Gower
[2020] NZHC 1605
•7 July 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2020-409-000106
[2020] NZHC 1605
UNDER section 32 of the Receiverships 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 NZ
Limited (in receivership) and Shake Shed & Co Holding Limited (in receivership)
AND
IN THE MATTER OF
an application pursuant to s 32 of the Receiverships Act 1993
BETWEEN
COLIN ANTHONY LATHAM GOWER and ANDREW JAMES GRACE
Applicants
Hearing: 6 July 2020 Counsel:
C R Vinnell for the Applicants
Judgment:
7 July 2020
JUDGMENT OF DOOGUE J
Introduction
[1] The applicants, Colin Gower and Andrew Grace, were appointed as receivers and managers of Cone Enterprises (New Zealand) Ltd (in receivership and in liquidation), Shake Shed & Co NZ Ltd (in receivership) and Shake Shed & Co Holding Ltd (in receivership) on 12 February 2020.
GOWER AND GRACE [2020] NZHC 1605 [7 July 2020]
[2] Since 3 March 2020, the applicants have been excused from liability for rent or any other payments becoming due under the companies’ various leases at numerous sites throughout New Zealand.
[3] They seek a further extension of the order made by Mander J on 5 June 2020 excusing them from liability for rent and any other payments becoming due under leases of the premises and the properties listed at [18(b)] of his judgment.1
Background
[4] The background to this matter to date is recorded in [1]-[4] and [7]-[14] (inclusive) of Mander J’s judgment of 5 June 2020, and need not be repeated.
Grounds on which the order is sought
[5] The three companies in receivership are lessees of various retail premises and through informal intercompany arrangements or licences to occupy contained in various franchise agreements, they have rights to occupy those premises as franchisees of food outlets styled as “Shake Shed”.
[6] Mr Gower has deposed in his affidavit dated 1 July 2020 that as a result of the country moving to COVID-19 alert level 4 from 25 March 2020 and remaining at level 3 until 13 May 2020, there has been a major impact on the franchise stores, the leased premises, and the applicants’ ability to deal with the issues arising from the receiverships. Their situation has become worse and less certain as a result. Because there has been no trading during these periods, neither the franchisees nor the applicants have access to funds with which to pay rent.
[7] It is not known whether the majority of the leases contain rent abatement clauses. One lease that has been reviewed does not contain such a clause. Counsel has advised that many of the premises are in shopping malls and it is very common practice amongst mall owners not to have rent abatement clauses for their tenants. The applicants have not been able to obtain assurances in respect of any of the 21 premises that rent has been paid for the month ending 31 May 2020.
1 Re Gower [2020] NZHC 1239.
[8] Enquiries with landlords who have responded to the applicants reveal that tenancies are in arrears and that the position regarding COVID-19 rental abatement remains unclear. The landlord of the Porirua store has indicated that there are arrears of $16,457 and that abatement will not be considered because the tenant company is in receivership and liquidation.
[9] Essentially, the applicants seek a further grace period of 20 working days in respect of all leased premises to negotiate a transaction with a purchaser who will assume all of the Cone Enterprises and Shake Shed franchisor rights. The applicants are presently in negotiations with an overseas party; a proposal was received on 23 March 2020, and the applicants presented a counter-proposal on 25 May 2020. The transaction the applicants are pursuing, if successful, is likely to address all or most of the difficulties recited in the affidavit of Mr Gower dated 1 July 2020. It would introduce an experienced franchise operator with the resources (both financial and experiential) to provide product supply, marketing and other assistance to the franchisees. It is hoped this would produce better performing stores and therefore more stable tenants for the individual landlords.
[10] Mr Gower advises that efforts have been made to contact all affected landlords to ascertain the current lease/rental positions and secure agreement to a further grace period while negotiations continue with the prospective purchaser. The response has been generally supportive, however, Mr Gower advises “there are too many moving parts, different positions and varying requirements” to enable the applicants to be comfortable with their level of exposure. It is noted that various property managers and agents appear to be swamped with post-lockdown issues and rent abatement requests, and it has been too difficult for them to reach a satisfactory position in relation to all 21 premises in the time available. Accordingly, a further order is sought from the Court.
