Grant v Commissioner of Inland Revenue

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IN THE SUPREME COURT OF NEW ZEALAND

SC 96/2011
[2011] NZSC 145

BETWEEN DAMIEN GRANT AND STEVEN KHOV
Applicants

AND COMMISSIONER OF INLAND REVENUE
Respondent

Court: Elias CJ, Blanchard and Tipping JJ

Counsel: R M Dillon for Applicants
P W O'Regan and R A Hearn for Respondent

Judgment: 30 November 2011

JUDGMENT OF THE COURT

The application for leave to appeal is dismissed with costs of $2,500 to the respondent.

REASONS

The proposed appeal seeks to raise two issues concerning the validity of a deed of company arrangement (DOCA) under Part 15A of the Companies Act 1993. The first is whether the chairman of the watershed meeting was entitled to exercise a casting vote in favour of the proposed scheme in circumstances where a majority of creditors in number had voted in favour but those creditors represented less than 75% of the company's indebtedness by value. The second issue is whether, if the casting vote was valid so that the scheme embodied in the DOCA was adopted by the meeting of creditors, nevertheless the High Court should have terminated the DOCA under the power given in s 239ADD because it was oppressive or unfairly prejudicial to, or unfairly discriminatory against, the Commissioner of Inland Revenue because it did not give him the preferential priority which he would have had if the company were put into liquidation (another possible outcome of the watershed meeting).
The appeal cannot succeed unless the applicant can prevail on both issues. While the second issue may be arguable, we are not persuaded that the applicant has any prospect of succeeding on the casting vote issue. We are in full agreement with the Court of Appeal’s reasoning that the chairman was not empowered to exercise a casting vote in the circumstances.[1]
[1] Grant and Khov v Commissioner of Inland Revenue [2011] NZCA 390 at [45]–[53].
It is therefore not in the interests of justice that leave be given.

Solicitors:
Queen City Law, Auckland for Applicants
Crown Law Office, Wellington

CaseChat Overview and Summary

The case of Grant v Commissioner of Inland Revenue involves Damien Grant and Steven Khov, the applicants, and the Commissioner of Inland Revenue, the respondent. The applicants sought leave to appeal a decision from the Court of Appeal regarding a deed of company arrangement (DOCA) under the Companies Act 1993. The applicants challenged the validity of the DOCA, particularly questioning whether the chairman of the watershed meeting was entitled to exercise a casting vote when a majority of creditors by number had voted in favour of the scheme but represented less than 75% of the company's indebtedness by value. Additionally, they argued that even if the casting vote was valid, the High Court should have terminated the DOCA under section 239ADD of the Act as it was oppressive, unfairly prejudicial, or unfairly discriminatory against the Commissioner of Inland Revenue, who was not given the preferential priority that would have been afforded in the case of liquidation.

The legal issues before the Supreme Court were whether the chairman of the watershed meeting had the authority to cast a deciding vote under the circumstances, and if the High Court had the discretion to terminate the DOCA on the grounds of unfairness to the Commissioner of Inland Revenue. The Court found that the applicants had no prospect of success on the first issue, as the Court of Appeal had already ruled that the chairman was not empowered to exercise a casting vote in such circumstances. On the second issue, while there was some arguability, the Court concluded that it was not in the interests of justice to grant leave to appeal. The Court agreed with the Court of Appeal's reasoning and maintained that the High Court's decision to not terminate the DOCA was correct.

In light of the above, the Supreme Court dismissed the application for leave to appeal with costs of $2,500 awarded to the Commissioner of Inland Revenue. The decision underscores the importance of adhering to the statutory requirements for the approval of a DOCA and reaffirms the limited grounds upon which a court may intervene in such proceedings.

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established