Goodson v Wingate Two Limited HC Wellington CIV 2008-485-1942

[2008] NZHC 2569

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2008-485-1942

IN THE MATTER OF     Part 16 of the Companies Act 1993

BETWEEN  PETER JEREMY DAWSON GOODSON First Plaintiffs

ANDPETER JEREMY DAWSON GOODSON, PATRICIA FRANCES GOODSON AND MARTIN WILLIAM ALLARDICE Second Plaintiffs

ANDPETER JEREMY DAWSON GOODSON, PATRICIA FRANCES GOODSON AND DAVID ALLAN PORTER

Third Plaintiffs

ANDWINGATE TWO LIMITED First Defendant

ANDTRADING HOLDINGS LIMITED Second Defendant

ANDLAGO ENTERPRISES LIMITED Third Defendant

Hearing:         11 September 2008

Appearances: W. Aldred - Counsel for Plaintiffs

J.A. Douglas - Counsel for the "Lamb Interests" Judgment:    11 September 2008

ORAL JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

Solicitors:           Luke Cunningham & Clere, Solicitors, PO Box 10-357, Wellington

Minter Ellison Rudd Watts, Lawyers, PO Box 2793, Wellington

PJD GOODSON AND ORS V WINGATE TWO LIMITED AND ORS HC WN CIV 2008-485-1942  11

September 2008

[1]      On 3 September 2008 the plaintiffs filed an application in this Court for the appointment of an interim liquidator under s. 246 Companies Act 1993 with respect to the first defendant company, the second defendant company and the third defendant company.

[2]      On 9 September 2008 a Notice of Opposition to that application was filed by Rolland Wallace Lamb and Kendons Trustees (No. 2) Limited in their capacities as trustees of the Wingate Trust (and 50% shareholders in the first defendant company), Rolland Wallace Lamb and Kendons Trustees Limited in their capacity as trustees of the Aro Trust (and 50% shareholders in the third defendant company) and Rolland Wallace Lamb in his capacity as a director of each of the defendants (all of whom are the parties now referred to as “the Lamb Interests”).

[3]      Section 246 Companies Act 1993 authorises the Court to appoint an interim liquidator of a company and its assets if the Court is satisfied that it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company for an interim liquidator to be appointed.  In addition, the Court must be satisfied that an application has been made to the Court of a proper nature to place the company in question into liquidation.

[4]      In  the  present  case,  counsel  for  the  plaintiffs  and  counsel  for  the  Lamb Interests, mid way through the hearing before me today, reached a joint position where they accepted that a substantial deadlock had arisen between the shareholders and directors of each of the three defendant companies.   Those shareholders are effectively the Lamb Interests as to a 50% share and the plaintiffs (“the Goodson Interests”) as to the other 50% share.

[5]      That said, towards the end of this hearing of the present application, Mr Douglas counsel for the Lamb Interests acknowledged that they would no longer oppose the appointment of an interim liquidator for each of the three defendant companies pursuant to r 246 Companies Act provided that a restriction upon the powers to be exercised by that interim liquidator was imposed by the Court.  This suggested restriction was to reflect that at all times the powers of the appointed

interim liquidator were to be limited to the extent that the interim liquidator was not permitted to make any distribution from the sale proceeds of a property at 9 Peterkin Street, Wingate (“the Wireplus property”) owned by the first defendant company. That said, it would appear that the parties now are in general agreement that the difficult impasse which has developed between the shareholders, and a possible impending mortgagee sale of the Wireplus property in the event that settlement does not occur under an existing overdue sale agreement for this property has meant that urgency is needed here, and the appointment of an interim liquidator is required.

[6]      That said, an order appointing an interim liquidator of the three defendant companies is to follow.

[7]      The issue, however, which  remains relates to the powers of that interim liquidator.

[8]      Before me, Ms Aldred for the plaintiffs noted that in s. 246(1) Companies Act

1993 the Court is enabled to appoint an interim liquidator:

“if it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company.”

