Fatupaito v Stewart
[2021] NZHC 1679
•6 July 2021
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2021-409-000131
[2021] NZHC 1679
UNDER the Companies Act 1993 IN THE MATTER
of EVERSONS INTERNATIONAL
LIMITED (in liquidation)
BETWEEN
VIVIAN JUDITH FATUPAITO and ELIZABETH HELEN KEENE
Applicants
AND
EVAN KERRY STEWART
Respondent
Hearing: 22 June 2021 Appearances:
M J Tingey for Applicants K W Clay for Respondent
Judgment:
6 July 2021
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 6 July 2021 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
FATUPAITO and KEENE v STEWART [2021] NZHC 1679 [6 July 2021]
The application
[1] Eversons International Ltd (in liq) (the company) went into liquidation owing the Commissioner of Inland Revenue (the Commissioner) unpaid taxes in excess of
$3,700,000. The only significant asset of the company in its financial accounts is described as “overseas investments”. There is no detail of what the investments comprise but they are valued at more than $6,500,000.
[2] The company’s liquidators wish to identify the overseas investments and recover, realise and distribute them. For this they have required the cooperation of the company’s sole director and shareholder. The liquidators say cooperation has not been forthcoming. They apply for orders under ss 261 and 266 of the Companies Act 1993 that the director be examined before the Court and produce records of the company. The director opposes the application arguing, amongst other matters, the orders sought are unnecessary and oppressive.
The facts
[3] The company was incorporated on 24 July 2006. Its business was the importation and sale of synthetic legal high products and it was very profitable until the sale of such products was banned on 7 May 2014. The company then ceased trading.
[4] At the material times the respondent, Evan Kerry Stewart (Mr Stewart), was the sole shareholder and director of the company.
[5] The Commissioner completed an income tax audit of the company for unpaid income taxes up to and including the 2015 tax year. As the company was unable to meet the Commissioner’s demand for payment of assessed arrears, Mr Stewart elected to liquidate the company.
[6] On 9 April 2018, the company was placed into liquidation by special resolution pursuant to s 241(2)(a) of the Companies Act 1993. Andrew Marchel Oorschot of Ashton Wheelans, Chartered Accountants, was appointed liquidator of the company.
[7] The Commissioner lodged a claim in the company’s liquidation for $3,766,118. The Commissioner appears to be the only creditor.
[8] To date, no realisable assets have been identified in the liquidation and no recoveries have been made.
[9] In his first liquidator’s report of 13 April 2018, Mr Oorschot noted the company’s single, “biggest asset [was] described in the Company’s accounts as Overseas Investments totalling $6,592k”. Mr Oorschot’s report said he was awaiting details from Mr Stewart, “of the nature and process to realise these investments”.
[10] In relation to this, Mr Oorschot wrote to Mr Stewart on 13 April 2018. He sought a detailed breakdown of the overseas investments. There is no evidence of any response to that letter from Mr Stewart.
[11] However, based on information provided by the company’s accountant, Mr Oorschot identified that the overseas investments were apparently related to 36 transactions by cheque or transfer from the company’s bank account up to May 2014, of which 19 transactions totalling $3,154,918 were payments to a related company called Bionutrient Customs Ltd (Bionutrient).
[12] On 24 October 2018, Mr Oorschot wrote to Mr Stewart, as director of Bionutrient, demanding repayment of those sums.1 He also noted that in respect to the further 15 transactions he was yet to establish who those cheques were made payable to.
[13] Mr Stewart responded to Mr Oorschot’s letter on 25 October 2018 stating that Bionutrient was used as a vehicle to facilitate the transfer of the funds to Australia and could not make payment of the demand. He provided no details as to the purpose of the transfer of funds to Australia.
1 Mr Oorschot made an allowance for a creditor balance of $155,500 which he assumed was provable in the liquidation.
[14] It appears Mr Oorschot took no further significant steps to investigate and pursue recoveries. Ultimately, Mr Oorschot resigned as liquidator and the applicants were appointed as joint and several successor liquidators (“the liquidators”) on 30 January 2020.
[15] On 5 February 2020, the liquidators wrote to Mr Oorschot asking him to provide all information and documentation he held in respect of the company. On 17 February 2020, Mr Oorschot provided the company’s documents. The liquidators say they were very limited, did not include the company’s bank statements and were insufficient to allow the liquidators to identify any overseas investments.
