De & KM Gale Limited v WK Strawbridge Limited

[2021] NZHC 2610

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE

CIV-2021-442-35

[2021] NZHC 2610

UNDER

the High Court Rules 2016

IN THE MATTER OF

an application for to set aside a statutory demand

BETWEEN

DE & KM GALE LIMITED

Applicant

AND

WK STRAWBRIDGE LIMITED

Respondent

On the papers:
Counsel:	M L E Broad for Respondent
Judgment:	30 September 2021

JUDGMENT OF CHURCHMAN J

[1]                 DE & KM Gale Limited (the applicant) has filed an application to set aside a statutory demand served by WK Strawbridge Limited (the respondent). The respondent opposes the application, and a hearing is currently set down for 6 October 2021.1

[2]                 On 29 September 2021, counsel for the respondent filed a memorandum in this Court, stating that it had discovered that the applicant was in business debt hibernation, and according to the Companies Register, had been in that position since 1 September 2021. The respondent was not given notice by the applicant of its entry into business debt hibernation.

1      The applicant was due to file submissions on 22 September 2021. No submissions have been filed.

DE & KM GALE LIMITED v WK STRAWBRIDGE LIMITED [2021] NZHC 2610 [30 September 2021]

[3]                 As noted by counsel, in May 2020 the government passed temporary legislation creating the business debt hibernation scheme as part of the government’s plan to facilitate economic recovery, and help businesses struggling from the downturn of the pandemic. Clause 1 of Schedule 13 of the Companies Act 1993 provides that the purpose of the scheme is to provide for the business, property, and affairs of an entity that is facing significant liquidity problems, or an entity that may in the future face such problems, because of the effects of the outbreak of COVID-19 to operate in a way that:

(a)maximises the chances of the entity, or as much as possible of its business, continuing in existence; or

(b)if it is not possible for the entity or its business to continue in existence, results in a better return for the entity’s creditors and members than would result from an immediate liquidation of the entity.

[4]                 The scheme allows an entity that applies to it to enter into an initial one month protection period from its debts upon the Registrar of Companies receiving notice that the entity is in business debt hibernation.2 During the one month protection period, the entity must prepare a hibernation arrangement for creditors, and if that arrangement is approved by a majority of creditors in number and value, then the entity may continue the protection period for up to six months from the date of approval.3

[5]                 Clause 40 dictates that during the period of business debt hibernation, no proceedings against the entity may be begun or continued in connection with a debt or in relation to any of its property without its written consent, permission from the Court, or in accordance with the terms of the arrangement under cl 23.

[6]                 Counsel have noted that while the respondent initially intended to seek permission from the Court for these proceedings to continue, after further consideration of the regime, its position is now that the appropriate way forward is for the proceeding to be stayed while the applicant is in business debt hibernation.

2      See cls 6 and 15 of Schedule 13, Companies Act 1993.

3      See cls 15, 23 and 34.

[7]The respondent therefore seeks the following orders from this Court:

(a)that the proceeding is stayed while the applicant company is in business debt hibernation;

(b)that  the  respondent   be   excused   from   filing   submissions   on   29 September 2021;

(c)that the hearing on 6 October 2021 be vacated;

(d)that the applicant and its director Mr Doug Gale shall file with the Court and serve on the respondent any proposal for business debt hibernation in accordance with cl 9, sch 13 of the Companies Act and any other documents sent to the creditors within 24 hours of sending them to the creditors;

(e)that the applicant and its director Mr Doug Gale advise the Court and the respondent when the applicant ceases to be in business debt hibernation within 24 hours of the hibernation ending, at which point the Registrar shall convene a judicial telephone conference at the earliest possible date for further directions; and

(f)that costs be reserved.

[8]                 Rule 15.1(3) of the High Court Rules 2016 provides that the Court may stay all or part of the proceeding on such condition as are considered just. This Court retains its inherent jurisdiction to stay a proceeding under r 15.1(4).

[9]                 In Danone Asia Pacific Holdings Pte Ltd v Fonterra Co-Operative Group Ltd,4 Venning J observed:5

In conclusion on this point I accept that even where the parties to the proceeding are not both parties to the arbitration (as is the case here), the Court retains jurisdiction to stay the proceedings either under r 15.1(3) or its inherent

4      Danone Asia Pacific Holdings Pte Ltd v Fonterra Co-Operative Group Ltd [2014] NZHC 1681.

5      At [54]-[55] (footnotes omitted).

jurisdiction including for reasons of sensible case management. Parties do not enjoy an unfettered right to access to the Courts; rather, the Court is entitled to impose procedures that are appropriate in the circumstances having regard to the nature and content of the litigation as a whole.

The jurisdiction to do so, however, should only be exercised in rare and compelling circumstances. There must be a real risk of unfairness or oppression to the defendant if the proceedings were allowed to continue. Considerations of cost, convenience and the interests of justice must weigh in favour of a stay. The onus is on the applicant to satisfy the Court that such circumstances exist.

[10]              Venning J’s statement that this Court retains jurisdiction to stay a proceeding for reasons of sensible case management is relevant here. While it is rightly acknowledged that the jurisdiction should only be exercised in rare and compelling circumstances, cl 40 of sch 13 makes it clear that proceedings against the applicant (as an entity in business debt hibernation) in connection with its debt cannot be continued during the hibernation period. It is therefore in both the interests of justice and sensible case management, to grant the orders sought by the respondent, and stay the proceedings while the applicant is in business debt hibernation.

[11]I therefore grant the orders set out at [7] above.

Churchman J

Solicitors
C & F Legal Limited, Nelson for Respondent