Here Ms Aldred contended that the existing Agreement for Sale of the Wireplus property, which is to Firethorn Investments Limited as purchaser at a sale figure of

$4.3 million dollars needs to be preserved at all costs.  This is particularly the case bearing in mind that Property Law Act Notices have been issued by the BNZ as mortgagee with respect to this and other properties owned by the defendant companies and these notices have expired unremedied.

[9]      It seems that if the $4.3 million dollar sale contract, to Firethorn Investments Limited, a purchaser company which I understand to be of little substance, is not preserved and settled then a significant loss to the first defendant company is likely to arise when an impending mortgagee sale takes place.  A quirk of this sale contract for the Wireplus property is that the purchaser company represents in effect a joint

venture arrangement put together by Mr Goodson, the first plaintiff, which includes he or the Goodson Interests as a 32% shareholder.

[10]     The  purchaser  company  is  financing  the  $4.3  million  purchase  as  I understand it by way of a $2 million dollar mortgage already arranged and $2.3 million equity contribution from its shareholders.

[11]     Mr Goodson’s contribution as a 32% shareholder I understand is to be about

$750,000.00.  As I understand the position from Ms Aldred, Mr Goodson maintains that when this sale contract was negotiated it was apparent to all parties that Mr Goodson’s share of the equity to be contributed by the purchaser was to come from a distribution to him of the Goodson Interests share from the sale proceeds.

[12]     There seems to be some dispute as to this on behalf of the Lamb Interests, however.   Notwithstanding that, this aspect appears to provide the reason why Firethorn Investments Limited as purchaser has not, as yet, completed settlement of the Wireplus  property purchase,  a settlement  that  is  now  a little  over  1  month overdue.

[13]     Under  all  the  circumstances  here,  counsel  reached  an  agreement  that  an interim liquidator of each of the defendant companies including the first defendant are required and are to be appointed.

[14]     As  I see  it  the  interim  liquidator  in  dealing  with  the  assets  of  the  first defendant must carefully consider the position regarding the sale agreement for the Wireplus property.   It may well be that negotiations with Firethorn Investments Limited as defaulting purchaser should be undertaken.  What is important, however, is that some steps are taken  with  a  view  to  endeavouring to  preserve this  sale agreement.  The interim liquidator of course will be in a position to take that course.

[15]     Returning for a moment to the issue at large relating to the powers available to interim liquidators, it is clear from s. 246(2) Companies Act 1993 that subject to any limitation to the rights and powers which a Court may make under s. 246(3) an interim liquidator is to have 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.

[16]     As to this provision, it is clear from Re Chateau Hotels Limited [1977] 1

NZLR 381 that the primary duty of an interim liquidator is to preserve the status quo with the least harm to all interested persons.  It is also well established that the use of the word “value” in s. 246(2) means that an interim liquidator is not required to preserve a company’s assets if their value is declining.

[17]     From  Shen  v  Ann  Ying  Group  Limited  No.  3  High  Court,  Auckland,  6

September 2006, Heath J. CIV 2006-404-2558, it is clear that the purpose of the appointment of interim liquidators is to preserve the rights of the collective body of creditors to participate in a distribution of all assets of a debtor company in accordance with the statutory priorities.

[18]     Finally, and significantly here, Brookers Companies  & Securities Law at para. CA246.06 states in part:

“An interim liquidator does not have authority to put the company into liquidation  or  to  distribute  assets  “Re  General  International  Agency Company Ltd (1865) 36 BEAV 1.  The powers of an interim liquidator are generally used for the purpose of protecting  the  company’s  property  for distribution to creditors in the event a liquidator is subsequently appointed.”

[19]     On this question of the powers to be granted to the interim liquidator here, Ms Aldred for the plaintiffs submitted that an appropriate order in the present case should provide that the interim liquidator is appointed to determine the proper distribution of the proceeds of the sale of the Wireplus property and to apply the proceeds of sale, but only to the extent that that is necessary to enable the sale to settle and thereby preserve the value of the company’s assets.  She states that this would not extend to distributing the balance of the assets to shareholders.