[16] On 17 February 2020, the liquidators wrote to Mr Stewart. They required him, under s 261 of the Companies Act, to meet with them and provide documents and information concerning, among other things, details of the company’s assets including their nature and situation. Mr Stewart did not respond to the liquidators’ letter and did not attend a meeting.
[17] In the absence of cooperation from Mr Stewart, and facing the possibility that any proceedings may face limitation defences, the liquidators identified potential recoveries from Bionutrient, in respect of which Mr Oorschot had already made his demand, and from Mr Stewart in respect of his shareholders current account.
[18] On 20 March 2020, Simpson Grierson, acting on behalf of the liquidators, wrote to Bionutrient demanding payment on behalf of the company of $2,999,418. Some email correspondence then passed between Simpson Grierson and Mr Stewart. Mr Stewart disputed the demand on the basis that Bionutrient was effectively only a conduit through which the company transferred money to Australia.
[19] On 29 April 2020, Simpson Grierson issued a letter to Bionutrient requesting information pursuant to s 261 of the Act. The information requested included any documents evidencing the transfers from Bionutrient to the ultimate recipient and details of what the funds were used for. Mr Stewart responded by email on 5 May 2020 asserting the liquidators had all relevant documents.
[20] The liquidators resolved to take legal proceedings against Bionutrient and Mr Stewart. It is necessary to refer further to those proceedings.
The claim against Bionutrient
[21]On 5 May 2020, the company served a statutory demand upon Bionutrient for
$2,999,418, “… being money due and owing in respect of payments made by Eversons International Limited (In Liquidation) in the period 29 April 2013 to 16 April 2014
…”.
[22] Bionutrient did not respond to the statutory demand and the company (through the liquidators) commenced liquidation proceedings against Bionutrient. Bionutrient failed to file a statement of defence in time. It then applied for leave to do so out of time, which was opposed.
[23] I issued judgment on Bionutrient’s application on 12 November 2020 and granted it leave to file a statement of defence out of time.2 In the judgment, I noted Mr Stewart’s evidence was that the payments were the company’s investment in Mr Stewart’s father’s health food business in Australia, which was transferred using Bionutrient’s banking facilities and that, in recognition for the investment, the company, “would receive a large parcel of shares in this joint venture”.3 I also noted Mr Stewart’s lack of cooperation with the liquidators and failure to provide information even when requested under s 261 of the Companies Act.4 Despite that, I considered the interests of justice required granting the extension of time sought.
[24] Following the issue of the judgment, the company did not continue with the liquidation proceedings against Bionutrient.
Mr Stewart’s shareholder’s current account
[25] On 13 March 2020, the liquidators made demand on Mr Stewart for $2,074,876 in respect of his shareholder’s current account. The demand was predicated upon a
2 Eversons International Ltd (in liq) v Bionutrient Customs Ltd [2020] NZHC 2989.
3 At [39].
4 At [42].
reconstruction of the company’s accounts and attributed certain payments in excess of
$2,000,000 from the company’s bank accounts as drawings by Mr Stewart. Again, correspondence followed between the liquidators, their solicitors and Mr Stewart.
[26] The company and the liquidators commenced proceedings against Mr Stewart. In addition to the claim on Mr Stewart’s shareholders current account, the liquidators included a cause of action under s 310 of the Companies Act. The liquidators sought summary judgment against Mr Stewart on the current account claim only.
[27] In his opposition to the application for summary judgment, Mr Stewart denied there was an overdrawn shareholders current account and raised a limitation defence. He accepted some of the payments identified should be considered drawings but in respect of the most significant amount, $2,000,000 paid from the company’s bank account on 1 May 2014, he said that was not drawings but was transferred to his solicitor in Australia for investing on behalf of the company.
[28] I issued judgment on 3 December 2020 refusing summary judgment because I was not satisfied Mr Stewart did not have an arguable defence to the claim.5 Once again, I noted Mr Stewart’s lack of co-operation with the liquidators and that they had not been able to identify, “any overseas investments belonging to the company and have not seen any documents that prove such investments exist”.6 I also recorded Mr Stewart’s counsel, “advised at the hearing that his instructions did not allow him to assist the Court further as to the nature of the investments”.7
[29] The proceeding against Mr Stewart remains on foot. Mr Stewart has filed an application to strike out the proceeding.
