Heagney v Scaffold Alchemy Limited - [2024] NZHC 1031

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-2662

[2024] NZHC 1031

BETWEEN
CHRISTINE BELINDA HEAGNEY

Plaintiff

AND

SCAFFOLD ALCHEMY LIMITED

Defendant

Hearing: On the papers

Appearances:

ACN Fuiava for the Plaintiff

No appearance for the Defendant

Judgment:

1 May 2024

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 1 May 2024 at 4 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:
Denham Bramwell Lawyers, Manukau

HEAGNEY v SCAFFOLD ALCHEMY LIMITED [2024] NZHC 1031 [1 May 2024]

Introduction

[1] The plaintiff, Ms Heagney, has applied to liquidate the defendant company, Scaffold Alchemy Limited (Company), pursuant to s 241(4)(d) of the Companies Act 1993 on just and equitable grounds.

[2] Ms Heagney is a 50 per cent shareholder in the Company. Mr Marcus Raymond Kennerly holds the remaining 50 per cent of the shares and is also the Company’s sole director.

[3]The Company provides scaffolding services.

[4] The plaintiff and Mr Kennerly worked together in the Company business and were in a personal relationship from 2021. The relationship ended in December 2022 and the plaintiff ceased working in the Company’s business from that time.

[5] The plaintiff has made proposals as to a process for her shares to be transferred or bought out of the company. She has also requested company information, including financial records, and has proposed mediation to resolve the issues in respect of her continuing shareholding.

[6] Ms Heagney says Mr Kennerly, as director of the Company, has either refused or not acted on any of these requests. The plaintiff therefore makes this application to liquidate the Company on just and equitable grounds on the basis that the relationship between the plaintiff and Mr Kennerly is in a state of deadlock and there are no realistic alternatives other than liquidation.

[7] An affidavit of service has been filed confirming the Company was served with these proceedings at its registered office on 16 November 2023, including the verifying affidavit of Ms Heagney and the liquidator’s consent to act. The documents were accepted by a personal assistant. No steps have been taken by the Company in response to the application and so I determine the application on the papers.

[8] I begin by setting out the principles applying to an application for liquidation on just and equitable grounds before applying them to the facts in this case.

Principles for liquidating on just and equitable grounds.

[9] In McGehan v Te Hoe Diaries Limited, Associate Judge Andrew (as his Honour then was) approached the issue of whether it was just and equitable to make orders liquidating the company by resolving two issues:1

(a)Has the relationship between the parties deteriorated to the point where there is a serious deadlock imperilling the continued operation of the company?

(b)If so, are there other realistic alternatives to the impasse, other than liquidation?

[10] Associate Judge Andrew held that the deadlock must be impeding the operation…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2024] NZHC 1031
Decision Date: 1 May 2024

CaseChat Overview and Summary

Christine Heagney applied to liquidate Scaffold Alchemy Limited, a company in which she holds a 50% shareholding, on the grounds that it was just and equitable to do so. The defendant, the other 50% shareholder and sole director, did not appear or respond to the application. The court had to decide whether the relationship between the parties had deteriorated to a point of deadlock and whether there were realistic alternatives to liquidation. The court found that the relationship between Ms Heagney and the defendant had deteriorated significantly, with communication breaking down and the defendant acting in ways that were detrimental to the company's interests. The defendant had refused to engage in mediation or provide financial information, and there was evidence of misuse of company funds. Given these circumstances, the court concluded that there were no realistic alternatives to liquidation. The court appointed Simon Dalton as liquidator and directed that costs be paid on a 2B basis, not to exceed the actual costs of legal aid.

The court's decision hinged on the established deadlock between the parties and the failure of all alternative dispute resolution attempts. Ms Heagney's evidence, supported by extensive correspondence and financial documentation, demonstrated the irreparable breakdown in the business relationship. The defendant's refusal to cooperate and his actions that undermined the company's financial stability further supported the application for liquidation. The court emphasized the importance of protecting Ms Heagney's interests, particularly her personal guarantees for the company's loans, and the need for an independent liquidator to manage the company's affairs and assets. The court's order reflects a careful balance between ensuring the company's assets are preserved and protecting the interests of the minority shareholder.

Orders