) of the Act. However, the court will rarely assist if purely commercial decisions are in issue; those are aspects with which the liquidator should deal.

…

… The courts have indicated that they will not make a commercial decision for the liquidator except where a liquidator’s decision was criticised by creditors as being unreasonable or as evidence of bad faith.

[22]   While facially s 284 appears a broad provision,12 the procedure in such proceedings is intended  to be short and simple.   Applications by liquidators under   s 284 are made by originating application under Part 19 of the High Court Rules and will not be appropriate in cases requiring particularised pleadings, interlocutory applications or where there are significant factual disputes.13 In Hong Kong and Shanghai Banking Corporation Ltd v Erceg, Asher J addressed the difference between originating applications under Part 19 and ordinary proceedings in this way:14

[20] The originating application procedure is, in contrast to standard proceedings, short and simple. It is initiated by an application, and there is no need for a statement of claim particularising the causes of action, or for statements of defence, replies or counterclaims. There are no procedures set out for discovery and interrogatories. The matter notionally can be set down immediately. Orders akin to those in standard proceedings could be made in originating applications utilising r 19.11, which applies [r7.43A] to originating applications. Rule [7.43A] gives a judge wide powers to make interlocutory orders to secure the just, speedy and inexpensive determination of a proceeding. Indeed, the court would in any event have inherent jurisdiction to do so in an originating application: Re Securitibank Limited (In Liquidation). However, it would be undesirable for the courts as a matter of course to allow parties to commence proceedings by way of originating application which required a statement of claim, statement of defence and other interlocutory procedures, and to then as a matter of course make such orders as are necessary under r [7.43A] or the court’s inherent jurisdiction. That would damage the procedural structures established by the Rules, and by practice. Rule [7.43A] should not be invoked under r 19.11 as a way to bypass the need to file standard proceedings, when standard proceedings are appropriate. (footnotes omitted)

12 Madsen-Ries v Greenhill, above n 7, at [115].

13 High Court Rules, r 19.4(a), Jones v O’Keeffe [2019] NZCA 222 at [52], Goldenfield International Import Export Pty Ltd v Peterson HC Wellington M44/00, 16 August 2000 referred to in Trinity Foundation (Services No 1) Ltd v Downey HC Auckland CIV-2005-404-3180, 18 August 2005 at [94]-[96].

14 Hong Kong and Shanghai Banking Corporation Ltd v Erceg (2010) 20 PRNZ 652 (HC). As explained by Cooke J in Clarkson v Clarkson [2020] NZHC 2211 at n 10, until 10 November 2013, r 19.11 cross-referred to r 7.9, which rule corresponded until 3 February 2013 to the provisions of the contemporary 7.43A (to which r 19.11 now refers).

[23]   Consistent with this, the authors of Insolvency Law & Practice express the view that liquidators should not seek directions under s 284(1)(a) to resolve disputes which should properly be the subject of ordinary proceedings.15

[24]   The text of s 284 and other indications provided by the Companies Act are supportive of a view that the proper subject of directions under s 284(1)(a) is as to the manner in which a liquidation should be carried out under the control of the liquidator and not in the making of binding orders in the nature of judgments. The section appears in pt 16 of the Act, the scheme of which is to provide liquidators with as little interference from the court as is practicable while retaining a measure of court supervision of liquidators upon application.16 The section also appears in a subpart headed “Appointment and supervision of liquidators” and s 284 itself is headed “Court supervision of liquidation”. The word “supervision” connotes management or oversight not the making of binding orders against third parties in the nature of a judgment.17

[25]   Three further factors from the text of s 284 strike me as significant. First, under s 284(1)(a) the Court makes “directions” in relation to any matter arising in connection with the liquidation. The making of binding orders in the nature of a judgment is, to my mind, more than a direction to the liquidator.18

[26]   Second, all of the other orders the Court may make under s 284(1)(b) to (h) are broadly concerned with the manner in which the liquidation is conducted under the control of the liquidator. It would be anomalous if s 284(1)(a) conferred wide innominate powers to obtain orders of a different nature.

[27]   Third, central to the operation of the section is s 284(3). That provides a liquidator who has “obtained a direction with respect to a matter connected with the

15 Insolvency Law & Practice (online ed, Thomson Reuters) at [CA284.06] citing Re Centrifugal Butter Co Ltd [1913] 1 Ch 188 (Ch).

