Grant v Lotus Gardens Ltd

[2014] NZHC 829

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2013-488-5 [2014] NZHC 829

IN THE MATTER OF

the Companies Act 1993

IN THE MATTER OF

the liquidation of LOTUS GARDENS LIMITED

BETWEEN

DAMIEN GRANT and

STEVEN KHOV as liquidators of QUANTUM GROW LIMITED (In Liquidation)

Plaintiffs

AND

LOTUS GARDENS LIMITED First Defendant

ALAN CANAVAN Second Defendant

Hearing:	16 April 2014
Appearances:	B J Norling and J K Boparoy for Plainitffs S I Perese for Defendants
Judgment:	16 April 2014

ORAL JUDGMENT OF ASSOCIATE JUDGE BELL

Solicitors:

Waterstone Insolvency (Brent J Norling/Jes Boparoy) Auckland, for Plaintiffs

Teei & Associates Lawyers (P N Teei) Henderson, for Defendants

Copy for:

S I Perese, Barrister, for Defendants

GRANT and KHOV as liquidators of QUANTUM GROW LIMITED (In Liquidation) v LOTUS GARDENS LIMITED [2014] NZHC 829 [16 April 2014]

[1]      On 4 April 2014 the Court of Appeal gave its decision on the plaintiff’s appeal from my decision of 17 May 2013 dismissing their liquidation application. The Court of Appeal allowed the appeal.  In its first iteration of its decision it tried to make a liquidation order.  In its second iteration, the Court of Appeal remitted the matter to this Court to make such orders as to the appointment of a liquidator and any other orders as are considered appropriate.  I am dealing with that matter now.

[2]      It is clear from the decision of the Court of Appeal that a liquidation order should be made. The matters for decision are these:

(a)      How should I deal with the intimation from Lotus Gardens Limited that it wishes to seek leave of the Supreme Court to appeal against the decision of the Court of Appeal?

(b)      Who should be appointed liquidators?

(c)      What costs should be awarded in favour of the plaintiffs for having succeeded in the High Court proceeding?

Proposed appeal

[3]      Mr Perese has been receiving instructions from Mr Canavan, the director of Lotus Gardens Limited.   Mr Canavan has so far had management and control of Lotus Gardens Limited as director.  As such he has had charge of the conduct of the defence for Lotus Gardens Limited.

[4]      Once a liquidation order is made he will no longer be allowed to direct any proceedings on behalf of the company.  Instead custody and control of the company’s assets will pass to the liquidator.  That includes the right to take proceedings in the name of the company.   That is one of the powers conferred on a liquidator under sch 6 of the Companies Act 1993.

[5]      While Mr Canavan will remain in office as a director he will cease to have powers, functions and duties other than those required or permitted to be exercised by Part 16 Companies Act.1   That does not include the power to conduct proceedings in the name of the company.

[6]      The difficulty is that any liquidator appointed by this Court is unlikely to run an appeal in the name of the company against the order putting that liquidator in office.  It is unheard of in my experience.  Nevertheless the right to seek leave of the Supreme Court to appeal from a decision of the Court of Appeal must be a real and not a theoretical right.  Means must be found to give effect to this right to seek leave of the Supreme Court.

[7]      In other decisions I have found ways of giving effect to a right of appeal when a liquidation order has been made.  I refer to ANZ National Bank v Aotearoa Kiwifruit Export Ltd, CIV-2011-470-697, HC Tauranga, 3 February 2012.   In that case on an application under s 290 Companies Act the Court had made an order under s 291 that the company be put into immediate liquidation.  The order had not been sealed.

[8]      The liquidator was not interested in pursuing an appeal but the director of the company was.  I joined the director of the company as a party to the proceeding so that he could run the appeal.

[9]      A director is an appropriate person to be joined to conduct an appeal.   A director has standing under s 241(2)(c)(ii) Companies Act to apply for an order that a company be put into liquidation.  If a director has standing to apply for a liquidation order he ought also to have standing to oppose an application for a company to be put into liquidation.  A liquidation order has an effect on the powers of a director. Upon a liquidation order being made, the liquidator loses the management of the company’s affairs which he had up until the liquidation order.   That effect on his rights and powers is also a matter that gives him standing to oppose an order that the

company be put into liquidation.

1      Companies Act 1993 s 248(1)(b).

[10]     The director of the company is Mr Canavan.  I join Mr Canavan as a second defendant to this proceeding so that he can apply to the Supreme Court for leave to appeal from the decision of the Court of Appeal.

[11]     In  my decision  in  ANZ  National  Bank v Aotearoa  Kiwifruit  Export Ltd2

I cited precedents for this course of action: McDonald v Simmons,3  and Beneficial Owners of Whangaruru Whakaturia No.4 v Warin & Ors.4   That case was a decision of the Court of Appeal.  The beneficial owners of Maori freehold land had not been parties to proceedings in the High Court.   The effect of the decision given in the

High Court was to deprive them of their beneficial ownership.  When they tried to appeal the Court of Appeal indicated that an appropriate course might be to seek recall of the High Court decision so as to allow the beneficial owners to be joined as parties.  In the event, that proved unavailing because the judgment in the High Court had already been sealed and recall was not available.   In this case that is not a problem because no liquidation orders have yet been made and have yet been sealed.

[12]     I also regard the more generous approach indicated by the Privy Council in The Contradictors v Attorney-General5 as providing an appropriate authority for the course I am taking here.  Accordingly Mr Canavan is joined as second defendant with effect from 16 April 2014.  The effect of his joinder is that from now on he will carry responsibility for any costs incurred in prosecuting the appeal.

Who should be the liquidators?

