Goodson v Wingate Two Limited HC Wellington CIV 2008-485-1942
[2010] NZHC 259
•11 February 2010
IN THE HIGH COURT OF NEW ZEALAND
WELLINGTON REGISTRY
CIV-2008-485-1942
UNDER Ss. 284 and 271 of the Companies Act
1993
IN THE MATTER of Wingate Two Limited (in liquidation), Trading Holdings Limited (in liquidation) and Lago Enterprises Limited (in liquidation)
BETWEEN PETER JEREMY DAWSON GOODSON, PETER JEREMY DAWSON GOODSON, PATRICIA FRANCES GOODSON AND MARTIN WILLIAM ALLARDICE AND PETER JEREMY DAWSON GOODSON, PATRICIA FRANCES GOODSON AND DAVID ALLAN PORTER
First, Second And Third Plaintiffs
ANDWINGATE TWO LIMITED First Defendant
ANDTRADING HOLDINGS LIMITED Second Defendant
ANDLAGO ENTERPRISES LIMITED Third Defendant
BETWEEN ROBERT BRUCE WALKER Applicant
ANDROLLAND WALLACE LAMB AND KENDON TRUSTEES LIMITED Respondents
Hearing: 2 February 2010
Appearances: K. Sullivan - Applicant
Judgment: 11 February 2010 at 3.00 pm
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
This judgment was delivered by Associate Judge Gendall on 11 February 2010 at
3.00 pm pursuant to r 11.5 of the High Court Rules.
Solicitors: DLA Phillips Fox, Solicitors, PO Box 2791, Wellington 6140
PJD GOODSON, PJD GOODSON, PF GOODSON AND MW ALLARDICE AND PJD GOODSON, PF
GOODSON AND DA PORTER V WINGATE TWO LIMITED AND ORS HC WN CIV-2008-485-1942 11
February 2010
Introduction
[1] This is an application by Robert Bruce Walker (“the applicant”) as liquidator of the three defendant companies, Wingate Two Limited (in liquidation) (“Wingate”), Trading Holdings Limited (in liquidation) (“Trading Holdings”), and Lago Enterprises Limited (in liquidation) (“Lago”) for pooling and distribution orders noted below. The applicant has apparently almost completed the liquidation of each company.
[2] The application is unopposed by any creditors or shareholders of Wingate, Trading Holdings or Lago.
[3] In the application, the applicant seeks specific orders:
(a) Directing the applicant to distribute the funds available for distribution in the liquidations of Trading Holdings, Wingate, and Lago, on a pro rata basis to the unsecured creditors of the companies.
(b) To the extent necessary, pooling the creditors’ claims in Trading Holdings, Wingate and Lago as if they were creditors of one company so that their claims rank equally.
(c) Directing that no distribution be made to the directors and shareholders
of Trading Holdings, Wingate and Lago or their related parties.
Background Facts
The Liquidations
[4] By order of this Court dated 11 September 2008 the applicant was appointed interim liquidator of Trading Holdings, Wingate, and Lago. The ground for the commencement of the interim liquidations was an irreconcilable breakdown between the two directors of the companies, Peter Jeremy Dawson Goodson (“Mr Goodson”) and Rolland Wallace Lamb (“Mr Lamb”). The companies were finally placed into liquidation and the applicant appointed liquidator on 28 October 2008.
[5] The liquidated companies are related in that Mr Goodson and Mr Lamb are directors of the companies, and their interests each own 50% of the shares in Lago and Wingate. Lago in turn owns the shares in Trading Holdings.
[6] At the time the companies were placed into liquidation, Wingate owned a parcel of developed land on which an industrial building had been built, being Lot 3
of DP387748 comprised in Certificate of Title 351179 (“the Wireplus property”). Trading Holdings owned bare land adjacent to the Wireplus property, being Lot 2, DP387748, Certificate of Title 351178 (“the Peterkin land”).
[7] By a Sale and Purchase Agreement dated 16 July 2008, Wingate contracted to sell the Wireplus property to Firethorn Investments Limited (“Firethorn”) or nominee
for $4.3 million. Mr Goodson was a director of Firethorn and his interests controlled
a minority shareholding in Firethorn. The contribution of the Goodson interests to the purchase price was $750,000.00 to be paid by way of set-off against the equity interests and indebtedness of the Goodson interests in the liquidated companies. The applicant as liquidator decided to proceed with the sale, as the mortgagee BNZ had issued a Property Law Act notice and he considered the property market was then in decline.
