Green v Glenhaven Farm Limited

[2021] NZHC 1307

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-978

[2021] NZHC 1307

UNDER

the Companies Act 1993, s 241(2)(c)(ii)

IN THE MATTER OF

an application for putting a company into liquidation

BETWEEN

ALISON CHRISTINA GREEN

First Plaintiff

CATHERINE MAREE KRYBOLDER
Second Plaintiff

AND

GLENHAVEN FARM LIMITED

Defendant

On the papers:	3 June 2021
Appearances:	Alexandra Low for the Plaintiffs
Judgment:	4 June 2021

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on   4 June 2021   at  12 noon

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:
Miller Poulgrain (Graeme Beagley), Thames, for the Plaintiffs

Copy for:
Alexandra Low, Barrister, Lynfield, Auckland, for the Plaintiffs

GREEN v GLENHAVEN FARM LIMITED [2021] NZHC 1307 [4 June 2021]

[1]        The plaintiffs apply for Glenhaven Farm Ltd to be put into liquidation on the just and equitable ground. They have applied without notice for an interim liquidator to be appointed under s 246 of the Companies Act 1993.

[2]        Glenhaven Farm Ltd owns and has owned and operated farms at Maramarua. The company was established by Edgar Smith and his wife, Kathleen. The plaintiffs are their daughters. They also have a son, Alan. Edgar Smith died in 2015. Kathleen is still alive but the plaintiffs say that she does not have capacity as she has Alzheimers.

[3]        There are 100 A voting shares, 4,900 B shares without voting rights. Kathleen holds the A shares. Half the B shares are owned by the trustees of the EJ Smith Family Trust (Edgar’s trust), and the other half are owned by the trustees of the KF Smith Family Trust (Kathleen’s trust). The three children are the trustees of Kathleen’s trust and the trustees of Edgar’s trust.

[4]        The directors of Glenhaven Farm Ltd are Alison Green (the first plaintiff), her brother Alan, and Mr David Hurle. Alison Green lives at Mangatangi. Her sister, Catherine Krybolder, lives in Australia but is a farmer.

[5]        The sisters say that over time their brother Alan has assumed effective control of the company. It has entered into transactions with him, his trusts and companies associated with him, which are to his advantage and to the disadvantage of the company. The sisters have been starved of information, even after Alison was appointed a director in 2019. While their mother was a director of the company, she lacked capacity. The sisters allege asset-stripping by Alan.

[6]        In December 2009, the company gave Alan’s trust an option to buy the home farm, the property at 610 Monument Road, Maramarua. The present proceeding has been triggered by steps Alan to exercise that option. The sisters seek the appointment of an interim liquidator to stop the sale of the home farm going ahead.

Procedural matters

Parties

[7]        As a director of the company, Alison Green has standing to apply for a liquidation order.1 It is not so clear that Catherine also has standing. She is one of three trustees of two trusts holding shares in the company. Normally proceedings by trustees should be brought in the names of all the trustees, not just two of them.

[8]        In proceedings on the just and equitable ground, it can be convenient to name as defendants directors and shareholders opposing the application. Sometimes the company is deadlocked, cannot make effective decisions and accordingly cannot instruct anyone to conduct a defence. In addition, it may be more appropriate to make costs orders against those opposing the application than against the company. It is easier to obtain costs against parties than against non-parties. If Alison and Catherine are suing as trustees and Alan, their co-trustee, does not agree to sue, he could conveniently be named as a defendant.

Registry

[9]        Under r 31.4 of the High Court Rules, the proper registry for filing a liquidation application is in the town nearest to the defendant company’s registered office. The company’s registered office is in Te Aroha, and accordingly the nearest registry if Hamilton. The plaintiffs have, however, filed the proceeding in the Auckland registry. Rule 31.4 of the High Court Rules is subject to rr 5.1(4) and (5). The plaintiff in a liquidation application does not have the option under r 5.1(2) and (3) of filing an affidavit to show that the cause of action arose somewhere else. As it appears that the proceeding has been filed in the wrong registry, I direct that this proceeding be transferred to the Hamilton registry.

