Gair v Scaife
[2023] NZHC 3638
•12 December 2023
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2023-485-774
[2023] NZHC 3638
UNDER section 284 of the Companies Act 1993 and pt 19 of the High Court Rules IN THE MATTER
of Shazwal Investments Ltd (in liquidation)
BETWEEN
HEATH LESLIE GAIR as liquidator of Shazwal Investments Ltd
First Applicant
SHARON MARGARET SCAIFE (NEE WOODLEY)
Second Applicant
AND
WARREN BRENT SCAIFE
Respondent
Hearing: 11 December 2023 Appearances:
E J Horner and A D Goble for the Applicants D P MacKenzie for the Respondent
Judgment:
12 December 2023
JUDGMENT OF ASSOCIATE JUDGE SKELTON
[1] The first applicant applies by way of originating application under ss 283 and 284 of the Companies Act 1993 for the following orders/directions:
(a)that the first applicant was validly appointed as liquidator of Shazwal Investments Ltd (in liq) (the Company) on or about 19 September 2023;
GAIR v SCAIFE [2023] NZHC 3638 [12 December 2023]
(b)that the first applicant is entitled to be reimbursed out of the Company assets for his costs incurred in the liquidation up until the filing of this application;
(c)in the alternative to the direction sought at (a) above, an order appointing the first applicant as liquidator of the Company; and
(d)an order that the costs and disbursements of this application are met by the respondent.
[2] The second applicant applies for orders in the same terms as [1(c)] and [1(d)] above.
Procedural background
[3] The originating application was filed on 28 November 2023. On 29 November 2023, I granted an urgent hearing on the basis that it is just in all the circumstances to do so, with the hearing to be scheduled for the week commencing 18 December 2023.1
[4] Subsequently, the Registry advised that the matter could not be scheduled to be heard in the week of 18 December 2023. On 30 November 2023, I issued a further minute scheduling the matter for a two-hour urgent hearing at 10 am on 11 December 2023. On the basis of the urgency of the matter, and under r 1.19 of the High Court Rules 2016, I shortened the period for the respondent to file any notice of opposition and affidavit in support, requiring these to be filed and served by 5 pm on Wednesday 6 December 2023. The applicants were required to file and serve submissions by
5.00 pm on Thursday 7 December 2023, and the respondent was required to file and serve his submissions by 5 pm on Friday 8 December 2023.2
[5] On 5 December 2023, the applicants made an urgent interlocutory application for substituted service. I was satisfied that an order for substituted service should be made, and an order was made such that the respondent was treated as having been
1 Gair v Scaife HC Wellington CIV-2023-485-774, 29 November 2023 (Minute of Associate Judge Skelton).
2 Gair v Scaife HC Wellington CIV-2023-485-774, 30 November 2023 (Minute of Associate Judge Skelton).
served with all relevant documents, including my minutes dated 29 and 30 November 2023, on 4 December 2023.3
[6] The first applicant has filed an affidavit confirming that my minute dated 5 December 2023 was emailed to the respondent at 10.22 am on 6 December 2023. The application for substituted service and my minute dated 5 December 2023 were forwarded by the first applicant’s lawyers to the lawyers understood to be instructed by the respondent on 5 December 2023. The first applicant deposes that he has no reason to believe that the respondent and the lawyers understood to be instructed by him did not receive these communications.
[7] Counsel for the applicants filed submissions and a bundle of authorities on 7 December 2023.
[8] The respondent has not filed a notice of opposition or any affidavit in support. Counsel for the respondent, Mr MacKenzie, filed a memorandum dated 8 December 2023 stating that the respondent has been unable to provide sufficient instructions to prepare a notice of opposition and affidavit in response to the proceeding in the short time available, due to illness and the passing of a good friend, and sought an adjournment of the matter for seven days. Mr MacKenzie submits that an adjournment, even into the New Year, would not prejudice any of the creditors or the applicants.
[9] After hearing from counsel for the parties, I declined to grant an adjournment for the following reasons:
(a)I understand that, if adjourned, the matter would not be able to be heard until the New Year. I accept that there is an urgent need for the position with regard to the liquidation of the Company to be clarified so that, if the appointment of the second applicant is confirmed, the second applicant can discharge his duties as liquidator. Otherwise, the principal assets of the Company, being eight properties, will likely be
3 Gair v Scaife HC Wellington CIV-2023-485-774, 5 December 2023 (Minute of Associate Judge Skelton).
the subject of mortgagee sale which may not be in the best interests of creditors as outlined further in this judgment.
