Hodder v Baker
[2016] NZHC 2384
•6 October 2016
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
CIV-2016-454-92 [2016] NZHC 2384
UNDER the Companies Act 1993 BETWEEN
WALLACE DOUGLAS HODDER AND ANN ADELE HODDER
Plaintiffs
AND
CHRISTOPHER DUNCAN BAKER AND KATHRYN ANN BAKER
First Defendants
KADD FARM LIMITED Second Defendant
Hearing: 5 October 2016
(Heard at Wellington)
Counsel:
M E Parker for Plaintiffs
J W Maassen and S F Clark for DefendantsJudgment:
6 October 2016
JUDGMENT OF ELLIS J
I direct that the delivery time of this judgment is
5 pm on the 6th day of October 2016
HODDER v BAKER [2016] NZHC 2384 [6 October 2016]
[1] The plaintiffs, Mr and Mrs Hodder, are farmers. They are also the directors of Kadd Farm Ltd (No. 2148469) (“KFL”).1 They have a 70 per cent shareholding in KFL.
[2] KFL was incorporated on 10 July 2008, essentially as a joint venture company between the Hodders and the defendants Mr and Mrs Baker. Mrs Baker is the Hodders’ daughter.
[3] The intention in creating KFL was to purchase a farm property which Mr and Mrs Baker would work and establish and enhance as a farming operation. To that end, in August 2008 KFL acquired a rural property situated at 3361 State Highway 2, Takapau near Waipukurau in the Hawke’s Bay. This property is known as “Heron Creek”.
[4] The shareholdings in KFL since its incorporation have been: (a) Mr Hodder - 4200 shares;
(b) Mrs Hodder - 4200 shares;
(c) Mrs Baker - 1800 shares; and
(d) Mr Baker - 1800 shares.
[5] KFL paid $4.3 million in total for Heron Creek. The acquisition was funded by:
(a) a loan of $1.2 million from the BNZ; and
(b) a loan from Belvue Downs Ltd (BDL) of $3.1 million.
[6] Both loans were secured by way of mortgage over the Heron Creek property.
1 Until recently the defendants were also directors of KFL.
[7] BDL is wholly owned by the Hodder Family Trust. The directors of BDL are Mr and Mrs Hodder, and its 10,000 shares are held jointly by the trustees of the Trust, namely the Hodders and L W Nominees Ltd, a trustee company belonging to the accounting firm, BDO.
[8] On about 1 April 2009, BDL purchased the adjacent 80 hectare property known as Iramutu. Both Heron Creek and Iramutu were leased to Mr Baker’s company, DB Contracting Agriculture Ltd (DBC). DBC was to operate the two properties jointly as a grass supply farm for Mr Baker’s company and also for grazing.
[9] No doubt for a variety of reasons, KFL and the Heron Farm enterprise has been a failure. It has not made money. DBC failed to meet most if not all of its rent obligations under the lease of Heron Creek and now owes a sizeable debt to KFL. KFL has not been able to support repayments on its borrowings, except with the assistance of the BDL and/or the Hodder Family Trust. These entities have contributed over $350,000 to KFL over the past eight years and are currently making monthly payments to KFL for the purpose of KFL meeting its loan obligations to the BNZ.
[10] The financial reports on KFL’s position have shown increasing losses and, it is agreed, the company is effectively insolvent. KFL’s financial report for the year ending 30 June 2015 (produced by the company’s accountant, Mr Landrigan of BDO) show the BNZ debt of approximately $1 million and a current account debt of
$4.6 million owed to the Hodder Family Trust. It has been only the contributions made by the Hodder entities are keeping it afloat. This became apparent over two years ago at which point all the shareholders realised that Heron Creek, its only asset, should be sold and the company wound up. At that stage, however, the Bakers wished to buy the farm.
[11] In October 2015, Heron Creek was listed for sale with Bayleys Real Estate in Waipukurau, with an option for the Bakers to purchase it. Mr Hodder has deposed that they were looking for a price of $4.3 million, although the marketing did not include a listing price. In any event it seems that $4.3 million is what the Bakers
would have been required to pay were they to exercise the option. Prior to this valuations had been obtained which indicated that the property was worth around $5 million.
[12] On 11 March 2016, KFL received an offer through Bayleys from B C McLaughlin. The offer was for $3.5 million. Bayleys were instructed to reject the offer, which they did on 16 March 2016. No improved offer was received from Mr McLaughlin.
[13] By April 2016 the Bakers had accepted that they had no prospect of making the purchase themselves and agreed that Heron Creek should be sold to a third party.
