Department of Internal Affairs (Qian DuoDuo Limited)
[2023] NZHC 602
•23 March 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-1840
[2023] NZHC 602
UNDER section 329 of the Companies Act 1993 IN THE MATTER OF
an application to restore Qian DuoDuo Limited (removed) to the New Zealand Register of Companies
BY
THE DEPARTMENT OF INTERNAL AFFAIRS
Applicant
Hearing: 6 March 2023 Counsel:
D B Dow for applicant
G P Aspell for Qian DuoDuo Limited
Judgment:
23 March 2023
JUDGMENT OF ASSOCIATE JUDGE TAYLOR
This judgment was delivered by me on 23 March 2023 at 3pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors/Counsel:
Meredith Connell, Auckland for applicant
G P Aspell, Auckland for Qian DuoDuo Limited
RE DEPARTMENT OF INTERNAL AFFAIRS (QIAN DUODUO LTD) [2023] NZHC 602 [23 March 2023]
Introduction
[1] The Department of Internal Affairs (DIA) applies for an order restoring Qian DuoDuo Limited (t/a Lidong Foreign Exchange) (QDD) to the New Zealand Register of Companies (the Register).
Background
[2] QDD was incorporated as a company on the Register on 10 February 2011. It operated as a foreign exchange and money remittance service.
[3] The DIA began investigating QDD, as a reporting entity under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act), in 2015 for potential contraventions of the AML/CFT Act. As a result, the DIA had commenced both civil and criminal proceedings against QDD.
[4] QDD was removed from the register on 18 August 2022. DIA now brings proceedings to attempt to restore the company to the Register to enable the criminal proceedings against it to continue.
DIA’s application to restore company to register of companies
[5] The DIA, as an entity which was a party to a proceeding against QDD at the time it was removed from the register, seeks orders restoring QDD to the Register and costs.1
The grounds on which the orders are sought are:2
(a)QDD was incorporated on 10 February 2011;
(b)at all material times QDD operated as a foreign exchange and money remittance service;
(c)on 16 April 2021, DIA commenced civil proceedings against QDD;3
1 Originating application for orders to restore company to the register of companies dated 22 September 2022 at [1].
2 At [2].
3 Department of Internal Affairs (Qian DuoDuo Ltd) HC Auckland CIV-2021-404-642.
(d)on 25 June 2021, DIA commenced criminal proceedings against QDD;4
(e)a trial date for the criminal charges filed against QDD has not yet been allocated, but is expected to be set at a callover hearing on 21 November 2022;
(f)on 14 July 2022, the Registrar of Companies (Registrar) gave notice in the Gazette of an intention to remove QDD from the Register;
(g)the notice period for objecting to the removal of QDD from the Register expired on 16 August 2022;
(h)the Registrar declined an objection made by the DIA out of time on 23 August 2022;
(i)it is just that QDD remain on the Register to enable the criminal proceeding against it to continue; and
(j)no unfair prejudice would arise if the orders are granted.
Affidavit of Robert James Timothy Milne dated 22 September 2022
[7] Mr Milne, the principal adviser of the Anti-Money Laundering Group in Regulatory Services at the DIA, has made an affidavit in support of the DIA’s application to have QDD restored to the register.5
[8] He deposes that the DIA is responsible, among other things, for enforcing compliance with the AML/CFT Act. He confirms that he is an appointed enforcement officer under s 141 of the Act. In relation to this case, he relies on his first-hand knowledge and DIA records.
[9] Mr Milne deposes that in 2015 the DIA began investigating QDD and associated persons and entities for potential contraventions of the AML/CFT Act.
[10] As a result of that investigation the DIA commenced civil proceedings and QDD was ordered to pay a civil pecuniary penalty on 27 July 2018.6 On 16 April 2021, the DIA commenced further civil proceedings under which QDD is currently subject to an interim injunction.7
4 Department of Internal Affairs v Qian DuoDuo Ltd DC Auckland CRI-2021-004-5281.
5 Affidavit of Robert James Timothy Milnes in support of originating application for orders restoring a company to the register of companies dated 22 September 2022.