[10]      The plaintiffs’ documents are dated 10 and 13 May 2021. There is a letter on the court file from the Hamilton registry to counsel for the plaintiffs dated 26 May 2021. The letter says that the proceeding was erroneously sent to the Auckland High

1      Companies Act 1993, s 241(2)(c)(ii).

Court. The documents on the court file were stamped by the Auckland High Court on 27 May 2021. The file was referred to me only on 3 June 2021. I have directed the file to go to Hamilton under r 5.1(4) to stop the shuttle between registries and to ensure that the proceeding is heard in the correct court.

Liquidator’s consent

[11]      Under s 282 of the Companies Act, a person must not be appointed as the liquidator of a company unless that person has consented in writing and has certified they are not disqualified from being appointed. The requirement under s 282 also applies to appointment of interim liquidator under s 246.2 So far, no such consent or certificate by a licensed insolvency practitioner has been filed. For that procedural reason, an order appointing an interim liquidator cannot be made yet.

Merits of the application

[12]      The appointment of interim liquidators is a drastic remedy. Once interim liquidators are appointed, it is almost inevitable that a liquidation order will be made. Applications to appoint interim liquidators must therefore be considered with care and should not be made lightly. In most applications, the plaintiff normally has a straightforward case on the substantive merits. In the typical case the plaintiff is indisputably a creditor and there are clear signs of insolvency. In such cases, the court’s main enquiry is whether the appointment of interim liquidators is necessary or expedient for maintaining the value of assets owned or managed by the company. A sound case on the substantive merits is a prerequisite for any application to appoint interim liquidators. That is required to avoid any miscarriage of justice by appointing interim liquidators. If the substantive proceeding should ultimately fail, damage to the business caused by the appointment of interim liquidators may be irreparable.3

[13]      Most applications for the appointment of interim liquidators are made when the substantive proceeding is on the insolvency ground under s 241(4)(a). In applications on the just and equitable ground, liquidation is always considered a

2      See the definition of “liquidator” in s 240(1).

3      Best Invest NZ Company Ltd (in interim liq) v Japan Business Consulting Ltd [2019] NZHC 1037.

remedy of last resort. The court is always alive to the possibility of alternative remedies.4 After all, s 174 of the Companies Act was enacted to provide relief against oppression as an alternative to liquidation. If shareholder differences continue into liquidation, the costs of liquidation including liquidators’ remuneration can escalate.5

[14]      I am wary of acting on the application without notice. Invariably in these cases, the other side has something to say. In most cases it can only be safe to make an order without notice where the judge can be confident that the order will stand, no matter what the other side may say. I cannot be confident of that in this case.  For all I know, Alan may have an argument requiring consideration that his exercise of the option to purchase is entirely legitimate. He may lose the opportunity to present that argument if an interim liquidator were appointed now.

[15]      I am also concerned that appointing an interim liquidator may be too blunt an instrument. The plaintiffs are concerned at the company co-operating with Alan on his exercise of the option. Other orders such as an interim injunction seeking targeted relief may be enough to preserve the status quo.

[16]      In the circumstances, I direct that the application to appoint an interim liquidator be brought on notice.

[17]      I would expect Alan and his professional advisers to recognise that it would be foolish to go ahead with the exercise of the option while the matter is waiting a decision of the court. This minute is to go to lawyers acting for Alan and the company.

[18]      The file is transferred to the Hamilton registry. The registrar is to allocate a date for the application to be called after conferring with counsel.

…………………………………….

Associate Judge R M Bell

4      SEA Management Singapore Pte Ltd v Professional Service Brokers Ltd HC Auckland,

CIV-2011-404-5315 of 25 January 2012 at [3], Cook v Romanes [2018 NZHC 2650 at [11]-[12].

5      See Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC).