Hayes v Taniwha Buses Limited
[2014] NZHC 1965
•20 August 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-4215 [2014] NZHC 1965
IN THE MATTER of an Application to put TANIWHA
BUSES LIMITED into liquidation pursuant to Section 241(2) of the Companies Act 1993
BETWEEN
MAURICE DESMOND HAYES Plaintiff
AND
TANIWHA BUSES LIMITED First Defendant
RODNEY PHILLIP GUNSON Second Defendant
Hearing: 28-29 July 2014 Counsel:
S A Connolly for the Plaintiff
No appearance on behalf of the First Defendant
D P Weaver for the Second DefendantJudgment:
20 August 2014
JUDGMENT OF BROWN J
This judgment was delivered by me on 20 August 2014 at 4 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors: David Rice & Associates, Papakura
Lyon O’Neale Arnold, Tauranga
Counsel: S A Connolly, Auckland
D P Weaver, Tauranga
HAYES v TANIWHA BUSES LTD [2014] NZHC 1965 [20 August 2014]
[1] Taniwha Buses Ltd’s shares are held equally by Maurice Hayes and Rodney Gunson. Since 1999 Mr Hayes has been the sole director but he is now of an age that the company’s constitution requires that he retire.
[2] Mr Hayes claims that Taniwha Buses is indebted to him and that it should be wound up both because it is insolvent and because it is just and equitable to do so. Mr Gunson resists that request and counters that Mr Hayes has conducted the company’s affairs in a manner which has been oppressive, unfairly discriminatory and unfairly prejudicial to him. It is apparent that their 40 year relationship has irretrievably broken down.
[3] The issues to be determined are:
(a) Is Taniwha Buses insolvent?
(b)Has Taniwha Buses been operated in a manner which is oppressive, unfairly discriminatory and unfairly prejudicial to Mr Gunson?
(c) Is it just and equitable that Taniwha Buses be wound up?
How the current impasse arose
[4] Mr Hayes and Mr Gunson have known each other for some 40 years and have experienced a positive working relationship. Indeed in his statement of affairs relating to his bankruptcy dated 31 May 2010 (which Mr Hayes assisted him to complete) Mr Gunson provided Mr Hayes as his emergency contact describing Mr Hayes’ relationship to him as “friend”.
[5] Over a decade ago Mr Hayes advanced significant levels of funding to Gunson Trucking Ltd, an unrelated company run by Mr Gunson. In March 2006 he attempted to establish an arrangement for the repayment of those advances. The various debts were itemised in a letter from Mr Hayes to Mr Gunson dated 24 March
2006 in which Mr Hayes recorded that he considered that Mr Gunson was personally responsible for the debts.
[6] By a handwritten notation on that letter dated 12 June 2006 Mr Gunson agreed that the debts detailed in the letter were correct and that he would personally use his best endeavours to make full repayment. On the same day on behalf of Taniwha Buses he executed an automatic payment authority to the ASB Bank providing for a monthly payment to Mr Hayes of $1,500.
[7] In the years that followed several payments of $1,500 were made to Mr Hayes in accordance with that automatic payment authority. Although there was no documented arrangement concerning the sequence in which the debts were to be repaid, it appears that Mr Hayes applied the instalment payments towards the then oldest debt first. The process is demonstrated by a letter from Mr Hayes to Mr Gunson dated 9 March 2011 in which Mr Hayes noted that previous payments had been applied to repaying the balance of a hire purchase agreement for a Hino bus and that, as that account was now cleared, future payments of $1,500 would be deducted from a different debt.
[8] On or about 12 September 2011 Mr Hayes provided a cash advance of $9,000 to Taniwha Buses to assist in the cost of the purchase of a Fuso bus. While the fact of the advance was evidenced in a deposit slip, the terms of the advance were not recorded in any document.
[9] By at least 1 February 2012 Mr Hayes was becoming concerned about his financial exposure to Taniwha Buses. He harboured the suspicion that the company’s revenue was not being deposited by Mr Gunson into the company’s bank account. In a letter to Mr Gunson dated 1 February 2012 Mr Hayes stated that he was extremely concerned with regard to outstanding GST payments for which he considered he had a liability and about the $9,000 loan for the new bus which had not been repaid. The letter concluded in this way:
Please arrange a mutually suitable time to come and see me to discuss the future of Taniwha Buses Limited for I am not prepared to allow my debt and personal liability to increase while the Company’s revenue may be going elsewhere. The only alternative I will have to protect my personal liability would be to put the Company into liquidation, but I do not wish to do this until I have thoroughly discussed the matter with you.
[10] In an email to Mr Gunson dated 23 April 2012 Mr Hayes commented on aspects of a bank statement sent that morning to Mr Gunson and concluded:
The $9,000 was to be repaid to me over two months ago.
It seems the company is just getting further and further into debt and I am not prepared to let this continue given that I have some responsibility in this matter. Please urgently arrange a mutually suitable time to discuss these matters with me.
[11] Then in May 2012, while Mr Hayes was absent from his office, Mr Gunson persuaded one of Mr Hayes’ staff to write a cheque for $3000 by representing that there were funds in the Taniwha Buses’ account as a result of deposits recently made. Because there were insufficient funds Mr Hayes stopped the cheque. He advised Mr Gunson of this in an email of 25 May 2012 in which he said:
Rod I have had enough of this and next week I will review the whole issue of Taniwha Buses and my debt exposure and probably wind the company up.
[12] In his capacity as an accountant Mr Hayes provided accounting services to
Taniwha Buses. The invoices for his services were unpaid. On 20 September 2012
Mr Hayes issued the first of a sequence of statutory demands. The total sum demanded was $41,935.90 comprising outstanding accountancy fees of $33,834.51 and cash advances of $8,101.39.
[13] Shortly after this Mr Gunson wrote to Mr Hayes indicating that members of his family were interested in becoming involved in the bus operation and that they were looking at obtaining finance to clear the debt of $33,834.51. Mr Hayes replied on 10 October 2012 pointing out that the sum of $8,101.39 (said to be the residual advances made to purchase buses) was also owed. In that letter he indicated that, when the full amount of $41,935.90 was paid, he would be only too pleased to resign as a director and to transfer his shares.
[14] It was from about this point that their relationship soured significantly. Unsurprisingly their perspectives differed as to the cause of that deterioration. In his affidavit of 3 April 2014 Mr Gunson said:
20.As I have said our relationship was fine and always good although but then in November 2012, without my knowledge or consent I
discovered that normal credit facilities used to operate the buses, such as registration, Road User Charges, fuel and insurance were cancelled.
21. I was informed of this situation by the suppliers, not by [Mr Hayes].
22.To this day he has never told me why he did this. I believe [Mr Hayes] was wanting to start (sic) wind up the bus company in his favour as I was due to be discharged from bankruptcy in March
2013. At that point I was going to take control of the business.
[15] Similarly in his evidence Mr Hayes explained that the breakdown in trust occurred in the period October to December 2012 when company cheques bounced and he was concerned for his personal reputation.
[16] It was the fourth statutory demand issued by Mr Hayes on 2 August 2013 which was the precursor to the current litigation. That sum is said to comprise
$15,489.89 for accounts in respect of accounting work1 and $9,000 being the cash
advance made on or about 12 September 2011.
[17] The reason for the significant difference between the first and the fourth statutory demands which Mr Hayes issued is that he became aware that his claim in respect of a substantial portion of his accounting fees was statute barred. As he explained in paragraph 23 of his affidavit of 31 January 2014:
23.Another reason that I believe it is equitable for the company to be wound up, is that of the amount owing to me, there is a substantial amount which cannot be entered on the Statutory Demand, but in the event of the Company Liquidator realising the assets, there will be excess money available for distribution. I understand it is in the Liquidator’s powers to pay my outstanding account, relative to the portion that I cannot sue for, because of the Statute of Limitations.
24.In my view, clearly the only way that I can recover the debt owed and be protected is for the Company to be put in the control of a liquidator who can pursue these issues.
[18] Mr Gunson disputed that the amounts in the statutory demand of 2 August
2013 were outstanding. So far as the $9,000 loan was concerned he contended that it had been repaid by six instalment payments of $1,500 on 28 March, 28 June,
24 August, 28 August, 28 October and 28 November 2012. This was not accepted by
Mr Hayes who explained that those six payments of $1,500 were simply a
1 At [12] above.
continuation of the arrangement made in June 2006 and that the six payments had discharged older amounts of debt and not the $9,000 more recently advanced in September 2011.
[19] Mr Gunson challenged the demand in respect of the accounting fees on the basis that Mr Hayes had already taken far more from the Taniwha Buses bank account than he was entitled to. He put it this way in his affidavit of 3 April 2014:
32.It is not until recently that I have become aware [Mr Hayes] was taking funds from the company bank accounts, over which he had sole control, to satisfy his claim from money from me personally.
33.These are debts, he says from his own affidavits, date back to 2003 and pre-date my bankruptcy and subsequent annulment.
34.What is now clear is [Mr Hayes] has been using the company as a cash-cow to satisfy his claims from me personally.
35.I was shocked to see how much money [Mr Hayes] had taken from the company when this was disclosed in his affidavit, albeit he has not recorded all the funds taken.
Needless to say, Mr Hayes utterly rejected the assertions made by Mr Gunson.
How the proceeding evolved
[20] The initial statement of claim simply sought an order that Taniwha Buses be put into liquidation by reason of the fact that Taniwha Buses had failed to comply with the statutory demand dated 2 August 20132 within 15 working days and that Taniwha Buses was therefore presumed to be unable to pay its debts.
[21] Mr Gunson filed an application out of time for leave to file an appearance. At a hearing on 13 February 2014 Associate Judge Abbott granted leave to Mr Gunson to file the notice of appearance without opposition from Mr Hayes. The Judge also made a timetable order for the filing of an amended statement of claim and a statement of defence by Mr Gunson.
[22] On 12 March 2014 Mr Hayes filed the first amended statement of claim which added a second cause of action seeking an order that the company be put into
2 At [16].
liquidation in reliance on the just and equitable ground in s 241(4)(d) of the
Companies Act 1993 (the Act).
[23] On 3 April 2014 Mr Gunson filed a defence to the first amended statement of claim. He also filed a counterclaim under s 174 of the Act contending that the affairs of Taniwha Buses had been, and would likely be, conducted in a manner that was oppressive, unfairly discriminatory, or unfairly prejudicial to Mr Gunson in his capacity as a shareholder of Taniwha Buses.
[24] Mr Hayes and Mr Gunson each filed several affidavits and each was called for cross-examination at the hearing on 28 July 2014. At the hearing I granted leave over Mr Gunson’s opposition for the filing of an affidavit of Mr D D Rice and a supplementary affidavit of Mr Hayes.
Is Taniwha Buses insolvent?
[25] The test for insolvency is whether the company is able to pay its current financial demands including from assets currently realisable.3 The test is one of solvency, not liquidity. A temporary lack of liquidity may not equate to insolvency if the debtor is able to realise assets or borrow funds within a relatively short timeframe in order to meet its liabilities as they fall due.
[26] The following paragraphs from the Court of Appeal’s decision in Yan v Mainzeal Property and Construction Ltd (in receivership and in liquidation)4 record relevant principles relating to genuinely disputed debts:
[61] It has long been established that, as a general rule, an order to put a company into liquidation will not be made where the application is founded upon a debt that is genuinely disputed. To apply to wind up a company in such circumstances is regarded as an abuse of the court’s process: Bateman Television Ltd (in liq) v Coleridge Finance Co Ltd. In such cases, the court has an inherent jurisdiction to prevent such an abuse of process. But the court also has power to consider disputed debts in the context of an opposed application for liquidation or upon applications for orders restraining advertising and staying proceedings. The relevant principles were recently summarised by Associate Judge Faire (now Faire J) in South Waikato Precision Engineering Ltd v Ahu Developments Ltd in these terms:
3 Companies Act 1993, s 4.
4 Yan v Mainzeal Property and Construction Ltd (in receivership and in liquidation) [2014] NZCA
190.
(a) A winding up order will not be made where there is a genuine and substantial dispute as to the existence of a debt such that it would be an abuse of the process of the Court to order a winding up;
(b) In such circumstances, the dispute, if genuine and substantially disputed, should be resolved through action commenced in the ordinary way and not in the Companies Court;
(c) The assessment of whether there is a genuine and substantial dispute is made on the material before the Court at the time and not on the hypothesis that some other material, which has not been produced might, nonetheless be available;
(d) The governing consideration is whether proceeding with an application savours of unfairness or undue pressure.
…
[69] The existence of a genuine and substantial dispute does not extinguish the liability of the debtor to pay the amount in dispute. Generally, in the liquidation context, its effect will be to postpone the debtor’s liability to pay until the dispute is determined. This recognises the proposition that, in general, it would be an abuse of process to put a company into liquidation on the basis of a debt that is in substantial dispute.
…
[72] This conclusion is consistent with the statutory scheme. The existence of a substantially disputed debt does not mean that the inquiry into the ability of the debtor company to pay its debts is at an end or that the initiating creditor may not proceed with an application to put the company into liquidation. It simply means that the creditor will not generally be permitted to proceed on the basis of the disputed debt alone and will not be able to rely on the presumption of insolvency under s
287 of the Act. The ability of a company to pay its debts requires an overall assessment of its liabilities measured against the resources
available to it in order to meet those liabilities when due.
…
[74] We would not rule out the possibility that, in some circumstances, the court could consider the ability of the debtor to meet a disputed debt if the debtor is ultimately found liable to pay. But the weight to be attached to this factor is a matter for the court in all the circumstances of the case. It must also be kept firmly in mind that the court will not generally make a liquidation order if the debts relied upon are found to be in substantial dispute and not suitable for resolution in the liquidation list. That is so whether or not the disputed debts are the subject of the statutory demand. We do not see any material distinction in this respect.
[27] As noted above5 the terms of the arrangement concerning the loan for the bus purchase were not documented. Mr Hayes maintained that it was agreed that the sum would be repaid within three months and there are communications from him consistent with that. However Mr Gunson says that when it was realised that that timeframe was impractical, an oral arrangement was made for repayment by six instalments of $1,500 and that those instalments were the six payments in 2012 referred to earlier.6 Mr Hayes disputes that.
[28] The issue as to the Fuso bus loan is compounded by the fact that there are confusing references to a figure of $8,101.39 both in correspondence and in the first notice of statutory demand of 20 September 2012.7 There appears to be a genuine dispute concerning the amount outstanding of the loan in respect of the bus purchase.
[29] For Mr Gunson it is argued that Mr Hayes had already received funds from Taniwha Buses which more than offset the amounts of the accounting fees. His contention is that the debt to Mr Hayes was in fact owed by another company, Gunson Trucking, and that Mr Gunson has assumed personal responsibility for that debt. Consequently it is said that Taniwha Buses does not owe Mr Hayes any amount because the funds previously appropriated by Mr Hayes from Taniwha Buses, on account of alleged historic personal debt of Mr Gunson, exceeds any claim that Mr Hayes may have had against Taniwha Buses.
[30] The point is also made for Mr Gunson that there is a lack of correlation between the invoices and the entries in the company’s accounts, save in respect of tax invoice 6078 dated 30 September 2010 in the sum of $1,574.55. The explanation provided by Mr Hayes is that for the most part the entries in the accounts were only estimates or provisions. For these reasons there also appears to be a genuine dispute concerning the degree of indebtedness of Taniwha Buses to Mr Hayes.
[31] An additional and confounding factor concerns the way in which Mr Gunson appears to have continued to operate Taniwha Buses from early 2013 in isolation
5 At [8].
6 At [18].
7 At [12].
from Mr Hayes, whereby Mr Gunson paid suppliers from his own funds and
deposited Taniwha Buses’ revenue into his personal account.
[32] While Taniwha Buses might appear insolvent when regard is had simply to the bank account maintained with the ASB Bank, when these parallel trading activities of Mr Gunson are taken into account the reality could be very different. That prospect was supported by evidence of Mr Gunson that he had made sure that Taniwha Buses was not left in debt because payments to creditors had been made from the “other” business. He expressed the belief that Taniwha Buses was not insolvent.
[33] That uncertain state of affairs is reflected in the following paragraphs of the second cause of action in Mr Hayes’ first amended statement of claim:
4.The Plaintiff is no longer able to carry out the accounting function or execute his duties as Director.
Particulars
1.Bank statements received as of approximately March/April 2013 no longer record revenue and expenses. The Plaintiff as sole director has the only authority to operate, open or close bank accounts on behalf of the Defendant company.
2. Debtors and creditors cannot be quantified.
3.Assets and liabilities other than current debtors and creditors cannot be quantified.
4.GST provisional and provisional tax returns cannot be completed except on a nil basis.
5.The Plaintiff is unable to assess the balance sheet solvency of the company or its ability to meet its debts as they fall due apart from those debts owed to the Plaintiff.
6.The financial position of the company cannot be assessed or determined by the Plaintiff.
[34] In the light of the assertions in paragraphs 2, 3, 5 and 6 of the Particulars it is not possible on the basis of the information currently before the Court to make any informed conclusion as to the solvency of Taniwha Buses.
Has Taniwha Buses been operated in a manner which is oppressive, unfairly discriminatory and unfairly prejudicial to Mr Gunson?
[35] Section 174(1) of the Act provides:
(1) A shareholder or former shareholder of a company, or any other entitled person, who considers that the affairs of a company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him or her in that capacity or in any other capacity, may apply to the Court for an order under this section.
[36] The relationship between the three expressions was explained by
Richardson J in Thomas v H W Thomas Ltd:8
I do not read the subsection as referring to 3 distinct alternatives which are to be considered separately in watertight compartments. The three expressions overlap, each in a sense helps to explain the other, and read together they reflect the underlying concern of the subsection that conduct of the company which is unjustly detrimental to any member of the company whatever form it takes and whether it adversely affects all members alike or discriminates against some only is a legitimate foundation for a complaint under s 209. The statutory concern is directed to instances or courses of conduct amounting to an unjust detriment to the interests of a member or members of the company. It follows that it is not necessary for a complainant to point to any actual irregularity or to an invasion of his legal rights or to a lack of probity or want of good faith towards him on the part of those in control of the company.
[37] Mr Gunson’s first ground of complaint involves a repetition of the argument that Mr Hayes has appropriated funds from Taniwha Buses, namely by the regular payments of $1,500. However as noted above9 those payments were made with the apparent agreement of Mr Gunson as evidenced by his notation on the letter dated
24 March 2006. More significantly, the instalment payment arrangement by Taniwha Buses is documented in the automatic payment authority which Mr Gunson executed on behalf of Taniwha Buses on 12 June 2006.
[38] The next contention concerns the issue of the $9,000 loan for the acquisition of the Fuso bus. Mr Gunson’s particulars state that the amount has been fully repaid by the six instalments of $1,500 during 2012. That of course is disputed by
Mr Hayes. Whatever the correct position may be, I do not consider that orthodox
8 Thomas v H W Thomas Ltd [1984] 1 NZLR 686 (CA) at 693.
9 At [6].
actions taken by a person, claiming to be a creditor of a company, to recover that debt from the company are sufficient, without more, to amount to oppression or unfair prejudice to another person in that other person’s capacity as a shareholder.
[39] The “something more” could conceivably be found in the type of conduct referred to in Mr Gunson’s counterclaim (particularly if done with knowledge that debts were statute-barred) which alleges:
23.8[Mr Hayes] has used and abused the statutory demand procedure on a number of occasions in an attempt to extract funds from the defendant when there is a clear dispute about amounts which are alleged to be payable to [Mr Hayes].
[40] However there is no evidence that Mr Hayes considered that the sums demanded were disputed at the time when he issued the demands. Indeed Mr Gunson responded to the first demand on the basis that at least the larger sum, for the accounting fees, was owed.10 But in any event Mr Hayes did not institute proceedings until there was a failure to pay the fourth demand which was for a reduced sum reflecting the statute-barred invoices.
[41] Mr Gunson also pleads that Mr Hayes has failed or refused to enable tax returns to be prepared on behalf of Taniwha Buses but I accept Mr Hayes’ evidence that the lack of reliable information is a reason why that has not been attended to.
[42] Finally Mr Gunson alleges that Mr Hayes has “held the defendant company to ransom” unless his demands are met and that he has failed or refused to have regard to the pre-emptive rights provisions in the constitution. My consideration of the evidence does not disclose support for those contentions.
