Finnigan v Butcher
[2012] NZHC 810
•27 April 2012
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2011-488-301 [2012] NZHC 810
UNDER the Companies Act 1993
IN THE MATTER OF DRAGON FLYTE FARM LIMITED (In
Liquidation)
BETWEEN PERI FINNIGAN AND ROY HORROCKS
Applicants
ANDCARL DAVID GEORGE BUTCHER AND LYDIA KATE BUTCHER
Respondents
Hearing: 28 March 2012
Appearances: R Hern for Applicants (liquidators)
C D G Butcher, Respondent in person
R N Holdaway for AJ and RV Burgess (shareholders of Dragon Flyte) No appearance for L K Butcher
Judgment: 27 April 2012
RESERVED JUDGMENT OF ASSOCIATE JUDGE BELL
This judgment was delivered by me on 27 April 2012 at 4:30pm
pursuant to Rule 11.5 of the High Court Rules.
.......................................
Registrar/Deputy Registrar
Solicitors:
McElroys (Richard Hern) P O Box 835 Auckland 1140, for liquidators
Email: [email protected]
Norwest City Law (R N Holdaway), Waimauku Village Centre 0812
Email: [email protected]
Copy for:
R V and A J Burgess, Turkey Flat Road, RD1, Te Kopuru 0391
Carl Butcher, 8 Settlers Way, RD 1 Okaihau 0475Email: [email protected]
Case Officer: [email protected]
FINNIGAN AND HORROCKS V BUTCHER AND BUTCHER HC WHA CIV-2011-488-301 [27 April 2012]
[1] The liquidators of Dragon Flyte Farm Ltd have applied for directions under s 284 of the Companies Act 1993. Mr Butcher also applied to the court for directions in respect of the liquidation. He sought leave to sue the company under s 248 of the Companies Act. This decision addresses matters in terms of the liquidators’ application, but also covers the matters which Mr Butcher raised in his application.
[2] Dragon Flyte Farm Ltd was incorporated on 4 December 2003. The company was a joint venture between two couples, Robert and Alison Burgess and Carl and Lydia Butcher. The Burgesses are the parents of Mrs Butcher. On incorporation there were 100 shares owned as follows:
68 shares owned by Robert and Alison Burgess and Hammonds Trustees Ltd as trustees of the Robert and Alison Burgess Family Trust;
28 shares owned by Carl and Lydia Butcher and Hammond
Trustees Ltd as trustees of the Carl and Lydia Family Trust;
1 share owned by Robert Burgess;
1 share owned by Alison Burgess;
1 share owned by Carl Butcher; and
1 share owned by Lydia Butcher.
The Burgess interests had 70 per cent of the original shareholding and the Butcher interests had 30 per cent.
[3] The Burgess’ shares were originally owned by the Robert and Alison Burgess
Family Trust. Those shares were later re-settled into the Burgess Family Trust on
15 December 2009. The trustees of the Burgess Family Trust were the same as the trustees of the Robert and Alison Burgess Family Trust until the resignation of Hammond Trustees Ltd.
[4] In February 2010 there was a shareholders’ resolution that the company be put into liquidation. The resolution appointed a Stephen Kim Bennett and Tim Hoyle of Whangarei as liquidators. The Burgesses and Butchers signed the resolution, but Hammonds Trustees Limited did not. Hammonds Trustees Limited resigned as shareholder of the Burgess Family Trust on 18 May 2010. It resigned as trustee of the Butcher Family Trust on 12 January 2011. Mr Dennis, a director of Hammonds Trustees Ltd, has said in an affidavit that Hammonds Trustees Ltd would have signed the resolution, because of the inability of the directors and shareholders to conduct the business of the company and the company’s inability to pay a debt owing to the Inland Revenue Department.
[5] In September 2010 Mr and Mrs Butcher filed an application under CIV-2010-
488-630 seeking a declaration that Mr Bennett and Mr Hoyle had not been validly appointed liquidators. They also sought directions from the court as to the conduct of the liquidation. The matters they challenged were the liquidators’ sale of cattle which they said belonged to them as assets of the company, the liquidators’ issue of trespass notices against them, the acceptance of the Burgesses’ current account at
$450,386.00, the liquidators’ acceptance of a claim by Trounson Valley Sawmill and
alleged neglect of assets of the company.