16 Law Commission Company Law: Reform and Restatement (NZLC R9, 1989) at [690].

17 A liquidator who wishes to obtain such orders has the power under the Companies Act 1993, sch 6(a). Liquidators may commence, continue, discontinue and defend legal proceedings on behalf of the company without permission of the Court.

18 In Re HIH Casualty and General Insurance (NZ) Ltd (in liq), above n 7, at [16] Paterson J expressed the view that the making of an order which would take away policy holders’ rights to make claims was more than a direction to a liquidator.

exercise of the powers or functions of liquidator” and who acts in accordance with the direction, with a defence to a claim in relation to anything done or not done in accordance with the direction.19 The use of the phrase “the exercise of the powers or functions of liquidator”, again supports the view that the section is concerned with directing the liquidator in the proper discharge of its functions. The protection offered in such circumstances is against allegations of breach of duty by creditors and shareholders and would appear to have little utility in a case such as this.20

The case law

[28]   Mr Kommu’s submissions focused on case law. He drew support for the applicants’ position from Finnigan v Butcher where Associate Judge Bell made orders including a declaration that a property was a wholly-owned asset of the company in liquidation, that the respondents had no interest in the property, removing a caveat and making directions for the sale of the property.21 The Judge noted there was authority from Australia that a liquidator’s application for directions should not be used to bind third parties in relation to substantive issues.22 However, he was prepared to deal with the application because he did not consider the Australian approach was universally followed, the respondents had attacked the liquidators’ integrity, the respondents had not objected to the procedure and had themselves sought orders in the proceeding, and the procedure under s 284 provided a way to decide the issues more quickly than by ordinary action.23

[29]   I was also referred to Re CBL Insurance Ltd (in liq) where Courtney J refused an application by interim liquidators for directions, but in the course of her judgment expressed the view that Associate Judge Bell was right in Finnigan v Butcher to treat s 284(1)(a) as sufficiently wide to encompass the making of declarations of the kind that were sought in that case.24

19     This protection is subject to the Companies Act, s 284(4).

20     Insolvency Law & Practice, above n 15, at [CA284.06].

21     Finnigan v Butcher, above n 3.

22 At [20].

23 At [22].

24     Re CBL Insurance Ltd (in liq), above n 4, at [23].

[30]   I do not obtain a great deal of assistance from these two cases. In Finnigan v Butcher, as Courtney J acknowledged in Re CBL Insurance Ltd (in liq), apparently no argument was presented to the Court about whether the orders sought constituted directions for the purposes of s 284.25 There was also no objection to the reliance upon s 284 and both parties sought orders in the proceeding. Associate Judge Bell considered it significant that the liquidators’ integrity was attacked. Those circumstances do not exist in this case. The comments made by Courtney J in Re CBL Insurance Ltd (in liq) were obiter dicta without reference to authorities except one case concerning s 284(1)(g).26

[31]   Mr Kommu also referred me to Commercial Factors Ltd v Dalton,27 and Roscoe v Cryptopia Ltd28 which he argued are “clear examples” where the Court determined contractual  and  substantive  property  rights  upon  applications  under  s 284(1)(a). Again, I do not obtain assistance from those cases. In each case the liquidators were seeking directions from the Court as to the proper course of action to be taken in the liquidations. It is axiomatic that many liquidators’ applications for directions justifiably brought under s 284(1)(a) will affect creditors’ or shareholders’ rights in some way.29 Here, what the liquidators seek is quite different.

[32]   Mr Norling relied on three decisions where the Court refused to make directions which would have the effect of curtailing contractual and/or property rights. In Re HIH Casualty and General Insurance (NZ) Ltd Paterson J did not make a direction that would have deprived holders of insurance policies from claiming against a company that had assumed their policies from the company in liquidation.30 He considered an order effectively taking away policy holders’ rights was more than a direction to a liquidator.

