Gauld v Kiwi Sheds Northland Limited
[2022] NZHC 1917
•8 August 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-761
[2022] NZHC 1917
UNDER the Companies Act 1993, section 241(d) IN THE MATTER OF
the liquidation of KIWI SHEDS NORTHLAND LIMITED
BETWEEN
ROBERT NIGEL GAULD
Plaintiff
AND
KIWI SHEDS NORTHLAND LIMITED
First Defendant
DEAN ALEXANDER ROSEWARNE
Second DefendantLISA JOHNSON
Third DefendantLEONA GAULD
Fourth Defendant
CIV-2022-404-794 BETWEEN
ROBERT NIGEL GAULD
PlaintiffAND
KSN GROUP LIMITED
First Defendant
DEAN ALEXANDER ROSEWARNE
Second DefendantLISA JOHNSON
Third DefendantLEONA GAULD
Fourth Defendant
ROBERT NIGEL GAULD v KIWI SHEDS NORTHLAND LIMITED [2022] NZHC 1917 [8 August 2022]
Hearing: 21 July 2022 Appearances:
Andrew J Steele for the Plaintiff
Wayne Hofer for the Fourth Defendant
Second and Third Defendants are self-representedJudgment:
8 August 2022
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
This judgment was delivered by me on 5 August 2022 at 3:00pm pursuant to Rule 11.5 of the High Court Rules
………………………….
Registrar/Deputy Registrar
Introduction
[1] Robert Gauld seeks the appointment of interim liquidators to the first defendant in each of these two proceedings, respectively being Kiwi Sheds Northland Ltd (KSNL) and KSN Group Ltd (KSNGL).1
[2] I will refer hereafter to the CIV-2022-404-761 proceedings as the “KSNL Proceedings”, and the CIV-2022-404-794 proceedings as the “KSNGL Proceedings”.
Background
[3] Robert and his ex-wife Leona operated a shed sale and construction business in Northland for a number of years. In 2017, Robert partnered with Dean Rosewarne to continue to run the business. In that connection, the parties incorporated KSNL and, subsequently, KSNGL. They continued in business together for some time, before eventually falling out.
11 Given the commonality of surnames in this proceeding, and meaning no disrespect, I will refer to the parties by their given names.
[4] Robert now says the relationship between he and Dean has irretrievably broken down and that the parties have reached a stalemate. He says continuing to run the business is untenable and the companies cannot continue to trade safely. He says he does not know if the companies are solvent or can remain solvent.
[5] In the underlying substantive proceeding, Robert applies for the companies be put into liquidation on just and equitable grounds.
Applications for appointment of interim liquidators
KSNL Proceedings application
[6]In the KSNL Proceedings, Robert seeks orders:2
1.1Appointing Iain McLennan and Keaton Pronk, of Auckland, insolvency practitioner, interim liquidator of Kiwi Sheds Northland Limited (the Company);
1.2The interim liquidators to have the powers as set out in the attached schedule;
1.3Such further ancillary orders that the Court considers appropriate; and
1.4Costs.
[7]The orders are sought on the following grounds:
2.1The First Defendant was incorporated on 13 February 2017;
2.2The Plaintiff and Second Defendant are the sole directors of the Companies;
2.3The Plaintiff and Second Defendant have lost trust and confidence with each other so that effective management and control of the Company has become untenable and the Company is currently in a position where it is unable to act;
2.4There is urgency in relation to interim liquidator being appointed in that the Company is unable to pay its creditors and continue business without risking the deposit monies payable by customers to the company;
2.5It is unclear whether or not the Company is solvent in that it is unable to meet its debts owed to its suppliers or deposits to its customers;
2 Interlocutory application on notice by plaintiff for appointment of interim liquidators of first defendant (KSNL Proceedings) dated 5 May 2022.
2.6It is necessary and/or expedient for the purpose of maintaining the value of existing assets owned by the Company and to protect the Company’s creditors that an interim liquidator be appointed.