[6] At a hearing on 22 February 2011 Mr Bennett and Mr Hoyle were prepared to step aside as liquidators and allow other liquidators to be appointed in their place, without conceding that they were wrongly appointed. I made a fresh order that Dragon Flyte Farm Ltd be put into liquidation on the grounds that the company was unable to pay its debts and that it was just and equitable that it be put into liquidation. There was admitted insolvency. There was also a loss of trust and confidence between the Butchers and the Burgesses resulting in a deadlock of the management of the company. I appointed the present liquidators.
[7] In my minute of 22 February 2011, I did not decide whether Mr Bennett and
Mr Hoyle had been validly appointed liquidators. I expressly reserved the point.[1]
Issues
[1] Re Dragon Flyte Farms Ltd: Butcher & Ors v Bennett and Hoyle HC Whangarei CIV-2010-
488-630, 22 February 2011 at [12].
[8] The liquidators raise these matters:
(a) The liquidators seek declarations that the company is the registered proprietor and legal owner of a property at 590 Trounson Park Road, Donnelly’s Crossing, and that Mr and Mrs Butcher do not have any legal or beneficial interest in the property;
(b)They seek ancillary orders upholding their right to issue a trespass notice against the Butchers, for the removal of a caveat lodged by the Butchers and allowing them to disregard a trespass notice served on them by the Butchers;
(c) They seek declarations that they may sell the property at
590 Trounson Park Road and directions as to sale;
(d) They seek directions for the return of personal chattels to the
Butchers;
(e) They seek authorisation to pay liquidators’ fees to the former
liquidators, as well as payment of their own fees; and
(f) They seek approval of proposed distributions to creditors on the basis
of their acceptance and rejection of creditors’ claims.
[9] Mr Butcher’s case is that the property at 590 Trounson Park Road belongs in equity to himself and his wife, he has been wrongfully excluded from that property and that personal property of his has been wrongfully listed as a company asset. He also seeks inspection of accounting records, including wage records, so that he can claim wages, which he says take priority over other creditors
[10] The farm property at 590 Trounson Park Road is the most significant asset of the company. If the Butchers succeed in their claim to ownership of that asset, there
will be nothing available for creditors of the company nor, for that matter, will there be sufficient funds to pay the costs of the present liquidators.
Some preliminary matters
[11] The breakdown in relations between the Butchers and the Burgesses has played a large part in the failure of the company. The inability to co-operate has been destructive. However, for this decision, it is not necessary to apportion responsibility between the Butchers and the Burgesses for the failure of the company.
[12] In this proceeding, Mr Butcher filed his application in his own name. Mrs Butcher is not a party to his application.
[13] The liquidators’ application names both Mr and Mrs Butcher as respondents. Mr and Mrs Butcher have separated. Mrs Butcher now lives in Australia. She has not appointed a lawyer to act for her in this proceeding. She has not taken any steps in the proceeding. She has not given any evidence. Mr Butcher says that he has been in contact with his wife. I take it from that that she has been informed of steps in the proceeding. Mr Butcher has presented arguments that promote the interests of both himself and his wife. However, he is not a lawyer and cannot represent his wife in this proceeding.
[14] Mr Butcher has made strong personal attacks against others. He uses extravagant language, accusing people of fraud, conspiracy and lies. This reflects ineptness in dealing with conflicts. It is a clumsy way of expressing his disagreement with what others have done or said. There is nothing in the evidence that supports his allegations of fraud, conspiracy, lies or other dishonesty. The people he has attacked have shown sensible restraint by not responding in kind to Mr Butcher.
[15] While intelligent, Mr Butcher does not have full understanding of a number of legal and accounting matters. It will be necessary to consider the competing arguments as to the effects of certain transactions and agreements. As part of their
submissions, the liquidators have said that if Mr Butcher signed documents without fully understanding them, then that is something Mr Butcher should take up with his lawyers, who could have advised him as to the effects of the documents. For this decision, I am not concerned with what legal advice Mr Butcher received, if any. Nothing in this decision is intended to reflect adversely on the Butchers’ professional advisers.