6 Department of Internal Affairs v Qian DuoDuo Ltd [2018] NZHC 1887.
7 Department of Internal Affairs v Qian DuoDuo Ltd HC Auckland CIV-2021-404-642.
[11] On 25 June 2021, the DIA commenced criminal proceedings against QDD alleging criminal breaches of the AML/CFT Act. Mr Milne deposes that he is the investigator in charge of these proceedings. Mr Milne notes that QDD is represented by counsel in both proceedings and has taken active steps to defend itself.
[12] Mr Milne asserts that the DIA has determined there is a public interest in the pursuit of charges against QDD due to the important deterrent effect of prosecution on offending against the AML/CFT Act.
[13] Regarding removal of QDD from the Register, Mr Milne deposes that the Registrar of Companies gazetted a notice of their intention to remove QDD from the register on 14 July 2022. On 23 August 2022, counsel for DIA wrote to the Registrar to object, and the Registrar responded on 6 September 2022 declining the objection as the objection period has already expired. QDD was removed on 18 August 2022. At the time the sole director was Ms Hua and its shareholders were Ms Hua and Mr Qian.
[14] Mr Milne asserts that the restoration order is sought to enable the civil and criminal proceedings to continue, and he believe there is no unfair prejudice that would arise if granted.
Affidavit of Sharon Margaret Murdock dated 25 October 2022
[15] Ms Murdock, a practice administrator at Meredith Connell, has affirmed an affidavit of service of the originating application and Mr Milne’s affidavit on the Registrar of Companies, the Secretary of the Treasury and Ms Ye Hua, the sole director of QDD at the time of its removal from the Register.8 She annexes a true copy of each service to her affidavit.
[16] Ms Murdock effected service of the originating application and affidavit to the Registrar of Companies on 30 September 2022 via email to an address where she is aware they accept service of documents.
8 Affidavit of service of Sharon Margaret Murdock dated 25 October 2022.
[17] Ms Murdock effected service of the originating application and affidavit to the Secretary of the Treasury on 30 September 2022 via email to an address where she is aware they accept service of documents.
[18] Ms Murdock effected service of the originating application and affidavit to Ms Hua, the sole QDD director on its removal, on 30 September 2022 via her lawyer, Mr David Jones KC, who was authorised to accept service on her behalf.
[19] Finally, on 19 September 2022 she undertook a search of the Personal Property Securities Register and discovered QDD did not have any registered secured creditors.
QDD’s opposition
[20] The shareholders of QDD, Mr Zhenhua Qian and Ms Ye Hua, oppose DIA’s application on the following grounds:9
a.Both the civil proceedings and the prosecution are against the company which is no longer trading. The prosecution is regulatory in nature.
b.Restoration of the company to the register of companies would serve no useful purpose. It would be a waste of resource for the parties and the courts.
c.Any sentence that might arise from any conviction can only be a fine and would not be collectable.
d.The civil proceedings taken against QDD are in abeyance. That civil proceeding resulted in an agreement by the company to cease business activities. There is no reason or legitimate basis to pursue civil process further.
e.The shareholders of QDD are husband and wife and they have separately been prosecuted in relation to alleged offending relating to the QDD business activities.
f.It is not in the interests of justice, nor in the public interest for the company to be restored to the register. It is not just and equitable to restore the company to the register.
g.The failure of the Department of Internal Affairs (as the prosecuting authority) to notify their objection to the Registrar of Companies within the requisite time period is unexplained. Neither the
9 Notice of opposition by the shareholders of Qian DuoDuo Limited to originating application for orders to restore company to the register of companies dated 21 October 2022 at [1] and [2].
shareholders nor the company should be required to pay the costs of any application to restore the company, should that occur.
Affidavit of Zhenhua Qian dated 1 December 2022
[21] Mr Qian has made an affidavit in support of QDD’s opposition.10 He deposes he is one of two QDD shareholders, the other being his wife, Ms Hua.
[22] Mr Qian deposes that QDD is no longer in operation and has annexed a letter from QDD’s accountant confirming that it has not operated since at least March 2021. He also annexes the last financial statement finalised for QDD for the year ending 31 March 2020.