KSNGL Proceedings application
[8]In the KSNGL Proceedings, Robert similarly seeks orders:3
1.1Appointing Iain McLennan and Keaton Pronk, of Auckland, insolvency practitioner, interim liquidator of KSN Group Limited (the Company);
1.2The interim liquidators to have the powers as set out in the attached schedule;
1.3Such further ancillary orders that the Court considers appropriate; and
1.4Costs.
[9]The orders are sought on the following grounds:
2.1The First Defendant was incorporated on 22 November 2017;
2.2The Plaintiff and Second Defendant are the sole directors of the Company;
2.3The Plaintiff and Second Defendant have lost trust and confidence with each other so that effective management and control of the Company has become untenable and the Company is currently in a position where it is unable to act;
2.4There is urgency in relation to interim liquidator being appointed in that the Company is unable to pay its creditors and continue business without risking the deposit monies payable by customers to the company;
2.5It is unclear whether or not the Company is solvent in that it is unable to meet its debts owed to its suppliers or deposits to its customers;
2.6It is necessary and/or expedient for the purpose of maintaining the value of existing assets owned by the Company and to protect the Company’s creditors that an interim liquidator be appointed.
Robert’s affidavit dated 5 May 2022
[10] Robert has made an affidavit in support of his applications. He deposes he is a director of KSNL and KSNGL. He says Dean is the other director of KSNL and
3 Interlocutory application on notice by plaintiff for appointment of interim liquidators of first defendant (KSNGL Proceedings) dated 5 May 2022.
KSNGL. Robert deposes he, Dean, Lisa Johnson (Dean’s wife) and Leona each hold 25 per cent shareholdings in KSNL and KSNGL.4
[11] Robert deposes that from around 2001, he and Leona operated a business called Kiwi Sheds Northland. It involved buying kitset sheds from a New Zealand distributor, then supplying or erecting those sheds for customers in the Northland area. He partnered with Dean in early 2017 to run the business. KSNL was incorporated in February of that year, with Robert and Dean as directors. KSNGL, meanwhile, was incorporated in November of that year for the purpose of holding certain assets outside of KSNL. Robert says both companies form part of the business venture between the parties.5
[12] Robert deposes that in May 2017, he, Dean, Lisa and Leona met to formalise their responsibilities and capital commitments to the business venture. By November of that year, the parties all agreed the venture should proceed on a 50/50 basis, so that each person had an equal 25 per cent shareholding in each of the companies. However, the parties subsequently fell out, with Robert and Leona on the one side, and Dean and Lisa on the other. Robert says he and Dean have irreconcilable differences and that they no longer have trust and confidence in one another. He says this has made running the business practicably impossible. The relationship has irretrievably broken down.6
[13] Robert says the current position is he can see the raw bank account transactions for KSNL but he has no visibility over the financial accounting, which is done by Lisa and control of which is vested in Dean. Robert says both refuse to show him any accounting information and that this position is untenable. He deposes Dean has recently entered his office and taken his laptop and all current and historical client folders. Robert says Dean has refused to return the files. He says he has taken steps to have the bank freeze KSNL’s account, leading to a stalemate between the parties.7
4 Affidavit of Robert Nigel Gauld in support of statement of claim, application for appointment of interim liquidators and the liquidation of the first defendant dated 5 May 2022 at [1]–[6].
5 At [7]–[9].
6 At [13]–[31].
7 At [32]–[37].
[14] Robert deposes the ongoing dispute has made running the business untenable. He says it is unclear whether KSNL is solvent or, if it is, can remain solvent. He says Dean and Lisa have refused his overtures to enter mediation, and that they have refused to agree to place KSNL into liquidation. In those circumstances, he says the point has been reached that it is unsafe for KSNL to continue trading and that KSNL and KSNGL should be put into liquidation.8
First notices of opposition
[15] Dean opposes Robert’s applications in both proceedings. The notice of opposition in the KSNL Proceedings reads:9
1.The respondent, Dean A Rosewarne, intends to oppose the interlocutory application by the Plaintiff: R.N. Gauld dated 5 May 2022.