[16] The company used a number of professional accounting practices to prepare annual financial statements. Mr Butcher says that in a number of cases Mrs Burgess alone gave instructions for financial statements to be prepared. Nothing in this judgment is intended to reflect adversely on the accountants practices who were instructed to prepare financial statements.
The approach to liquidators’ applications for directions
[17] The liquidators’ application under s 284(1)(a) of the Companies Act 1993 seeks directions in relation to matters arising in connection with the liquidation. Australian courts, applying a similar provision,[2] have held that the court should not make a commercial decision for the liquidator.[3] In Re Spedley Securities Ltd (In
Liq), Giles J said:[4]
It is generally not appropriate in an application for directions to make the liquidator’s commercial decisions for him where he has full power to act. ... And the liquidator should not seek directions as a kind of insurance that he has made the right commercial decision.
[2] Corporations Act 2001(Aus), s 479(3).
[3] Shiraz Nominees Ltd (In Liq) v Collinson (1985) 3 ACLC 706.
[4] Re Spedley Securities Ltd (In Liq) (1992) 10 ACLC 1742 at 1744-55 and see Re Ansett Australia
Ltd v Korda (2002) 40 ACSR 433 at 451 to similar effect.
[18] This is a general approach. Australian courts have also recognised that where a liquidator’s decision is criticised by creditors as being unreasonable or as evidence of bad faith, the liquidator can seek directions from the court.[5] Courts will do this
even when a commercial decision is involved.
[5] Re Addstone Pty Ltd (In Liq) (1997) 25 ACSR 357 at 363.
[19] If the court accepts that an application by a liquidator is appropriate, it ought to provide a direction, rather than leave the liquidator floundering.[6]
[6] The Lemon Tree Passage v Districts RSL & Citizens Club Co-Operative Ltd (1988) 6 ACLC 24 at 26.
[20] There is a view in Australia that the power under s 479(3) of the Corporations Act should not be used to bind third parties to a liquidation in relation to substantive issues. In G B Nathan Co Pty Ltd (In Liq), McLelland J said: [7]
Modern Australian authority confirms the view that s 479(3) does not enable the court to make binding orders in the nature of judgments and that the function of a liquidator’s application for directions is to give him advice as to his proper course of action in the liquidation; it is not to determine the rights and liabilities arising from the company’s transactions before the liquidation.
[7] Re G B Nathan & Co Ltd (In Liq) (1991) 24 NSWLR 674.
[21] However, that is not universally followed.[8] Australian courts have allowed a liquidator’s application for directions to be used to determine substantive rights if the court is satisfied that the persons affected consent to that action. In England, liquidators’ applications for directions have been used to determine substantive rights, with the courts noting that it is a matter for the discretion of the judge whether the court should entertain such an application.[9]
[8] ASC v Melbourne Asset Management Nominees Pty Ltd (1994) 12 ACLC 364 at 376-379.
[9] Re Shilena Hosiery Co Ltd [1980] Ch 219 and Re Clasper Group Services Ltd (1988) 4 BCC 673.
[22] Mr Butcher has attacked the liquidators’ integrity. He has accused them of bias and worse. It was appropriate for the liquidators to apply to the court for directions, given Mr Butcher’s challenges to their conduct of the liquidation. The liquidators’ application does require the determination of substantive rights, especially the decision whether the Butchers have any beneficial interest in the property at 590 Trounson Park Road. The procedure under s 284 provides a way to decide these issues more quickly than if the parties were to take other proceedings by way of notice of proceeding and statement of claim. Mr Butcher has not objected to
the procedure under s 284 being used to determine substantive rights.
Facts
[23] The business of Dragon Flyte Farm Ltd was farming. The company bought a property at 588 Trounson Park Road, Donnelly’s Crossing. The company took title to the farm. It was operated primarily as a dairy farm. The differential shareholding in the company between the Burgesses and the Butchers reflects the differences in the contributions they made to the equity.
[24] Mr Butcher says that the property at 588 Trounson Park Road should not have been bought in the name of the company. He says that the role of the company was simply to hold Fonterra shares but it was not intended that the company should own the land. Documents contemporaneous with the purchase of the 588 Trounson Park Road point to the company having taken title. The vendors’ tax invoice for the purchase of the property is addressed to Dragon Flyte Company Ltd. The statement of account by the solicitors who acted on the purchase is addressed to Dragon Flyte Farm Ltd, care of the Butchers’ address. The settlement statement is also addressed to Dragon Flyte Company Ltd. The mortgage taken by the Bank of New Zealand shows Dragon Flyte Farm Ltd as mortgagor.
[25] Mr Butcher’s claim is belied by the recitals of a deed of 18 March 2005. The
parties to the deed are the shareholders and the company. Recital 3 says:
At the request of Carl and Lydia and Robert and Alison, Dragon Flyte Farms Ltd purchased the farm property at Trounson Park Road on 1 June 2004, such purchase including land and buildings, plant and machinery, livestock and Fonterra shares.
That recital reflected that the company owned the property at 588 Trounson Park Road both legally and beneficially. The recitals also record the unequal contributions towards the equity in the company. Mr Butcher is bound by the deed. He cannot now contend that the ownership of the property at 588 Trounson Park Road is not as it was recorded in the deed. This is a case of estoppel by deed.
[26] The parties entered into the deed of 18 March 2005 because of differences that had arisen, said to have threatened the stability and continuity of the farming enterprise and the company. There is a recital that the parties had agreed on certain
matters to resolve outstanding issues. Their agreement in the deed and their undertaking to comply with the terms of the deed were given on the basis that each party forbore from taking any legal action against the other or against or in respect of the company. Under the deed, the shareholders agreed not to sell their shares in the company without the consent of the other parties for a period of five years from
1 June 2005. The Burgesses and their trusts also agreed not to make any demand on the company for any current account or capital account debt owed to them for a period of five years from 1 June 2005.
[27] Mr and Mrs Butcher and their trust agreed not to make any demand on the company for any current account or capital account for a period of five years from
1 June 2005, except that any current account debt accrued as unpaid salary. As a further provision, they would have a salary of $25,000 gross for the year ending
31 May 2005 and the sum of $50,000 for each of the following dairy seasons until
31 May 2011. Mr and Mrs Butcher were to continue to manage and operate the farm and to supply all labour required. They were also to use their best endeavours to maintain and improve production and profitability. The Burgesses were no longer to live on the farm, with the company to contribute $150.00 per week towards their rental costs.
[28] The Butchers were to have day-to-day financial management of the farm operation including the payment of all accounts. Bank statements and financial records of the company were to be made available to both the Butchers and Burgesses on request.
[29] Mr Butcher contends that under this agreement, at the end of five years the farm was to be made over to him and his wife. However, there is no provision in the agreement to that effect. There is an entire agreement clause:
25This agreement sets the entire agreement and understanding between the parties concerning the resolution of the shareholding disputes concerning the activities of DFF Limited.
[30] This was a deed intended to set out comprehensively a means of resolving differences between the parties. If it had been intended that the farm property, the major asset of the company, was to be made over to the Butchers at the end of a
given period, I would have expected that to have been recorded in writing at the time. There would also have been related provisions to show how the Burgesses were to be paid out.
[31] Instead, the deed shows an arrangement between the parties under which: the Butchers were left with day-to-day management and control of farming operations; the Burgesses moved off the property (apart from an arrangement with limited access); the Butchers were to be paid for their labour in managing the farm; and both parties agreed not to make demands for repayment of their shareholders’ accounts for five years.
[32] Mr Butcher and Mr Burgess were the initial directors of the company. As part of the new arrangements under the deed of 18 March 2005 they resigned. Mrs Butcher and Mrs Burgess were appointed directors and have remained directors.
[33] In 2006 the company bought an adjoining property at 590 Trounson Park Road for $300,000 plus GST. The company took title to 590 Trounson Park Road in its own name. The company borrowed from the ANZ National Bank and at the same time repaid its indebtedness to the Bank of New Zealand. The debt to the ANZ National Bank has since been repaid.
