Fisk - Brothers Beer Holdings Limited
[2024] NZHC 1290
•23 May 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-1167
[2024] NZHC 1290
UNDER Part 16 of the Companies Act 1993 and Part 19 of the High Court Rules 2016o IN THE MATTER
of an application by JOHN HOWARD ROSS FISK and STEPHEN ROBERT
WHITE of Auckland, licensed insolvency practitioners, as deed administrators o BROTHERS BEER HOLDINGS LIMITED, BROTHERS BEER LIMITED and BROTHERS WHOLESALE LIMITED (all
subject to deed of company arrangement)
Telephone conference: 22 May 2024 Counsel:
A R MacDuff and S F White for the Applicants
Judgment:
23 May 2024
JUDGMENT OF WHATA J
This judgment was delivered by me on 23 May 2024 at 10.00am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ………………………….
Solicitors:
Mr A R MacDuff and Mr S F White, Russell, McVeagh, Auckland
RE FISK AND WHITE [2024] NZHC 1290 [23 May 2024]
[1] This matter comes before me on the Duty Judge list under urgency as the orders are needed in advance of a creditors meeting this Friday 24 May 2024
[2]It is an application for without notice orders:
(a)Granting leave to proceed by way of originating application without notice; and
(b)Notwithstanding s 280(2)(a) of the Companies Act 1993 (the Act) the applicants may be appointed liquidators of the company.
[3]Section 280(2)(a) of the Act states:
280 Who may be appointed as liquidator
(2)Unless the court orders otherwise, the following persons are disqualified from being appointed or acting as a liquidator of a company:
(a)a creditor of the company:
Background
[4] The background to this matter is usefully set out in the affidavit of Stephen Robert White in support of the originating application. I repeat his account here for ease of reference:
Appointment as voluntary administrators
5.On 7 August 2023, under s 2391 of the Companies Act 1993 ("Act"), the directors of Brothers Beer Holdings Limited, Brothers Beer Limited and Brothers Wholesale Limited (All Administrators Appointed) (together, the "Companies"), appointed Mr Fisk and me as the joint and several administrators of the Companies. True copies of the:
(a)instruments appointing Mr Fisk and me as joint and several administrators of the Companies; and
(b)company extract for each of the Companies are annexed.
6.The Companies are a brewery and hospitality business that is comprised of three companies:
(a)Brothers Beer Holdings Limited (subject to deed of company arrangement) is a parent company for the Companies and does not have any assets other than investment in the two subsidiaries.
(b)Brothers Beer Limited (subject to deed of company arrangement) operates the hospitality businesses out of six locations throughout Auckland (see below).
(c)Brothers Wholesale Limited (subject to deed of company arrangement) is a craft brewery and wholesale business that operates from the Mt Eden premises. It primarily supplies domestic supermarkets and liquor stores and is branching into the export market.
7.At the commencement of administration, the business operated out of six locations throughout Auckland. Following our appointment, we closed four non-performing sites and made a number of staff redundant, in order to streamline the business down so that it only operated out of two key sites. As administrators, we oversaw the sale of surplus assets and initiated new trade agreements with relevant suppliers in order for the business to continue to trade through the administration period.
8.On 11 September 2023 we held a Watershed meeting of creditors of the Companies, and the creditors voted to accept a deed of company arrangement that was proposed by certain shareholders ("DOCA"). A true copy of the DOCA is annexed.
9.Accordingly, Mr Fisk and Mr White| were appointed as Deed Administrators on 11 September 2023.
The deed administration of the Companies
10.Since our appointment as Deed Administrators we have:
(a)ensured that the DOCA was executed by all parties;
(b)issued all relevant statutory notifications of our appointment to the Registrar of Companies, creditors and other required parties;
(c)communicated with the Companies’ creditors regarding the recording and admittance of their claims. Where queries arose with respect to specific claims, additional information was sought in order to admit the claims;
(d)monitored the status of shareholder equity contributions pursuant to the DOCA (noting that certain contributions remain outstanding at the date of this letter);
(e)attended to the payment of the initial DOCA distribution to creditors, being 40% of the total distribution provided for by the DOCA;
(f)discussed Brothers Beer’s operating performance with the Board and Management, including requesting and reviewing financial information and attending meetings; and
(g)prepared statutory reports.
11.The Companies' current cash position and financial performance is materially worse than was forecasted by the directors and management of the Companies at the time the DOCA was entered into, as a result of:
(a)weaker than anticipated trading results;
(b)lower than anticipated asset sale recoveries;
(c)unanticipated additional working capital requirements associated with certain suppliers declining to provide ongoing credit to the Companies; and
(d)a key supplier ceasing to trade with the Companies.
