Forrester v Registrar of Companies

[2024] NZHC 1001

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-2963

[2024] NZHC 1001

UNDER

AND

the Companies Act 1993

IN THE MATTER

of an application for restoration of AF Scott Forestry Ltd (removed) to the Companies Register

BETWEEN

IAN TERRENCE FORRESTER

First Applicant

BARBARA JOANNE BOWERS FORRESTER

Second Applicant

AND

REGISTRAR OF COMPANIES

Respondent

Hearing:	On the papers
Appearances:	PJK Spring and WM van Roosmalen for the Applicant No appearance for the Respondent
Judgment:	30 April 2024

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 30 April 2024 at 4 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Keegan Alexander, Auckland

FORRESTER v REGISTRAR OF COMPANIES [2024] NZHC 1001 [30 April 2024]

Introduction and background

[1]                 The applicants, Ian and Barbara Forrester, have filed an originating application for orders to restore AF Scott Forestry Ltd (removed) (Company) to the Companies Register.

[2]                 The Company was incorporated to own and operate two forests in the Port Hills in Christchurch. The Company insured the forests under a standing timber policy.

[3]                 On 13 February 2017, a substantial fire broke out in the Port Hills and the forests were consumed by the fires. The Company filed an insurance claim with its insurer and was paid its claim in full.

[4]                 On 3 February 2020, the shareholders of the Company instructed KPMG to liquidate it as a solvent entity as the forests were no longer being operated. The Inland Revenue Department provided clearance to do so. However, on 7 November 2022, before the solvent liquidation occurred, the Company was removed from the Companies Register for failing to file its annual return.

[5]                 In February 2023, the insurer filed proceedings on behalf of the Company alongside nine other plaintiffs in February 2023 in the High Court in Christchurch.1 The insurer says it is entitled to issue proceedings on behalf of the Company pursuant to its rights of subrogation under the insurance policy to recover the losses incurred as a result of the fires and that the Company is required to assist the insurer in relation to those proceedings.

[6]                 On 6 July 2023, solicitors for the first defendant filed a statement of defence denying that the Company was an incorporated company and stating that it had been removed from the Register.

[7]                 A minute was issued on 10 August 2023 by Associate Judge Lester requiring the Company to apply to be restored.

1      Proceeding number: CIV-2023-409-42.

[8]                 On 31 August 2023, an application was made to the Companies Registrar to restore the Company in accordance with the minute. The Registrar of Companies declined to do so on the grounds that the Company was not “carrying on a business” for the purposes of s 328(1A) of the Companies Act 1993 and so the two-limb test for the Registrar to restore a company had not been met.

[9]                 The applicants have therefore applied to the Court pursuant to s 329 of the Companies Act.

Service

[10]             Affidavits of service have been filed confirming service of the application and the supporting affidavits on:

(a)the     respondent,     the     Registrar     of     Companies,     served     on 7 December 2023 by its counsel;

(b)shareholder of the Company, estate of Helen Mary Graham by its counsel;

(c)director of the Company, Gregory Sean Graham, served on 18 December 2023;

(d)director of the Company, Tania Dorothy Eleanor McGrath, served on 18 December 2023; and

(e)shareholder of the Company, Dean Alan Lindsay Graham, served on 17 February 2024.

[11]             None of these parties have filed a notice of opposition or appearance although the Registrar of Companies has confirmed receipt of the proceedings and that the Registrar abides the decision of the Court and will not appear.

[12]             When an application is made to restore a company the Secretary to the Treasury is usually served because when a company is removed from the Register any assets

revert to the Crown pursuant to s 324 of the Companies Act. In this case, the asset in issue is a right to sue and the directors had previously resolved to appoint liquidators and received clearance from the Inland Revenue Department. In these circumstances, I do not consider the application needs to be adjourned to require service on the Secretary to the Treasury.

[13]             The application is made pursuant to s 329 of the Companies Act. I set this out below before considering the application.

Section 329 Companies Act

[14]Section 329 provides:

329 Court may restore company to New Zealand register

(1)The court may, on the application of a person referred to in subsection (2), order that a company that has been removed from the New Zealand register be restored to the register if it is satisfied that,—

(a)at the time the company was removed from the register,—

(i)the company  was  carrying  on  business  or a  proper reason existed for the company to continue in existence; or

(ii)the company was a party to legal proceedings; or

(iii)the company was in receivership, or liquidation, or both; or

(iv)the applicant was a creditor, or a shareholder, or a person who had an undischarged claim against the company; or

(v)the applicant believed that a right of action existed, or intended to pursue a right of action, on behalf of the company under Part 9; or

(b)for any other reason it is just and equitable to restore the company to the New Zealand register.

(1A) In considering whether to restore a company to the register on the ground referred to in subsection (1)(a)(i) or (b), the court must have regard to the reasons for the company’s removal and whether those grounds existed at the time of removal or exist at the time of the hearing of the application.