Reply affidavit of Andrew James Holmes dated 7 December 2022
[23] Mr Holmes, the deputy director, operations in the Anti-Money Laundering Group at the DIA, has made a reply affidavit in further support of the DIA’s application.11 He deposes that he is an enforcement officer under s 141 of the AML/CFT Act and has worked at the DIA since October 2013.
[24] Mr Holmes begins by explaining that the DIA’s role under the AML/CFT Act is to detect and deter money laundering and the financing of terrorism and maintain and enhance New Zealand's international reputation by adopting, where appropriate in the New Zealand context, recommendations issued by the Financial Action Task Force (FATF) and contribute to public confidence in New Zealand's financial system. As one of three AML/CFT supervisors, and that assigned to QDD, the DIA was responsible for promoting, monitoring, investigating, and enforcing QDD’s obligations under the Act as a reporting entity. In assessing whether to commence civil or criminal proceeding for non-compliance the DIA considers at a minimum the money laundering and financing of terrorism risk of the relevant sector, the extent of any non-compliance, the general and specific deterrent value of the enforcement action, the reporting entity's attitude towards compliance and the extent to which certain action upholds the purposes of the Act.
10 Affidavit of Zhenhua Qian in opposition to application for orders to restore company to the register of companies dated 1 December 2022.
11 Affidavit of Andrew James Holmes in support of originating application for orders restoring a company to the register of companies dated 7 December 2022.
[25] Regarding enforcement against QDD, Mr Holmes notes the two current proceedings against QDD. He deposes that the civil proceeding, which would have prevented QDD from offering financial services which would make it a reporting entity under the Act, is no longer necessary given Mr Qian’s evidence that QDD no longer trades and there appears to be no future intention to trade. However, he asserts that the criminal proceedings for breach of reporting obligations is still important to the DIA, public interest and integrity of New Zealand’s financial system, despite the fact QDD no longer trades and is unlikely to be able to pay any resultant fine.
[26] Regarding the criminal proceedings, Mr Holmes deposes that the proceedings allege that QDD failed to report two categories of transaction to the Commissioner of Police which are mandatory — those being transactions which were objectively suspicious and those which were “prescribed transactions”. He considers the continuance of this proceeding is in the public interest because:
(a)The DIA considers enforcement of the AML/CFT Act is a key means by which the Act’s purposes are upheld, particularly general deterrence.
(b)QDD was a money remitter, which as a sector has a well-documented high risk of being used to launder money and finance terrorism according to the DIA’s December 2019 Financial Institutions Sector Risk Assessment. This sector has the highest level of assessed risk on their scale.
(c)There is no regulator licensing regime to be a money remitter like QDD, unlike lawyers, real estate agents, banks and financial service providers. While money remitters must be registered on the Financial Service Providers Register that creates minimal barriers to entry and means non-compliant remitters can easily shutter and re-establish themselves to avoid operation of the AML/CFT Act.
(d)QDD has been the subject of previous civil enforcement action, ordered to pay a penalty of $356,000,12 and despite that the DIA has detected further breaches reflected in the current proceedings.
(e)The alleged criminal breaches are serious, repeated, sustained, and given QDD’s history, may have been premeditated.
(f)The need for DIA to enforce breaches is of even greater importance given FATF’s 2021 report, Anti-money laundering and counter- terrorist financing measures New Zealand: Mutual Evaluation Report, which found that suspicious activity reporting in New Zealand was generally low in sectors which DIA supervises. It is therefore important that the DIA enforces reporting obligations to ensure reporting in these sectors increases.
DIA’s submissions
[27] Mr Dow, for the DIA, notes in relation to the QDD’s shareholder’s opposition that while they argue that no useful purpose would be served by restoring QDD to the Register, the shareholders do not point to any prejudice in the Court granting the application.
[28] Mr Dow submits that while it is unusual that a court will decline restoration to the Register under s 329 of the Companies Act 1993,13 it is not a mere procedural formality and requires an exercise of judgment by the court.14
[29] Mr Dow turns to the criminal charge being about a failure to report a significant number of transactions involving close to $100m. He submits there is a high public interest in these proceedings against QDD, as it serves a general deterrent purpose. He submits it would be contrary to the public interest to allow offending to be committed through a corporate entity and then allow it to go unsanctioned merely because that entity was dissolved. Further, as the AML/CFT Act is unaccompanied by a licencing
12 Department of Internal Affairs v Qian DuoDuo Ltd, above n 6.
13 John Hammonds & Co Ltd v Registrar of Companies [1999] 3 NZLR 690.
14 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479.
requirement, there is nothing preventing an entity dissolving to avoid liability only for its shareholders to create another legal entity to carry on regulated business under the AML/CFT Act.