The s 261 notice and Mr Stewart’s response
[30] The liquidators gave notice to Mr Stewart under s 261 of the Companies Act requiring him to provide them, “with all Company books and/or records in your
5 Eversons International Ltd (in liq) v Stewart [2020] NZHC 3188.
6 At [40].
7 At [40].
possession including, but not limited to, details of all the Company’s assets, including overseas investments”. The liquidators also required Mr Stewart:
to provide the information requested (in writing), by no later than 14 January 2021, to the offices of KPMG, Level 5, 79 Cashel Street, Christchurch Central, Christchurch, 8013.
[31]The liquidators also summonsed Mr Stewart:
to attend an examination on oath or affirmation pursuant to s 265 of the Act. The date for the examination has been set down for 21 January 2021 at 2pm, at the offices of KPMG, Level 5, 79 Cashel Street, Christchurch Central, Christchurch, 8013.
[32]The s 261 notice was served on Mr Stewart on 21 December 2020.
[33] By email dated 19 January 2021, Mr Stewart advised the liquidators that he was no longer in possession of the company’s books or records as they had been delivered to Mr Oorschot. He also said the overseas investments were payments made to his father in Australia and, “the company is no longer the beneficial owner of these amounts.”
[34] Mr Stewart attended with his lawyer at the offices of the liquidator for examination on 21 January 2021. There is an unchallenged transcript of the examination. The liquidators say Mr Stewart failed to provide any meaningful information they could use to identify the overseas investments. I agree with that assessment.
[35] At times, Mr Stewart variously denied knowledge or understanding of the company’s accounts, denied managing the investments, denied knowledge of who within the company managed the investments, denied knowing what large amounts paid from the company’s bank account were used for, denied knowing what the investments were but said the investments had “flopped”.
[36] As an example, Mr Stewart referred to an investment in units he said he had built with his father in Arundel, Australia. He could not say in whose name the units had been registered, how much was invested, give a street address for the units or say
when they were sold. He said he had never gone to them but they had been sold at a loss.
[37] Mr Stewart did indicate he might be able to find further information relevant to the investments. The examination was adjourned on the basis the liquidators would write to Mr Stewart setting out the information they required him to provide. Mr Stewart was told that if he did not provide the information the examination would be resumed, but the liquidators reserved their position to have him examined before the Court.
[38] On 21 January 2021, Mr Oorschot advised the liquidators he had located a folder containing the company’s coded bank statements. Mr Oorschot couriered that folder to the liquidators but it arrived after Mr Stewart’s examination.
[39] On 25 February 2021, the liquidators’ solicitors received a letter from Mr Stewart’s lawyers, Layburn Hodgins, requesting the liquidators’ further questions be sent to them by Tuesday, 2 March 2021 at the latest.
[40] The liquidators requested further information from Mr Stewart on 2 March 2021. They asked this be provided by no later than 23 March 2021 and they confirmed that his examination would resume on 24 March 2021.
[41] On 19 March 2021, Layburn Hodgins wrote to the liquidators raising issues regarding the manner in which the examination had been conducted and a number of other issues. There is no suggestion in the letter that Mr Stewart would not attend the examination on 24 March 2021 but he did not attend.
[42] On 29 March 2021, the liquidators responded to Layburn Hodgins’ letter of 19 March 2021 and advised that in light of Mr Stewart’s continued uncooperative position they would apply under s 266 of the Companies Act that he be examined before the Court. This application followed.
[43] As something of a post-script, during the examination Mr Stewart referred to a solicitor who had received company funds for investment but he could not remember
her full name or any contact details for her. He had referred to the same solicitor in his affidavit in opposition to the application for summary judgment. On 31 March 2021, counsel instructed by the liquidators (Mr Tingey), requested contact details for the solicitor. On 1 April 2021, Layburn Hodgins replied with, “contact details of Mr Evan Stewart’s lawyer in Australia used for the “Investment Development for Eversons International …”. Mr Tingey contacted the solicitor who advised that she was unaware of and did not act for the company and had no authority to provide information. Mr Tingey wrote to Layburn Hodgins asking that authority be given to the solicitor to provide information. Layburn Hodgins did not respond to Mr Tingey’s request.
The statutory provisions
[44] The relevant statutory provisions are ss 261 and 266 of the Companies Act which provide as follows:
261 Power to obtain documents and information
(1)A liquidator may, from time to time, by notice in writing, require a director or shareholder of the company or any other person to deliver to the liquidator such books, records, or documents of the company in that person’s possession or under that person’s control as the liquidator requires.