(b)While the respondent has not been able to file a notice of opposition and affidavit in the time available, there is material before the Court which outlines the basis on which the respondent would formally oppose the application. This includes the memorandum of counsel dated 8 December 2023, which outlines the key issues that the respondent wishes to raise, and I have also heard additional oral submissions from Mr MacKenzie.
The Company and appointment of a liquidator
[10] This application arises in the context of a relationship property dispute between the second applicant and the respondent, who are married, but separated.
[11] The Companies Register records the second applicant as the sole shareholder and director of the Company. The Company is the registered owner of eight properties. These properties are the only assets of the Company other than a bank account with a small balance. The second applicant lives in one of the properties and pays rent to the Company at the rate of $33,000 per year. The other seven properties are now untenanted, and the evidence is that they are currently not in a state where they could be tenanted.
[12] Westpac New Zealand Limited (Westpac) has advanced funds of approximately $3.18 million to the Company in seven separate loan facilities. The Westpac advances are secured by a personal guarantee provided by the second applicant, a guarantee from a trust associated with the second applicant (but not the respondent), and mortgages in favour of Westpac registered against the properties.
[13] Recently all the expenses of the Company, including repayment of the Westpac loans, have been primarily met through a combination of advances that the second applicant has made to the Company and rent received from some of the properties. There is evidence that the respondent has made some rate payments in respect of the
properties since he and the second applicant separated, which has resulted in overpayment of rates.
[14] The second applicant states that she is unable to continue advancing funds to the Company. In the circumstances, she considered it prudent to put the Company into liquidation.
[15] On 19 September 2023, the second applicant signed a special resolution under s 241 of the Companies Act, and in lieu of a meeting pursuant to s 122 of that Act, appointing the first applicant as liquidator of the Company.
[16] On 26 September 2023, the first applicant completed the Liquidator’s First Report. The first applicant states in his affidavit that he and his firm, Palliser Insolvency Ltd, have undertaken a number of steps as is the usual practice with a liquidation, including:
(a)notifying the Companies Office and other stakeholders of the first applicant’s appointment;
(b)notifying the Company’s bank, freezing the bank accounts and obtaining bank statements;
(c)communicating with known creditors of the Company to obtain creditor claims;
(d)reviewing financial information; and
(e)planning and organising a realisation process, including instructing a valuer in consultation with the mortgagee, changing locks, and seeking appraisals and sales options from real estate agents.
[17] The first applicant states that the Company is currently insolvent as it is unable to pay its debts as they fall due. In addition to Westpac as secured mortgagee, the first applicant has identified several unsecured creditors, including the second applicant. At this stage, the first applicant has not admitted or rejected any creditor claims.
[18] The first applicant states that the intention is that, once the Company’s assets are realised, any net sale proceeds from the properties that would ordinarily be distributed to the shareholder (after paying admitted creditor claims and the costs of the liquidation) are to be held in a trust account nominated by the first applicant, pending resolution of the relationship property dispute. The second applicant confirms in her affidavit that she has agreed to this course of action.
[19] On or about 11 October 2023, the Company was served with a notice of default by Westpac as mortgagee pursuant to ss 121 and 122 of the Property Law Act 2007 (the PLA Notice). There are significant arrears owed by the Company on the Westpac advances totalling approximately $103,919.76. The PLA Notice expired on 17 November 2023.
[20] The first applicant states that if steps are not taken to promptly sell the properties it is virtually certain that Westpac will exercise its rights and sell the properties by way of mortgagee sale. The applicant states that this will, in his informed view, likely result in a worse outcome for the Company’s creditors.
The respondent’s position
[21] On 12 October 2023, following email correspondence and phone calls between the respondent, the first applicant, and Palliser Insolvency staff, the respondent purported to put the first applicant “on notice to Cease and Desist all further action and costs at this point in time”.
[22] It is apparent that the respondent contends that he is the legal owner of ten shares in the Company and that the 150 remaining shares are held by the second applicant on constructive trust for his benefit.
[23] The respondent’s contentions are set out in an email that he sent to the first applicant’s solicitors on 8 November 2023. The respondent contends that the constructive trust arises from a proposal put forward by the second applicant in 2018 that she would hold all the Company’s properties “by way of Constructive Trust” for the respondent’s exclusive benefit and ownership (except the property occupied by the second applicant). The respondent says that he agreed to the proposal on the basis of
certain conditions. He contends that this was in effect the relationship property settlement between him and the second applicant.
[24] The respondent says that, when the Company was incorporated in 1998, he and the second applicant were both directors, and had equal shareholding of 80 shares each. He contends that he removed himself as a director and later as a shareholder for taxation reasons. He states that, prior to a Disputes Tribunal hearing involving the Company in 2020, it was agreed that he would be made a shareholder again, and ten shares were transferred to him, pursuant to the 2018 agreement. He says that the other 150 shares were to be transferred to him at a later date, again pursuant to the 2018 agreement.
