Gower
[2020] NZHC 1948
•5 August 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV 2020-409-000106
[2020] NZHC 1948
UNDER section 32 of the Receivership Act 1993 and Part 19 of the High Court Rules IN THE MATTER OF
the receiverships of CONE ENTERPRISES (NEW ZEALAND) LIMITED (in
receivership and in liquidation) and SHAKE SHED & CO HOLDING LIMITED (in
receivership)AND
IN THE MATTER OF
an application pursuant to s 32 of the Receiverships Act 1993
AND
COLIN ANTHONY LATHAM GOWER and ANDREW JAMES GRACE
Applicants
Hearing: 3 August 2020 Appearances:
C R Vinnell for the Applicants
Judgment:
5 August 2020
JUDGMENT OF VAN BOHEMEN J
This judgment was delivered by me on 5 August 2020 at 2.00/pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
Solicitors/Counsel:
Anthony Harper, Christchurch
GOWER and GRACE (Receivership) [2020] NZHC 1948 [5 August 2020]
Introduction
[1] On 12 February 2020, the applicants, Colin Gower and Andrew Grace, were appointed receivers and managers of Cone Enterprises (New Zealand) Ltd (in receivership and liquidation), Shake Shed & Co NZ Ltd (in receivership) and Shake Shed & Co Holding Ltd (in receivership).
[2] Since 3 March 2020, a succession of orders has been made excusing the receivers from liability for rent and other payments becoming due under various leases held by the companies at numerous sites throughout New Zealand. The last extension was made by Doogue J on 6 July 2020 and applied until 31 July 2020.1
[3] By application dated 30 July 2020, the receivers applied to vary the orders previously made to extend the period of relief from personal liability from rent and other payments in respect of 15 named properties for the period 31 July 2020 to 11 September 2020.
[4] At the duty list call on 3 August 2020, I made the orders requested in the application and said I would issue my reasons subsequently.
Relevant background
[5] The background to this matter is set out at [1]-[4] and [7]-[14] of Mander J’s decision of 5 June 2020.2 For present purposes it is enough to recall that the three companies in receivership are lessees of various retail premises. Through informal intercompany arrangements or licences to occupy, franchisees of Shake Shed fast food outlets have rights to occupy these premises.
[6] The Covid-19 emergency had a major effect on the franchise stores, the leased premises and the receivers’ ability to deal with issues arising from the receiverships. The ability of the various lessees and licensees of these premises to meet their rental obligations and the willingness and ability of their landlords to forego or abate rent have been uncertain, and the receivers have faced difficulties in obtaining information
1 Gower v Grace [2020] NZHC 1605.
2 Gower v Grace [2020] NZHC 1239.
about the business operations of the companies in receivership. As a consequence, the receivers have faced the possibility of being held personally liable for rent in accordance with s 32(5) of the Receiverships Act 1993.
[7] In the meantime, the receivers have been engaged in negotiations with an overseas party to purchase the Shake Shed franchise business. The orders that have been made excusing the receivers from personal liability for rent and other payments due by the companies in receivership have helped ensure that leases and licences to occupy the various premises have not had to be surrendered while those negotiations have been underway. It has been the receivers’ position throughout this process that the interests of franchisees and landlords are more likely to be served by a sale of the business than its break up, the surrender of leases and the likelihood of vacant stores.
[8] As noted in Mander J’s decision of 5 June 2020,3 the affected landlords have been kept apprised of the decisions excusing the receivers from liability for rent and other payment.
Current application
[9] In an affidavit sworn on 30 July 2020, Mr Gower says the receivers have entered into a confidential Heads of Agreement in relation to the Shake Shed franchise business. The agreement is subject to a purchaser’s due diligence period of five weeks with completion to occur after that. Mr Gower says that all going well, settlement would occur on 9 September 2020.
[10]Mr Gower says that under the agreement:
(a)the purchaser has been appointed as manager and agent to exercise Shake Shed’s franchise rights and obligations across the franchise network;
3 Above n 2, at [17].
(b)as part of due diligence, the landlords of the premises occupied by Shake Shed franchises will be contacted and discussions held as to the ongoing occupation of each store; and
(c)assuming the due diligence condition is confirmed, a cash payment will be made to the receivers upon completion and all leases will be assigned to the purchaser.