2.The respondent is opposed to the making of the orders.
3.The grounds on which the respondent opposes the making of the orders(s) are as follows: The application to liquidate is made on Just and Equitable grounds.
The respondent seeks an adjournment of the proceedings on the grounds that the parties find a commercial solution to the impasse including the sale of the shares owned by the parties.
4.The company’s business is to supply/distribute kitset utility buildings and is active in the construction of those supplied kitset buildings.
The company is still trading and has a number of active clients.
It is imperative that continuity with clients is maintained and work in progress is completed or other arrangements are put in place with clients.
5.This application will cause considerable disruption to work in progress and considerable stress to innocent clients.
6.It will also jeopardise the exclusive distributorship that Kiwi Sheds Northland Limited has with its distributor.
7.The respondent relies on provisions within the High Court Rules on the grounds relating to Section 241(4)(d) of the Companies Act 1993. There are insufficient grounds at this time to appoint a liquidator and or an interim liquidator to the company whilst there is the opportunity
8 At [38]–[40].
9 Notice of opposition (KSNL Proceedings) dated 10 June 2022.
to further progress an orderly sale of shares as an alternative to what was proposed in the mediation meeting 20 May 2022.
[16]Dean’s notice of opposition in the KSNGL Proceedings similarly reads:10
1.The respondent, Dean A Rosewarne, intends to oppose the interlocutory application by the Plaintiff: R.N. Gauld dated 5 May 2022.
2.The respondent is opposed to the making of the order.
3.The grounds on which the respondent opposes the making of the orders(s) are as follows: The application to liquidate is made on Just and Equitable grounds.
The respondent seeks an adjournment of the proceedings on the grounds that the parties find a commercial solution to the impasse including the sale of the shares owned by the parties.
4.The respondent relies on provisions within the High Court Rules on the grounds relating to Section 241(4)(d) of the Companies Act 1993.
5.There are insufficient grounds at this time to appoint a Liquidator or Interim Liquidators to the company at this time whilst there is the opportunity to further progress an orderly realisation of assets as an alternative to what was proposed in the mediation meeting 20 May 2022.
[17] In both proceedings, Lisa has filed notices of opposition in materially identical terms to Dean’s.
Dean’s affidavit dated 10 June 2022 (KSNL Proceedings)
[18] Dean has made an affidavit in support of his notice of opposition in the KSNL Proceedings. He deposes the parties attended mediation on 20 May 2022 to attempt to resolve their issues. They drafted a Heads of Agreement. Dean says, however, the Heads of Agreements was not formalised as intended. He says Robert then served the notice to liquidate and appoint interim liquidators.11
[19] Dean says the appointment of a liquidator or interim liquidators would seriously jeopardise the interest of clients, especially those who have buildings under construction or who have orders in process. He says it would seriously devalue the
