Guo v Registrar of Companies
[2024] NZHC 1772
•2 July 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-1049
[2024] NZHC 1772
UNDER
AND
Section 329 of the Companies Act 1993 IN THE MATTER OF
TITAN INVESTMENT NZ LIMITED (REMOVED)
BETWEEN
XING GUO
First Applicant
KAI WEI
Second ApplicantGUOLONG OU
Third Applicant
AND
REGISTRAR OF COMPANIES
Respondent
Hearing: 6 June 2024 Appearances:
X Guo, First Applicant in Person
C Jiang for the Second and Third Applicants
No appearance for the Respondent, Registrar of CompaniesJudgment:
2 July 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 2 July 2024 at 4 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Tompkins Wake, Auckland
GUO & ORS v REGISTRAR OF COMPANIES [2024] NZHC 1772 [2 July 2024]
Introduction
[1] The applicants have applied to restore Titan Investment NZ Limited (Removed) (Titan) to the Companies Register so that Titan can bring a claim in respect of a property at 130 Marsden Road, Paihia and the associated hotel business.
[2] The proceedings have been served on the respondent, the Registrar of Companies, but no notice of opposition has been filed nor any other communication received. The 10 working days within which the Companies Registrar is required to do so had elapsed by the time of the hearing on 6 June 2024.
[3] When an application is made to restore a company, it is usual to serve the Secretary to the Treasury as when a company is removed from the register, any assets revert to the Crown pursuant to s 324 of the Companies Act 1993. In this case, the asset in issue is a right to sue and so I consider the application can be determined without service on the Secretary to the Treasury.
[4] I set out the background and the relevant provisions of the Companies Act before considering whether an order should be made restoring Titan to the Companies Register.
Background
[5] Between 2020 and 2021, the second and third applicants, Kai Wei and Guolong Ou, and a third investor, Sunny Shun Qiao, agreed to advance funds to the first applicant, Xing Guo, for the purchase of a property at 130 Marsden Road, Paihia (Property) together with the associated hotel business (Hotel Business). Together, the applicants say Messrs Wei, Ou and Qiao transferred a total of $4.1 million to Mr Guo for the purchase.
[6] On 29 January 2021, Mr Guo incorporated Titan as the vehicle to purchase 130 Marsden Road. Mr Guo was registered as Titan’s sole director and shareholder.
[7] The applicants’ evidence is that in early 2021, Mr Guo prepared a shareholder subscription and restructuring agreement in relation to Titan’s shares, which was
signed by Titan, Mr Wei, Mr Ou and his wife Tian Du, Mr Qiao and Mr Guo (Share Subscription Agreement). The Share Subscription Agreement provided that the shareholding would be restructured so that Mr Guo, Mr Ou and Ms Du, Mr Qiao and Mr Wei each held an unspecified number of shares in Titan. The following clause provided that Mr Ou and Ms Du had agreed to pay $2,370,000 to Titan, Mr Qiao
$653,200 and Mr Wei $1,036,800. These payments were to be made on the date of the agreement “in consideration for the issue of the shares in the company to [Mr] Ou, [Mr] Qiao and Ms Du (as set out in clause 2.1)”.
[8] On 16 March 2021, Titan entered into an agreement to purchase 130 Marsden Road for $6.61 million and an agreement to purchase the Hotel Business for $310,000. The vendor of the Property was Chin Yun Holdings Limited (Chin Yun Holdings) and the Hotel Business, Chin Yun Management Limited (Chin Yun Management), both companies controlled by Mr Guo’s father-in-law, Heping Yang.
[9] Without Mr Ou or Mr Wei’s knowledge, on 5 April 2022, Mr Guo arranged for Titan to nominate Tango Investments NZ Limited (Tango Investments) to settle the purchase of the Property, and Tango Management Limited (Tango Management) to settle the purchase of the Hotel Business. A week later, on 12 April 2022, Deeds of Trust were executed pursuant to which Tango Investments agreed to hold the Property on trust for Titan and Tango Management agreed to hold the Hotel Business on trust for Titan.
