FAI (NZ) General Insurance Company Limited (in liquidation)
[2014] NZHC 2405
•2 October 2014
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2014-404-002066
[2014] NZHC 2405
UNDER Sections 248(1)(d) and 284(1) of the Companies Act 1993 IN THE MATTER
of an originating application for orders by Kerryn Mark Downey and William Guy Black as liquidators of FAI (NZ) GENERAL INSURANCE COMPANY
LIMITED (IN LIQUIDATION)
Applicants
Hearing: On the papers Counsel:
JC Caird and GK Holm-Hansen for applicants
Judgment:
2 October 2014
JUDGMENT OF ASSOCIATE JUDGE RM BELL
This judgment was delivered by me on 2 October at 4:30pm pursuant to Rule 11.5 of the High Court Rules.
...................................
Registrar/Deputy Registrar
Solicitors: Simpson Grierson, Auckland
FAI GENERAL INSURANCE COMPANY LIMITED (IN LIQUIDATION) [2014] NZHC 2405 [2 October 2014]
[1] The liquidators of FAI (NZ) General Insurance Co Ltd (“FAI NZ”) apply under ss 248(1)(d) and 284(1) of the Companies Act 1993 for an order allowing transfers of shares held by United Body Works (Qld) Pty Ltd (“United Body Works”) to three of its creditors. Under s 248(1)(d), from the start of a liquidation, a share in a company must not be transferred except with the approval of the Court.
[2] The application was made without notice. I am satisfied that no useful purpose would have been served by requiring it to be brought on notice. The only persons interested in this matter are the Australian and New Zealand liquidators involved in winding up the companies the subject of this decision. The evidence is clear that they all support the proposed transfers.
[3] FAI NZ is a New Zealand company and has New Zealand liquidators. The other companies in this decision are Australian. All are subsidiaries of HIH Insurance Ltd. All companies in the HIH Group are in liquidation or subject to schemes of arrangement and have common liquidators or scheme administrators. The liquidation of the HIH Group is complex. It has been going on since 2001. Mr Honey, one of the Australian liquidators, says that there are 82 companies. The Australian liquidators have made numerous applications to the New South Wales Supreme Court to facilitate the liquidations. Their general approach is that surplus assets of the HIH group should be passed up the group structure in stages so that ultimately all surpluses are paid out to creditors and all subsidiary companies are deregistered. So far 53 companies have been fully wound up and deregistered.
[4] The present application is directed at simplifying one part of the winding up of the HIH Group.
[5] While the HIH Group is overall insolvent, FAI NZ is not. In February this year, it had a cash balance of $12,510,970.70. Once its liquidation is completed, its liquidators expect that they will have between $16 and $19 million for distribution to shareholders.
[6]FAI NZ issued 15,000,000 shares. The current shareholders are:
(a)United Body Works (in liquidation): 67,594 shares;
(b)FAI Insurances Ltd (“FAII”) (in liquidation and subject to schemes of arrangement): 30,399 shares;
(c)FAI General Insurance Co Ltd (“FAIG”) (in liquidation and subject to schemes of arrangement): 14,901,406 shares; and
(d)FAI Holdings (NZ No 2) Ltd (“FAI Holdings”): 1 share.
[7] All the shareholders are HIH Group entities. Originally the shareholders of FAI NZ were FAI Investments (Pty) Ltd (“FAI Investments”) holding 14,999,999 shares, with the remaining share held by FAI Holdings. That was the shareholding at the start of the liquidation of FAI NZ. Woolford J authorised the transfer of the shares held by FAI Investments to its creditors, resulting in the current shareholding.1 His order was under ss 248(1)(d) and 284 of the Companies Act. He accepted that there was good reason to allow the transfers.
[8] United Body Works is in insolvent liquidation. The question of distribution to its shareholders does not arise. There are no relevant external creditors (a claim by the Australian Taxation Office has been met). The three creditors who have claimed in the liquidation of United Body Works are all HIH Group entities. They are:
(a)HIH Casualty & General Insurance Ltd (“C&G”) (in liquidation and subject to schemes of arrangement: owed $8,511,789.96;
(b) FAII: owed $24,861,107.13; and
(c) FAIG: owed $95,416,113.28.
[9] As matters now stand, if the liquidators of FAI NZ were to distribute under s 313(4) of the Companies Act, they would make a pro rata distribution to United Body Works as well as to FAI NZ’s other shareholders, FAII and FAIG. The liquidators of
1 Re FAI (NZ) General Insurance Co Ltd HC Auckland CIV-2014-404-1100, 12 May 2014.
United Body Works would in turn need to complete the liquidation of that company by making distributions to its creditors, namely C&G, FAII and FAIG.
[10] The liquidators want to create a shortcut. They propose that United Body Works should transfer its FAI NZ shares to its creditors, pro rata according to their claims as creditors. The creditors would take the following shares:
(a) C&G: 4,468;
(b) FAII: 13,048; and
(c) FAIG: 50,078.
