Grant v Johnston

[2015] NZHC 611

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-1302 [2015] NZHC 611

UNDER

Part 18 of the High Court Rules and the

Companies Act 1993

IN THE MATTER

of the liquidation of NZNet Internet
Services Limited (in liquidation)

BETWEEN

DAMIEN GRANT AND STEVEN KHOV

Plaintiffs

AND

ROWAN KENLEY JOHNSTON First Defendant

STEPHEN ANDREWS Second Defendant

GEORGE POYKAIL THOMAS Third Defendant

Hearing:

9-13 June, 14-15 August 2014

Appearances:

B J Norling and J Boparoy for plaintiffs
S J Ropati for first defendant

S H Barter for second defendant (leave to withdraw granted) Third defendant in person

Judgment:

30 March 2015

JUDGMENT OF BROWN J

GRANT & ORS v JOHNSTON & ORS [2015] NZHC 611 [30 March 2015]

Table of Contents

Paragraph No.

Introduction  [1] Formulation of claim  [5]

Relevant history of events  [10]

Agreement with Horizon Pacific Group  [13] Mr Johnston becomes a director and shareholder  [20] The operation of NZNet during 2010  [28] Mr Thomas becomes involved  [52] The first quarter of 2011  [57] The revelations in April 2011  [68] Mr Thomas becomes a director  [75] Mr Thomas resigns  [85] Mr Johnston resigns  [90] The liquidation of NZNet  [94]

Overview of liquidators’ case  [97] Mr Johnston’s affirmative defence  [100]

The s 135 claim  [105]

Mr Andrews  [107] Mr Johnston  [111] Mr Thomas  [122]

The s 137 claim  [127] The s 136 claim  [132]

The second stage  [138]

Mr Andrews  [140] Mr Johnston  [141] Mr Thomas  [146]

The s 194 claim  [158]

Maintenance of accounting records of NZNet  [162] The liquidators’ submissions  [165] Analysis           [169] Disposition  [175] Costs      [176]

Introduction

[1]      NZNet Internet Services Ltd (in liquidation) (NZNet) was incorporated on 12 July

1995.  The second defendant (Mr Andrews) was the sole shareholder and a director from that date.   At all material times NZNet carried on business in Albany as an internet service provider specialising in providing niche business services including wireless, fibre, voice, backup and server hosting.

[2]      By  special  resolution  of  the  shareholders  of  NZNet  on  17 November 2011  the plaintiffs were appointed liquidators at 3 pm pursuant to s 241(2)(a) of the Companies Act

1993 (the Act).

[3]      In this proceeding the plaintiffs seek orders under ss 300 and 301 of the Act against the defendants who were directors of NZNet during the following periods:

(a)      First defendant (Mr Johnston) from 30 December 2009 to 15 September 2011. (b) Mr Andrews at all material times;

(c)      Third defendant (Mr Thomas) from 5 May 2011 to 10 August 2011.

[4]      At the commencement of the hearing Mr Barter advised that Mr Andrews would not be appearing to defend the claim and that it was open to the plaintiffs to proceed by way of formal proof against him.  Mr Barter then sought leave to withdraw as counsel for Mr Andrews, which I granted.

Formulation of claim

[5]      The   plaintiffs   received   25   proofs   of   debt   in   the   liquidation   amounting  to

$1,102,863.41 with a date range shown in the table below:

Creditor	Amount owed	Date range of debt
Aherne Electrical	$370.30