[10] On 26 April 2022, Tango Investments settled the purchase of 130 Marsden Road and Tango Management settled the purchase of the Hotel Business. Tango Investments and Tango Management used $4.1 million1 of funds contributed by Messrs Wei, Ou and Qiao for the purchase and operation of 130 Marsden Road and the Hotel Business. The balance was funded by a loan from DBR Limited taken out by Tango Investments.
1 The originating application records that $4.9 million was transferred for the purchase of these properties, but Schedule 1 of Mr Wei's 6 June 2023 affidavit records the amount was $4.1 million. The difference is not material to this application.
[11] At some time in 2022, Mr Wei’s evidence is that he bought out Mr Qiao’s interest in the Property and the Hotel Business. Mr Qiao is not a party to this application.
[12] In his affidavit filed in support of the application to restore, Mr Guo confirms that he did not contribute any funds to the purchase, or any capital to purchase shares in Titan. He now accepts that he does not have any interest in Titan and holds all shares on bare trust for Messrs Wei and Ou. The second and third applicants therefore say that they are entitled to all of the shares in Titan under the Share Subscription Agreement. However, Mr Guo did not transfer the shares to them and so they submit he holds all of the shares in Titan on trust for them.
[13] The wording of the Share Subscription Agreement is not clear but the applicants submit it can be implied that it was intended that the shares were to be held proportionately to the investments made.
[14] In October 2022, a commercial dispute arose between Mr Guo and his father-in-law, Mr Yang. Mr Guo’s evidence is that Mr Yang pressured him to transfer properties controlled by Mr Guo to Mr Yang to repay alleged debts. As part of this, on 14 November 2022, Mr Guo caused Tango Investments to transfer 130 Marsden Road to Chin Yun Holdings (Mr Yang’s company) for no consideration other than the repayment of the DBR Limited loan. On the same day, Mr Guo also caused Tango Management to transfer the Hotel Business to Chin Yun Management for no consideration. Mr Guo says that he did so under duress from Mr Yang, when Mr Yang knew that Messrs Ou and Wei had an interest.
[15] Messrs Wei and Ou have issued two proceedings against Chin Yun Holdings, Mr Yang and others:
(a)CIV-2023-404-1131 & CIV-2023-404-2944 in which Messrs Wei and Ou applied for orders sustaining caveats over various properties, including 130 Marsden Road (Caveat Proceedings).
(b) CIV-2024-404-0387 in which Messrs Wei and Ou have brought substantive proceedings against Chin Yun Holdings, Mr Yang and others filed on 23 February 2024 in relation to their claim for knowing receipt including in respect of the Property and the Hotel Business (Substantive Proceedings).
[16] Associate Judge Gardiner issued her judgment in the Caveat Proceedings on 20 June 2024 (after the hearing of this application) granting Messrs Wei and Ou’s application to sustain their caveats over the Property (although not over the other properties to which the Caveat Proceedings related).2
[17] The caveat over 130 Marsden Road was sustained on the basis that it was reasonably arguable that Chin Yun Holdings received the Property with actual knowledge that Messrs Wei and Ou had contributed to its purchase and had a beneficial interest in the Property, and that Chin Yun Holdings intended to defeat that interest by becoming the registered owner. Her Honour found that it was therefore arguable that Chin Yun Holdings holds the Property subject to any beneficial interest that existed prior to registration.3
[18] Associate Judge Gardiner then held that it was reasonably arguable that Messrs Wei and Ou had a beneficial interest in the Property prior to the transfer to Chin Yun Holdings. After referring to the evidence of payments, Her Honour referred to the Deed of Trust between Tango Investments and Titan and held that there was no evidence or suggestion that Titan had its own funds to contribute to the purchase. Furthermore, there were WeChat messages supporting the position and, in a report from Mr Guo to Mr Yang in April 2022, Mr Guo was explicit that 130 Marsden Road was bought using Messrs Wei and Ou’s money and that the arrangement was that the Property and the Hotel Business would be held on trust for them until they obtained residency.4