(2)A liquidator may, from time to time, by notice in writing require
---(a)a director or former director of the company; or
(b)a shareholder of the company; or
(c)a person who was involved in the promotion or formation of the company; or
(d)a person who is, or has been, an employee of the company; or
(e)a receiver, accountant, auditor, bank officer, or other person having knowledge of the affairs of the company; or
(f)a person who is acting or who has at any time acted as a solicitor for the company---
to do any of the things specified in subsection (3).
(3)A person referred to in subsection (2) may be required
---(a)to attend on the liquidator at such reasonable time or times and at such place as may be specified in the notice:
(b)to provide the liquidator with such information about the business, accounts, or affairs of the company as the liquidator requests:
(c)to be examined on oath or affirmation by the liquidator or by a barrister or solicitor acting on behalf of the liquidator on any matter relating to the business, accounts, or affairs of the company:
(d)to assist in the liquidation to the best of the person’s ability.
…
266 Powers of court
(1)The court may, on the application of the liquidator, order a person who has failed to comply with a requirement of the liquidator under section 261 to comply with that requirement.
(2)The court may, on the application of the liquidator, order a person to whom section 261 applies to
---(a)attend before the court and be examined on oath or affirmation by the court or the liquidator or a barrister or solicitor acting on behalf of the liquidator on any matter relating to the business, accounts, or affairs of the company:
(b)produce any books, records, or documents relating to the business, accounts, or affairs of the company in that person’s possession or under that person’s control.
Where a person is examined under subsection (2)(a),
---
(a)the examination must be recorded in writing; and
(b)the person examined must sign the record.
(4)Subject to any directions by the court, a record of an examination under this section is admissible in evidence in any proceedings under this Part, section 383, subpart 6 of Part 8 of the Financial Markets Conduct Act 2013, or section 44F of the Takeovers Act 1993.
The liquidators’ position
[45] Mr Tingey referred me to the liquidators’ primary statutory duty, which is to take possession of, protect, realise, and distribute the assets, or the proceeds of the realisation of the assets, of the company to its creditors in a reasonable and efficient manner.8
[46] Primarily, the liquidators wish to examine Mr Stewart in relation to the company’s financial accounts and overseas investments. They say, although the company’s financial accounts show overseas investments of over $6,500,000 they have not been able to locate any documents evidencing such investments nor proof that such investments have ever existed. Mr Tingey argues that plainly the liquidators
8 Companies Act 1993, s 253(a).
wish to examine Mr Stewart in respect to matters relating to the business, accounts or affairs of the company for the purposes of s 266.
[47] Mr Tingey also submits it is necessary for the liquidators to further examine Mr Stewart and that such an examination will not impose any unreasonable burden on him. Mr Stewart is the most logical, and possibly only, source of information concerning the existence, nature and location of the investments and the means of recovering them. All he is required to do is identify the investments, where they are, who is holding them, and provide such documents as he has relevant to them. Being the sole shareholder and director of the company it must be expected that Mr Stewart is in possession of this information, particularly as he has, over several years, approved the company’s financial accounts stating both the existence and value of the overseas investments.
[48] Mr Tingey also submits the information sought is of great value and significance to the conduct of the liquidation and there is a substantial public interest in recovering the investments to pay arrears of tax.
[49] Mr Tingey acknowledges the company (through the liquidators) is pursuing Mr Stewart in other proceedings. He submits there is nothing oppressive about that, and it has been held that provided a liquidator is not seeking to bring pressure to bear upon a person against whom proceedings may have been issued for an ulterior purpose he or she will be allowed to examine.
Mr Stewart’s submissions
[50] Mr Clay submits there are several factors that favour the application being declined. I summarise them below.
Mr Stewart has complied with requests for information
[51] Mr Clay submits Mr Stewart has complied with the liquidators’ requests for information. He says Mr Stewart provided information/documents to the first
liquidator, attended the examination on 21 January 2021, and provided the contact details of the Australian solicitor.
The order sought is unnecessary
[52] Mr Clay submits a further examination of Mr Stewart is unnecessary. He says the liquidators are able to proceed with their claims against Mr Stewart without such an examination. He notes Mr Stewart has deposed he has no company books or records in his possession as these were handed over to Mr Oorschot. In addition, Mr Clay submits, the liquidators have Mr Stewart’s evidence concerning the investments in the other proceedings taken by the liquidators against him and Bionutrient and his answers during the examination of 21 January 2021. Furthermore, the liquidators have the usual tools available under the High Court Rules 2016, including discovery and interrogatories, to obtain any further information they require from Mr Stewart.