[34] On 5 March 2009 there was a mediation. The mediator was Mr Richard Alspach, who is well-known in Northland farming circles as a mediator and arbitrator in share-milking disputes. The Butchers and the Burgesses entered into a written agreement recording matters they had agreed on. Mr Butcher relies on that agreement in support of the claim to own 590 Trounson Park Road.
[35] The property at 588 Trounson Park Road was sold in June 2009 and the proceeds of sale were used to repay debt. With the sale of the property at 588
Trounson Park Road, the company ceased to operate as a dairy farm.
[36] Mr Butcher has lodged a caveat against the title to the farm at 590 Trounson Park Road. The interest claimed in the caveat is “pursuant to a deed of agreement for sale and purchase in respect of the land contained in the above certificate of title
made between the registered proprietor, as vendor, and the abovenamed caveator, as
purchaser.”
[37] There are different opinions as to the value of the property at 590 Trounson Park Road. Mr Butcher has put in evidence a valuation by a registered valuer that suggested a value of $380,000 plus GST. Evidence from the liquidators suggests that it is more likely to sell in the range of $250,000-$280,000.
[38] The liquidators have accepted the following proofs of debt:
Inland Revenue $94,844.05
Russell Turner $4,029.75
Kevin Reid Contracting Co Ltd $7,062.50
ACC levy $1,293.95
Maasden Ltd $18.10
Dargaville Bed Centre $105.20
Mr and Mrs Butcher
(contract payments/wages) $128,375.00
Carl Butcher capital advance $85,350.00
Robert and Alison Burgess $460,878.00
Trounson Valley Saw Mill Ltd $4,289.39
$786,245.94
Of the debt owed to Inland Revenue, $79,899.50 is preferential, leaving a balance of
$14,944.48 which is not preferential.
[39] Mr Butcher contests the decisions of the liquidators to fix the value of the claim by his wife and himself at a total of $213,725.00 and to fix the value of the claim by the Burgesses at $460,878.00
[40] The liquidators say that their fees and disbursements are now over $100,000. They say that 58 per cent of that is directly attributable to dealing with complaints
and objections with Mr Butcher, in trying to reach settlements and resolving matters with him. The previous liquidators claimed fees of about $45,000 but so far no payment of fees to the earlier liquidators has been made.
Ownership of 590 Trounson Park Road
[41] There is clear evidence that the company bought the adjoining property at
590 Trounson Park Road in its own name. The liquidators have put in evidence contemporaneous documents supporting this.
[42] All the shareholders signed a shareholders’ resolution under s 129 of the Companies Act for the purchase of 590 Trounson Park Road by the company. The directors of the company, Mrs Burgess and Mrs Butcher, signed a client authority and instruction form in favour of the company’s solicitors for the transfer of the farm into the name of the company and for the granting of a mortgage to the ANZ National Bank. The company is shown as the mortgagor of the ANZ National Bank mortgage. Mrs Butcher and Mrs Burgess, as directors, signed the mortgage. The agreement for the sale and purchase for 590 Trounson Park Road shows Dragon Flyte Farm Ltd as purchaser and is signed by the directors of Dragon Flyte Farm Ltd. A letter of 5 June 2007 from the company’s lawyers addressed to Mr and Mrs Butcher, records completion of the purchase in the name of the company.
[43] The deed of 18 March 2005 was made before the purchase of 590 Trounson Park Road. It does not support any claim that the Butchers were to have a beneficial interest in land owned by the company, as opposed to shares in the company.
[44] Mr Butcher refers to the agreement of 5 March 2009 made at the mediation with Mr Alspach.
[45] The agreement included these provisions:
1. That the parties agreed to wind up the Equity Partnership in the following way:
a.Shares in Fonterra are to be sold with the proceeds reducing debt, effective at time of payment;
b.the herd and plant are to be sold, effective 1/6/2009, the proceeds to reduce debt.
NB:
Some of tools were the property of Carl before the establishment of the Partnership, and to the extent they are identified they remain his property.
Carl will have the opportunity buy any of the plant at valuation.
Robert and Alison own a car trailer which is still on the property.
2. The land is to be leased out and put on the market for sale simultaneously. It is the intention to sell the land no later than
31/5/2011.