[43] In my view Mr Gunson has not established that Taniwha Buses or Mr Hayes has acted in the objectionable manner contemplated by s 174(1). For the most part the complaint concerns actions of Mr Hayes in his capacity as a claimed creditor of the company. I do not consider that the fact that Mr Hayes is also a director and shareholder precludes his taking steps to recover debts allegedly owed to him. The
gravamen of Mr Gunson’s complaint would appear to concern the arrangement
10 At [13].
entered into in June 2006 but Mr Gunson was a party to that arrangement and himself completed the payment authority for Taniwha Buses in favour of Mr Hayes.
[44] However, even if the conduct complained of was of such a kind as to satisfy the s 174(1) requirement, the present case is not one which presents as a suitable candidate for the particular type of relief for which Mr Gunson advocates, namely an order that one of the two shareholders acquires the shareholding of the other as provided for in s 174(2)(a) and as envisaged as one possible outcome in Taylor v
Seahorse World Aquarium,11 the authority relied upon by Mr Weaver.
[45] I agree with Mr Connolly’s submission that it would be a very difficult task, even assuming that Mr Gunson had the funds, to place a value on the shares of Taniwha Buses given the combination of the alleged level of indebtedness and the apparent situation where its assets and cash flow have been diverted to another business operation.
[46] For his part Mr Hayes has no wish to sell his half interest for a potentially small amount or to pay to acquire Mr Gunson’s shares given the way in which the business has recently operated and the fact that Mr Gunson has taken security over a number of buses. Consequently, if relief had been warranted, then the more suitable form of relief in the circumstances would have been an order under s 174(2)(g) putting the company into liquidation.
Is it just and equitable that Taniwha Buses be wound up?
[47] Section 241(4)(d) empowers the Court to appoint a liquidator if it is just and equitable to do so. The breadth of the discretion to liquidate on the just and equitable ground was explained in Ebrahimi v Westbourne Galleries Ltd12 where Lord Wilberforce made it clear that it would be impossible and wholly undesirable to
define the circumstances when an order ought to be made.
11 Taylor v Seahorse World Aquarium [2008] NZCCLR 21 (HC).
12 Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL).
[48] As Heath J noted in Jenkins v Supscaf Ltd,13 Westbourne Galleries reinforces the notion that a company may be put into liquidation on the just and equitable grounds if, had the shareholders been partners, those grounds would have been sufficient to justify an order dissolving a partnership.
[49] Pertinent to the circumstances of this case I note the observations of
Lord Cross of Chelsea in his concurring judgment in Ebrahimi:14
People do not become partners unless they have confidence in one another and it is of the essence of the relationship that mutual confidence is maintained. If neither has any longer confidence in the other so that they cannot work together in the way originally contemplated then the relationship should be ended – unless, indeed, the party who wishes to end it has been solely responsible for the situation which has arisen.
[50] It is apparent that the requirement for clean hands on the part of the applicant will only operate to defeat an application where the applicant’s misconduct was the cause of the breakdown in confidence and not merely where it is a symptom of the breakdown: Vujnovich v Vujnovich.15 Where there is no clear cut apportionment of blame, the real determinant for granting relief should be the existence of the breakdown, not the cause of it: Re Rongo-Ma-Tane Farms Ltd.16
[51] Sadly in the present case after an association of some 40 years17 there is now a substantial loss of trust and confidence between Mr Hayes and Mr Gunson. Each of them was cross-examined for approximately half a day and I was left with the clear impression that the situation was irretrievable.
[52] Mr Hayes’ concerns had been exacerbated by his belief that Mr Gunson was using the Taniwha Buses’ vehicles as part of the operation of a new business, Sports Tours and Charters Ltd, a company registered on 4 July 2013 with Mr Gunson as the sole director and shareholder. Mr Hayes was also concerned about the fact that Mr Gunson had taken security over three of the buses owned by Taniwha Buses,
namely those with the registration numbers FBR134, BPG232 and CYU966.
