Gower
[2020] NZHC 1239
•5 June 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2020-409-000106
[2020] NZHC 1239
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)
BETWEEN
COLIN ANTHONY LATHAM GOWER AND ANDREW JAMES GRACE
Applicants
Hearing: On the papers Appearances:
C R Vinnell for Applicants
Judgment:
5 June 2020
JUDGMENT OF MANDER J
This judgment was delivered by me on 5 June 2020 at 2.30 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date: 5 June 2020
GOWER AND GRACE [2020] NZHC 1239 [5 June 2020]
Background
[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) (the companies) on 12 February 2020.
[2] The companies are the leasee of some 27 different sites around the country. The companies operate businesses either directly or through franchisees at the locations. Franchisees occupy some 24 of the 27 locations and approximately 14 of the 24 franchisees are currently still paying rent to the landlords in respect of the locations they occupy.
[3] An originating application was made to this Court on 28 February 2020 and granted by Churchman J on 3 March 2020 (as recalled and amended on 10 March) excusing the applicants from personal liability under the 27 leases until 18 March 2020.1 By an order of 23 March 2020, those orders were varied by Dunningham J excusing the applicants from personal liability under 11 leases until 8 April 2020, and by way of a further minute issued by the same Judge, the applicants were excused from personal liability under 22 leases for a period ending on the 10th working day after the day the Government reduced the COVID-19 alert level to level 2 or below. That period expired on 27 May 2020.
[4] Churchman J in his judgment of 3 March 2020 reserved the applicants leave to apply for variations of the order. They now apply to extend the present orders excusing them from liability for rent and any other payments becoming due under leases of the premises located at the 22 sites listed in their application of 29 May 2020 to include the period between 28 May and 30 June 2020.
The legislative framework
[5] Section 32(5) of the Receiverships Act 1993 (the Act) renders a receiver personally liable for rent and other payments becoming due under an agreement
1 Re Gower [2020] NZHC 355; Re Gower (No 2) [2020] NZHC 461.
subsisting at the date of the receiver’s appointment relating to the use, possession, or occupation by the debtor company of premises.
[6] The receiver’s liability is limited to that portion of the rent or other payments which accrue in the period commencing 14 days after the date of the receiver’s appointment and ending on the date on which the receivership ends or the date on which the company ceases to use, possess, or occupy the property; whichever is the earlier.2 The Act further provides that the receiver may apply to the Court to limit or completely excuse his or her liability for such payments.3 The applicants were appointed as receivers on 12 February 2020 and they have made successive successful applications to be excused from personal liability.
Grounds on which the order is sought
[7] As noted, the three companies in receivership are leasees 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 by franchisees of food outlets styled as “Shake Shed”.
[8] When this matter came before Dunningham J, the applicants were able to advise that the leases in respect of which they might face personal liability numbered 22, of which rental for 11 had been paid up to 31 March 2020. A further extension was sought only in relation to eight “corporate stores” held by a company called BB Icy Ltd, of which Mr Chang Xi was the director, and three other stores situated at Bush Inn, The Palms, and Rolleston, in respect of which the applicants were not able to obtain sufficient certainty that rental would be paid to 31 March 2020.
[9] Mr Gower has deposed 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
2 Receiverships Act 1993, s 32(6).
3 Section 32(7).
during these periods, neither the franchisees nor the applicants have access to funds with which to pay rental.
[10] 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 22 premises that rental has been paid for the month ending 31 May 2020.
[11] 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.
[12] The applicants are presently in negotiations with an overseas party interested in purchasing the entire Shake Shed franchise group. A proposal was received on 23 March 2020 and the applicants presented a counter-proposal on 25 May 2020. It is hoped that an agreement can be reached which preserves the franchisees businesses and delivers a more stable franchise network (and therefore tenants) to the affected landlords and all stakeholders.
[13] 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 22 premises in the time available. Accordingly, a further order is sought from the Court.
[14] 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.
Decision
[15] Having read the affidavits of Mr Gower, 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 in the terms sought, namely to excuse the applicants from liability for rent and any other payments becoming due under leases of the 22 premises listed at paragraph one of the application.
[16] As noted by Churchman J in his judgment of 3 March, the only way stakeholders are likely to receive any benefit from the receivership is if the franchised businesses can be sold as a going concern and it is therefore in the creditors’ interests for that to be facilitated if possible. The landlords’ position remains substantially the same. While there is the potential for them to incur loss it appears that it has been the franchisees rather than the companies in receivership or their connections that have been paying the rent and I understand a number of them continue to make those payments. The majority of the landlords are therefore unlikely to be materially affected by excusing the applicants from their obligations.
[17] 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 affidavit and that the interests of justice favour that course. In that regard, I note that Churchman J’s judgment of 3 March 2020 and related documents were served on all 22 affected landlords on 11 March 2020, and that the minute of Dunningham J was similarly circulated to all 11 affected landlords on 24 March 2020. I have also been advised that the memorandum of counsel dated 8 April 2020 and the minute of Dunningham J of 9 April 2020 were emailed to the affected landlords on the same date. As noted by the applicants, and as earlier observed, the position remains
that all landlords who are not being paid rent retain their ability to terminate the leases for non-payment of rent and the applicants are not seeking to avoid or negate that right.
[18]The following orders are made:
(a)dispensing with service of this application and supporting affidavits prior to the order being made;
(b)excusing the applicants 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, Johsonville 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)Rotorua – Shop 13, Rotorua Central, Amohau Street, Rotorua 3010;
(xix)South City – 555 Colombo Street, Christchurch 8011;
(xx)Upper Hutt – Trentham Shopping Centre, 185 Main Street, Upper Hutt 5018;
(xxi)Wanganui – Shop 24 Trafalgar Square, Taupo Quay, Wanganui 4500; and
(xxii)West City – West City Shopping Centre, Catherine Street, Henderson, Auckland 0612;
(c)directing that the application, memorandum of counsel, supporting affidavit, and a copy of this decision be served on all potentially affected parties within 14 days of the making of this order; and
(d)reserving the applicants and any party adversely affected by the order leave to apply to the Court for variation of this order, any such application to be served on all potentially affected parties
for the period between 28 May and 30 June 2020.
Solicitors:
Anthony Harper, Christchurch