The order sought is oppressive
[53] Mr Clay submits a further examination of Mr Stewart would be oppressive. The oppression is said to arise from the fact the liquidators have issued proceedings against Mr Stewart and those proceedings remain extant. As I understand it, there are two limbs to the argument.
[54] First, while Mr Clay accepts a liquidator can apply to examine in such circumstances, he says no such order has ever been made in this country. Absent any authority, Mr Clay submits a liquidator should not have the benefit of both a proceeding (with the accompanying rights to seek discovery and the benefit of other tools of the High Court Rules), as well as permission to cross-examine under s 266.
[55] Second, Mr Clay submits there is the possibility that as a result of an examination Mr Stewart may be deprived of the limitation defence he has raised against the liquidators’ claim on his shareholders current account.
The background to the claim
[56] Next, Mr Clay submits the reason for the failure of the company is something the Court should have regard to. He submits the company failed because overnight the Government made it illegal to sell its products. He notes the Commissioner is the sole creditor and all taxes had previously been paid, aside from “the allegation” of unpaid income tax. He submits Mr Tingey’s description of the Commissioner as an “involuntary” creditor is incorrect, but if that is the case, so too was the company involuntarily caught in unforeseen circumstances.
Delay
[57] Mr Clay submits there has been considerable delay in making this application. He says this should count against making an order as liquidators are required to complete a liquidation within a reasonable time.
There is no prejudice in refusing the application
[58] Mr Clay submits there is no prejudice to the liquidators by a refusal of the application that outweighs Mr Stewart’s right to defend the claim filed against him.
The meeting of 21 January 2021
[59] Finally, Mr Clay argues the examination of 21 January 2021 was conducted unfairly and used to cross-examine Mr Stewart and “create” evidence against him in relation to the unresolved litigation.
Discussion
Jurisdiction
[60] Section 266 was considered by the Court of Appeal in Finnigan v Ellis.9 There, liquidators had commenced proceedings against former directors of a company and also wished to examine them under s 266 to ascertain the prospects of recovering any
9 Finnigan v Ellis [2017] NZCA 488, [2018] 2 NZLR 123.
money judgment they might obtain from the directors. The Court identified the key question on appeal was:10
… whether the High Court has jurisdiction under the Companies Act 1993 to order [a director] to disclose privately-held personal financial information about his means (private financial information) for the purpose of establishing his judgment worthiness. …
[61] After considering authorities in New Zealand and overseas, the Court recognised that liquidators may obtain an order under s 266 against an examinee whom they have issued proceedings or are contemplating doing so. The Court said:11
[20] However, ss 261 and 266 and their former equivalents have been used to gather information relevant to proof of the elements of a civil claim against the examinee. In Carrow Holdings Ltd v Sadiq Heath J found the liquidator could obtain information under s 261 to ascertain information about the evidential strength of the claim brought against Mr Sadiq. The fact this litigation was extant was no bar to the section’s use. McGechan J took much the same approach in Re Northrop Instruments & Systems Ltd in relation to s 262A of the Companies Act 1955, although in that case a civil claim against the examinee was merely contemplated. This is as far as New Zealand courts have taken the use of ss 261 and 266 when it comes to gathering information relevant to such civil litigation from examinees. In reaching their respective conclusions each of the Judges carefully considered existing New Zealand law and English law on this subject, focusing primarily on the factors relevant to the exercise of discretion rather than the jurisdictional question now under consideration.
[62] The Court concluded s 266 does not authorise the obtaining of an examinee’s private information for the purposes of ascertaining whether they can meet any money judgment that may be obtained against them.12 The reason was the phrase “any matter relating to the … affairs of the company” in s 266 was limited to information about the company’s management, accounts and the handling of its business affairs (including its assets and liabilities). It did not extend to private financial information from a prospective defendant who happens to fall within the category of person nominated by s 261.13
10 At [3].
11 (footnotes omitted).
12 At [48].
13 At [38] and [39].
[63]The Court said:
[41] We are not satisfied that information about a former director’s financial position can be construed as “any matter relating to” the company’s “affairs”. While information about a director’s acts or omissions when acting in his or her former office falls into that category, information about his or her judgment worthiness does not. The plain purpose of the examination powers is to enable the liquidator to determine whether there is a sufficient evidential basis for a claim to recover assets of the company from a third party or parties. In our judgement, express words would be required before the provisions could be read as extending to the financial worth of a defendant.