[46] The provision for sale of the land is inconsistent with any agreement that the
Butchers were to have the land.
[47] The agreement also provided:
4.The parties have agreed that they each have made capital contributions over the last four years.
Robert and Alison Burgess by way of cash injection in the 08/09 season.
Carl and Lydia by way of accepting a lower wage than that detailed in Cl 6-P.3 of their Deed of Agreement.
Both made contributions of dairy cows at the beginning of the agreement. Carl 9 Cows R & A 5 Cows
5.The parties agree that the amounts mentioned in 4 above will alter their respective shares in the partnership, on a nett present day value basis.
6.The parties agree to let their accountant, Trappit and Ewenson, do the calculation as to what the current share percentage should be. This based on full disclosure of the details surrounding 4 and 5 above, and it is consistent with clause 13(c) P 4 of the deed of agreement.
[48] These provisions are again inconsistent with an intention that the land should be made over to Mr and Mrs Butcher. Instead there is provision for the Butchers for
having worked at reduced remuneration by adjusting the numbers of shares held by the Butchers and the Burgesses.
[49] Mr Butcher says that letters written by Mrs Burgess support his claim to ownership. These are letters sent by Mrs Burgess on 18 March 2009 to creditors asking for accounts to be closed. Those letters are consistent with the company ceasing operation as a dairy farm, but they are not evidence that the Butchers were to become owners of 590 Trounson Park Road.
[50] Mr Butcher’s claim is, in summary, that by reason of some equity, he and his wife are entitled to the property at 590 Trounson Park Road. However, there is no agreement that Mr Butcher can enforce against the company that would require the court to hold that he and his wife are entitled in equity to the property.
[51] Although he did not raise any arguments along these lines, I also find that he could not use doctrines such as proprietary estoppel or constructive trust to generate any claim to an interest in 590 Trounson Park Road. He provided services to the company as a working shareholder. An appropriate recognition for that is for the company to credit him with earnings, which would be reflected in entries in the shareholders’ accounts.
[52] Dragon Flyte Farm Ltd, not Mr or Mrs Butcher, is the registered proprietor of
590 Trounson Park Road. The Butchers do not have any beneficial interest in the property which would defeat the company’s ownership of the property. Instead they are unsecured creditors and shareholders of the company. It follows that they do not have a caveatable interest. The relief I will grant will include an order for removal of the caveat.
[53] The liquidators are entitled to exercise the powers of the company, which include the powers to exclude Mr Butcher from the property. The liquidators have issued Trespass Act notices against Mr Butcher. They were entitled in law to do so.
[54] The liquidators’ power to sell or otherwise dispose of the property of Dragon Flyte Farm Ltd is set out in clause (g) of the Companies Act 1993. 590 Trounson Park Road is an asset of the company, which the liquidators may sell. The directors do not have the power to carry out the sale; any such power expired when the
company went into liquidation.[10]
[10] Companies Act 1993, s 248(1)(b).
[55] The liquidators seek directions to allow them to continue with the sale without interference. The specific directions they seek are:
(a) that they may immediately proceed with the marketing and sale of the property on an “as is where is” basis with a reputable agent of their choice;
(b)that the Butchers are not to interfere with the sale of the property in any way and are otherwise prohibited from attending the property during the marketing and sale of the property without the liquidators’ prior written consent and that they may impose conditions on any such visit as they consider necessary;
(c) any sale achieved by the liquidators in the range of $270,000 plus is acceptable;
(d)that the liquidators are to have complete freedom to accept any offer to purchase the property for $270,000; and
(e) that the liquidators may use the services of the Butchers and the Burgesses at their discretion to assist with rectifying the property to an appropriate standard for sale (if needed).
[56] The liquidators seek these directions because they say that Mr Butcher has prevented and obstructed the sale of the property by threatening a real estate agent,
threatening a neighbour who was a potential purchaser, threatening other prospective purchasers and threatening to take ownership of any cows grazed on the property. The liquidators have issued a trespass notice against Mr Butcher preventing him from entering the property. They also say that underwriters have refused to insure any property that has anything to do with Mr Butcher.