2 Wei v Chin Yun Holdings Ltd [2024] NZHC 1602 at [121]–[125].
3 At [95].
4 At [96]–[111].
[19] Counsel for the second and third applicants explained in the hearing before me that in the Caveat Proceedings, it became apparent that Titan also has claims against Chin Yun Holdings in relation to the Property and the Hotel Business, in addition, or in the alternative, to Messrs Wei and Ou’s claims. This is because of the Deeds of Trust executed by Tango Investments and Tango Management in favour of Titan in which the Tango companies agreed to hold the Property and the Hotel Business on trust for Titan.
[20] The applicants say that Tango Investments and Tango Management breached their trust obligations to Titan by transferring 130 Marsden Road and the Hotel Business to Chin Yun Holdings for no consideration (other than repayment of the loan owing to the financier).
[21] The applicants say that Chin Yun Holdings (through Mr Yang) knowingly received 130 Marsden Road and the Hotel Business, and therefore holds these two assets on trust for Titan.
[22] Mr Guo was adjudicated bankrupt on 16 May 2023 following application by a party not related to this application.
[23] On 13 September 2023, Titan was removed from the Companies Register. The grounds for removal were published as being that the Registrar had reasonable grounds to believe that Titan was no longer carrying on business and there was no proper reason for it to continue in existence.
[24] Mr Guo had filed an annual return for Titan on 1 September 2023. No objection to the removal was raised however by Mr Guo. No evidence is given by Mr Guo as to why he did not take steps but counsel explained from the bar that Mr Guo did not realise that Titan may have a claim in respect of 130 Marsden Road and the Hotel Business and that Messrs Wei and Ou were not aware that Titan had been removed.
Legal principles
[25] An application for a company to be restored to the Companies Register by the Court is made pursuant to s 329 of the Companies Act. This provides:
329 Court may restore company to New Zealand register
(1)The court may, on the application of a person referred to in subsection (2), order that a company that has been removed from the New Zealand register be restored to the register if it is satisfied that,—
(a)at the time the company was removed from the register,—
(i)the company was carrying on business or a proper reason existed for the company to continue in existence; or
(ii)the company was a party to legal proceedings; or
(iii)the company was in receivership, or liquidation, or both; or
(iv)the applicant was a creditor, or a shareholder, or a person who had an undischarged claim against the company; or
(v)the applicant believed that a right of action existed, or intended to pursue a right of action, on behalf of the company under Part 9; or
(b)for any other reason it is just and equitable to restore the company to the New Zealand register.
(1A) In considering whether to restore a company to the register on the ground referred to in subsection (1)(a)(i) or (b), the court must have regard to the reasons for the company’s removal and whether those grounds existed at the time of removal or exist at the time of the hearing of the application.
(2)The following persons may make an application under subsection (1):
(a)any person who, at the time the company was removed from the New Zealand register,—
(i)was a shareholder or director of the company; or
(ii)was a creditor of the company; or
(iii)was a party to any legal proceedings against the company; or
(iv)had an undischarged claim against the company; or
(v)was the liquidator, or a receiver of the property of, the company:
(b)the Registrar:
(c)with the leave of the court, any other person.
(3)Before the court makes an order restoring a company to the New Zealand register under this section, it may require any provisions of this Act or any regulations made under this Act, being provisions with which the company had failed to comply before it was removed from the register, to be complied with.
(4)The court may give such directions or make such orders as may be necessary or desirable for the purpose of placing the company and any other persons as nearly as possible in the same position as if the company had not been removed from the New Zealand register.