[30] Mr Dow submits that continuation of criminal proceedings against a company serve a useful purpose, even if that company does not have the financial means to meet any resultant penalty. In support he cites WorkSafe New Zealand v Registrar of Companies, in which the High Court considered an opposed application to restore a company to the Register in order for WorkSafe to continue its prosecution.15 In granting the application Associate Judge Doogue commented:16
It is in my view consistent with principle that restoring a company to the register so that it is available meet criminal charges against it is a legitimate purpose for restoring a company. … It is not possible or appropriate for a Court hearing an application for restoration to come to conclusions on the main point that Mr White raises, which is that the company is allegedly a financial shell and that no financial benefit would follow from it being restored to the Register. That, as Mr May has submitted, it is a question that will only arise if and when the point is reached where sentencing takes place in the criminal proceedings.
[31] Mr Dow goes on to note that this comment was cited with approval by Associate Judge Smith in Re Department of Internal Affairs, another application to restore a company to the Register so proceedings against it could continue.17 That case involved civil rather than criminal proceedings under the AML/CFT Act, but restoration was granted with confirmation that it is inappropriate for a court to come to any conclusions on the financial worth or benefit of restoration with those questions being left to a sentencing court.18
[32] Applying both cases, Mr Dow submits that a useful purpose is served by restoring QDD to the register to face prosecution and the fact that it is no longer trading and may be unable to meet any sentence imposed is not a relevant consideration. Furthermore, he submits the fact that separate proceedings against the shareholders are ongoing is irrelevant because the public interest in, and alleged criminality of, QDD’s criminal prosecution is distinct. The DIA only missed the expiry of the
15 WorkSafe New Zealand v Registrar of Companies [2015] NZHC 2350.
16 At [7].
17 Re Department of Internal Affairs [2019] NZHC 2675 at [11].
18 At [12].
objection to removal notice period by two working days and had simply missed the notification. The proceedings however have been underway for over 12 months.
[33] Overall, Mr Dow submits that the application for restoration of QDD to the Register should be granted.
QDD’s submissions
[34] Ms Aspell, for QDD, submits that QDD’s operations have ceased since the arrest and prosecution of its two shareholders, Ms Hua and Mr Qian. The company has effectively been dormant since their arrest with initial bail conditions preventing them from engaging in money remittance activities.
[35] Regarding the civil proceedings, Ms Aspell submits that given the bail conditions, the proceedings have been in abeyance pending substantive determination of the criminal prosecution against Ms Hua. The next call for these proceedings is 3 May 2023 and an order was made by agreement by the Court in May 2021 that QDD cease its money remittance business, and the company has not traded since.
[36] Regarding the criminal proceedings, Ms Aspell submits that not guilty pleas have been entered to all charges against QDD and they were to proceed to a judge- alone trial. She submits that QDD’s prosecution is linked to that of Mr Qian and Ms Hua and that QDD’s criminality is regulatory in nature.
[37] Ms Aspell submits that it is an abject waste of court resources for the DIA to pursue either proceeding against QDD given the company is no longer trading and that the shareholders are themselves subject to prosecution. Whilst the charge may be different, the substance is similar and therefore there is no point in restoring the company to prosecute substantially the same alleged criminal conduct. Similarly, the civil proceeding is purposeless, would put the parties to unnecessary expense, consume valuable court time and achieve no substantive outcome.
[38] Ms Aspell submits there is no reason given as to why the objection was not lodged with the Registrar on time. She submits that ongoing proceedings cannot of
themselves be a reason to have the company restored and there is no public interest or other rationale advanced by the DIA in support of restoration.
[39] Ms Aspell submits that the two cases cited by the DIA in support of the application can be readily differentiated from the present case because criminal proceedings have already been taken against the sole two shareholders of QDD, Ms Hua and Mr Qian. She submits this necessarily informs the public interest element.