[25] The respondent’s email indicates that he does not agree with the liquidation of the Company and considers it to be a “Nuclear” option and “illegal”. It is also apparent that the respondent does not consider that the properties should be sold as part of the liquidation process and that there should be negotiation with Westpac instead.
[26] The memorandum of counsel for the respondent, dated 8 December 2023, states that key issues the respondent wishes to raise are:
(a)The respondent built up properties in the Company over 26 years (the Company was incorporated in 1998).
(b)The shares were placed in the name of the second applicant because the Company was a Loss Attributing Qualifying Company and the second applicant owns and runs an IT company, so it was tax effective for her to use the losses.
(c)The respondent is a plumber and also carries out a lot of work in other trades. It has been his full-time job to find, purchase, and maintain the properties.
(d)In 2011, the respondent had a double hip replacement. The complications from the failed surgeries and life-threatening infections
have affected his health very seriously and his ability to carry out works.
(e)Whilst the increase in interest rates has put pressure on the finances, recent improvement in the respondent’s physical health has meant that he has been extensively renovating the properties, particularly the three flats in Mitchell Street, Brooklyn. These need only a small amount of work to be ready to either rent out or sell.
(f)The relationship property interest of respondent is to at least 50 per cent of the shares but, as part of the proposed settlement, he would get full control of the Company in return for various terms and conditions being met (effectively including in specie distribution of some property to the second applicant).
[27] Mr MacKenzie submits that the respondent is seeking to arrange urgent finance to buy out Westpac in full and to resolve the relationship property dispute with the second applicant. He submits that the destruction in value if these properties are the subject of forced sales or mortgagee sales is a huge concern for the respondent.
[28] Mr MacKenzie also submits that, at this stage, it is seems likely that Westpac will proceed with mortgagee sales but that this will only be to the extent required to recover the total debt. Mr MacKenzie notes that the market value of the properties appears to be significantly in excess of the Westpac advances. He submits that the first applicant’s position seems to be that all the properties will have to be sold, but the respondent does not agree this is necessary or appropriate.
Was the first applicant validly appointed as liquidator?
[29] While I acknowledge that there is an underlying relationship property dispute, the primary issue before me is whether the second applicant is the sole shareholder of the Company such that the special resolution signed by her on 19 September 2023 was valid in terms of s 122 of the Companies Act.
[30]Section 122(1) of the Companies Act provides:
122 Resolution in lieu of meeting
(1)Subject to subsections (2) and (3), a resolution in writing signed by not less than—
(a)75%; or
(b)such other percentage as the constitution may require for passing a special resolution,—
whichever is the greater, of the shareholders who would be entitled to vote on that resolution at a meeting of shareholders who together hold not less than 75% or, if a higher percentage is required by the constitution, that higher percentage, of the votes entitled to be cast on that resolution, is as valid as if it had been passed at a meeting of those shareholders.
…
[31] The second applicant states that the Company does not have a share register other than as recorded through the Companies Office.
[32] The first applicant states that the Companies Office has advised that there are no documentary records available for the Company for the period 22 June 1998 to 18 February 2002 as they have been destroyed.
[33] There is evidence from the Companies Register that the second applicant is currently the sole shareholder of the Company and was the sole shareholder on 19 September 2023. There is also evidence from the Companies Register that ten shares in the Company were transferred to the respondent on 11 August 2020. The second applicant states that this was done as a matter of convenience to allow the respondent to appear in support of the Company at a Disputes Tribunal hearing.4 There is no evidence of any share transfer forms having been signed. However, there is evidence from the Companies Register that, on 11 March 2021, the Register was updated to record that the respondent was removed as a shareholder, leaving the second applicant as the sole shareholder.
4 She states that she had been advised that the respondent could not appear for the Company at the hearing unless he was a shareholder, and his knowledge and experience as a certified plumber and drainlayer was required.
[34] The second applicant also states that the Company’s tax returns have always shown her as sole shareholder in the Company, as do the Company’s financial statements, even during the 11 August 2020–11 March 2021 period.
[35] In Francis (in liq) v Innes,5 there were two shareholders of the relevant company; one shareholder held 95 per cent of the shares and the other shareholder held five per cent of the shares. The special resolution in lieu of a shareholders’ meeting appointing the liquidator was only signed by the majority shareholder. The Court held that the resolution clearly did not comply with the requirements of s 122(1) of the Companies Act.
