Francis v Innes - [2022] NZHC 3354

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-2292

[2022] NZHC 3354

UNDER the Companies Act 1993

IN THE MATTER OF

PODULAR HOUSING SYSTEMS LIMITED (IN LIQUIDATION)

BETWEEN

BENJAMIN BRIAN FRANCIS
and
SIMON DALTON as liquidators of Podular Housing Systems Ltd (In Liquidation)
First Applicants

ILAN GROSS
Second Applicant

AND

CHARLES INNES

Respondent

Hearing: On the papers

Appearances:

Bret Gustafson for the Applicants

Judgment:

12 December 2022

JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

[Appointment of liquidators]

This judgment was delivered by me on 12 December 2022 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules

………………………….
Registrar/Deputy Registrar

Solicitors:
Crimson Legal (Alden Ho), Epsom, Auckland, for the Applicants
Copy for:
B D Gustafson, Auckland, for the Applicants

FRANCIS v INNES [2022] NZHC 3354 [12 December 2022]

[1] The first applicants, Benjamin Brian Francis and Simon Dalton, as liquidators of Podular Housing Systems Limited (In Liquidation) (the Company), and the second applicant, Ilan Gross, as the 95 per cent shareholder of the Company, have applied to the Court for the following directions and/or orders:

By the first applicants under s 284(1)(a) of the Companies Act 1993 (the Act)

(a)The First Applicants seek directions and/or orders:

(i)Confirming the first applicants have been duly appointed as liquidators of the Company by way of shareholders’ special resolution passed on or about 25 November 2022;

(ii)alternatively, appointing the first applicants as liquidators of the Company;

(iii)costs against the respondent.

By the second applicant under s 241(2)(c)(iii) of the Act by the second applicant

(b)In the alternative to the directions and/or orders sought by the first applicants in [1](a) above, the second applicant seeks the following orders in his capacity as shareholder of the Company:

(i)appointing the first applicants as liquidators of the Company;

(ii)costs against the respondent.

Background

[2] The Company was incorporated on 28 July 2020. It was in the business of building and selling architecturally-designed modular buildings.

[3] The second applicant was a 95 per cent majority shareholder of the Company. The respondent, Mr Charles Innes, is a 5 per cent shareholder in the Company. The respondent was also the sole director of the Company.

[4]On or about 22 July 2022, the Company entered into:

(a)a general security agreement with the second applicant for $220,000 (GSA);

(b)a general security agreement with Lumen Business Solutions Ltd (the
Lumen GSA). The second applicant is the sole director of Lumen Business Solutions Ltd (Lumens). The sole shareholder is Daniel Gross.

[5]On or about 29 September 2022, the Company entered into:

(a)a deed of variation with the second applicant increasing the maximum priority under the GSA to $2,500,000; and

(b)a deed of variation with Lumens impressing the maximum priority under the Lumens GSA to $2,500,000.

The Company unable to pay its debts

[6] Even with a further transfer of funds from the second applicant and Lumens, the Company was still not able to pay its debts as…

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 Francis v Innes

Details

AGLC: Francis v Innes [2022] NZHC 3354
Case: [2022] NZHC 3354
Decision Date: 12 December 2022

CaseChat Overview and Summary

The High Court of New Zealand heard an application concerning the appointment of liquidators for Podular Housing Systems Limited, a company engaged in the business of building and selling modular buildings. The first applicants, Benjamin Brian Francis and Simon Dalton, sought to be confirmed as liquidators appointed by a shareholders' resolution on 25 November 2022. Alternatively, they sought an order appointing them as liquidators. The second applicant, Ilan Gross, the majority shareholder, sought the same relief in the alternative. The respondent, Charles Innes, a minority shareholder and the sole director, opposed the appointment of the first applicants as liquidators. The crux of the dispute lay in the validity of the shareholders' resolution and the suitability of the first applicants for the role of liquidators.

The central legal issues for the Court to determine were whether the first applicants were validly appointed as liquidators under the Companies Act 1993 and, if not, whether they should be appointed by the Court. The Court had to consider the statutory requirements for appointing liquidators and assess whether the first applicants' appointment would serve the best interests of the Company’s creditors and shareholders. The Court also needed to evaluate the arguments regarding the independence and suitability of the proposed liquidators.

The Court first considered the validity of the shareholders' resolution appointing the first applicants. It noted that the resolution did not comply with section 122 of the Companies Act 1993, which requires a higher percentage of shareholder approval. The Court decided that it was inappropriate to validate the appointment under section 284(1) of the Act because the resolution contravened another section of the Act. Therefore, the first applicants' request for validation was dismissed. Turning to the second applicant’s alternative application, the Court found that appointing the first applicants as liquidators was in the best interests of the Company’s creditors and shareholders. The Court was satisfied that the first applicants were experienced and independent, and their appointment would ensure a prompt and efficient liquidation process. Consequently, the Court appointed the first applicants as liquidators under section 241(2)(c)(iii) of the Act.

The Court's orders included dismissing the first applicants' request for validation of their appointment, appointing the first applicants as liquidators of Podular Housing Systems Limited, and reserving the matter of costs.

Orders