[8] As such, on 20 November 2009 the sale of the Wireplus Property to Firethorn proceeded. The money generated from the sale repaid BNZ for its lending to the three liquidated companies and discharged its security interest. No funds were left from the sale for creditors or to fund the liquidation.
[9] The Peterkin land was originally purchased by incorporating Lago and purchasing the shares from the prior owners, the trustees of the Feickert Trust. The purchase price was part funded by vendor finance on very favourable terms. The applicant considered that the best return to the creditors would be obtained by selling the land to either Mr Goodson or Mr Lamb, because the loan conditions allowed the loan to be transferred to individual shareholders, but with a number of conditions. The loan was in default and the Feickert Trust could have exercised their mortgagee rights. Further, an outright sale of the land to a third party would have generated a substantial tax liability. Mr Goodson and Mr Lamb both expressed interest in purchasing the land. The applicant offered the land by tender to each of them.
[10] The applicant in his affidavit dated 3 December 2009 describes in some detail the long and difficult tender process, and the difficult relationship he had with Mr Lamb in particular. In order to sell the land the applicant incorporated a new company, Peterkin Land Two Limited, and obtained court approval to sell the land into the new company. At the time, it was anticipated that Mr Lamb would be the purchaser. However, despite a number of efforts to continue with the sale to Mr Lamb, Mr Goodson was the ultimate purchaser. Throughout this time the applicant states that Mr Lamb put a caveat on the title after failing to fulfil the conditions of the first arrangement; refused to agree to pay the price he had initially offered after massive efforts from the applicant to make the sale to Mr Lamb possible; and subjected the applicant to a large volume of what he says were abusive emails.
[11] In the present application, the applicant wishes to make a distribution on a pooled basis to unsecured creditors of the liquidated companies on a pro rata basis.
He does not wish to pay any monies to the directors and shareholders. An order under sections 271 and 284 of the Companies Act 1993 is sought here to allow the applicant to make the distributions proposed.
[12] The evidence to support the pro rata distribution is set out in the applicant’s 3
December 2009 affidavit filed in this proceeding. Given the difficult nature and complexity of the legal issues that have arisen in the liquidations, the applicant has
set out the history of the administration in some detail. He has also set out the process he has followed for sale of the land owned by the companies, the recoveries made and costs incurred. The result appears to be that the applicant has about 29 cents in the $1 to distribute to third party creditors.
Proposed Distributions
[13] After deduction of the liquidator’s and tax expert costs, and making allowance
for the likely cost of the present application and completing the three liquidations, the applicant anticipates that the total amount available to distribute to creditors of the liquidated companies will be approximately $168,500.00. As I have noted above,
this represents about 29 cents in the dollar.
[14] The total unsecured creditors’ claims in the liquidation, including tax liabilities, total approximately $580,607.00. This is made up of $233,535.00 against Trading
Holdings, $342,081.00 against Wingate and $4,900.00 against Lago. As I have noted above, this would leave a proposed dividend of 29 cents in the $1 to creditors
if the funds are pooled and distributed on a pro rata basis as proposed.
[15] The applicant submits that this is appropriate because:
·The business and affairs of the three liquidated companies are interrelated. In addition the companies themselves are related in that they have the same directors. Lago is the shareholder of Trading Holdings. Lago and Wingate’s shareholders are family trusts controlled by Mr Goodson and Mr Lamb.
·The overall enterprise involved the purchase and sale of land. The Peterkin land was owned by Trading Holdings, so arguably the creditors of Trading Holdings should take priority. However, the sale of the Wireplus property which was owned by Wingate did not generate any funds for Wingate’s creditors, because BNZ was paid in full, to the advantage of all three companies. BNZ had lent to all three companies and had security on the Peterkin land as well. On that basis, it would seem to be quite unfair for the Wingate creditor’s to be excluded from the proceeds of the Peterkin land.
·There was intermingling in terms of business arrangements, management functions, and financing. The applicant expresses the opinion that claimants against one company could easily be claiming against one of the other companies instead.
·Legal and accounting formalities were not consistently complied with, resulting in anomalies which would impact on the value of creditor claims for each individual company. For example, the Feickert Trust mortgage advance was originally ascribed to Lago, but Lago’s only source of income was development profits from Trading Holdings. Those profits were never formally distributed leaving Lago increasingly insolvent. Other documentation suggests that Trading Holdings was intended to be the original borrower, in which case the requisite company formalities have been overlooked. Those accounting anomalies between the companies it is said
would cause significant difficulties and costs if detailed endeavours were made to resolve which creditors properly sit with each company.
· The only fair way of paying the claims is to treat all creditors’ claims together.
