Gower

[2020] NZHC 355

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2020-409-106

[2020] NZHC 355

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 Holdings Limited (in receivership)

AND

IN THE MATTER

BETWEEN

of an application pursuant to section 32 of the Receiverships Act 1993

COLIN ANTHONY LATHAM GOWER and ANDREW JAMES GRACE

Applicants

On the papers:
Counsel:	C R Vinnell for Applicants
Judgment:	3 March 2020

JUDGMENT OF CHURCHMAN J

Background

[1]                 Colin Gower and Andrew Grace (the applicants) were appointed as receivers and managers of Cone Enterprises (NZ) Limited (in receivership and in liquidation) (Cone), Shake Shed & Co. NZ Limited (in receivership) and Shake Shed & Co. Holding Limited (in receivership) (together “the companies”) on 12 February 2020.

C A L Gower and A J Grace [2020] NZHC 355 [3 March 2020]

[2]                 The companies are the lessee of some 27 different sites around the country (the locations). 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.

The applications

[3]                 The applicants, by interlocutory application without notice dated 28 February 2020 seek orders:

(a)granting permission to commence these proceedings by way of an originating application without notice;

(b)dispensing with service of this application and the supporting affidavit prior to the order being made; and

(c)excusing the receivers from liability for rent and any other payments becoming due under leases of the premises at the various locations set out in the application.

[4]                 The application is supported by a memorandum of counsel dated 2 March 2020 and an affidavit from one of the applicants, Colin Gower, sworn on 28 February 2020.

[5]                 The affidavit of Mr Gower sets out the complicated background to this application. Cone was originally the New Zealand franchisee of “Wendy’s” Milkshake and hotdog stores. Cone is owned and controlled by Mr Chang Xi.

[6]                 Following a dispute with Wendy’s, Cone and its New Zealand franchisee stores were rebranded as “Shake Shed”.

[7]                 As a result of the rebranding, Wendy’s sued and a settlement was reached. However, the settlement was breached and on 17 December 2019, a judgment for approximately $5.5 million was obtained against Cone, Mr Chang Xi and other entities.

Receivership and liquidation

[8]                 Contemporaneously with the appointment of the applicants as receivers by Heartland Bank, Cone was placed into liquidation upon the application of the Inland Revenue Department.

[9]                 The records of Cone are inadequate with many relevant documents unable to be ascertained particularly in relation to leases. During the 14 days following their appointment, the receivers have not been able to obtain an accurate picture of the lease situation beyond having been able to ascertain that the franchisees pay the rent and some of 24 of the 27 stores are still currently trading. Mr Xi is providing insufficient information to allow the receivers to make accurate calculations.

[10]              The receivers are hopeful of being able to sell the master franchise rights in respect of the Shake Shed companies and of Cone. Expressions of interest close Monday, 2 March 2020 at 4 pm. There is minimal income available to the receivers to fund the cost of receivership, and no ability by the receivers to meet lease payments.

[11]              The prospects of selling the franchise business as a going concern would seem to provide the best option for all stakeholders.

The law

[12]              Section 32 of the Receivership Act 1993 sets out the liabilities of a receiver. Section 32(5) provides that a receiver is personally liable for rent. Section 32(7) indicates that the Court may, on the application of a receiver, either limit the liability of a receiver in respect of rent or excuse a receiver from such liability.

[13]              Proceedings such as these can be commenced by the filing of an Originating Application without notice if the interests of justice require that.

[14]              One matter for the Court to consider in respect of such application is whether the proceedings need to be dealt with urgently and whether requiring the proceedings to be bought on notice would result in an injustice.

[15]              The Court can grant a dispensation from the requirement of service of the application and supporting affidavit prior to the making of order in circumstances where the interests of justice require that.

Analysis

[16]              Having reviewed the affidavit evidence, for the reasons advanced on behalf of the applicants, I am satisfied that this is an appropriate case to dispense with service of the application and supporting affidavit, prior to the making of the order. I am also satisfied that this is an appropriate case for the proceedings to be commenced by originating application without notice. This application needs to be resolved urgently.

[17]              In relation to the third order sought, namely the excusing of the applicants from liability for rent or other payments due under the leases of the various premises, the applicants seek to be excused either for a period of 25 working days from the granting of this order or such further period as the Court directs.

[18]              I accept that the only way that stakeholders are likely to receive any benefit from the receivership is if the franchised business can be sold as a going concern. It is therefore in the creditor’s interests for that to be facilitated if possible.

[19]              I am mindful of the potential loss that the landlords might suffer. However, I note that it has been the franchisees rather than Cone, or any other entities associated with Mr Xi, that have been paying the rent and that a number of the franchisees continue, as at the present date, to make those payments. Therefore, excusing the applicants from that obligation is unlikely to materially change the situation for the majority of the landlords.

[20]              However, I am not convinced that as long as 25 working days is required. It appears that, as a result of the imminent closure of the period for expressions of interest in the business, the applicants will know very soon whether there is any prospect of all or any of the business being sold in the near future. I am therefore prepared to make an order under s 32(7) but only for 15 working days.

Outcome

[21]I make the following orders:

(a)granting permission to commence these proceedings by way of originating application without notice;

(b)dispensing with service of this application and supporting affidavit prior to the order being made;

(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 this order;

(d)excusing the receivers from liability for rent and any other payments due under the leases of the premises specified in [1] of the interlocutory application in these proceedings dated 28 February 2020 for a period of 15 working days from the date of the granting of this order; and

(e)reserving the applicants and any party adversely affected by this order leave to apply to the Court for variation of this order, any such application to be served on all potentially affected parties.

Churchman J

Solicitors:
Anthony Harper, Christchurch for Applicants