(2)The following persons may make an application under subsection (1):

(a)any person who, at the time the company was removed from the New Zealand register,—

(i)was a shareholder or director of the company; or

(ii)was a creditor of the company; or

(iii)was a party to any legal proceedings against the company; or

(iv)had an undischarged claim against the company; or

(v)was the liquidator, or a receiver of the property of, the company:

(b)the Registrar:

(c)with the leave of the court, any other person.

(3)Before the court makes an order restoring a company to the New Zealand register under this section, it may require any provisions of this Act or any regulations made under this Act, being provisions with which the company had failed to comply before it was removed from the register, to be complied with.

(4)The court may give such directions or make such orders as may be necessary or desirable for the purpose of placing the company and any other persons as nearly as possible in the same position as if the company had not been removed from the New Zealand register.

[15]             As the Court of Appeal held in Commissioner of Inland Revenue v Commercial Management Ltd:2

… the provisions concerning removal of a company from the register are designed to ensure that a company is only removed if there is no good reason for it to continue in existence. The controllers of the company and other interested persons are given the opportunity to object to removal for a range of reasons. But there can be cases where a company is removed from the register as a result of an error or oversight, or where circumstances change and it becomes apparent with the benefit of hindsight that there were good reasons for the company to continue in existence. In such cases, a company can be restored to the register.

Do the applicants have a right to apply to restore AF Scott Forestry Ltd to the Companies Register?

[16]             Section 329(1) requires any application to be brought by a party falling within s 329(2).

[17]             At the time the Company was removed, the applicants were both directors and together held 50 per cent of the shares of the Company. They therefore have standing to apply to restore the Company pursuant to s 329(2)(a)(i).

2      Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479 at [29].

Should an order restoring the Company to the Companies Register be made?

[18]             Unlike s 328, s 329(1)(a)(i) allows the Court to restore a company either where it was carrying on business or a proper reason existed for the company to continue in existence, it is not a two-limbed test.

[19]             Section 329(1A) relevantly provides that in considering whether to restore a company under s 329(1)(a)(i), the Court must have regard to the reasons for the Company’s removal and whether those grounds existed at the time of removal or existed at the time of the hearing of the application.

[20]             The applicants submit that at the time the Company was removed from the register, a proper reason existed for the Company to continue in existence, namely:

(a)to comply with its obligations to its insurer under the standing timber policy; and/or

(b)to bring its claims in the High Court against Orion New Zealand Ltd and/or Leisure Investments NZ Ltd Partnership.

[21]             The Company was removed for failure to file its annual return. At the same time, the directors had signed a resolution that liquidators ought to be appointed as it had no further business and no remaining creditors.

[22]             Counsel for the applicants submits that at the time it was removed, at least two of the four directors did not know the Company had obligations of subrogation under its insurance policy and the Company had not been contacted in respect of them.

[23]             The applicants rely on two decisions confirming that a restoration for the purposes of proceedings amounts to a proper reason for restoring a company.

[24]             In John Hammonds & Co Ltd v Registrar of Companies, Hammond J went so far as to say “[c]ases in which this Court declines to restore a company to the Register, for the purpose of proceedings, will be quite unusual.”3

[25]In Re Pranfield Holdings Ltd, Durie J stated:4

… the principle must be that the somewhat peremptory power of the Registrar to remove deadwood from the corporate scene, will not prevail against the rights of those so removed, or of others with whom they have dealt, to reinstate the company to pursue remedies provided by substantive law, unless it is plain that the proceeding, if successful, will still be nugatory. This principle puts grand notions of access to law ahead of mere rules for administrative ease.

[26]             I consider that the first ground, that a proper reason existed for the Company to continue in existence, is satisfied in this case because the Company is required to comply with its obligations to its insurer. Whether the Company or its directors were aware of its obligations of subrogation under its insurance policy or not prior to its removal does not affect this conclusion.

[27]             I consider that a proper reason therefore existed at the time the Company was removed for the Company to continue in existence and I therefore make an order for restoration.

Should any ancillary orders be made?

[28]             Section 329(3) provides that before making a restoration order, the Court may require the company to comply with any provisions of the Companies Act with which the company had failed to comply before it was removed.

[29]             The Company was removed for failure to file an annual return. When a company is restored to the Companies Register, it continues in existence as if it were never removed.5 I therefore include a direction that the Company is to file annual returns for any years missed and to comply with any other filing requirements.

3      John Hammonds & Co Ltd v Registrar of Companies [1999] 3 NZLR 690 (HC) at [57].

4      Re Prantield Holdings Ltd (2001) 9 NZCLC 262,577 at [20].

5      Companies Act 1993, s 330(2).

Result

[30]             The application to restore AF Scott Forestry Ltd to the Companies Register is granted.

[31]             The Company is to file any outstanding annual returns and comply with any other filing requirements to bring the Companies Register up to date by 31 May 2024.

Associate Judge Sussock