[11] Mr Gower also outlines the circumstances of former directors of the companies in receivership who are facing bankruptcy and of the company which has operated nine of the Shake Shed stores and is facing removal from the Companies Register. He also confirms that no revenue is coming to the receivership on account of franchise fees. He also says the situation with respect to independent franchise stores remains varied and unclear.
[12] Nonetheless, Mr Gower says he remains confident that, following confirmation and completion of the purchase, the difficulties faced by franchisees and landlords will be significantly addressed by the introduction of an experienced franchise operator, and that this will be to the benefit of all stakeholders.
[13] In the meantime, the receivers seek an extension of their relief from personal liability until completion of the purchase.
[14] Mr Gower says that following the entry into the Heads of Agreement, the receivers’ solicitors wrote to all 21 landlords of Shake Shed franchises seeking agreement to the receivers being provided relied from liability until 11 September 2020. Mr Gower outlines the replies received from the seven landlords that had responded at the time he swore his affidavit. Six of the replies confirmed that the landlords would not hold the receivers personally liable although in four cases the landlords reserved their rights under the lease. One response confirmed that the landlord would not hold the receivers personally liable but that was contingent upon the receivers making a payment the receivers cannot meet.
[15] As a consequence of those replies, the receivers now seek to be excused from personal liability from rent until 11 September 2020 from the 14 premises whose landlords did not reply to the letter from the receivers’ solicitors and the one premises where the reply imposed a condition the receivers could not meet.
[16] As confirmed in an affidavit sworn on 31 July 2020 by Mr Craig Symon, who is working with the receivers on this matter, emails were sent on 30 July 2020 to the last known addresses of the 21 landlords attaching copies of the receivers’ application for the further extension of relief from liability until 11 September 2020 and advising that the matter was to be called in the duty list on 3 August 2020.
[17] At the call on 3 August 2020, Mr Vinnell, counsel for the receivers, updated me on responses from the landlords. None of the landlords appeared at the call.
Discussion
[18] I am satisfied that the receivers have continued to make responsible and efficient progress towards resolving the issues around the companies in receivership and that, consistently with the orders made previously, it is appropriate to excuse the receivers from personal liability for rent and other payments for the period of due diligence and to enable completion of the purchase as described in Mr Gower’s affidavit.
Orders
[19]I make the following orders:
(a)Service of this application and supporting affidavits is satisfied by the email to the landlords described in Mr Symon’s affidavit sworn on 31 July 2020;
(b)The applicants are excused from liability for rent and other payments becoming due under leases at the premises at:
(i)Barrington - Barrington Shopping Centre, 256 Barrington Street, Christchurch 8024;
(ii)Bayfair - Shop 510 Bayfair Shopping Centre, corner of Mount Maunganui Road and Girven Road 3116;
(iii)BNZ Centre - 101-110 Cashel Street, Christchurch 8011;
(iv)Bush Inn Centre, Waimairi Road, Riccarton, Christchurch 8041;
(v)Eastgate - 20 Buckleys Road, Linwood, Christchurch 8062;
(vi)Hamilton - K-07 Maahanga Drive, The Base, Hamilton 3200;
(vii)Hastings - The Plaza, Russell Street, Hastings 4122;
(viii)Hornby - The Hub, 418 Main South Road, Hornby, Christchurch 8042;
(ix)Northlands - 55 Main North Road, Papanui, Christchurch 8052;
(x)Palmerston North - 84 The Square, Palmerston North 4410;
(xi)Papatoetoe - Shop 27, Hunters Plaza, 217 Great South Road, Papatoetoe, Auckland 2025;
(xii)Porirua - North City Mall, Titahi Bay Road, Porirua 5022;
(xiii)South City - 555 Colombo Street, Christchurch 8011;
(xiv)Upper Hutt - Trentham Shopping Centre, 185 Main Street, Upper Hutt 5018;
(xv)West City - West City Shopping Centre, Catherine Street, Henderson, Auckland 0612,
for the period between 31 July 2020 and 11 September 2020 or such further period as the Court directs;
(c)A copy of this decision is to be served on all potentially affected parties within 14 days of making this order; and
(d)Leave is reserved to the applicants and any other party affected by these orders to apply to vary the orders as made.
G J van Bohemen J