10 Notice of opposition (KSNGL Proceedings) dated 10 June 2022.
11 First Affidavit of Dean Alexander Rosewarne (KSNL Proceedings) dated 10 June 2022 at [1]–[6].
company’s assets and that there are still grounds for the parties to conclude a commercial solution. He says he requests an adjournment to allow the parties time to negotiate such a solution in good faith.12
Dean’s affidavit dated 10 June 2022 (KSNGL Proceedings)
[20] Dean has similarly made an affidavit in support of his notice of opposition in the KSNGL Proceedings. He deposes the Heads of Agreement referred to the sale of KSNGL’s major land asset. He says he sees no reason that the proposal to sell and list the property could not be initiated immediately. He says such would provide an orderly realisation of the asset and the future distribution to shareholders of value. He again says that he requests an adjournment to allow the parties time to negotiate a commercial solution to the present impasse.13
Robert’s reply affidavit dated 14 June 2022
[21] Robert has made an affidavit in reply to Dean. He says that although a Heads of Agreement was formulated, some significant issues remained to be resolved. He says the tentative settlement quickly disintegrated and it became clear to him that Dean and Lisa were not interested in, or able to, move forward constructively. He says Dean has been stopping the cashflow into KSNL by diverting its clients to his personal company, Rosewarne Enterprises Ltd. He deposes to his belief Dean will soon effectively force KSNL into an insolvent position.14
[22] Robert says he still has no idea whether KSNL is solvent or insolvent, but he continues to believe the point has been reached that it is unsafe for KSNL to continue trading. Accordingly, both KSNL and KSNGL should be put into liquidation. He says he does not see there is any way forward for the parties to conclude an alternative agreement. The parties have lost all trust and confidence in one another and to allow the company to continue to operate in the circumstances will put KSNL’s clients and assets at further risk.15
12 At [7]–[16].
13 First Affidavit of Dean Alexander Rosewarne (KSNGL Proceedings) dated 10 June 2022 at [1]– [9].
14 Reply affidavit of Robert Nigel Gauld dated 14 June 2022 at [1]–[16].
15 At [23]–[26].
Second notices of opposition
[23] Dean, on further information becoming available, has filed second notices of opposition in each proceeding. The second notice of opposition in the KSNL Proceedings reads:16
1.The respondent, Dean A Rosewarne, has previously notified the High Court of his opposition to the above proceedings.
2.I Dean Rosewarne issued a Second Notice of Opposition because of further information that has become available.
3.Draft accounts prepared by Ardmore Taxation Consultancy Limited for the year ending 30 March 2022 will be presented to the court in a second affidavit submitted by myself in response to the minute issued by associate Judge Taylor J 16 June 2022.
4.The respondent is opposed to the making of the liquidation orders.
5.The grounds on which the respondent opposes the making of the order(s) are as follows
6.I, Dean Rosewarne (shareholder) and L Rosewarne (shareholder) have made a significant offer to the plaintiff R N Gauld and the Fourth Defendant L Gauld to settle this matter.
7.Settlement negotiations are in progress.
8.The company’s business is to supply/distribute kitset utility buildings and is active in the construction of those supplied kitset buildings.
9.The company is still trading and has several active clients. It is imperative that continuity with clients is maintained and work in progress is completed or other arrangements are put in place with clients if necessary.
10.The liquidation of this company Kiwi Sheds Northland Limited will cause considerable disruption to work in progress and considerable stress to innocent clients.
11.The liquidation of this company Kiwi Sheds Northland Limited will jeopardise the exclusive distributorship that Kiwi Sheds Northland Limited has with its’ distributor.
12.The accounts show that the company has traded profitably.
13.The company has been able to make dividend distributions to its shareholders, (August 2021).
16 Second notice of opposition (KSNL Proceedings) dated 1 July 2022.
14.These accounts also show that the director and Plaintiff R.N. Gauld as director and shareholder of the company has received remuneration and drawings totalling $187,863.00 for the year ended 31 March 2022
15.The above amounts are made up of approved remuneration of
$1200.00 per week (62,400.00) plus (approved August 2021) $55,000 shareholder dividend. Total approved $117,000.00.
16.The difference of $70,463.00 are unauthorised drawings from the company’s BNZ bank account.
17.The offer made to R N Gauld and L Gauld resolves these unauthorised drawings.
18.In compiling the accounts and analysing individual client information it has come to the attention of the company that there are some anomalies relating to under-pricing.
19.This has resulted some higher costs relating to individual client jobs. It appears some funds have been diverted to a company owned and controlled R.N Gauld or to R.N Gauld personally. (Client: Munro/Hungry Promotions Limited )
20.It is inappropriate to liquidate Kiwi Sheds Northland Limited as the costs of the liquidation would be excessive as significant forensic investigation would be required to pursue recovery.
