Encorefx (NZ) Limited

[2020] NZHC 870

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-000612

[2020] NZHC 870

UNDER

Part 19 of the High Court Rules 2016 and section 239ADO of the Companies Act 1993

IN THE MATTER OF

ENCOREFX (NZ) LIMITED

AND

of an application by

REES GRAHAM LOGAN, ADAM PAULS NIKITINS and

STEWART ALEXANDER McCALLUM

Applicants

Hearing:	On the papers
Counsel:	D T Broadmore and L C Sizer for the Applicants
Judgment:	30 April 2020

JUDGMENT OF HINTON J

This judgment was delivered by me on 30 April 2020 at 4:30 pm pursuant to Rule 11.5 of the High Court Rules

…………………………………………………………………… Registrar/Deputy Registrar

Solicitors:

Buddle Findlay, Auckland

ENCOREFX (NZ) LIMITED [2020] NZHC 870 [30 April 2020]

[1]                  Late yesterday afternoon, the Court registry referred to me the applicants’ urgent originating application without notice for further orders under the Companies Act 1993 (the Act) dated 29 April 2020 in respect of the administration of EncoreFX (NZ) Ltd (the company).

[2]                  The applicants seek, on a without notice basis, a 5 working day extension for convening a watershed meeting of creditors, and an extension of orders relating to the method of holding and voting at the meeting.

Without Notice Application

[3]                  This proceeding is brought by way of originating application as an application under pt 15A of the Act pursuant to r 19.2(c) of the High Court Rules 2016.

[4]  The applicants seek, pursuant to r 7.46, that the application be determined on a without notice basis because, they submit, requiring the application to proceed on notice would cause undue delay or prejudice.

[5]                  I note that this Court has previously regularly held that it is appropriate to determine applications such as this on a without notice basis.1 This is primarily because doing so is unlikely to cause prejudice to any creditor and requiring such applications to proceed on notice may well cause undue delay or prejudice to the administrators in efficiently conducting the administration.2

[6]                  In addition, requiring service of the application on the company’s creditors (as the persons most obviously affected by the administration of the company) would be unreasonable under current circumstances, given the Health Act (Covid-19 Alert Level 3) Order 2020 made by the Director-General of Health on 27 April 2020 in respect of all districts of New Zealand. The Covid Order requires all persons within all districts of New Zealand to be isolated or quarantined, except for essential personal

1      See In Re Pumpkin Patch Ltd (In Rec and Admin Appt) [2016] NZHC 2771; and also, for further examples, Re Fiber Fresh Feeds Ltd (In Rec and Admin Appt) [2019] NZHC 1565; Re RCR Building Products (New Zealand) [2019] NZHC 23; and Re CBL Corp Ltd [2018] NZHC 1998.

2      See Re CBL Corp Ltd at [2].

movement  as  defined.3   Suffice to say, service on creditors pursuant to the requirements of the Act would not qualify as essential personal movement.

[7]                  The applicants submit, and I am satisfied that, effecting service on all creditors may be impracticable, if not unlawful, having regard to the terms of the Covid Order and its effect on the functioning of the New Zealand economy at present. In particular, I am satisfied that the increased pressure currently affecting the postal system, of which I am prepared to take judicial notice as a matter widely reported in the media at present, means that postal service is likely to be an unreliable means of effecting timely service within the intentionally confined timeframes in place under the Act.

[8]                  I am also satisfied, having regard to the number and nature of the company’s creditors, as detailed in the affidavit of the applicant Mr Logan, 4 that proceeding on a without notice basis here will not result in prejudice to the company’s creditors, as was also true in the other cases noted above. This is for three reasons.

[9]                  First, the terms of the proposed orders (as annexed to this judgment) reserve leave to affected persons to apply to modify the terms of the orders. This will allow the creditors to exercise their rights under the Act in respect of the administrators’ appointment and conduct of the administration, which are not prejudiced in any respect by the making of the proposed orders.

[10]              Secondly, Mr Logan has deposed that a copy of the sealed orders will be provided to all known creditors of the company. He believes that all creditors have been identified. This will no doubt be done as quickly as possible upon the release of this judgment. This will enable the creditors to take the steps envisaged by the reservation of leave.

3      Health Act (Covid-19 Alert Level 3) Order 2020, cls 6 and 7.

4      For completeness, I note that Mr Logan’s affidavit has not been sworn in accordance with the Oaths and Declarations Act 1957 as such, but was sworn by him by an oath administered using an audiovisual link in pursuance to the modification of that Act by the Epidemic Preparedness (Oaths and Declarations Act 1957) Immediate Modification Order 2020 promulgated on 17 April 2020. Accordingly, I am satisfied that I am empowered to read and make use of his affidavit in terms of r 9.73(2) of the High Court Rules 2016. For the avoidance of doubt, I also modify, for the purposes of this application, any requirement of restriction imposed by the rules of court that would preclude my reading or using his affidavit, pursuant to s 24 of the Epidemic Preparedness Act 2006.

[11]              Thirdly, dispensing with the requirement for notice will, incidentally, save time and cost, which is in the best interests of EncoreFX’s creditors. While that would not be an appropriate consideration if the creditors would be prejudiced, I have already determined that is not the case.

[12]              I am therefore satisfied, in terms of rr 7.46(3)(a), (c), and (e), and for the purposes of r 7.46(2), that the application can properly be dealt with without notice.

Applications

[13]              The applicants were appointed administrators of the company by resolution of the company’s board under s 239I of the Act on 30 March 2020. Pursuant to s 239AT of the Act, the applicants have a convening working period of twenty working days following their appointment (being until the close of play today, 30 April 2020) within which to give notice of and convene a watershed meeting of creditors to decide the future of the company. The meeting is required to be held, within five working days of the end of the convening period, so by the close of 7 May 2020 at the latest.

[14]              Pursuant to s 239AT(3) of the Act, the applicants seek, inter alia, a five working day extension of the convening period, that is, until the close of 7 May 2020. The company is part of a global group of companies. One of these, the Australian entity, is also in administration. Two of the applicants are also administrators of that entity. Mr Logan has deposed that allowing the extension will help the applicants’ colleagues to achieve a better result for the company’s creditors. This because an extension will facilitate a combined sale of the New Zealand and Australian entities as going concerns by allowing the administration process in both countries to proceed at once. He deposes that a sales process is currently underway, with expressions of interest and indicative bids having been received, and binding offers closing on 4 May 2020. A combined sale of the entities as going concerns will likely, he deposes, beat the result that could be achieved by the sale in liquidation of the company’s individual financial products (many of which, it appears, involved transactions between the Australian and New Zealand entities in any case).

[15]              Counsel for the applicants has referred me to decisions of this court that indicate that the jurisdiction to grant an extension should be exercised cautiously, so as not to prejudice creditors’ interest by continuing to forestall their exercise of their rights.5 Equally, it has been consistently recognised that the determination called for is fact specific,6 and that allowing a delay may well enhance the return to creditors by allowing for an orderly administration by, relevantly here, increasing the chances of the sale of the business as a going concern.7 This is particularly so, it has also been recognised, where, as here, the administration involves several related entities.8

[16]              I am satisfied, having read Mr Logan’s affidavit, and considered these cases, that granting the extension will benefit the company’s creditors by helping increase the amount they expect to recovery. I am also satisfied, for the same reasons, that there is no material prejudice or any prejudice to the creditors by further forestalling their exercising their rights in respect of the company. For both of these reasons, I am satisfied it is appropriate to grant the extension sought.

[17]              The applicants also seek, essentially, that orders that were made by the Court on 1 April 2020 in respect of the method of holding, and voting at, the first creditors’ meeting be extended to the watershed meeting, subject to clarification that postal votes must be cast so as to reach the applicants not later than the date named for the return of the voting paper. That modification is consistent, the applicants submit, with sch 5 cl 7(4) of the Act. The applicants also rely on the fact that the Court’s orders in respect of the first creditors meeting reserved leave for the applicants to apply for the extension of those orders to the watershed meeting.

[18]              I have obtained a copy of the orders made by Edwards J on 1 April 2020 from the Court’s registry.9 I am satisfied that, subject to the clarification noted above, the proposed orders are substantively the same as those made by the Judge and fall within the ambit of the leave reserved to the applicants.

5      Re Nylex (New Zealand) Ltd HC Auckland CIV-2009-404-1217, 11 March 2009 at [18]-[22].

6      Re Grenfell [2016] NZHC 36 at [17]-[21].

7      Re Riviera Group Pty Ltd (2009) 72 ACSR 352 (NSWSC).

8      Re Grenfell [2016] NZHC 36 at [17]-[21].

9      Re EncoreFX (NZ) Ltd [2020] NZHC 674.

[19]              The applicants submit, and I again agree with their submissions, as did Edwards J, that providing for an alternative means of holding and voting at the meeting is necessary given the impracticality or unlawfulness of convening an in-person watershed meeting during the currency of the Covid Order (which the Government has indicated will not expire before 13 May 2020) and the above-mentioned delays associated with use of the postal system. I note also that, according to Mr Logan’s affidavit, the first creditors’ meeting proceeded “smoothly” in accordance with substantively the same orders, with all 30 creditors who wished to attend remotely able to do so, and only one of those 30 creditors experiencing any technical issues.

[20]              I accept this indicates that holding meetings in this manner will allow for effective participation of all interested creditors. In fact, given the current restrictions on travel and congregation imposed by the Covid Order, a remote meeting is the available method most likely to facilitate all creditors’ participation in the meeting, consistently with the policy of the Act.

[21]              Accordingly, I do not consider that there would be any material or any prejudice to creditors in allowing the meeting to proceed, or for voting to be conducted, in the manner proposed by the applicants.

[22]              For all these reasons, I am satisfied that it is appropriate to grant the orders sought.

Result and Orders

[23]              For all the above reasons, and having read Mr Logan’s affidavit in support, I hold it is appropriate to determine the applicants’ application without notice or hearing, grant leave accordingly, grant the applicants’ application, and make orders in terms of the “(Draft) Court Orders Under the Companies Act 1993” filed by the applicants and dated 29 April 2020, which I annex to this judgment.

Hinton J