[13]     When the liquidation application was first heard in 2013, consents under s

282 were provided by Kirsten Smith and Steven Khov to be appointed liquidators. In their consent they gave a qualified certificate under s 280(4) of the Companies Act.  They made it clear that Mr Khov was one of the liquidators of the plaintiff, Quantum Grow Limited (In Liquidation).  They nevertheless suggested that that did

not pose a problem.

2      ANZ  National  Bank  v  Aotearoa  Kiwifruit  Export  Ltd  HC  Tauranga  CIV-2011-470-697, 3

February 2012n [2012] NZHC 151.

3      McDonald v Simmons,3 (1994) 8 PRNZ 12.

4      Beneficial Owners of Whangaruru Whakaturia (No.4) v Warin & Ors [2009] NZCA 60; (2009)

19 PRNZ 296, [2009] NZAR 523.

5      The Contradictors v Attorney-General [2001] 3 NZLR 301 at [10].

[14]     The plaintiff also provided a back-up consent for an alternative liquidator. That was Mr Digby Noyce.

[15]     For  the  hearing  today  the  plaintiffs  have  provided  substitute  consents. Ms Smith is no longer with Waterstone Insolvency.  Instead, Mr Grant and Mr Khov are proposed as liquidators of Lotus Gardens Limited.  As a backup, consent from another insolvency practitioner, Mr John Gilbert, has been given.

[16]     Quantum  Grow  Limited  is  a creditor of  Lotus  Gardens  Limited.    Under s 280(1)(b) a creditor of the company in liquidation may not be appointed liquidator unless the court orders otherwise.  Under that provision Mr Grant and Mr Khov are within the class of people disqualified from acting as liquidators unless the Court orders otherwise.

[17]     Mr Norling has proposed that this would be a safe case for Mr Grant and Mr Khov to act as liquidators of Lotus Gardens Limited.  Lotus Gardens Limited and Quantum Grow Limited are related companies with common directorships and shareholdings.   There has been apparently an intermingling of assets of the two companies.   Mr Grant and Mr Khov believe as a result of investigations in the liquidation of Quantum Grow Limited that assets of that company may have been siphoned off into Lotus Gardens Limited.   They propose that there would be efficiencies  in  allowing  them  to  use  the  knowledge  they  have  gained  in  the liquidation of Quantum Grow Limited in the liquidation of Lotus Gardens Limited.

[18]     Up to that point, that argument has some attraction.   There are however considerations going the other way.  The more important one is that Mr Canavan still wishes to pursue appeal rights on behalf of Lotus Gardens Limited.  I do not regard the proposal to appeal as a frivolous one.  In part I confess to some personal interest in the matter, having given the decision which was overturned by the Court of Appeal, but the issues in this case suggest that the questions of law on which the Court of Appeal decided the case are matters of general interest in company liquidations.

[19]     I can see that there may be some basis for the Supreme Court to allow leave notwithstanding the small sums in issue.   There is a point of liquidation practice which may be worthy of that Court’s consideration.

[20]     While the company needs to be put into liquidation, there is the possibility that the Court of Appeal’s decision might be overturned on appeal.  It is important to craft something that will allow a kind of status quo to be preserved until it is known whether the decision of the Court of Appeal is to stand or not.  I am therefore minded to appoint a liquidator who can “hold the fort” in the meantime until it is known whether the decision of the Court of Appeal will stand.  That is, I envisage that a liquidator appointed would secure the assets of the company and would undertake the administrative steps that always need to be taken at the outset of a liquidation but would not undertake major investigations until it is known whether the liquidation is to continue.

[21]     An appropriate liquidator for that is the Official Assignee.   I am able to appoint the Official Assignee without his consent under s 282 of the Companies Act. The attraction of the Official Assignee is that the Official Assignee has relatively low costs.   His rates of remuneration are fixed by regulation and are lower than rates commonly charged by insolvency practitioners in Auckland.  If the liquidation is to be permanent, the creditors may invite the Official Assignee to step down under s

283 of the Companies Act, on the basis that more active steps may be required than simply holding the fort.

[22]     Mr Grant and Mr Khov have undertaken to operate in a similar mode in the interim as well.  I bear in mind that their costs are likely to be higher than those of the Official Assignee.  The other matter is that there has been some friction between the liquidators of Quantum Grow Ltd and Mr Canavan. In saying that there has been “friction”, I am not directing any criticism at Mr Grant and Mr Khov.  They have actively pursued their remedies as liquidators.  Mr Canavan has been less than co- operative with them.

[23]     Notwithstanding that, as an interim measure it may be more appropriate to put in place someone who is truly independent, as a way of ensuring that there is

proper co-operation by Mr Canavan in the meantime until the Supreme Court gives a decision.  For those reasons, I appoint the Official Assignee as liquidator.

[24]     I now formally make the liquidation order.  The time of the order is 4:34pm

on 16 April 2014.

Costs

[25]     I also award costs on the liquidation application in favour of Quantum Grow Ltd.  The amount is fixed at the sum of $17,915.00 plus disbursements.  That is costs on Category 2, for 7.8 days at $1990.00 per day.  I have applied band B for all steps. The steps I have provided for are steps 1, 12, 33.  I have provided .6 of a day for preparing the common bundle as if for an interlocutory application.  I have provided for two lots of sealing and for .6 under step 22 for an interlocutory application.   I have also added on $1,393.00 as costs already awarded to the plaintiffs on the defendants’ application to file a defence out of time.

[26]     The  costs  will  be  payable  out  of  the  assets  of  Lotus  Gardens  Ltd. Mr Canavan is not liable for that order for costs.

[27]     It  may  be  that  further  directions  may  be  required,  at  least  pending  the outcome  of  any  application  to  the  Court  of  Appeal  as  to  the  conduct  of  the liquidation.   If that is required, I give leave to any party to request a conference before me to address any issues that may arise.

...........................................

Associate Judge R M Bell