[57] As to the security of the property, the liquidators are entitled to exercise the powers of the company, including its powers to enforce its rights to exclusive possession, as by issuing notices under the Trespass Act. They may use those powers against the company’s shareholders and directors.
[58] They are also entitled to carry out work on the property to put it into a saleable state. They may use the services of others to carry out that work, including the Butchers and the Burgesses.
[59] The directions as to mode of sale and price to be achieved on sale seek a commercial decision from the court. While some evidence as to the state of the property has been provided, I have not seen the property. I am not able to assess the merits of varying evidence as to the likely sale price of the property. It would not be sound to give directions to the liquidators as to the mode of sale, or as to the price at which the property should be sold. As liquidators, they are experienced in disposing of and realising company assets. They will know how to take advice as to the most effective way of marketing the property. I also expect them to be competent to negotiate a price for the sale of the property. I should not prescribe any price which they might wish to achieve. It is up to them, taking due care to obtain the best price on the current market, whatever that price might be.
Return of Mr Butcher’s personal belongings
[60] Mr Butcher sought the return of his personal belongings and the liquidators seek directions as to their return. After discussion, it was agreed that the liquidators may send Mr Butcher’s personal belongings to Mr Butcher at his current address at
8 Settlers Way, Okaihau.
[61] Mr Butcher claims priority for his wife and himself as preferential creditors because they provided services for the company as employees. He claims that they are entitled to priority under clause 1(2)(a) of the Seventh Schedule of the Companies Act:
(2) After paying the claims referred to in subclause (1), the liquidator must next pay, to the extent that they remain unpaid, the following claims:
(a) subject to clause 3(1), all wages or salary of any employee, whether or not earned wholly or in part by way of commission, and whether payable for time or for piece work, in respect of services provided to the company during the 4 months before the commencement of the liquidation:
[62] There is priority only for remuneration during four months before the commencement of the liquidation. Under clause 3(1) the maximum amount that can be claimed for priority is $18,700. However, the Butchers’ claims do not qualify for priority because they do not come within the definition of “employee” under clause
3(4)(b):
Employee means any person of any age employed by an employer to do any work for hire or reward under a contract of service (including a home worker as defined in section 5 of the Employment Relations Act 2000); but does not include a person who is, or was at any time during the 12 months before the commencement of the liquidation, a director of the company in liquidation, or a nominee or relative of, or trustee for, a director of a company.
[63] The Butchers are within the exclusion. Mrs Butcher was a director at the commencement of the liquidation, whether that is the date of the resolution of 26
February 2010 or the date of my order of 22 February 2011. Because they do not qualify as “employees”, they do not have priority for their claims for unpaid holiday pay or unpaid wages. They rank alongside other unsecured creditors.
Amounts of claims of Butchers and Burgesses
[64] The liquidators have not described how they fixed the amounts of the debts claimed by the Butchers and the Burgesses. Mr Butcher contests the amounts of the
claims. He complains that he has not been given access to company records. Under the deed of 2005 the Butchers had an entitlement to remuneration for services they provided for the company. A chartered accountant who was retained to prepare financial statements for the company, sent an email to the Butchers on 24 February
2005, explaining that salary would not be credited against drawings when the company was not making a profit. I do not question that as accounting practice. However, the Butchers may have an entitlement to remuneration in terms of the deed of 2005, even if the company was not making a profit. There is no evidence whether the liquidators have addressed this question. Given this uncertainty, I am not able to uphold the liquidators’ decision as to the amount of the Butchers’ claim at this stage. The matter requires evidence. Directions need to be given for a further hearing.
[65] I have no doubt that Mr Butcher would take it ill if the court were to examine his claim in its entirety, without also examining the claim of the Burgesses. At present there is not enough information before the court to uphold the liquidators’ acceptance of the amounts of the Burgess’ claims.
Liquidators’ claim to immunity
[66] The liquidators sought a direction that no party, specifically the Butchers, would have a basis to claim against them and that they will have a complete defence to any claim in relation to any steps the liquidators take to discharge the orders they may have sought.
