Grant v Gifford - [2018] NZHC 26

IN THE HIGH COURT OF NEW ZEALAND GISBORNE REGISTRY

I TE KŌTI MATUA O AOTEAROA TŪRANGANUI-A-KIWA ROHE

CIV 2015-416-34 [2018] NZHC 26

BETWEEN
DAMIEN GRANT AND STEVEN KHOV

AS LIQUIDATORS OF K-PACK INTERNATIONAL LIMITED (IN LIQUIDATION)

Plaintiffs

AND

KENNETH JOHN GIFFORD Defendant

Hearing: 30 October 2017

Counsel:

S M T Chambers for Plaintiffs
A M Simperingham for Defendant

Judgment:

30 January 2018

JUDGMENT OF ELLIS J

[1] The liquidators of K-Pack International Limited (KPI) seek declarations under s 300(1) of the Companies Act 1993 (the CA) that the sole director of KPI, Mr Gifford, is personally liable for debts incurred by the company as a result of poor record-keeping during the period prior to liquidation. These debts amount to approximately $87,000. They also seek declarations that Mr Gifford is liable for the net (GST exclusive) costs of the liquidation (approximately 68,000 as well as interest
and costs.

GRANT AND KHOV AS LIQUIDATORS OF K-PACK INTERNATIONAL LTD (IN LIQUIDATION) v
GIFFORD [2018] NZHC 26 [30 January 2018]

[2] Although Mr Gifford instructed counsel and filed a statement of defence, shortly before the hearing his lawyer, advised that he would no longer be defending the claim. The matter therefore proceeded by way of formal proof.1 I therefore merely record that, from my reading of the statement of defence, his position was that KPI had (from 2008 onwards) “ceased trading”.

Relevant law

[3] I summarise the relevant statutory provisions below.

[4] Section 300 of the Companies Act 1993 (the CA) applies if a company is in liquidation and is unable to pay all its debts. Only a liquidator can bring an application under s 300. If it is found that a company in liquidation which cannot pay its debts has failed to keep its accounting records in accordance with the requirements of s 194 or prepare financial statements pursuant to any enactment, the Court may, if it considers that such failure has contributed to the company’s failure insolvency, or has adversely affected the course of liquidation, order that any of the company’s directors are personally responsible for all or part of the company’s debts and liabilities.2

[5] Here, the liquidators claim breaches of the record keeping requirements contained in both s 194 and ss 10 and 12 of the Financial Reporting Act 1993 (the FRA).3

[6] Section 194(1) (at the time) required that the board of a company must ensure that there are kept at all times accounting records that:4

(a) correctly record and explain the transactions of the company; and

1 Although Mr Taylor and Mr Simperingham appeared at the beginning of the hearing their attendance for the duration was excused.
2 Section 300(2) effectively provides that a director will have a defence to a claim under s 300(1)
if the Court considers that the person took all reasonable steps to secure compliance by the company with the relevant statutory provisions or had reasonable grounds to believe and did believe that a competent and reliable person was charged with the duty of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Grant v Gifford

Details

AGLC: Grant v Gifford [2018] NZHC 26
Case: [2018] NZHC 26
Decision Date: 30 January 2018

CaseChat Overview and Summary

The liquidators of K-Pack International Limited, Grant and Khov, sought declarations under s 300(1) of the Companies Act 1993 (the CA) that Kenneth John Gifford, the sole director of K-Pack International Limited, was personally liable for the debts incurred by the company as a result of poor record-keeping prior to liquidation. The liquidators also sought declarations that Mr Gifford was liable for the net (GST exclusive) costs of the liquidation. The High Court was required to determine whether Mr Gifford complied with the record-keeping obligations under s 194 of the CA and ss 10 and 12 of the Financial Reporting Act 1993 (the FRA), and if not, whether his failure contributed to the company’s inability to pay its debts, resulted in a substantial uncertainty as to the assets and liabilities of the company, or substantially impeded the orderly liquidation of the company.

The Court found that as an exempt entity under the FRA, K-Pack International Limited was obliged to keep financial statements in the form set out in the Financial Reporting Order 1994. It was also clear that as sole director of K-Pack International Limited, Mr Gifford was responsible for operating the business, correctly recording the transactions of the company, and ensuring the accounting records complied with generally accepted accounting practice and were able to be audited under the CA. Mr Gifford failed to comply with the requirement to keep correct financial records under s 194(1)(a) of the CA and ss 10 and 12 of the FRA. His failure contributed to the company’s inability to pay its debts, resulted in substantial uncertainty as to the company’s assets and liabilities, and substantially impeded the orderly liquidation of the company. Mr Gifford bore sole responsibility for the record-keeping failures in this case and for the impact of those failures on the state of the company and on the liquidation. The Court held that Mr Gifford should be liable for the entirety of the debts owed to Fliway, SMC, and the Commissioner.

Regarding the liquidators’ fees, the Court found that although Mr Gifford’s actions and inactions had been causative of avoidable costs in the liquidation, it was not prepared to hold him liable for the costs of the liquidation in its entirety. The Court was not convinced that responsibility for K-Pack International Limited’s liquidation was to be laid entirely at the door of Mr Gifford’s woeful record-keeping, given that K-Pack International Limited’s fate was inextricably linked to that of K-Pack International (NZ) Limited, which had also gone into liquidation. The Court accepted that over 50 per cent of the costs of the liquidation were properly attributable to Mr Gifford’s s 300 defaults, and ordered that he pay $45,000 of the liquidators’ net fees and disbursements. The Court also declared that Mr Gifford was personally responsible without limitation of liability for all the debts of K-Pack International Limited and ordered him to pay the liquidators $87,009.40, plus interest at the prescribed former Judicature Act rate from the date upon which the company was placed in liquidation until the date of the judgment.

Orders