21.It is not appropriate to liquidate this solvent company while negotiations are in progress and a settlement is imminent.
22.The respondent relies on provisions within the High Court rules on the grounds relating to Section 241(4)(d) of the Companies Act 1993. There are insufficient grounds at this time to appoint a liquidator and or an interim liquidator to the company whilst there is the opportunity to further progress an orderly sale of shares as an alternative to what was proposed in the mediation meeting 20 May 2022.
[24]Dean’s second notice of opposition in the KSNGL Proceedings reads:17
1.The respondent, Dean A Rosewarne, has previously notified the High Court of his opposition to the above proceedings.
2.I Dean Rosewarne issued a Second Notice of Opposition because of further information that has become available.
3.Draft accounts prepared by Ardmore Taxation Consultancy Limited for the year ending 30 March 2022 will be presented to the court in a second affidavit submitted by myself in response to the minute issued by associate Judge Taylor J 16 June 2022.
4.The respondent is opposed to the making of the liquidation orders.
17 Second notice of opposition (KSNGL Proceedings) dated 1 July 2022.
5.The grounds on which the respondent opposes the making of the order(s) are as follows:
6.I, Dean Rosewarne (shareholder) and L Rosewarne (shareholder) have made a significant offer to the plaintiff R N Gauld and the Fourth Defendant L Gauld to settle this matter.
7.Settlement negotiations are in progress.
Dean’s second affidavit dated 1 July 2022 (KSNL Proceedings)
[25] Dean has made a second affidavit in support of his opposition in the KSNL Proceedings. He deposes KSNL is solvent, that it can pay its debts as they fall due and that its assets exceed its liabilities. He says he and Lisa have made a significant offer to Robert and Leona to buy their respective shareholdings in the company. He says negotiations to complete the settlement are in progress, and that the offer resolves all outstanding issues between the parties. He says there is no need to liquidate the companies while these proposals are on the table.18
[26] Dean reiterates that appointment of a liquidator or interim liquidators would seriously jeopardise the interests of clients and may cause disruption to a distribution agreement with a third party that is key to the business operations. It would devalue the company’s assets. He deposes the offer that has been tabled provides a better commercial outcome for all stakeholders and shareholders of the companies than the appointment of a liquidator or interim liquidators. He requests an adjournment to allow the parties to complete the negotiated commercial settlement.19
Dean’s second affidavit dated 1 July 2022 (KSNGL Proceedings)
[27] Dean has similarly made a second affidavit in support of his notice of opposition in the KSNGL Proceedings. He says KNSGL is solvent, can pay its debts as they fall due and that its assets exceed its liabilities. Dean says he and Lisa have made Robert and Leona a significant offer to sell the assets of KSNGL and distribute the surplus funds pro-rata to the shareholders. As with his second affidavit in the KNSL Proceedings, Dean says negotiations to complete a settlement are in progress