12.The Companies are required to apply certain equity contributions and trade receipts in accordance with the payment waterfalls set out in the DOCA. We understand that, as a result of the poor trading performance of the Companies, funds of approximately $150,000 have been utilised for working capital purposes and have not been applied in accordance with the DOCA.
13.We consider this constitutes a fundamental non-compliance with the terms of the DOCA and are of the opinion that this is a "material breach" of the DOCA.
14.We, by way of our lawyers, have notified the director (who is also one of the shareholders) of the Companies that we consider a material breach of the DOCA has occurred. A true copy of this letter is annexed to this affidavit. .
15.As at the date of this affidavit, the breach has not been rectified and we have been advised that no further capital will be provided by the shareholders of the Companies (beyond what is anticipated in the DOCA).
16.We have notified creditors of this by way of letter, a true copy of which is annexed to this affidavit.
17.For the above reasons, Mr Fisk and I consider that the DOCA is no longer viable.
[5] Mr Fisk and Mr White consider it would now be in the interests of the creditors to terminate the DOCA and place the companies into liquidation. They have convened a meeting of the creditors pursuant to s 239(F) the Act, which is currently scheduled to take place at 10 am on Friday 24 May 2024, for the purpose of voting on resolutions
to terminate the DOCA and appoint Mr Fisk and Mr White as liquidators of each of the companies. They also consider that they are appropriately qualified to discharge that liquidation. Of course, however, due to their appointment as administrators and deed administrators for the companies they have incurred the following costs which they are entitled to recover pursuant to ss 239O and 239ACK of the Act:
(a)$154,835.40 (inclusive of GST) of remuneration as administrators of the Companies;
(b)$53,801.00 (inclusive of GST) of remuneration as deed administrators of the Companies;
(c)$44,120.00 (inclusive of GST) of costs and expenses incurred in the administration of the Companies; and
(d)$11,261.29 (inclusive of GST) of costs and expenses incurred in the deed administration of the Companies.
Submissions
[6] Dealing first with the application by way of originating procedure it is submitted that:
(a)The Court has consistently recognised that it is appropriate to make an application seeking permission for persons who may be disqualified to be appointed as liquidators by way of originating application; and
(b)The nature of the appointment order is similar to that of directions application in liquidation under s 284 of the Act which is required to be commenced by way of originating application.
[7] In terms of the appointment of potential creditors as liquidators, it is submitted that the purpose of s 280 of the Act is to ensure that persons who are appointed as liquidators have sufficient independence, competency and integrity to carry out those
roles without causing risk to the creditors and/or to third parties.1 It is noted under s 286(4) of the Act, the Court has the ability to order any person to continue as a liquidator notwithstanding disqualification under s 280(2) of the Act. When determining whether to approve the appointment of a liquidator the Court will consider whether there is a risk that the liquidator’s independence and ability to carry out their tasks professionally and effectively may be compromised, assessing the circumstances and taking into account the advantages to the company, shareholders, creditors and other interested parties.2
[8] Counsel advises however, that they are not aware of a situation in New Zealand where an administrator or a deed administrator has sought the Court’s consent to act as liquidator due to its status as a potential creditor for unpaid costs, expenses and remuneration incurred or charged in the course of the administration or deed administration of a company.
[9] Reference is made to an Australian authority Re Jick Holding Pty Ltd,3 where the Supreme Court of New South Wales held that:
(a) Prior to the company being placed into liquidation there was no liability on the part of the company for the deed administrator’s remuneration such that, prior to the liquidation of the company, there was no debtor/creditor relationship between the company and the applicant; and
(b)Notwithstanding the above principle:
(i)The applicant became a creditor upon the company going into liquidation, as a result of the priority for the statutory entitlement to be paid remuneration as set out in the relevant statute; and
1 Re appln Fiber Fresh Feeds Ltd (in receivership) [2019] NZHC 1237 at [8].
2 Referring to Re appl by Jackson [2018] NZHC 2447 at [21][e].
3 Re Jick Holding Pty Ltd [2009] NSWSC 574.
(ii) The application was made after the company had been in liquidation for a period of time.
Assessment
[10] I was initially circumspect about proceeding without notice, given that the underlying premise of the application involves a departure from the evident policy of the Act that creditors should not be appointed liquidators. However, with the benefit of helpful submissions from Mr MacDuff, I am satisfied that the orders sought, in the particular context of this case, are necessary to enable the applicants to be put forward as liquidators and to do so would be consistent with the overall scheme of the Act. Any residual concerns are addressed by the form of the orders, which preserve the rights of potentially affected creditors.