[64] The Court noted in both England and Australia the Courts had proceeded on the basis that statutory powers to order an examination are broad and subject only to the exercise of discretion. They preferred an approach that first determines whether the law authorises the examination that is sought as a question of jurisdiction.14
[65] Following the approach in Finnigan, the first issue to consider is whether the Court has jurisdiction to make the orders sought. Mr Stewart was the company’s sole shareholder and director and a person to whom s 261 applies.15 He is therefore a person who the Court may, in the exercise of its discretion under s 266(2), order to be examined before the Court, “on any matter relating to the business, accounts, or affairs of the company” and produce documents in his possession or control.16 Here, the liquidators wish to examine Mr Stewart about the company’s business, accounts and only significant asset. These are plainly matters relating to the affairs of the company. The Court has jurisdiction to make the orders sought.
The exercise of discretion
[66] The next issue is whether the Court should exercise its discretion to order an examination of Mr Stewart.
[67] In Concrete Structures Ltd v NMHB Ltd (in liq), Associate Judge Andrew considered an application by liquidators for orders under ss 261 and 266 of the Companies Act requiring the respondent firm of solicitors to provide documents and
14 At [47].
15 Companies Act, s 261(2)(a) and (b).
16 Section 266(2).
records relating to the affairs of the company.17 The Associate Judge identified the factors generally relevant to the exercise of the Court’s discretion under s 266(2) which he said included:18
(a)Whether the requirement of the liquidator is reasonably necessary for the discharge of his or her functions and duties;
(b)Whether the requirement of the liquidator would impose unnecessary and unreasonable burdens on the person the subject of the liquidator’s notice (mere inconvenience or additional work is not however sufficient reason to validly oppose the liquidator’s application);
(c)The alternative legal procedures which are available to the liquidator (bearing in mind that pre-trial discovery is now firmly part of the litigation process);
(d)The nature of the proposed proceedings (if any are contemplated) and whether the person concerned would be made more vulnerable to future claims as a result;
(e)Whether the person the subject of the notice or the proposed order is a former officer or employee of the company or someone else who has provided services to the company; and
(f)The nature and significance of the information sought and the public interest in the information.
Has Mr Stewart complied with requests for information?
[68] Mr Stewart has not been cooperative with the liquidators, nor has he complied with all requests for information. In relation to the matters he relies upon to demonstrate his compliance, I note the following.
[69] The information provided to Mr Oorschot contains no detail of the overseas investments. Mr Stewart failed to respond to Mr Oorschot’s letter of 13 April 2018 requesting those details. Mr Stewart failed to respond to the liquidators’ request under s 261 that he attend a meeting with the liquidators in February 2020. He has not provided satisfactory details (or any proof of existence) of overseas investments to the present liquidators despite their requests also.
17 Concrete Structures Ltd v NMHB Ltd (in liq) [2020] NZHC 1218.
18 At [42].
[70] While Mr Stewart attended the examination of 21 January 2021, he provided no useful information concerning the nature or existence of the investments. Mr Stewart’s denials of knowledge are not credible. Notably, the examination was adjourned on the basis he would provide further information and attend another examination if the information was not provided. He did not provide that further information and failed to attend a further examination.
[71] Mr Stewart did provide contact details of the Australian solicitor, but she was unaware of, and did not act for, the company. Mr Stewart did not respond to a request that the solicitor be given authority to provide information to the liquidators.
Are the orders sought necessary?
[72] I am satisfied that the orders sought are necessary for the liquidators to fulfil their primary duty under s 253 of the Companies Act. The information Mr Stewart has provided to date is quite inadequate. I am satisfied he is in possession of further information that will assist the liquidators to identify assets of the company or, if no such assets exist, trace company funds. Examining Mr Stewart further is both the logical and responsible step the liquidators should take to recover any assets or funds. Given his uncooperative attitude, I consider that such examination should be before the Court.
[73] I reject, for several reasons, Mr Clay’s submission the tools available to the liquidators under the High Court Rules in the proceeding against Mr Stewart are a suitable substitute for a Court ordered examination under s 266.
[74] First, disclosure in that proceeding will be defined by the pleadings and limited to the matters in issue. It will not extend to all matters concerning the business, accounts and affairs of the company.
[75] Second, Mr Stewart is applying to strike out that proceeding and if successful no disclosure will be obtained.
[76] Third, the liquidators can have no reason to expect Mr Stewart to be any more cooperative in providing disclosure than he has been to date.