[36] In this case, I am satisfied based on the evidence before the Court that the second applicant is the sole shareholder of the Company entitled to vote, and was the sole shareholder of the Company entitled to vote when the special resolution was signed on 19 September 2023. Accordingly, I find that the special resolution signed by the second applicant on 19 September 2023 appointing the first applicant as liquidator of the Company was valid in terms of ss 241(2)(a) and 122(1) of the Companies Act.
[37] The respondent contends that there is a constructive trust for his benefit in respect of the properties and shares in the Company. However, although requested to do so by the first applicant’s solicitors on 3 November 2023, the respondent has not at this stage provided the first applicant or the first applicant’s solicitors with any supporting documentation to substantiate his contentions.
[38] In her affidavit, the second applicant expressly denies the allegation that she holds shares in the Company on a constructive trust for the respondent’s benefit. She states that these are simply allegations made by the respondent to disrupt the liquidation process.
[39] In the circumstances I am not able to make any findings with regard to respondent’s allegations of constructive trust. However, I do not consider that the respondent’s allegations of beneficial ownership of shares in the Company, and the
5 Francis (in liq) v Innes [2022] NZHC 3354.
underlying relationship property issues, have any bearing on the finding I have made that the special resolution was valid.6 Rather the respondent’s allegations may, if subsequently established, give rise to issues between the second applicant and the respondent as to breach of trust.
[40] The first applicant will need to be cognisant of the respondent’s allegations of constructive trust and the underlying relationship property issues in discharging his duties as liquidator of the Company. In this regard, as noted, the first applicant has already advised that it is intended that any net sale proceeds from the properties (after paying admitted creditor claims and the costs of the liquidation) are to be held in a trust account nominated by the first applicant pending resolution of the relationship property dispute. I propose to give a direction in this regard under s 284(1)(a) of the Companies Act. Given the respondent’s allegations, and the underlying relationship property issues, this direction will also require that, if admitted, the amount of the second applicant’s creditor claim is also to be held in the nominated trust account pending resolution of the relationship property dispute.
[41] Having found that the first applicant was validly appointed as liquidator on 19 September 2023, I do not need to consider the alternative order sought by the applicants that the first applicant be appointed as liquidator under ss 283(4) and 241(2)(c)(iii) of the Companies Act.7 However, had I found that the first applicant was not validly appointed as liquidator on 19 September 2023, I would have been prepared to permit the applicants to apply for appointment of a liquidator by way of originating application, and to make an order appointing the first applicant as liquidator under ss 283(4) and 241(2)(c) of the Companies Act. This would be on the basis of the evidence before the Court that:
(a)the Company is unable to pay its debts;
(b)the first applicant is an experienced licensed insolvency practitioner who has confirmed in his affidavit evidence that he had no previous
6 Counsel for the parties have not referred me to any authorities supporting a contrary view.
7 See Zhang v Kamal [2017] NZHC 1943 at [50] and Minister of Education v Nayacakalou [2020] NZHC 1874 at [28]–[29].
contact with the Company or the second applicant before discussing his appointment;
(c)the first applicant has undertaken work since his appointment, including in relation to the properties, and is familiar with the circumstances surrounding the Company; and
(d)replacing the first applicant as liquidator would delay the administration of the liquidation which would not be in the best interests of creditors.
Result
[42] An order is made under s 284(1)(g) of the Companies Act 1993 declaring that Heath Leslie Gair of Palliser Insolvency Ltd was validly appointed as liquidator of Shazwal Investments Ltd (in liq) on 19 September 2023.
[43] An order is made under s 284(1)(e) of the Companies Act 1993 that Mr Gair is entitled to be reimbursed out of the assets of Shazwal Investments Ltd (in liq) for the reasonable costs incurred in the liquidation up until the filing of this application.
[44] A direction is made under s 284(1)(a) of the Companies Act 1993 that any net proceeds of sale of any of the properties of which the Company is registered owner (after paying the costs of the liquidation including sale costs and admitted creditors’ claims, except the second applicant’s claim) are to be held in a trust account nominated by Mr Gair, pending resolution of the relationship property dispute between the second applicant and the respondent. If the second applicant’s creditor claim is admitted, then the amount of the claim is also to be held in the trust account nominated by Mr Gair, pending resolution of the relationship property dispute.
[45] With regard to costs, my preliminary view is that the applicants have been successful and are entitled to costs on a 2B basis and reasonable disbursements. The parties should endeavour to agree costs. However, if agreement cannot be reached the memoranda may be filed (not exceeding 3 pages excluding costs schedule) and costs
will be determined on the papers.
Associate Judge Skelton
Solicitors:
Mahony Horner Lawyers, Wellington for the Applicants Chris Ritchie Law, Wellington for the Respondent
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