[11] It is noted that the landlords retain the ability to terminate leases for non-payment of rent, but the applicants are of the belief that there is a commercial solution to the situation. It is observed that should the applicants be unable to obtain further rental relief, then they would have no choice but to terminate the leases held
by Cone Enterprises (New Zealand) Ltd and Shake Shed & Co NZ Ltd, and that would not, in the view of the applicants, be an ideal result for a number of the affected parties.
In summary, the receivers seek further orders excusing them as receivers from liability for rent and any other payments becoming due under the leases of the relevant premises for the period between 30 June and 31 July 2020.
Decision
[12] Having read the successive affidavits of Mr Gower, the previous judgments in this matter, the memorandum of counsel in support of the application to vary the existing order and the grounds set out in the application itself, I am satisfied that orders should be made on the terms sought.
[13] I am satisfied the only way stakeholders are likely to receive any benefit from the receivership is if the franchise businesses can be sold as a going concern, and it is therefore in the creditors’ interests for that to be facilitated if possible.
[14] In addition, I am satisfied that the majority of the landlords are unlikely to be materially affected by excusing the applicants from their obligations.
[15] Finally, I am also satisfied that, having regard to the urgency of the matter, it is appropriate to grant dispensation from the requirement of service of the application and supporting affidavits to be in accordance with the High Court Rules 2016.
[16] The applicants have filed an affidavit by Ms Alice Marsh in support of the application wherein she said that, by way of service, she had sent an email to all the landlords of the 21 Shake Shed premises, attaching this application together with the affidavit of Mr Gower and the memorandum of counsel for the receivers dated 1 July 2020.
[17] There was nothing on the face of Ms Marsh’s affidavit from which the Court could deduce whether or not it was likely that there was sufficient connection between the recipients of the email and the respective landlords to satisfy the Court that the application would in fact be brought to the attention of the landlords.
[18] At the hearing on 6 July 2020, I indicated to counsel that I required further information on this aspect of the matter before I would grant dispensation of service and direct that the service be effected by way of email.
[19] I am now in receipt of that memorandum. It details the relationships between the recipients of the emails (generated by Ms Marsh) and the respective landlords. I am satisfied that there is sufficient nexus between the recipients of the emails and the landlords such that I can be satisfied this application will be brought to the attention of the landlords by that medium.
[20] Thus, I am satisfied it is appropriate to grant dispensation from the requirement that the service of the application be in accordance with the High Court Rules, and service can be effected by emailing the addresses of those recipients listed in counsel’s memorandum dated 6 July 2020.
Orders
[21]The following orders are made:
(a)Service of this application and supporting affidavits is satisfied by email to the addresses listed in counsel’s memorandum of 6 July 2020.
(b)The applicants are excused from liability for rent and any other payments becoming due under leases of 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)Johnsonville – Johnsonville Mall, Johnsonville Road, Johnsonville, Wellington 6037;
(x)Lower Hutt – Queensgate Mall, Queensgate Road, Lower Hutt 5011;
(xi)Northlands – 55 Main North Road, Papanui, Christchurch 8052;
(xii)Palmerston North – 84 The Square, Palmerston North 4410;
(xiii)Palms – The Palms Shopping Centre, corner of Marshlands Road and Shirley Road, Shirley, Christchurch 8061;
(xiv)Papamoa – K04, Papamoa Plaza, 7 Gravatt Road, Papamoa,
Tauranga 3118
(xv)Papatoetoe – Shop 27, Hunters Plaza, 217 Great South Road, Papatoetoe, Auckland 2025;
(xvi)Porirua – North City Mall, Titahi Bay Road, Porirua 5022;
(xvii)Rolleston – Shop 5, New World Complex, 92 Rolleston Drive, Rolleston 7614;
(xviii)South City – 555 Colombo Street, Christchurch 8011;
(xix)Upper Hutt – Trentham Shopping Centre, 185 Main Street, Upper Hutt 5018;
(xx)Whanganui – Shop 24 Trafalgar Square, Taupo Quay,
Whanganui 4500; and
(xxi)West City – West City Shopping Centre, Catherine Street, Henderson, Auckland 0612;
for the period between 30 June and 31 July 2020.
Doogue J
Solicitors:
Anthony Harper, Christchurch