[77] Fourth, there will invariably be delays in obtaining disclosure. At the present time the liquidators have no knowledge of what assets exist, where they are, who holds them, against whom they may be recovered, what claims will need to be made and what defences may be raised in relation to such claims. It has been over eight years since the relevant transactions occurred. Any further delays could prejudice the liquidators’ recovery of any assets or funds.
The background to the claim
[78] Mr Stewart is aggrieved about the circumstances causing the company’s failure. This has no bearing on the issue of whether he should be required to cooperate to locate company assets.
Delay
[79] I cannot see any prejudice to Mr Stewart as a result of delay. In any event, such delay has been caused or contributed to by Mr Stewart who has, since April 2018, failed to respond to requests for information concerning the investments.
Is there prejudice in refusing the application?
[80] For reasons stated above, there is obvious prejudice to the liquidators and the company if the application is refused.
The meeting of 21 January 2021
[81] In so far as there are any valid criticisms to be made of the process adopted at the prior examination (and I need not consider if there are) there is no suggestion Mr Stewart has been prejudiced. If anything, his expressed concerns suggest that an examination before the Court is the most appropriate manner of conducting any future examination.
Are the orders sought oppressive?
[82] The submission it would be oppressive to require Mr Stewart to be examined before the Court might be thought surprising when one considers that if the liquidators were to recover the overseas investments, that would potentially result in two positive outcomes for Mr Stewart. First, if the debt owed to the Commissioner and costs of the liquidation were paid, the liquidators’ claims against Mr Stewart would fall away. Second, any surplus would be distributed to him as the sole shareholder. But that is not his position.
[83] Mr Clay’s submissions proceeded on what I consider is an erroneous basis that in making this application the liquidators’ primary purpose is to obtain, or even “create”, evidence against Mr Stewart in support of the proceeding that they have taken against him. I am satisfied that, in fact, the liquidators’ primary purpose is to identify, locate and recover the company’s assets. In doing so they are acting for the benefit of the company and its creditors. That is consistent with their primary statutory duty.
[84] As noted, Mr Stewart’s contentions are two-fold. First, that there is a lack of authority supporting the making of an order in the circumstances of this case. Second, that as a result of an examination, Mr Stewart may be deprived of the limitation defence.
[85] There is nothing in the first point. It is not a bar to the making of an order under s 266 that a liquidator has issued or is contemplating issuing other proceedings against the examinee. This was recognised by the Court of Appeal in Finnigan19 and also in other decisions of this Court.20
[86] The authorities recognise the need for caution to ensure that liquidators do not use their powers to obtain an unfair or improper advantage in the course of or for the
19 Finnigan v Ellis, above n 9, at [20].
20 Re Cory-Wright & Salmon Ltd (in rec and in liq) (1989) 4 NZCLC 65,180; Carrow Holdings Ltd (in liq) v Sadiq HC Auckland CIV-2007-404-2855, 5 June 2008 at [29]-[33]; ANZ National Bank Ltd v Sheahan [2012] NZHC 3037, [2013] 1 NZLR 674; Re Northrop Instruments & Systems Ltd [1992] 2 NZLR 361 (HC); Sargison v McCabe [2012] NZHC 3194 and Norrie v Sutich [2013] NZHC 2495.
purpose of litigation and that what is unfair must be determined on the particular facts of each case.21 Generally speaking, however, as long as a liquidator is not seeking to bring pressure to bear on a potential litigation adversary for some “ulterior purpose”, he or she will be allowed to examine.22
[87] I am satisfied the liquidators are bringing this application for a genuine and proper purpose and so turn, then, to the second matter. Mr Clay submits, if examined before the Court Mr Stewart will be required to sign the record of examination23 which might contain a late acknowledgment of liability and start time running anew in respect to the liquidators’ claim to recover his shareholders current account.24
[88]Section 47(1) and (2) of the Limitation Act 2010 provide:
47 Acknowledgment or part payment
(1)This section applies if the claimant proves that, after the start date of a claim’s primary period, longstop period, or Part 3 period, the defendant—
(a)acknowledged to the claimant in writing a liability to, or the right or title of, the claimant; or
(b)made a payment to the claimant in respect of a liability to, or the right or title of, the claimant.
(2)If this section applies, the claimant is deemed for the purposes only of this Act to have a fresh claim on the day after the date, or the latest of the dates, on which an acknowledgment or part payment was given or made.