18 Second affidavit of Dean Alexander Rosewarne (KSNL Proceedings) dated 1 July 2022 at [1]– [34].
19 At [35]–[41].
and that an adjournment is required to allow the parties time to reach a commercial solution.20
Robert’s submissions
[28] Mr Andrew Steele, for Robert, submits that from Robert’s perspective, Dean and Lisa’s actions are placing the funds of KSNL at risk. He says Dean, in his affidavit evidence, has not denied the parties are in a deadlock in terms of the companies’ management. He submits the companies’ assets are in jeopardy; the status quo leaves things in limbo and should not be maintained; and being able to secure remaining assets and the funds generated by the continued receipt of moneys from KSNL customers is in the interests of the companies and their creditors. He says there has been a complete breakdown in the parties’ trust and confidence in one another, such that the companies cannot be safely operated further without serious risk to creditors.21
[29] Mr Steele says Dean and Lisa’s grounds of opposition are without substance. He says Robert’s affidavit evidence is definitive that no commercial resolution can be reached. He submits the companies are still trading only in the sense that Dean is working on sheds and moving funds to his own separate company. Mr Steele says further that KSNL and KSNGL should be dealt with together as they are part of a single partnership underlying a joint business venture for sale and construction of sheds.22
[30] Of the grounds set out in the second notices of opposition, Mr Steele submits that while the parties have exchanged offers, no settlement is imminent. Settlement discussions have stalled and there is nothing to suggest a foreseeable positive outcome. He says there is no benefit in the companies continuing to trade while the parties’ relationship is in such a dysfunctional state. That liquidation will result in the termination of any distribution agreements is no reason to refuse appointment of liquidators — the companies are not taking on any new business in any event. And,
20 Second affidavit of Dean Alexander Rosewarne (KSNGL Proceedings) dated 1 July 2022 at [1]– [13].
21 Memorandum of counsel for the plaintiff dated 18 July 2022 at [5]–[8].
22 At [11]–[16].
irrespective of the companies’ past profitable trading, the current dysfunction makes that prospect untenable going forward.23
[31] Mr Steele says Mr McLennan and Mr Pronk have agreed to act as interim liquidators. He submits that in the underlying substantive proceeding, Robert seeks to have the companies put into liquidation of just and equitable grounds. He says that the total breakdown of trust and confidence between the parties is such that it has brought the business to an effective standstill. Because of the deadlock, the business cannot safely continue. There is nothing apart from liquidation that will resolve matters now it is clear that the parties are unable to resolve the dispute between them.24
[32] Finally, Mr Steele submits that Dean has been operating the companies’ business without Robert’s consent, authority or oversight. The companies’ solvency is unknown and the location of their funds unascertained. Only through the exercise of liquidators’ powers under the Companies Act 1993 will an orderly closure for the companies be possible. Dean has failed to show that liquidation would not be in the best interest of the companies’ creditors. For those reasons, Mr Steele submits, the appointment of liquidators can be made on a permanent, rather than interim, basis.25
Dean’s submissions
[33] Dean began by describing some of the history of the setup of KSNL and KSNGL. He said that originally he and Lisa had paid $50,000 to Robert to set up KSNL. The original shareholding was 60 per cent Robert and Leona and 40 per cent Dean and Lisa. Dean and Lisa then paid a further $10,000 for a further 10 per cent of KSNL to bring the shareholdings to 50 per cent each.
[34] Dean then described a number of instances which demonstrated a breakdown in the relationship with Robert. These included:
23 At [19]–[25].
24 At [26]–[33].
25 At [34]–[37].
(a)Robert using KSNL funds for personal use to the extent of approximately $162,000, of which, Dean submits, approximately
$40,000 is still owing by Robert to KSNL.
(b)Robert ordering aluminium joinery with incorrect specifications and then, when the joinery was rejected from the specified project, selling the joinery at discount.
(c)Dean freezing the company bank accounts as Robert was taking unauthorised funds from them.
(d)Building jobs authorised by Robert without proper building consents.
(e)Dean, through his company, Rosewarne Enterprises Ltd, having to carry out remedial work required by clients on behalf of KSNL.
[35] Dean submits the companies are both still solvent. He points to the accounts of KSNL to 31 March 2022, which show that KSNL still has positive net assets. In relation to KSNGL, he submits that KSNGL owns a parcel of land which was intended to be developed by it. He says that the parcel of land is worth in the vicinity of
$400,000 and has a mortgage liability against it of $120,000. He says that Robert prevented KSNGL carrying out the planned original development of the land.
[36] Dean submits a significant amount of KSNL’s funds are in Robert’s account, and he details amounts of $63,700, $21,200, $15,000, and $6,000, which he believes are owing by Robert back to KSNL.
[37] Dean submits that a proposed settlement arrangement has been put to Robert and Leona just prior to the hearing, and he is optimistic that a settlement can be concluded.
[38] Finally, Dean submits that if KSNL is put into liquidation then it will cause disruption to existing work for the company’s customers and may cause disruption to the distribution agreement which is a key element of KSNL’s operations. The
distribution agreement (component manufacture and supply) is with an unrelated third party.
Leona’s submissions
[39] Mr Wayne Hofer, on behalf of Leona, submitted that Leona does not oppose the appointment of an interim liquidator to KSNL and KSNGL.
[40] He noted three conditions have been held as required for appointment of an interim liquidator:
(a)A liquidation application must have been filed in the Court disclosing good grounds for putting the company into liquidation.
(b)The court must be satisfied there is a need for urgency.
(c)The circumstances must not only be urgent, but they must also justify the appointment of an interim liquidator.
He submitted these criteria are met in the present case.
[41] Mr Hofer submitted that in considering the circumstances justifying the appointment of an interim liquidator, the Court has stated that, depending whether there is a need for interim control, the following factors need to be considered:
(a)whether the company’s assets are in jeopardy;
(b)whether the status quo could be maintained; and
(c)whether the interests of creditors are safeguarded.
[42] Mr Hofer submitted that all these conditions are met in the present circumstances.
[43] Finally, Mr Hofer submitted that Leona does not support the proposed settlement arrangement referred to by Dean (see [37] above) and presented immediately prior to the hearing.
Legal principles
[44]Section 246 of the Companies Act provides:
246 Interim liquidator
(1)If an application has been made to the court for an order that a company be put into liquidation, the court may, if it is satisfied that it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company, appoint a named person, or an Official Assignee for a named district, as interim liquidator.
(2)Subject to subsection (3), an interim liquidator has the rights and powers of a liquidator to the extent necessary or desirable to maintain the value of assets owned or managed by the company.
(3)The court may limit the rights and powers of an interim liquidator in such manner as it thinks fit.
(4)The appointment of an interim liquidator takes effect on the date on which, and at the time at which, the order appointing that interim liquidator is made.
(5)The court must record in the order appointing the interim liquidator the date on which, and the time at which, the order was made.
(6)If any question arises as to whether on the date on which an interim liquidator was appointed an act was done or a transaction was entered into or effected before or after the time at which the interim liquidator was appointed, that act or transaction is, in the absence of proof to the contrary, deemed to have been done or entered into or effected, as the case may be, after that time.
Analysis
[45] The leading authorities of Jenkins v Supscaf Ltd and Ebrahimi v Westbourne Galleries Ltd and the principles discussed by Associate Judge Osborne in Campbell v Marble Point Winery Ltd26 are relevant to the determination of just and equitable grounds for liquidation. From these authorities it is apparent that a significant factor in the court being prepared to order the appointment of an interim liquidator is the
26 Jenkins v Supscaf Ltd [2006] 3 NZLR 264 (HC); Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL); and Campbell v Marble Point Winery Ltd [2017] NZHC 1412 at [11]–[14].
existence of a relationship of mutual trust and confidence which can no longer be maintained. Mr Steele pointed to some relevant sections in the Westlaw commentary, which states:27
Some small companies share the basic characteristics of partnerships and are therefore reliant on the existence of the probity, good faith and mutual confidence between members.
[46] Lord Wilberforce identified three factors which are likely to indicate an arrangement going beyond purely commercial concerns and which is subject to equitable considerations:28
(i)The association was formed or continued on the basis of a personal relationship involving mutual confidence. This is often the case where a partnership has been converted into a limited company.
(ii)There is an agreement or understanding that all or some of the shareholders will participate in the conduct of the business.
(iii)There is a restriction on the transfer of shares so that a shareholder cannot easily withdraw from an investment if he or she is excluded from management or loses confidence.
[47] Mr Steele submits that these criteria are applicable to KSNL and KSNGL as the companies have been run by four equal shareholders (husband and wife pairs) as a “quasi-partnership”, with Robert and Dean as directors.