[20]     Mr  Douglas  for  the  Lamb  Interests  however  takes  exception  to  this contention.  He maintains that the powers of the interim liquidator to be appointed

should be specifically limited in terms of s. 246(3) to require that the interim liquidator is not able to make any distribution from the sale proceeds of the Wireplus property.

[21]     The  authorities  I  have  noted  above,  including  Brookers  Companies  & Securities Law at para. CA246.06, indicate that the rights and powers of an interim liquidator are generally limited to maintaining the value of the assets owned or managed by the company in the interests first of the creditors and secondly and ultimately  the  shareholders  of  the  company.     The  decision  in  Re  General International Agency Company Limited appears to confirm that an interim liquidator does not have authority to distribute assets of the company.

[22]     That said, I reject the contention from Ms. Aldred that a specific power should be granted here to the interim liquidators to make a final determination of the proper distribution and application of the proceeds of the sale of the Wireplus property to shareholders.  To my mind that power would simply go too far, bearing in mind that the general powers of an interim liquidator are merely to maintain the value of assets owned or managed by the company.

[23]     That said, however, in my view it is also not appropriate in this case to specifically  limit  the  powers  of  the  interim  liquidator  in  terms  of  s.  246(3) Companies Act 1993 as suggested by Mr Douglas for the Lamb Interests at para. [20] above. In my view, if an interim liquidator here, in carrying out what may well be the difficult task of preserving the value of all assets of the defendant companies, forms the view that what is required here is some creative or what may appear to be unusual solution to sustain the Wireplus property sale agreement then that is a matter for the interim liquidator.

[24]     And on this aspect, I propose in my judgment to reserve leave to the interim liquidator to apply to the Court for such further orders as he may require under all the circumstances, if it is thought that these are needed to properly preserve the assets of each defendant company.

[25]     For the reasons I have outlined above, the plaintiffs’ application to appoint interim liquidators of each of the defendant companies succeeds.

[26]     An affidavit and Consent to Act of Robert Bruce Walker dated 6 September

2008 has been filed.

[27]     An  order  is  now  made  that  Robert  Bruce  Walker  is  appointed  interim liquidator  of  the  first  defendant,  Wingate  Two  Limited,  the  second  defendant, Trading Holdings Limited and the third defendant, Lago Enterprises Limited.

[28]    A further order is made that the interim liquidator is entitled to charge reasonable remuneration for carrying out his duties and exercising his powers as interim liquidator subject to s. 284 Companies Act 1993.

[29]     In  addition  to  the  powers  provided  to  the  interim  liquidator  under  the Companies Act 1993 the interim liquidator here is to have the following additional powers:

(a)To take control of  all assets  of  each  of  the  defendant  companies including:

(i)Any legal or equitable interests that each defendant company may have in properties together with an individual defendant’s interest in any agreements for sale and purchase relating to a property or properties.

(ii)       Any funds held either by those defendant companies or on

Trust for individual defendant companies.

(b)To  sell  or  otherwise  dispose  of  assets  of  any  of  the  defendant companies where the value of those assets are declining including any equity which a defendant company may have in any properties.

(c)      To  take  control  of  all  the  books  and  records  of  each  defendant company including financial and other records and any legal files held by solicitors for those defendant companies.

(d)To make a compromise or an arrangement with creditors or persons claiming to be creditors of any of the defendant companies or with regard to any persons who have or allege the existence of a claim against such defendant companies.

(e)      To investigate and, if necessary, to initiate recovery action in respect of any monies owed to any of the defendant companies.

(f)      To instruct counsel, experts and specialists such as valuers to advise and assist the interim liquidator in the exercise of his powers.

(g)      Leave is reserved to the interim liquidator to apply to this Court for such further order as he may require to properly preserve the assets of any of the defendant companies.

[30]     Costs on this application are reserved.

[31]     So far as this may be necessary this order is made today 11 September 2008 and timed at 12.52 pm.

‘Associate Judge D.I. Gendall’