[11] Furthermore, I accept that there is clear authority for the proposition that proceeding by way of originating application is appropriate in this particular context.
As Muir J noted in Re appln Fiber Fresh Feeds Ltd (in receivership):4
[9] This Court has consistently recognised the following principles as applying:
(a)it is appropriate to make an application under s 280 of the Act as originating application under Part 19 of the Hight Court Rules;
(b)without notice applications will be permitted where the interests of justice and creditors interests can fairly be protected in other ways, and also on the basis of undue delay or prejudice to the applicants as potential administrators or liquidators;
(c)where the order is made on a without notice basis, the Court usually directs the order and application to be served on any creditors as the same time and in the same manner as the administrators or liquidators (as applicable) first report, and reserves leave to creditors to apply to vary or set aside the Court’s orders within a certain period of time after service of those orders; and
(d)the Court must have regard to the attitude of the creditors and “stand back” and take into account advantages to the company, its shareholders, creditors and other interested parties when considering the approval of the appointment of an administrator or liquidator in the exercise of the Court’s discretion under s 280.
4 Above n 1, at [9] and [10].
[10] In Re Joeleen Enterprises Ltd, Associate Judge Abbott stated at [18] that:
The critical issue in considering whether the danger of conflict of interests exists due to a continuing business relationship (however that might be defined) is whether there is a risk that the applicant’s independence and ability to carry out her or his task professionally and effectively would be compromised in the particular
circumstances of the case. (footnotes omitted)
[12] Having considered the background facts as set out in the supporting affidavit evidence I agree with the submissions of counsel that the matter should proceed by way of originating application and that I should make the order without notice. The reasons for this are as stated by counsel:
(a) the Applicants are licensed insolvency practitioners and are, in all other respects, qualified to be liquidators of the Companies. They are subject to the ethical codes of RITANZ and CAANZ;
(b) the Applicants and PwC have the resources and expertise to conduct the liquidation of the Companies in a competent, successful manner which promotes the interests of the Companies' creditors as a whole;
(c) the Applicants are familiar with the circumstances of the Companies and their creditors given their previous appointments. Requiring a liquidator to be appointed who is unfamiliar with the Companies and the DOCA would likely increase costs to (and therefore reduce the returns for) creditors;
(d) the fact that the Applicants are owed remuneration by the Companies will not impair the integrity, care, skill, objectivity or independence with which the liquidation will be, and is required to be, conducted;
(e) the Applicants have acted in good faith by taking legal advice as to whether they can accept this appointment and by advising creditors of this application;
(f) the Applicants will be creditors of the Companies only to the extent that they are owed unpaid remuneration, of which they have a statutory entitlement to charge. If the orders set out in the originating application are granted, and the Applicants are appointed by creditors as liquidators of the Companies, the Applicants intend to seek directions from the Court (pursuant to s 284 of the Act) as to the priority of their remuneration charged, and costs and expenses incurred, in relation to the assets of the Companies. The Applicants would comply with any such directions given by the Court; and
(g)the interests of creditors of the Companies will be protected, as:
(i)creditors will have the opportunity to propose alternative liquidators at the creditors meeting scheduled for Friday 24 May 2024;
(ii)notice of this application and any orders made will be disclosed to creditors prior to and at the creditors' meeting scheduled for Friday 24 May 2024; and
(iii)creditors retain the right to challenge remuneration paid out in the liquidation and obtain a Court order that remuneration be fixed or reviewed under s 284 of the Act.
(footnotes omitted)
Result
[13] In the result I make the following orders:
(a)this application be permitted to be made by way of originating application;
(b)the applicants are granted leave to commence these proceedings without notice;
(c)notwithstanding s 280(2)(a) of the Companies Act 1993, the applicants may be appointed as liquidators of the Companies;
(d)notice of this application and a copy of these orders shall be served on all creditors of the companies by:
(i)email, where an email address has been provided to the companies; or
(ii)if a creditor has not provided an email address to the companies, by post to the postal address that has been provided to the companies;
(e)the orders do not impact the rights of creditors of the companies to:
(i)propose an alternative liquidator at the meeting convened by the applicants for creditors to vote on whether the companies are placed into liquidation; and
(ii)challenge the appointment of the applicants as liquidators under the Act; and
(f)reasonable costs of preparing this application are to be an expense in the liquidation of the companies.
Whata J
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