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Finnigan v Ellis

Finnigan v Ellis

Case [2018] NZHC 1146 22 May 2018

Directors Duties

Directors' Liability

Reckless Trading

Breach of Directors' Duties

Joint and Several Liability

Corporate Law & Governance

Corporate Law

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2016-404-001590

[2018] NZHC 1146

IN THE MATTER of the liquidation of WENZTRO CO- OPERATION LIMITED (IN
LIQUIDATION) formerly called Trojan Foods (NZ) Limited

AND

IN THE MATTER

of an application by liquidators and a

creditor under s 301 of the Companies Act 1993

BETWEEN

PERI MICAELA FINNIGAN and BORIS VAN DELDEN

Plaintiffs

AND

BRIAN ROBERT ELLIS

First Defendant

GERALD NORMAN WILLIAMS

Second Defendant

JAMES NEIL BLACK

Third Defendant

Hearing: 12, 13, 14, 15, 19, 20, 21, 22 and 26 February 2018 (further memorandum filed for Mr Ellis on 8 March 2018)

Appearances:

K J Crossland, J K Boparoy and A Alipour for Plaintiffs W C Pyke for First Defendant

G N Williams in person (G Bogiatto having been excused) J N Black in person

Judgment:

22 May 2018

JUDGMENT OF WYLIE J

This judgment was delivered by Justice Wylie
On 22 May 2018 at 12.00pm Pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:……………………

FINNIGAN v ELLIS [2018] NZHC 1146 [22 May 2018]

Table of Contents

Introduction.......................................................................................................... [1]

The evolving pleadings........................................................................................ [4]

Issues resolved.................................................................................................... [12]

Remaining issues................................................................................................ [17]

Factual background........................................................................................... [19]

Incorporation/Business structure................................................................... [19]
WHT’s order................................................................................................... [31]
Kiwi Goods Ltd’s order.................................................................................. [83]
Truby King Ltd............................................................................................... [89]
The liquidation of Wenztro............................................................................. [92]

Reliability/credibility of Mr Ellis – positions taken by Messrs Williams

and Black........................................................................................................... [102]

Was Mr Black a shadow and/or de facto director of Wenztro?.................... [107]

De jure, de facto and shadow directors........................................................ [107]
Mr Black’s role............................................................................................. [114]

Did Mr Ellis resign on 6 April 2012 and, if he did resign, did he remain a shadow and/or a de facto director of Wenztro thereafter?....................................................... [129]

Directors duties – preliminary observations................................................. [135]

Did the directors agree to, or cause or allow, Wenztro’s business to be carried on in a manner likely to create a substantial risk of serious loss
to the company’s creditors?............................................................................ [137]
When the directors agreed to Wenztro incurring various obligations, did they believe on reasonable grounds that Wenztro would be able to
perform those obligations when it was required to do so?........................... [157]
Did the directors exercise their powers and perform their duties as directors with the care, diligence and skill that reasonable directors
would have exercised in the same circumstances?........................................ [176]
Relief................................................................................................................. [180]

Setting aside under s 294(5) of the Act........................................................ [180]
Section 301 contribution – interest – liability as between directors............ [181]

Costs.................................................................................................................. [194]

Introduction

[1] The plaintiffs are the liquidators of Wenztro Co-operation Ltd (in liquidation) (Wenztro).

[2] The first defendant, Mr Ellis, who is a lawyer and businessman, and the second defendant, Mr Williams, who is a businessman and formerly banned director, were de jure directors of Wenztro. Mr Ellis says that he resigned as a director on 6 April 2012. The liquidators say that even if he did resign as from that date, he…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Finnigan v Ellis

Details

AGLC: Finnigan v Ellis [2018] NZHC 1146
Case: [2018] NZHC 1146
Decision Date: 22 May 2018

CaseChat Overview and Summary

The case of Finnigan v Ellis was heard in the High Court of New Zealand and involved a dispute over the liquidation of Wenztro Co-operation Ltd (Wenztro). The plaintiffs, Peri Micaela Finnigan and Boris Van Delden, were the liquidators of Wenztro, and they sought recovery from the defendants, Brian Robert Ellis, Gerald Norman Williams, and James Neil Black, for alleged breaches of directors' duties under the Companies Act 1993. The court had to decide whether the defendants were de facto or shadow directors of Wenztro and whether they breached their duties as directors.

The court found that Mr Black was a shadow and, at times, a de facto director of Wenztro. Despite his bankruptcy, he was involved in the company's operations and had control over the de jure directors. Mr Ellis, on the other hand, was found to have continued acting as a de facto director even after his alleged resignation. The court held that all three defendants breached their duties as directors under sections 135, 136, and 137 of the Companies Act 1993. They were found to have engaged in reckless trading, agreed to incur obligations without reasonable belief that Wenztro could perform them, and failed to exercise the care, diligence, and skill that reasonable directors would have exercised.

As a result of these findings, the court ordered the defendants to contribute to the company's losses in full, jointly and severally, along with interest. The court also set aside two general security agreements under section 294(5) of the Act. Finally, the court directed that any application for costs and disbursements be filed within 10 working days of the date of the judgment, with memoranda not to exceed 10 pages.

Orders