[14] In early May 2016 KFL obtained a marketing proposal from PGG Wrightson Real Estate for the property. This assessed the relevant price per hectare in the range of $23,000 to $24,000, equating to a total property price of between $4,025,000 and
$4,200,000.
[15] On 26 May 2016, KFL received an offer for Heron Creek from David Alfred Stewart, Paul James Stewart and Stewart WHK Trustee Company Ltd (the Stewarts). The offered price was $4 million and the time limit for acceptance was 30 May 2016.
[16] Mr Hodder telephoned Mr Baker to discuss the offer. Mr Baker suggested a counteroffer of $4.8 million based upon his view that the property was worth
$5 million (in accordance with the 2015 valuations).
[17] After discussion between themselves, the Hodders agreed to make a counter- offer of $4.3 million, which they did on 27 May 2016. This prompted Mr Baker to write to his parents-in-law on 28 May objecting to their unilateral decision to reduce the amount of the counter-offer. In turn, it seems that Mr Baker’s letter provoked the Hodders (through their lawyers) to write what counsel described as a “fire storm” letter on 8 June, which:
(a) gave notice to DBC under s 245 of the Property Law Act 2007 that KFL would cancel the Heron Creek lease for non-payment of rent unless arrears of over $400,000 were paid by 22 June;
(b)gave notice of a proposed KFL shareholders meeting on 22 June, the purpose of which was said to be to consider and vote on the removal of the Bakers as directors;
(c) called on the Bakers’ unpaid shares in KFL seeking payment of $1 for
each of their 3600 shares;
(d)gave notice under s 245 of the Property Law Act 2007 that BDL would cancel the DBC’s lease of the Iramutu farm for non-payment of rent; and
(e) called up a term loan made by BDL to DBC and guaranteed by Mr Baker in 2010 saying that proceedings would be issued unless payment of $680,000 was made by 22 June.
[18] Correspondence between the lawyers continued. The Bakers were removed as directors of KFL by ordinary resolution on 22 June and the lease with DBC was terminated. At some point, the Stewarts became the lessees of Heron Creek. They have since been planting crops on it.
[19] The Hodders’ $4.3 million counter-offer was not accepted by the Stewarts. Although they still wished to purchase the property, they said that the highest price they could obtain finance for was $4 million. The Hodders were prepared to agree to that price, and their solicitors advised the Bakers’ solicitors of this on 21 July 2016. The renewed $4 million offer was made by the Stewarts the following day, subject to shareholder approval being provided within 10 working days.
[20] There is no dispute that because the sale of the farm is a major transaction it needs to be approved by 75 per cent of KFL’s shareholders. Accordingly the Hodders needed either Mr or Mrs Baker (or both of them) to agree.
[21] The Hodders wanted to accept the Stewarts’ offer and so they counter-signed the agreement and returned it. They knew that their acceptance was subject to obtaining shareholder approval and this was sought by way of a letter to the Bakers through their solicitors. The Bakers declined to agree to the special resolution required.
[22] The Stewarts’ offer was due to expire on 4 August 2016. The Hodders obtained extensions to 10 August, 19 August and 26 August. During that time, on
5 August 2016, another offer for Heron Creek was received from Mr Maurice Hall. The price was $4.3 million but the offer was subject to 60 working day due diligence conditions. The Hodders say that they were concerned that such conditions would mean that the sale would be unlikely to settle for some time, and would cause further delay and uncertainty, to the detriment of KFL’s already precarious financial position.
[23] The Hodders formed the view that there was little prospect of Mr Hall’s conditions being significantly improved by negotiation. They were still “under contract” to the Stewarts. The Hall offer was rejected. No further offer has been received.
[24] On 5 August the Hodders’ solicitors had proposed that a shareholders’ meeting take place (by telephone) on 9 August. The Bakers did not attend that meeting. I am not in a position to determine whether or not the reasons they have given for not attending are valid or compelling.
[25] On 12 August the Hodders held a directors’ meeting and resolved to sell Heron Creek “on terms that the directors consider reasonable in all the circumstances”. A special resolution was still required. The Bakers’ agreement has not been forthcoming.
[26] The Bakers’ position is and has been that they want to have a shareholders meeting to discuss:
(a) why the Hodders are willing to settle for $4 million when that price is:
(i) well below the valuations they had obtained the previous year;
and
(ii) below the offer received from Mr Hall.2
(b)what a sale at that price would mean for them, and the debts owed by the Bakers and/or Mr Baker’s company to KFL and BDL and the debts which the Bakers say KFL owes to them for insurance payments and improvements to the land. There has undoubtedly been some hope of a trade off between the Bakers’ consent to the Stewart purchase and the forgiveness of some or all of the Bakers’ debts.