[89] I do not consider the submission advanced is well-founded for several reasons. First, it is not clear to me a record of the examination could be admitted in evidence in proceedings to recover Mr Stewart’s shareholders current account or as an acknowledgment under s 47.
[90] Sections 266(4) and 267 of the Companies Act provide for the use to which the record of examination may be put in other proceedings. They do not include a civil proceeding for recovery of debt. They do include any misfeasance proceedings under pt 16 of the Companies Act which includes an action under s 301. While the
21 Re Cory-Wright & Salmon Ltd (in rec and in liq), above, n 20, at 11.
22 ANZ National Bank Ltd v Sheahan, above n 20, at [59].
23 Companies Act, s 266(3).
24 Limitation Act 2010, s 47.
liquidators are making a claim against Mr Stewart under s 301, it is accepted that Mr Stewart has no limitation defence to that claim.
[91] Furthermore, in circumstances where an examinee is giving evidence under compulsion of the Court and is required to sign the record of interview I struggle to see how that would amount to an “acknowledgment to the claimant in writing” for the purpose of s 47(1)(a) of the Limitation Act.
[92] Neither counsel addressed these issues and I do not need to decide them for the reasons that follow.
[93] Second, in ordering an examination the Court will, obviously, exercise control over the process and will limit questions which it regards as unfair. I consider, apposite what Peter Gibson LJ said in Shierson v Rastogi, that:25
… the Court in ordering an examination does not give carte blanche to the questions which may be asked of the witness at the examination, and if a particular line of inquiry is oppressive or if there are good reasons why particular questions should not be answered it is the right and duty of the court to limit the enquiry.
[94] Third, the hypothetical risk that Mr Clay identifies must be balanced against other factors. Those factors include the amounts at stake, the benefits to be derived from the examination, that the examination is required because Mr Stewart has been uncooperative, and that the risk Mr Stewart would make a late acknowledgement is exceedingly small. As Mr Tingey submits, Mr Stewart has deposed in other proceedings the payments debited to his shareholders account were not drawings but investments on behalf of the company and he has no liability to repay those sums. For Mr Stewart to acknowledge not only that the payments were not investments but his personal drawings and that he accepts a liability to repay them would represent a major change of position. There is no suggestion he would ever possibly make such acknowledgements.
[95] Fourth, the position can be put beyond doubt by the Court requiring, as a condition of making an order for Mr Stewart’s examination, that the liquidators
25 Shierson v Rastogi [2002] EWCA Civ 1624, [2003] 1 WLR 586 at [43].
provide an undertaking to the Court and to Mr Stewart they will not rely on the record of the examination in other proceeding as an acknowledgment for the purposes of s 47 of the Limitation Act. Mr Tingey advises that such an undertaking will be provided.
Conclusion
[96] The Court has jurisdiction to make the orders sought. The liquidators have made this application for proper reasons for the benefit of the company and its creditors and in accordance with their primary duty. The examination of Mr Stewart is necessary given his repeated failure to cooperate with the liquidators. I consider conducting a further examination of Mr Stewart is the most logical, reasonable and possibly only means by which the liquidators will be able to identify any assets of the company. I do not consider an examination will be unduly burdensome upon Mr Stewart, nor will it be oppressive. In so far as there is any risk Mr Stewart may, by reason of the examination, lose the benefit of a limitation defence that can be entirely avoided in the manner I have identified. The order sought should be made.
Result
[97]The application is successful. There shall be an order under s 266(2)(a) and
(b) of the Companies Act 1993 that:
(a)Mr Stewart is to attend before the High Court at Christchurch on 10 August 2021 at 10 am to be examined on oath or affirmation before a Judge or Associate Judge of the High Court by a barrister or solicitor on behalf of the liquidators on any matter relating to the business, accounts or affairs of the company; and
(b)Mr Stewart shall by 27 July 2021 produce to the liquidators any books, records or documents relating to the business, accounts and affairs of the company that are in his possession or under his control.
[98] The order in [95(a)] is conditional upon the liquidators providing, prior to the examination, to the Court and Mr Stewart’s solicitors a written acknowledgment that they will not rely on the record of the examination in any other proceedings as an
acknowledgment under s 47 of the Limitation Act 2010 by Mr Stewart of liability to pay any sum owing in respect of his shareholders current account.
[99] The liquidators are entitled to costs on a 2B basis plus reasonable disbursements, including costs of air travel for Mr Tingey.
O G Paulsen Associate Judge
Solicitors:
Martelli McKegg, Auckland
Layburn Hodgins Limited, Christchurch
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