[48] It is clear from the evidence there has been a total breakdown in trust and confidence between the parties. This is clear from affidavits filed by Robert and the notices of opposition and affidavits filed by Dean and from Dean’s submissions at the hearing (summarised at [33] to [38] above).
27 Robyn Merrett and Stephen Revill (eds) Insolvency Law and Practice (online ed, Thomson Reuters) at [CA241.03(4)], citing Ebrahimi v Westbourne Galleries Ltd, above n 26; and Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426 (CA).
28 Ebrahimi v Westbourne Galleries Ltd, above n 26, at [379].
Conclusion
[49] I am of the view that interim liquidators should be appointed to KSNL and KSNGL for the following reasons:
(a)There has been a total breakdown in the relationship of trust and confidence between the shareholders. KSNL and KSNGL are unable to operate due to the impasse between the shareholders and between Robert and Dean as directors, and the continued trading of KSNL appears to have been effectively carried on by either of the shareholders (or their related entities) carrying out work on behalf of the company.
(b)While Dean refers to a settlement offer made to Robert shortly before the hearing, Mr Hofer has submitted Leona does not support this settlement offer. While Dean submits a commercial settlement between the parties is still a realistic outcome, such a settlement would seem to be remote given that previous attempts at reaching a settlement have not been successful, including a formal mediation for a period of 12 hours.
(c)The financial position and ongoing solvency of KSNL and KSNGL is uncertain. While Dean has arranged for accounts of KSNL to be prepared to 31 March 2022, the ongoing trading position of KSNL is unclear on the evidence before the Court, and it is therefore unclear whether creditors are being safeguarded or are at risk by the continued operation of KSNL.
(d)While Dean is no doubt correct that the appointment of an interim liquidator to KSNL will disrupt arrangements with customers and potentially cause an end to the distributorship arrangements KSNL has with the third party supplier, given KSNL cannot successfully continue to trade with the impasse between the shareholders and the destruction of the relationship of trust and confidence, the ongoing ability of KSNL to continue the business as it is in serious jeopardy in any event.
(e)Mr McLennan and Mr Pronk, licensed insolvency practitioners of Auckland, have consented (by consents dated 5 May 2022) to be appointed as interim liquidators of KSNL and KSNGL.
Result
[50]I make the following orders:
(a)Iain McLennan and Keaton Pronk, licensed insolvency practitioners of Auckland, are appointed as interim liquidators (Interim Liquidators) of Kiwi Sheds Northland Ltd and KSN Group Ltd, with effect from the time and date this judgment is delivered.
(b)The Interim Liquidators shall have the powers set out in the Schedule to this judgment.
(c)The following shall apply to the Interim Liquidators:
(i)their appointment will be subject to supervision of the Court;
(ii)they will provide a report to the Court within 21 days of the date of their appointment as to progress and the maintaining of securing the assets of KSNL and KSNGL;
(iii)they shall have the power to seek directions from the Court in addition to the additional powers set out in the Schedule to this judgment;
(iv)their remuneration is to be met (if possible) from the assets of KSNL and KSNGL; and
(v)if urgent matters arise, leave is granted to the Interim Liquidators to come back to the Court for directions prior to the expiry of the 21 day period referred to at [50(c)(ii)] above.
(d)Costs are reserved.
…………………………….. Associate Judge Taylor
Solicitors:
Martelli McKegg (A W Johnson/A J Steele), Auckland, for the Plaintiffs Tompkins Wake (W Hofer/H Bond), Hamilton, for the Fourth Defendant
Attached: Schedule
SCHEDULE: ADDITIONAL POWERS OF INTERIM LIQUIDATORS
1.Examination of the directors and/or the shareholders and any parties allowed pursuant to s 261 of the Companies Act 1993.
2.Undertake an accounting of all trading and finance activity in order to determine company solvency.
3.Power to dispose of property if it is not profitable to maintain it.
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