[33]   In McGreal Floor Coverings Ltd (in liq) v McGreal the liquidators sought a direction to value at zero any claims made in the liquidation by a director found to

25 At [23].

26 At [24].

27     Commercial Factors Ltd v Dalton, above n 5.

28     Ruscoe v Crytopia Ltd (in liq), above n 6.

29     Re Kiwi International Airlines Ltd (in liq), HC Auckland CIV-2005-404-7051, 26 July 2006 referred to in Madsen-Ries v Greenhill, above n 7, at [115].

30     Re HIH Casualty and General Insurance (NZ) Ltd, above n 7, at [16].

have breached his duties to the company in liquidation.31 Venning J cited Re HIH Casualty and General Insurance (NZ) Ltd, although the extent to which he relied upon that decision in refusing the declarations is not clear from the judgment.32

[34]   The third case is Madsen-Ries v Greenhill where directions were sought which would have excluded entities associated with a director from claiming in the liquidation.33 Downs J held there was no jurisdictional basis by which the entities could be denied their status as unsecured creditors in the liquidation. He said:34

… The Companies Act does provide for the curtailment of contractual rights and property rights, but when it does, it is explicit …

…

[120] It is unlikely Parliament intended to clothe a power of this nature in less than explicit language, particularly in a statute ultimately concerned with the preservation of corporate property rights through provision for separate legal personality…

[35]   These cases demonstrate a limit upon the directions the Court may make under s 284 but are also distinguishable from the present in that, here, the liquidators do not seek to curtail or remove any contractual or property rights but, rather, a substantive determination as to where such rights lie. However, the Australian cases to which  Mr Norling referred me are more directly on point. They involved applications for directions under provisions analogous to s 284(1)(a).

[36]   In both Re GB Nathan & Co Pty Ltd and Re Ansett Australia Ltd (No 3)35 the Court discussed s 479(3) of the Corporations Law (Aus). It bears much similarity to  s 284(1)(a) and provided:

The liquidator may apply to the Court for directions in relation to any particular matter arising under the winding up.

31     McGreal Floor Coverings Ltd (in liq) v McGreal, above n 7.

32 At [20].

33     Madsen-Ries v Greenhill, above n 7.

34     At [119]-[120].

35     Re Ansett Australia Ltd (No 3), above n 8.

[37]In Re Ansett Australia Ltd (No 3) in relation to s 479(3) Goldberg J said:36

[44] When liquidators and administrators seek directions from the Court in relation to any decision they have made, or propose to make, or in relation to any conduct they have undertaken, or propose to undertake, they are not seeking to determine rights and liabilities arising out of particular transactions, but are rather seeking protection against claims that they have acted unreasonably or inappropriately or in breach of their duty in making the decision or undertaking the conduct. They can obtain that protection if they make full and fair disclosure of all relevant facts and circumstances to the Court. In Re G B Nathan & Co Pty Ltd (1991) 24 NSWLR 674, McLelland J said at 679 – 680:

The historical antecedents of s 479(3) … the terms of that subsection and the provisions of s 479 as a whole combine to lead to the conclusion that the only proper subject of a liquidator’s application for directions is the manner in which the liquidator should act in carrying out his functions as such …

…

Modern Australian authority confirms the view that s 479(3) ‘does not enable the court to make binding orders in the nature of judgments’ and that the function of a liquidator’s application for directions is to give him advice as to his proper course of action in the liquidation; it is not to determine the rights and liabilities arising from the company’s transactions before the liquidation: [citations omitted].

[38]   Kelly (Liquidator), in the matter of Halifax Investment Services Pty Ltd (in liq) v Loo (Kelly v Loo) concerned an application by liquidators to the Federal Court (NSW) for directions pursuant to s 90-15 (1) of the Corporations Act 2001 (Aus).37 That provision provides the Court may make in relation to the external administration of a company such orders as it sees fit including an order determining any question arising in the external administration of the company.38 The Court quoted from the judgment of Gleeson J in Re Halifax Investments Services Pty Ltd (in liq) (No 8) setting out the principles applicable to the exercise of the power.39 Glesson J noted the Court’s supervisory powers under 90-15 were arguably as broad or broader than its powers under s 479(3) and quoted with apparent approval the extract from Re Ansett Australia Ltd (No 3) referred to in [37] above.40