[27] The Hodders have declined to call a further shareholders’ meeting with the Bakers. Nor are they willing to discuss any kind of “trade off” which the Hodders’ lawyers have described as “tantamount to holding our clients to ransom”.
[28] On 26 August 2016, the “final” extension of the Stewarts’ offer had expired. On 30 August, however, the Hodders’ lawyer sought a further six weeks to obtain the Bakers’ agreement. In an email to the Stewarts’ lawyer he wrote:
As discussed in confidence, it will be imperative to present a live contract for sale of the company’s farm to the court in order to obtain judgment allowing the shareholder approval clause to be ratified.
There is no ‘cash out’ clause in the agreement and our clients have instructed
they will not be accepting the back-up offer presented.
[29] On 9 September the Stewarts’ lawyer agreed to the six weeks sought. The new offer is thus due to expire tomorrow, on 7 October.
These proceedings
[30] The Hodders filed these proceedings in the Palmerston North Registry on
20 September 2016. As originally drafted they sought:
(a) an order under s 34 of the Companies Act 1993 (the Act) altering the constitution of KFL so that it provides that a special resolution may be passed with a shareholder majority of 70 per cent; or
(b)an order under s 174(2)(d) of the Act that it is just and equitable to alter the constitution in that way; or
(c) an order under s 172 of the Act directing the board of KFL to sell the
Heron Creek property.
[31] At the same time, the Hodders filed affidavits in support of their claim and an interlocutory application for orders:
(a) for service on the defendants;
(b) transferring the proceedings to the Wellington Registry; and
(c) for a priority fixture.
[32] What happened next is confusing and confused. In summary, however:
(a) When service copies of the proceedings were returned to the
plaintiffs’ lawyers on 20 September 2016, Court staff advised that:
(i) There would be a first call of the interlocutory application in
the judges’ chambers list (by way of telephone) on Monday
26 September 2016;3
(ii)they were advised that the first call date for the substantive matter date would be 31 October 2016 but that this could change following the call in the judges’ chambers list. The
31 October date was the date then recorded in the notice of
proceeding by the plaintiffs’ lawyers;
(b) Mrs and Mr Baker were served with the proceedings on 21 and
22 September 2016. They were accidentally not served with a copy of the notice of the 26 September 2016 call;
(c) on 22 September the plaintiffs’ solicitors also emailed a letter to the solicitors who had previously been acting for the defendants (Cooper Rapley) enclosing copies of the proceedings and the notice of the teleconference. That letter was sent to the wrong email address and was not received;
(d) first thing on the morning of Friday 23 September there were
communications between the two lawyers’ offices in which:
(i)the plaintiffs’ lawyers advised of 12.15 telephone conference on the following Monday;
(ii)the defendants’ lawyers said they were not yet formally instructed, expressed surprise at timing of conference and asked plaintiffs to obtain an adjournment of it;
(iii)the plaintiffs’ lawyers said that the question of an adjournment was a matter to take up with the Court if and when instructed;
(e) later that day the Bakers instructed Cooper Rapley to act for them in relation to the proceedings;
(f) Cooper Rapley did not attempt to contact the Court that day to inquire about the telephone conference; and
(g)on the following Monday (26 September) attempts were made by Cooper Rapley shortly before the scheduled conference to contact registry staff to ask that the conference be adjourned. Those attempts were unsuccessful.
[33] I was Duty Judge in the week commencing 26 September and the telephone conference was listed before me.
[34] At the conference I was advised that the Bakers had been served and notified of the conference. Neither they nor their lawyers attended it. Certain of the critical events to which I have referred above were not known to Mr Parker at that time. In the minute issued after the conference I noted that the defendants’ absence was regrettable. In light of the looming 7 October deadline I made the order for transfer sought and said that the substantive matter could be heard on 4 October at 10 am. I made a truncated timetable for the filing of a statement of defence and affidavits by the defendants, if they wished to participate. I directed that the defendants and Cooper Rapley be served with a copy of my minute as soon as possible.
[35] On 28 September I received an interlocutory application and accompanying memorandum from the defendants’ lawyers. They said that they had not been advised of the earlier conference and took objection to the scheduling of the conference itself, the form of the proceedings filed by the plaintiffs and to my directions, which they asked me to rescind. I then convened another telephone conference with both counsel as a result of which I issued amended timetable directions, moved the fixture to 5 October and advised that I would hear both the interlocutory and substantive matters on that day. That is what occurred.
The substantive application
[36] By the time of the hearing the focus of the plaintiffs’ claim was purely on s 174.
[37] Section 174 relevantly 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.