[26] As the Court of Appeal held in Commissioner of Inland Revenue v Commercial Management Ltd:5
… the provisions concerning removal of a company from the register are designed to ensure that a company is only removed if there is no good reason for it to continue in existence. The controllers of the company and other interested persons are given the opportunity to object to removal for a range of reasons. But there can be cases where a company is removed from the register as a result of an error or oversight, or where circumstances change and it becomes apparent with the benefit of hindsight that there were good reasons for the company to continue in existence. In such cases, a company can be restored to the register.
Do the applicants have a right to apply to restore Titan to the Companies Register?
[27] Section 329(1) requires any application to be brought by a party falling within s 329(2).
[28] Mr Guo is the first applicant. At the time Titan was removed on 13 September 2023, Mr Guo was registered as the sole director and shareholder of Titan but had been adjudicated bankrupt in May 2023. As a result, any shares that he held would have vested in the Official Assignee pursuant to s 101(1) of the Insolvency Act 2006. Section 101(2) provides however that s 101 is subject to s 104 which provides that property held by a bankrupt in trust for another person does not vest in the Official Assignee.
5 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479 at [29].
[29] The applicants submit that as Messrs Wei and Ou provided all of the advances to Titan (following the purchase from Mr Qiao) and Mr Guo none, Mr Guo holds the shares in Titan on trust for Messrs Wei and Ou, either pursuant to the Share Subscription Agreement or otherwise.
[30] Mr Guo accepts that he holds the shares on trust and accordingly the applicants argue that the shares did not vest in the Official Assignee.
[31] Counsel for the second and third applicants further submits that Messrs Wei and Ou have standing to make the application pursuant to s 329(2)(a)(iv), as they have an undischarged claim against Titan for enforcement of the Share Subscription Agreement and the issue of shares by Titan to them. Alternatively, counsel submits Messrs Wei and Ou are creditors or persons with an undischarged claim against Titan arising from a constructive trust for the use of the funds in the acquisition of 130 Marsden Road and the Hotel Business.
[32] In any event, s 329(2)(c) allows the Court to grant leave to any person to apply to restore a company. If Mr Guo no longer has standing because his shares have vested in the Official Assignee, I consider Messrs Wei and Ou have standing whether pursuant to s 329(2)(a)(iv) or, if necessary, s 329(2)(c).
[33]I therefore conclude that the standing requirement in s 329(1) is satisfied.
Should an order restoring Titan to the Companies Register be made?
[34] Section 329(1)(a)(i) allows the Court to restore a company if at the time the company was removed from the register, it was carrying on business or a proper reason existed for it to continue in existence.
[35] In addition, s 329(1)(a)(iv) provides that the Court may restore a company where the applicant was a creditor or a shareholder or a person who had an undischarged claim against the company at the time it was removed.
[36] Section 329(1)(b) further provides a discretion to restore a company where for any other reason it is just and equitable for it to be restored.
[37] When considering whether to restore a company under s 329(1)(a)(i) or (b), s 329(1A) requires the Court to have regard to the reasons for the company’s removal and whether those grounds existed at the time or exist at the time of the hearing of the application.
[38] The Registrar removed Titan from the register because they considered it was no longer carrying on business and there was no proper reason for it to continue in existence. At the time Titan was removed, Mr Guo had been adjudicated bankrupt and no new director had been appointed, so this was perhaps a fair assumption. However, as the discussion above makes clear, there is a proper reason for Titan to continue in existence: so that it can bring a claim in respect of the transfer of 130 Marsden Road and the Hotel Business, and to allow Messrs Wei and Ou to bring their claim against Titan once restored.
[39] In John Hammonds & Co Ltd v Registrar of Companies, Hammond J held that “[c]ases in which this Court declines to restore a company to the register, for the purpose of proceedings, will be quite unusual.”6
[40]Similarly, in Re Pranfield Holdings Ltd, Durie J held:7
… the principle must be that the somewhat peremptory power of the Registrar to remove deadwood from the corporate scene, will not prevail against the rights of those so removed, or of others with whom they have dealt, to reinstate the company to pursue remedies provided by substantive law, unless it is plain that the proceeding, if successful, will still be nugatory. This principle puts grand notions of access to law ahead of mere rules for administrative ease.