36     Re Ansett Australia Ltd (No 3), above n 8.

37     Kelly v Loo, above n 8.

38 At [16].

39     Re Halifax Investments Services Pty Ltd (in liq) (No 8) [2020] FCA 533; (2020) 144 ACSR 292 at [50]-[59].

40 At [91].

[39]   Caution must be exercised in relying upon decisions of overseas courts but I note Kelly v Loo was heard concurrently with related proceedings before our High Court in Re Halifax New Zealand Ltd (in liq) v Loo41 and the Federal Court emphasised the desirability in a consistency of approach by it and the High Court.42

[40]   A case not referred to by either Counsel is Vlasic v Zelande Ltd.43 There, the applicants were the liquidators of a honey business. The applicants sought a number of directions under s 284(1)(a), including a direction as to the amount by which the first respondent’s lien (if established) was reduced or extinguished as a result of its alleged breach of contract, breach of duty of care and conversion. Associate Judge Bell found the direction sought was inappropriate under s 284(1)(a). It involved contested factual matters, required appropriate pleadings to allow the issues to be properly identified and discovery would be necessary. It is useful to quote what he said:

[8]    It is helpful to consider the different functions of a liquidator. The liquidator is required to investigate the affairs of a company, to realise its assets and to distribute them to those claiming in the liquidation. The realisation of assets on the one hand and the consideration of claims and distributions to creditors on the other are distinct. As a general proposition, when a liquidator wishes to recover by legal proceedings assets for the company, the liquidator may bring an ordinary, common law proceeding. That is a general proceeding under the High Court Rules. Typically, the liquidator may bring an action to recover a debt or may sue for damages or may claim that an asset in the hands of third parties properly belongs to the company. In other words, the liquidator having control of the company can exercise the company’s normal rights to take proceedings to enforce its property rights.

That is all part of the realisation phase …

[9]   In this case, the claims against Zelande Ltd are not part of that asset realisation by the liquidators. It is common ground that Zelande Ltd claims to be a creditor of Te Tumu Miere Ltd, although the amount of the debt is in contention. Its ranking in relation to the Maori Trustee is in contention, as is its claim to have a lien over hives in its possession and the amount of its claim. Mr Burt says that there may be no debt at all. But in dealing with those matters, a liquidator is not concerned with getting in assets for the liquidation. It is concerned with other matters, the validity of the claim by Zelande Ltd in the liquidation, its ranking in relation to other creditors and how much the claim is for. Zelande’s claim is contested, not only as to security and priority, but also as to amount. (footnotes omitted)

41     Kelly v Loo [2021] NZHC 1113.

42     Kelly v Loo, above n 8, at [26].

43     Vlasic v Zelande Ltd [2019] NZHC 2152.

Conclusion in relation to s 284(1)(a)

[41]   I consider it most unlikely, given the legislative history and terms of s 284, as well as the themes advanced by the Companies Act 1993, that Parliament intended to confer on liquidators the right to seek substantive judgments against third parties under the guise of seeking directions. Such claims are not in reality seeking directions and usually will be unsuitable for determination in a summary proceeding under s 284 because of the need for particularised pleadings, discovery, interlocutory applications and the existence of significant factual disputes.

[42]   The applicants are claiming that as against Carbon Group Mr Mackley has converted the assets to his own use. Carbon Group has an established common law cause of action against Mr Mackley. In the usual course, Carbon Group would enforce its rights in a proceeding commenced by it against Mr Mackley by notice of proceeding and statement of claim in the ordinary way, with the benefits that flow from such a proceeding (such as particularised pleadings and discovery). The applicants seek to by-pass all that and obtain, in a summary manner, a ruling binding upon Mr Mackley that will have effect as a judgment of the Court determining the dispute.44 The s 284 procedure was not intended to be used in that manner. I find the orders sought are not ones that can properly be made under s 284(1)(a).

Section 284(1)(g)

[43]   The applicants’ first alternative argument is the directions sought may be made under s 284(1)(g). To recap, this provides the Court may “declare whether or not the liquidator was validly appointed or validly assumed custody or control of property.”

[44]   This provision is of no assistance to the applicants. First, the question that the parties asked to be determined concerned only s 284(1)(a). Second, the assets are, in the main, not in the custody or control of the liquidators but Mr Mackley. Third, a direction in terms of s 284(1)(g) would not resolve the issue in dispute concerning ownership of the assets.

44 High Court Rules 2016, r 5.25. In Waimate  investments Ltd v O’Dea CA196/03 [23 February  2004] at [33] the Court of Appeal noted it has long been the law that an action by a company in liquidation should be brought in the name of the company and not in the name of the liquidator.

Should the application proceed as a summary judgment application

[45]   Having found the applicants have incorrectly sought to utilise the s 284 procedure the question arises what should be done about it.

[46]   Mr Kommu submits this case could be heard as a summary judgment application on 13 October 2021, which is a date that has been reserved for the substantive hearing in the event that I was to find the Court could proceed under      s 284(1)(a). Mr Mackley does not consent and claims he will suffer injustice should that occur and the proceeding should be dismissed.

[47]   I consider this is fundamentally a case management issue. There is no dispute between Counsel that the Court may in its inherent jurisdiction regularise the proceeding and treat it as if it was commenced in the correct manner. In Re GB Nathan & Co Pty Ltd McLelland J said:45

The procedures of the court are sufficiently flexible to enable proceedings commenced as an application for directions to be changed into proceedings for the determination of substantive rights, and this is sometimes a convenient course in order to avoid the need to commence further proceedings involving additional cost and delay… However it is important that the distinction between the two kinds of proceedings be not lost sight of or blurred, and such a fundamental change should not be permitted unless the court is satisfied that those affected either consent to that course … or will not suffer injustice in consequence of the alteration to the status of the proceedings.

[48]   I consider the touchstone is what best serves the interests of justice. It is not appropriate to accept Mr Mackley’s invitation to dismiss the proceeding. I consider that the proceeding should be regularised for several reasons. First, dismissing the proceeding is not consistent with principles underlying the High Court Rules, notably r 1.2 (that the object of the Rules is to secure the just, speedy and inexpensive determination of a proceeding) and r 1.5 (that the commencement of a proceeding using an incorrect originating process should not result in the setting aside of the proceeding). Second, in a regularised proceeding the real controversy between the parties will remain unchanged. That concerns the ownership of the assets. The evidence that has been filed by the parties, which is substantial, is directed to that

45     Re GB Nathan & Co (in liq), above n 8, at 678 and 679.

issue. Third, the amount at stake is modest. It would be completely disproportionate to require the parties to go back to square one. Fourth, it is difficult to see how dismissing the proceeding would benefit either party. Fresh proceedings would undoubtedly result and the resolution of the dispute would be delayed. Everyone involved would incur unnecessary costs  as a  result.   Fifth, while it is submitted   Mr Mackley will suffer prejudice it is not clear what that prejudice could be except in relation to some additional costs. In respect to such costs, he can be compensated.

[49]   Mr Norling submits the case is unsuitable for summary judgment but that is not an issue I can (or was asked) to determine in this judgment.

[50]   There is an assumption in Mr Kommu’s submissions that the case could proceed seamlessly by way of summary judgment on 13 October 2021. I have reservations about that. If the proceeding is to continue as an ordinary proceeding (accompanied by an application for summary judgment) Carbon Group will need to be substituted as plaintiff and further documents filed to ensure compliance with the requirements of the summary judgment procedure. Mr Norling has also foreshadowed an application for security for costs.

[51]   Having given an indication I consider it is in the interests of justice the proceeding be regularised, I will hold a teleconference with Counsel before making any formal orders and timetable directions consequent upon that finding. The issues to be addressed at that conference are set out below.

Result

[52]   I find that the orders sought by the applicants are not ones that the Court can properly make under s 284(1)(a) of the Companies Act 1993 in the circumstances of this case.

[53]   For the reasons given, I make no further orders as this stage. The Registrar is to convene a teleconference with Counsel on the first available date. The purpose of the teleconference is to consider:

(a)the orders that should be made to regularise the proceeding;

(b)to timetable the proceeding to a hearing; and

(c)determine the issue of costs (which I reserve).

[54]   Counsel should confer and attempt to reach agreement on these matters. They should file a preferably joint memorandum addressing the issues in [53] above at least two working days prior to the teleconference. If they cannot reach agreement separate memoranda may be filed.

O G Paulsen Associate Judge

Solicitors:

Glaister Ennor, Auckland Norling Law, Auckland