13 Jenkins v Supscaf Ltd [2006] 3 NZLR 264 (HC) at [113].
14 Ebrahimi v Westbourne Galleries Ltd above n 11, at 383-384.
15 Vujnovich v Vujnovich [1989] 3 NZLR 513 (PC).
16 Re Rongo-Ma-Tane Farms Ltd (1987) 3 NZCLC 100,145 (HC).
17 At [4].
[53] Mr Hayes was also concerned about his potential personal liability with reference to the proper discharge of the company’s GST and PAYE obligations. As he said in his affidavit of 16 June 2014:
45.My position as a director of Taniwha Buses Limited exposes me to unknown potential personal liability through breaches of GST and PAYE in law and regulations. It is critical that I resolve the matters before the Court to avoid being held personally liable not only for the GST and PAYE, but also for breaches of tax regulations. I am a company director and I am still required to file PAYE monthly returns and GST returns. As I have no information, I have been filing these as nil returns, but clearly the company is still operating its business under the control of Rodney Gunson with no financial information being provided to me to enable correct returns to be filed. From his affidavits it is clear that nil returns are incorrect, which creates another liability for me.
[54] Mr Gunson’s position is perhaps best illustrated by the following comments at the conclusion of his oral evidence:
It’s, I just personally think that I need to move along and carry on with what I’m doing and to be honest it’s a pity that Maurice and I have sort of come to this but that’s it and I don’t think in the future we’d ever be able to sort of work together again. I just believe that I’m better off doing it myself.
[55] Mr Weaver submitted that Mr Hayes was precluded from proceeding with the application because of conduct on his part amounting to a lack of clean hands. He pointed to the step which Mr Hayes had taken in cancelling various banking authorities, the effect of which was to prevent the Taniwha Buses business from operating. He described that action as a drastic step to take and said that Mr Hayes was well aware of the consequences of doing so.
[56] However, the first such incident upon which reliance was placed, that is the direct debit default for the monthly insurance premium payment to State Insurance payable on 10 August 2012, was not as a result of the cancellation of the authority but rather because there were insufficient funds in the Taniwha Buses’ ASB Bank account.
[57] By this point in time it seemed clear that revenue was not being paid into the Taniwha Buses’ bank account. Mr Hayes’ concern was very apparent from an email to Mr Gunson of 3 September 2012:
Attached is the bank statement as at this morning.
I will pay $1,000 to GTM Diesel but that is the lot as Maurice does not want to go into overdraft.
We are concerned that it appears quite clear from the fuel costs, wages and RUC that all bus revenue earned is not being paid into Taniwha Buses’ account. If in fact it is showing all of the revenue then clearly the business is not operating profitably and Maurice needs to consider why he should not liquidate the company and sell the buses and repay all the debts.
You (sic) response to these issues is required urgently.
[58] It was only after Mr Gunson had failed to respond that Mr Hayes took the step of cancelling various payment authorities which resulted, for example, in the direct debit default in respect of the insurance premium payment to State Insurance which was due on 10 January 2013.
[59] I do not consider that in the circumstances there is any conduct on the part of Mr Hayes which would constitute unclean hands so as to preclude him from making application to wind up the company on the just and equitable ground. If anything, the trigger for the ultimate relationship breakdown was the steps taken by Mr Gunson to conduct the Taniwha Buses business as a separate operation which gave rise to concerns such as those expressed in the email of 3 September 2012. However, the more charitable view is that it is the existence of the breakdown in the shareholders’ trust and confidence which is the fundamental reason for entertaining a s 241(4)(d) application in this case.
[60] Especially pertinent in the present case is the state of deadlock which prevails where Mr Hayes and Mr Gunson are equal shareholders. The problem is compounded by the fact that, as Mr Weaver highlighted at the commencement of his cross-examination of Mr Hayes, Mr Hayes is now of an age where under r 13.4(h) of the company’s constitution he is disqualified from holding office as a director.18 As he has been the sole director since 1999, Taniwha Buses is now something of a rudderless vessel. With Mr Hayes’ retirement the company will be in breach of s 150
of the Act which requires that a company shall have at least one director.
18 Companies Act 1993, s 151(2)(g) and s 157(1)(c).
[61] In these circumstances I am satisfied that it is just and equitable that Taniwha
Buses be put into liquidation.
Decision
[62] Mr Gunson’s application for an order under s 174 of the Act is dismissed. While I am not satisfied on the basis of the evidence that Taniwha Buses is unable to pay its debts, Mr Hayes has satisfied me that it is just and equitable that the company be put into liquidation.
[63] Accordingly I appoint the Official Assignee as the liquidator of Taniwha
Buses. That appointment is made at 4.00 pm on 20 August 2014.
[64] Mr Hayes is entitled to costs on a 2B basis.
Brown J
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