[41] In terms of the assessment of the merits of any claim, the authors of Company Law comment that:8
In determining the merits or otherwise of the potential claim that would be made against (or by) a company, the courts do not generally require a high standard of proof. The claim need only be one that appears to be genuine:
An application to restore a company to the register is not the occasion for a thorough examination of the merits of the applicant’s claim. The process is a relatively summary one. The cases show that the merits
6 John Hammonds & Co Ltd v Registrar of Companies [1999] 3 NZLR 690 (HC) at [57].
7 Re Pranfield Holdings Ltd (2001) 9 NZCLC 262,577 at [20].
8 Company Law (online ed, Thomson Reuters) at [CA329.02A], citing Wellington City Council v Registrar of Companies [2015] NZHC 572, [2015] 3 NZLR 411 at [104].
of the case are rarely subject to in-depth scrutiny. In some cases the courts check that the claims will not be statute barred. That aside, as long as the applicant appears to have a genuine case (as opposed to one that is frivolous, vexatious or without merit), which it is pursuing in good faith, the courts have not required to applicant to prove more.
[42] Counsel for the second and third applicants advised that in the hearing of the Caveat Proceedings, counsel for Chin Yun Holdings and Mr Yang submitted that Messrs Wei and Ou did not have a caveatable claim, on the basis that it was Titan’s claim, rather than Messrs Wei and Ou’s. I accept that there appears to be a genuine claim here. Furthermore, no limitation issues appear to arise. Restoration of Titan will allow Titan to bring a claim and will also allow Messrs Wei and Ou to bring any claim against Titan.
[43] I therefore consider that this application falls within s 329(1)(a)(i) and (iv) as there is a proper reason for Titan to continue in existence, so it can bring proceedings as proposed, and because Messrs Wei and Ou appear to have an undischarged claim against the company.
Further directions
[44] When restoring a company, s 329(4) provides the Court with the power to give such directions or make such orders as may be necessary or desirable for the purposes of placing the company and any other persons as nearly as possible in the same position as if the company had not been removed from the New Zealand register.
[45] Given Mr Gou is bankrupt, he can no longer be a director of Titan if it is restored. The applicants seek directions that Mr Gou is removed as the sole director and for Mr Wei to be appointed in his place.
[46] At the hearing, counsel for the second and third applicants submitted that if the Court is not comfortable appointing Mr Wei as the sole director then an independent director could be appointed. An issue arises because Mr Gou is currently registered as the sole shareholder and any interest he does have will have passed to the Official Assignee.
[47] An affidavit of service has not been filed confirming service on the Official Assignee. The Official Assignee may not object to Mr Wei replacing Mr Guo as director. However, as Mr Guo is bankrupt, and the interests in the shares of Titan are still to be determined, I consider it is appropriate to give the Official Assignee an opportunity to confirm their position to the Court, proposing an alternative or additional director if they consider that warranted. Directions are therefore included on that basis below.
Costs
[48]No order for costs is sought so no costs order is made.
Result
[49]I order:
(a)the applicants are to serve a copy of this judgment on the Official Assignee;
(b)the application to restore Titan to the Companies Register is granted subject to the directions below;
(c)the order to restore is to lie in court to allow the Official Assignee to confirm by memorandum (preferably joint) whether they consent to the appointment of Mr Wei in place of Mr Guo (bankrupt) as director by 12 July 2024;
(d)if the Official Assignee opposes, the applicants are to file any memorandum in response by 26 July 2024; and
(e)orders will then be made on the papers in respect of the appointment of a director to replace Mr Guo and allowing the orders to be sealed.
Associate Judge Sussock
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