Shareholder claims
[16] Mr Lamb’s Trust has filed a creditor’s claim for debts said to be due to it in the liquidations of Trading Holdings and Wingate. However, it appears his Trust owes
at least a similar amount to Lago. The applicant recommends that those claims are
set-off, or effectively pooled together. Specifically, in the general ledger of Lago a current account debt of $77,735.00 is owed to it by Mr. Lamb’s Trust, the Aro Trust. The applicant states that the documentation explaining the basis of this loan is very limited however. The Aro Trust has also claimed as a creditor in the liquidation of Trading Holdings to the extent of $57,936.00 and in the liquidation of Wingate to the extent of $15,875.00. As to the claims of the other shareholder, Mr Goodson, however, these were withdrawn as a condition of the sale of the Peterkin land.
[17] The applicant submits that the shareholder current accounts must rank behind the unsecured creditors in the liquidations and should not be paid on a pro rata basis with those third-party creditors. In any event, the applicant submits that if the claims
of the Aro Trust did rank equally with the claims of the unsecured creditors, its claims against Trading Holdings and Wingate should be set-off against the debt owing to Lago.
[18] The applicant also suggests that Mr Lamb has caused extra cost in the liquidations to such an extent that it would not be equitable for the Aro Trust to receive a pro rata share with other unsecured creditors. In addition, Mr Lamb has effectively assigned away his interest in the shares some months prior to liquidation, pursuant to a general security agreement with a Mr Murray Horlor. Mr Lamb did not inform the applicant of this, and the applicant states that had he known this he would have conducted the liquidation differently. He contends that the fact that Mr Lamb is not the beneficial owner of the shares, and Mr Horlor has not notified the applicant
of any claim, is another reason why Mr Lamb should not be treated equally with other creditors.
[19] Neither Mr. Lamb nor Mr. Horlor has opposed the orders sought. In those orders the applicant seeks directions that the Court simply approve his present proposal that the third party creditors be pooled and paid pro rata, but that the shareholders and directors of the companies and their related parties are not.
Decision
[20] In his application, the applicant seeks orders under s 284 of the Companies Act
1993 which states in part:
“284 Court supervision of liquidation
(1) On the application of the liquidator, a liquidation committee, or, with the leave
of the Court, a creditor, shareholder, other entitled person, or director of a company in liquidation, the Court may—
(a) Give directions in relation to any matter arising in connection with the liquidation:
…
(2) The powers given by subsection (1) of this section are in addition to any other powers a Court may exercise in its jurisdiction relating to liquidators under this Part of this Act, and may be exercised in relation to a matter occurring either before or after the commencement of the liquidation, or the removal of the company from the New Zealand register, and whether or not the liquidator has ceased to act as liquidator when the application or the order is made.
(3) Subject to subsection (4) of this section, a liquidator who has—
(a) Obtained a direction of a Court with respect to a matter connected with the exercise of the powers or functions of liquidator; and
(b) Acted in accordance with the direction—
Is entitled to rely on having so acted as a defence to a claim in relation to anything done or not done in accordance with the direction.
(4) A Court may, on the application of any person, order that, by reason of the circumstances in which a direction was obtained under subsection (1) of this section, the liquidator does not have the protection given by subsection (3) of this section.”
[21] Because the proposed distribution is to the creditors of three separate companies, the applicant has also applied under the pooling provisions in s 271 of the Companies Act 1993. This states:
“271 Pooling of assets of related companies
(1) On the application of the liquidator, or a creditor or shareholder, the Court, if
satisfied that it is just and equitable to do so, may order that—
(a) A company that is, or has been, related to the company in liquidation must pay to the liquidator the whole or part of any or all of the claims made in the liquidation.
(b) Where 2 or more related companies are in liquidation, the liquidations in respect of each company must proceed together as if they were one company to the extent that the Court so orders and subject to such terms and conditions as the Court may impose.
(2) The Court may make such other order or give such directions to facilitate giving effect to an order under subsection (1) of this section as it thinks fit.
[22] Section 271A Companies Act 1993 which requires notice of an application for pooling orders to be given to administrators and creditors, has been complied with by the applicant here.
[23] In dealing with pooling orders, Section 272 (2) provides:
“(2) In deciding whether it is just and equitable to make an order under section
271(1)(b) of this Act, the Court must have regard to the following matters:
(a) The extent to which any of the companies took part in the management of any of the other companies:
(b) The conduct of any of the companies towards the creditors of any of the other companies:
(c)The extent to which the circumstances that gave rise to the liquidation of any of the companies are attributable to the actions of any of the other companies:
(d) The extent to which the businesses of the companies have been
combined:
(e) Such other matters as the Court thinks fit.”