[11]That will enlarge the shareholdings of FAII and FAIG.
[12] With United Body Works taken out of the picture by its shares being transferred, that will simplify the distribution for the liquidators of FAI NZ. It is to achieve this efficiency that the liquidators ask the Court to allow United Body Works’ shares to be transferred to its creditors.
[13] Insofar as the liquidation of United Body Works is concerned, the Australian liquidators have already obtained approval from the Supreme Court of New South Wales for the transfer.2 That order was made under s 479(3) of the Corporations Act 2001 (Cth). It also allows other assets of United Body Works to be distributed in specie pro rata among its creditors.
[14] I accept the good sense in allowing the transfers. Like Woolford J, I am satisfied that the transfer will involve no change to the rights and obligations of shareholders and that it will enable a more efficient liquidation of companies within the HIH Group.
2 Re United Body Works (Qld) Pty Ltd (in liquidation) SC NSW case number 2004/184599, 18 July 2014.
[15] In support of the application, the liquidators submitted that the primary principles on applications to permit share transfers after liquidation are:
(i)the purpose of s 248(1)(d) is to freeze the share register at the time the liquidation starts in order to ensure that the rights and obligations of shareholders are not changed without prior approval of the Court;
(ii)a court will not order the registration of a share transfer except for the benefit of the company and those interested in its assets; and
(iii)“significant” reasons are required before the Court will exercise its discretion to allow the transfers.
[16] They cited Goodson v Wingate Two Ltd,3 Koutsojiannis v Brown4 and Hight v Chilcott.5
[17] I do not have any difficulty in accepting that the liquidators’ proposal goes towards the more efficient winding up of the HIH Group and that that is within the principles above. In particular there is a benefit for those interested in the assets of FAI NZ. All the same, I wonder whether they have pitched the matter too high for this case. The notion that some special case must be made out before a court will allow a transfer of shares can be traced back to dicta in Re Onward Building Society.6 Taken out of context, they might suggest that there is a heavy burden to discharge to obtain the Court’s approval to a transfer of shares after a company is put into liquidation. Kay LJ said:7
But surely it does not need argument to shew that it would require a very strong case to induce the Court, after an order for winding-up, to put a subsequent transferee on the register instead of the transferor. People who transfer or buy shares after an order for the winding-up of a company must be supposed to do so for extraordinary reasons. If the transferees buy with a view
3 Goodson v Wingate Two Ltd HC Wellington CIV-2008-485-1942, 20 May 2009.
4 Koutsojiannis v Brown (1980) 1 NZCLC 95-007 (HC).
5 Hight v Chilcott HC Auckland M1683/96, 20 June 1997.
6 Re Onward Building Society [1891] 2 QB 463 (CA).
7 At 483.
to profit, such a contract is good as between themselves and their transferors without any transfer upon the register. The vendor may be bound to hand over such profits to the purchaser. I conceive, however, that before the Court gives leave to register such a transfer, it ought to see that to do so would be of some benefit to the company or those interested in its assets, and that it would not so exercise its discretion unless for very strong reasons.
(Emphasis added.)
[18]Lord Esher MR and Bowen LJ were to similar effect.8
[19] That was a case of a solvent liquidation. The applicants speculatively bought shares from shareholders on the basis that they could profit from the eventual distribution. The Court of Appeal recognised that they were entitled to speculate, but held that that did not entitle the transferees to require the share register to be altered. The liquidators should be entitled to continue with the liquidation on the basis of the list of contributories established at the start of the liquidation. The Court was concerned with finality in settling the list of contributories, especially in cases where calls might be made on contributors. In the High Court Mathew J said:9
If this be not the true construction, the most inconvenient consequences would follow in cases where calls had to be made on contributories. There would be no limit to the number of times in which transfers of shares might be made in the course of the winding-up. It would be difficult to say what the position of the parties to such transactions would be; and, in providing for the liabilities of the society, the liquidator would be hopelessly embarrassed and delayed.
The alteration of the register under s. 35 might involve most troublesome and expensive inquiry and litigation; and, as a liquidator who acted properly ought not to be made responsible for costs, the expense must be cast on the assets of the society, which are already appropriated under the winding-up order to the society's creditors.
[20] The concern was with ensuring an orderly liquidation which avoids unnecessary costs in settling the contributories. The Court did not address the case where liquidators seek or consent to the proposed transfer after liquidation.
[21] It seems to me that in cases such as this one, where the liquidators themselves seek the transfer in the interests of a more efficient winding up of related companies, the Court should not treat the liquidators’ application with suspicion. By and large, if
8 At 478 and 480.
9 At 470.
liquidators see advantages in allowing share transfers while a company is in liquidation, the Court should be slow to second-guess their assessment.
[22] For these reasons I approve the transfer of the 67,594 shares held by United Body Works in terms of the application.
Associate Judge Bell
0
0
1