[67] Section 284 has its own provisions giving protection to liquidators who act in accordance with directions given by the court:
(3) Subject to subsection (4) of this section, a liquidator who has—
(a) Obtained a direction of a Court with respect to a matter connected with the exercise of the powers or functions of liquidator; and
(b) Acted in accordance with the direction—
is entitled to rely on having so acted as a defence to a claim in relation to anything done or not done in accordance with the direction.
(4) A Court may, on the application of any person, order that, by reason of the circumstances in which a direction was obtained under subsection (1) of this section, the liquidator does not have the protection given by subsection (3) of this section.
[68] That covers the position. It is not necessary for the court to give any further directions. Moreover, I cannot see that the court can give directions of the type sought by the liquidators which are at variance with the terms of the legislation.
Remuneration of former liquidators
[69] The liquidators seek a declaration that they may pay the remuneration of the former liquidators. The validity of their appointment has not been established. If they have not been validly appointed, it is not clear that they are entitled to remuneration. The former liquidators are not yet parties to this proceeding. They should have the opportunity to be heard before any decision as to their remuneration.
Sale of cattle by former liquidators
[70] Mr Butcher also claims that the former liquidators sold livestock that belonged to him rather than to the company. Mr Butcher raised the same issue in the proceeding CIV-2010-488-630. In my minute of 22 February 2011, I identified those claims against the former liquidators as tort claims. In my decision of
23 March 2011, I transferred that aspect of the Butchers’ claim to the District Court for determination as the amounts claimed were within the jurisdiction of that court. Mr Butcher is entitled to continue his claim in respect of the livestock in the District Court. It does not require determination in this proceeding.
Disposition
[71] I make the following orders:
(a) There are declarations as follows:
(i)That the property at 590 Trounson Park Road, being the land described in identifier NA919/239 (North Auckland registry) is a wholly-owned asset of the company.
(ii)That Carl David George Butcher and Lydia Kate Butcher do not have any interest in the land at 590 Trounson Park Road.
(iii) That the liquidators are entitled to sell the property at
590 Trounson Park Road.
(iv)That the liquidators are entitled to exercise the powers of the company to retain exclusive possession of the property at
590 Trounson Park Road. Those powers include the issue of notices under the Trespass Act.
(v)The liquidators are to take proper steps to obtain the best price reasonably obtainable for the sale of the property at
590 Trounson Park Road, but are entitled to exercise their commercial judgment in how they go about selling the property.
(vi)The liquidators are entitled to use the services of others, including the Burgesses and the Butchers, to put the property at 590 Trounson Park Road into saleable condition.
(b)I order that caveat 880171.1 be removed from identifier NA919/239 under s 143 of the Land Transfer Act 1952.
(c) I declare that the liquidators are entitled to return Mr Butcher’s
personal assets to him by delivering them to 8 Settlers Way, Okaihau.
(d)I declare that the claim by the liquidators for remuneration has priority under clause 1 of the Seventh Schedule.
(e) I declare that the Inland Revenue is a preferential creditor to the sum of $79,899.57 under clause 1(5) of the Seventh Schedule.
(f) I declare that all other creditors are unsecured creditors of the company (saving the claim by the former liquidators which is not decided).
(g)I uphold the liquidator’s acceptance of the claims for all creditors, save for the amounts of the claims of the Butchers and Burgesses and any claim for remuneration by the former liquidators.
[72] I also give these further directions:
There will be a telephone case management conference on 7 June 2012 at
8:30am for one hour. The parties to take part in the conference should include the liquidators, the former liquidators, the Burgesses and the Butchers. Any party may be represented by a lawyer of their choice.
[73] The purpose of the conference will be to give directions for a hearing of these matters:
(a) The validity of the appointment of the former liquidators and their entitlement, if any, to remuneration.
(b) The amounts of the claims of the Butchers and the Burgesses.
[74] The liquidators have largely succeeded in their application and ordinarily are entitled to costs. The liquidators are to file a memorandum as to costs within five working days. Anyone opposing any orders as to costs sought by the liquidators should file a serve a memorandum in response within a further 10 working days. Provisionally my view is that no costs order should be made against Mrs Butcher as she did not take any part in the proceeding.
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R M Bell
Associate Judge
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