(2) If, on an application under this section, the Court considers that it is just and equitable to do so, it may make such order as it thinks fit
including, without limiting the generality of this subsection, an order—
(a) requiring the company or any other person to acquire the
shareholder’s shares; or
(b) requiring the company or any other person to pay compensation to a person; or
(c) regulating the future conduct of the company's affairs; or
(d) altering or adding to the company's constitution; or
(e) appointing a receiver of the company; or
(f) directing the rectification of the records of the company; or
(g) putting the company into liquidation; or
(h) setting aside action taken by the company or the board in breach of this Act or the constitution of the company.
[38] There is authority that applications under s 174 can be made by majority shareholders such as the plaintiffs here.4 That accords with the plain words of the section.
[39] I address the issues arising in turn.
Are the affairs of KFL being conducted in a manner that is unfairly prejudicial to the
Hodders either in their capacity as shareholders or in some other capacity?
[40] Section 174 does not require the offending conduct to be otherwise unlawful. Thus the Court of Appeal in Sturgess v Dunphy noted that:5
It is settled law that s 174 ‘characteristically operates so as to limit the exercise of legal powers; in other words to stop, or grant a remedy in respect of, what would otherwise be lawful’.
[41] The leading New Zealand authority on the meaning of the words “oppressive, unfairly discriminatory, or unfairly prejudicial” is Thomas v H W Thomas Ltd.6
4 Sturgess v Dunphy [2014] NZCA 266, at [62].
5 At [62] citing Jacobsen Venue Management New Zealand Ltd v Worldwide NZ LLC [2008] NZCA 105 at [50].
6 Thomas v H W Thomas Ltd [1984] 1 NZLR 686 (CA).
There, it was the predecessor to s 174 (s 209 Companies Act 1955) that was at issue. Richardson J said:7
I do not read the subsection as referring to three 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 some only as 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.
[42] The Court said that fairness is not to be assessed in a vacuum or from one member’s point of view alone, and that all the interests involved must be balanced against each other, along with the policies underlying the Act and s 174. For unfairness to be found, there must be a visible departure from the standards of fair dealing, viewed in the light of the history and structure of the particular company and the reasonable expectation of its members. Other members of the Court warned against use of the s 209 power to “invade the traditional rights of the shareholders to
determine the management of their company according to their shareholding”.8
[43] In the present case, I begin by noting that there has been no breach of the Act or KFL’s constitution by the Bakers. It must be acknowledged that they have merely been exercising their constitutional rights as 30 per cent shareholders in the company.
[44] Conversely, however, there is KFL’s effective insolvency. The evidence is that a sale of Heron Creek even for $5 million would not result in the company’s secured creditors being paid in full. Any unsecured claims the defendants might have against KFL cannot be prejudiced by accepting the Stewart offer because, on
any analysis, there is no prospect of those claims being satisfied.
7 At 693.
8 At 697 per McCarthy J.
[45] Unless the farm is sold, KFL’s debts to the Hodder entities will continue to increase every month with no prospect that the increased indebtedness will ever be repaid. For that reason alone I am prepared to accept that there is prejudice to the Hodders in their capacities as directors and shareholders of DBL and as Trustees of the Family Trust.
[46] I accept that there might be room for debate as to whether the Stewart offer was better than the Hall offer. I also acknowledge that there may be a degree of artificiality about the current 7 October deadline. But the reality is that it is only the Stewart offer which is now on the table. To the extent the defendants are unhappy about how that state of affairs has come to pass they have shareholder remedies against the Hodders as directors which are potentially available to them.
[47] In these circumstances I am unable to see any rational basis for the Bakers continuing to withhold their consent. KFL’s significant indebtedness is a reality. While, in a family context, the Hodders’ refusal to talk further with them is unfortunate, the reality is that there is little to talk about and even less chance of a resolution. And although the Bakers are understandably perturbed by the turn matters took on 8 June, there is no legal foundation for the proposition that their separate indebtedness to the Hodder entities should somehow be put into the mix. So putting the impact on family relationships to one side the Hodders’ refusal to countenance any kind of trade-off cannot be said to be unreasonable.
[48] For the reasons just given I consider that the Bakers’ refusal to agree to the
special resolution is unfairly prejudicial to the Hodders here.
Is it just and equitable to make a remedial order?