[24] Pooling orders clearly cut across the fundamental principles of the Companies Act 1993 by diluting the separate legal personality of each entity – Mountford v Tasman Pacific Airlines of New Zealand Limited, 12 July 2005, High Court, Auckland, CIV-2004-404-1843, Baragwanath J. Pooling orders have been made in the past in a number of cases including cases where the affairs of a group of companies have become highly intermingled, for example where there has been movement of money between companies and a lack of adequate records: Re McCullagh HC Auckland CIV-2008-404-3417, 14 July 2008; Shephard and ors v Carm Holdings Ltd (in liquidation) HC Wellington CIV-2009-485-1332, 16
September 2009.
[25] The operation of a common business in a group structure, and the attempt to segregate the income derived in the business from its expenditure has long been a ground for conducting the liquidations of companies together. This separation was a key consideration in making the pooling order sought in Jenkins v Surecall Ltd (in liq) 28/03/07, Associate Judge Christiansen, HC Dunedin, 2006-412-939. In support the Judge quoted the judgment of His Honour Justice Gallen in Re: Dalhoff v KingHoldings Limited (In Liquidation) [1991] 2 NZLR 296:
“It would be to prefer some creditors over others and to do so fortuitously since there does not seem to have been any principle on which the activities of the company were divided and also to fortuitously prefer certain shareholders over others. Much more significantly, it would allow shareholders who were no doubt participating in the enterprise as a whole in the case of one of the companies, to recover at the expense of
creditors. Justice and equity are terms which would normally involve equality of treatment taking into account all the surrounding circumstances. Against the background of operations of this group of companies, I think it would be unjust and inequitable both to shareholders and creditors to allow their liquidation separately, thus preferring some fortuitously as against others and, further, separating out activities which have always in the past operated together.”
[26] Other examples where pooling orders were made where the extent of intermingling of the affairs of the companies made it just and equitable that the liquidations be conducted together are Naylor v Demic Construction Ltd (in liq), HC Palmerston North, Associate Judge Gendall, CIV-206-454-949 and Shephard & Ors
v Carm Holdings Ltd (in liq) HC Wellington, 16 September 2009, CIV-2009-485-
1332 where pooling was granted for 21 companies.
[27] In the present case it is clear that the three liquidated companies have been treated, to an extent, as different facets of the same enterprise. The management and businesses of the companies were intermingled, and at times the companies have gone about their affairs, including their financial affairs, without regard to proper accounting and legal requirements. In particular, given that the sale of property owned by Wingate discharged the BNZ debt for all three companies, leaving nothing for Wingate’s creditors or the costs of liquidation, I am satisfied that it would be just and equitable here for the funds available for distribution, which are essentially the proceeds of sale of the Peterkin land, to be distributed on a pro rata basis amongst the creditors of all three companies, as if they were one company. Although the intermingling of the companies in the present instance is not as severe as in other cases that have come before the court, the pooling order sought here in my view is relatively narrow. It is limited to the distribution of funds to creditors on a pro rata basis and does not otherwise cut across the separate legal identities of the companies, which will remain separate for reporting, tax, and financial requirements which the applicant must fulfil. The application before me must succeed. The pooling orders sought are pragmatic and will allow the administration of the liquidations to be brought to an end.
[28] I am satisfied also that under all the circumstances here it would be inappropriate for any distribution to be made to the directors, shareholders, or their related parties. Given the position that the funds available for liquidation of all three companies are to be pooled, it is also appropriate that the debt apparently owed to the
Aro Trust be set-off against the debt it owes. Arguably, this is in fact to Mr Lamb’s benefit, as his interests then receive the full value of their claims as an off-set while other creditors will be receiving a much smaller dividend.
Result
[29] For the reasons I have outlined above, the application before me succeeds and I
now make the following orders:
(a)The applicant is to distribute the funds available for distribution in the liquidations of Trading Holdings, Wingate, and Lago, on a pro rata basis to the unsecured creditors of Trading Holdings, Wingate, and Lago, as if they were one company.
(b)To the extent necessary, the creditors’ claims in Trading Holdings, Wingate and Lago are to be pooled as if they were creditors of one company so that their claims rank equally.
(c) The applicant is not to make any distribution in liquidation to the directors or shareholders of Trading Holdings, Wingate, or Lago, or their related parties.
[30] Costs (if relevant here) are reserved.
‘Associate Judge D.I. Gendall’
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