[40] With respect to the decision in Re Department of Internal Affairs, Ms Aspell submits the primary motivation for commencing proceedings was for deterrence of other entities and to ensure that they generally comply with the AML/CFT Act. She submits that that is not a concern in the present case as both shareholders have had criminal proceedings laid against them and that is likely to be a much greater deterrent than the DIA’s intended prosecution of QDD.
[41] In relation to Re Hawke Equipment Ltd,19 Ms Aspell submits that the case differs from the present one as the individual charged in relation to the death of one of the company’s employees, a Mr Thompson, did not have a direct association with the company. She submits that is different from the present instance where Ms Hua and Mr Qian are sole shareholders of QDD and they are already being prosecuted.
[42] Overall, as restoration would serve no useful purpose, Ms Aspell submits that the application should be dismissed.
Legal principles
Section 329 of the Companies Act 1993, as far as relevant, provides:
329 Court may restore company to New Zealand register
(1)The court may, on the application of a person referred to in subsection (2), order that a company that has been removed from the New Zealand register be restored to the register if it is satisfied that,—
(a)at the time the company was removed from the register,—
19 Re Hawke Equipment Ltd [2015] NZHC 2350.
(i)the company was carrying on business or a proper reason existed for the company to continue in existence; or
(ii)the company was a party to legal proceedings; or
(iii)the company was in receivership, or liquidation, or both; or
(iv)the applicant was a creditor, or a shareholder, or a person who had an undischarged claim against the company; or
(v)the applicant believed that a right of action existed, or intended to pursue a right of action, on behalf of the company under Part 9; or
(b)for any other reason it is just and equitable to restore the company to the New Zealand register.
(1A) In considering whether to restore a company to the register on the ground referred to in subsection (1)(a)(i) or (b), the court must have regard to the reasons for the company’s removal and whether those grounds existed at the time of removal or exist at the time of the hearing of the application.
…
[44] An application under s 329 of the Companies Act is not a mere procedural formality and involves the exercise of judgement by the Court.20
Analysis
[45] The key submissions made by Mr Dow and the affidavit evidence produced in support of the application can be summarised as follows:
(a)Failure by DIA to lodge the objection with the Registrar of Companies to removal of QDD in time was due to inadvertence. The DIA did not receive the notice calling for objections and overlooked the issue of the notice.
(b)There is a high public interest element in the prosecution going ahead as a deterrent. It is important that the criminal proceedings are taken as a deterrent in relation to the enforcement of the AML/CFT Act.
20 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479.
(c)Upholding the AML/CFT Act is important for confidence in New Zealand’s financial system and supporting the integrity of the AML/CFT Act.
(d)The fact that any penalty ultimately imposed on QDD may not be recoverable is not a reason not to restore QDD to the Register. The issue of recoverability of any penalty can be dealt with at the time QDD is sentenced if the criminal proceedings are successful.
(e)The fact that the shareholders are being prosecuted individually is not a reason not to pursue QDD’s prosecution as QDD’s criminal prosecution is distinct.
[46]Ms Aspell’s objections to the application can be summarised as:
(a)Restoring QDD would allow pointless prosecution against QDD to continue. QDD is a shell company and has not traded since March 2021. A further order against QDD to cease its money remittance business was made in May 2021.
(b)The public interest in relation to the AML/CFT Act is served by prosecutions of Ms Hua and Mr Qian, the shareholders of QDD. It is not therefore necessary in the public interest for the prosecution of QDD to go ahead.
(c)Any penalty imposed on QDD would be pointless as it is unlikely to be able to pay the penalty.
(d)The failure by DIA to object to the Registrar of Companies’ removal of QDD has not been adequately explained.
Result
[47] I am of the view that QDD should be restored to the Register and I generally accepted Mr Dow’s submissions. In particular, QDD should be restored for the reasons set out at [45](a) to [45](e).
Orders
[48]I make the following orders:
(a)QDD is to be restored to the Register of Companies pursuant to s 329(1) of the Companies Act 1993;
(b)as DIA is the successful party, costs are awarded to the DIA on a 2B basis, together with disbursements.
Associate Judge Taylor
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