[49] It is trite that s 174 is a remedial, rather than punitive, provision. Thus:9
…relief does not follow automatically from a finding of oppression; under s
174(2) the court has a discretion and relief will be granted only if the court finds it just and equitable to do so. But of course relief will often be just and equitable where oppression has been made out; wrong and remedy are closely linked. The “just and equitable” standard allows the court to “subject
the exercise of legal rights to equitable considerations; that is, of a personal character arising between one individual and another” …
[50] I consider that justice and equity also favour the Hodders here. There is demonstrable detriment to the Hodders’ interests if the property is not sold. And given the company’s insolvency, the only real detriment to the Bakers arising from facilitating the sale of the farm to the Stewarts is the loss of their bargaining chip. And as I have said that bargaining chip has no legal foundation. If the Bakers are of the view that the Hodders’ actions as directors have prejudiced them as shareholders they have separate legal remedies under the Act.
[51] The issue therefore becomes whether an appropriate remedial order can be made. The Court is required to provide a remedy that is the least invasive intervention to the existing state of affairs. The Court should be wary of intervening in the management of the company to any greater extent than is necessary to provide
an appropriate remedy.10
[52] As I have said, the Hodders’ claim as originally drafted sought an amendment to KFL’s constitution pursuant to s 174(2)(d). But in the course of preparing for the hearing (the day beforehand) I formed the preliminary view that, even if the plaintiffs were able to persuade me that the twin s 174 thresholds of oppression/unfairness and justice/equity were passed the Court would be unable to make orders amending KFL’s constitution in the way sought. I issued a minute in which I said:
The s 106 requirement that the special resolution of shareholders is required in order to approve a major transaction is mandatory. The definition of “special resolution” makes it clear that it is a resolution that is approved by a majority of at least 75 per cent of shareholders. Section 31 makes it clear that the constitution of a company cannot be inconsistent with the Act.
The purpose of this minute is therefore to put the parties on notice that, in the event that I conclude that the view just expressed is correct, the Court will need to consider whether it should instead exercise its power (under either s 174 and/or s 241) to appoint a liquidator. There appear to me to be ample grounds for doing so. The parties may therefore wish to consider their positions on that suggestion and turn their minds to who an appropriate appointee might be.
[53] At the commencement of the hearing,11 Mr Parker for the plaintiffs advised that he agreed with the position expressed by me in the first paragraph above. So instead he asked the Court to permit an amendment to the claim seeking an order under s 174(2)(a) requiring the plaintiffs to acquire enough of the defendants’ shares to take their own shareholding to 75 per cent so that they could pass the special resolution required themselves. He said that although, if pressed, the plaintiffs would alternatively support putting the company into liquidation (s 174(2)(g)), that would be disadvantageous to the shareholders because they would lose the benefit of losses that were presently available to the company. I tend to agree that liquidation seems unlikely to be the best option here, provided an alternative can be found.
[54] I accept that the “buy out” remedy is one that is quite often used in cases where an impasse has been reached between shareholders. Mr Parker submitted that the recent call price of $1 per share would be an appropriate fair value.
[55] But I am reluctant to go down the path of interfering with the parties’ shareholdings. I am not certain that the s 174(2)(a) power is apt in the present circumstances.12 And there is, I think, authority for a more straightforward way. In recent circumstances not dissimilar to the present, Lang J simply directed that the defendant shareholder (who had refused to sign the resolutions necessary to effect the sale of company property) should take such steps as were necessary to enable the sale and purchase agreement to be completed.13 In my view that is the most appropriate way forward here.
The interlocutory application
[56] As I have indicated earlier, a number of what I would term technical objections were raised by the defendants to the form of the proceedings filed by the
11 The hearing did not commence at 10 am as attempts were being made to try and negotiate a way forward. They were unsuccessful. I do record, however, that only the defendants came to Wellington for the hearing. While there may (or may not) have been good reason for that, the plaintiffs’ absence yesterday was regrettable.
12 I record, however, that Mr Parker did refer me to the decision in Hogg v Sheppard HC Auckland CIV-2002-404-1959, 3 September 2003 where orders under s 174(2)(a) were made in circumstances that were somewhat similar to the present.
13 Fairway Holdings Ltd v Furno Ltd [2014] NZHC 858.
plaintiffs, the calling of the first teleconference and the directions made by me at it. These were that:
(a) in proceedings under s 174 KFL should have been named as defendant not its shareholders;
(b) having been so named KFL should also have been properly served;
(c) the wrong notice of proceeding and other forms were used for a s 174 proceeding (and that if the correct forms had been used then KFL would have been named as a defendant);
(d) the time for filing a statement of defence was wrongly truncated;
(e) those parts of the proceedings invoking ss 34 and 172 of the Act were not appropriately brought under pt 18 of the High Court Rules;
(f) the statement of claim was not signed;
(g)the minute of my first teleconference was not served on the defendants or their solicitors;
(h) the proceedings were not served on the defendants solicitors; and
(i)under pt 7 of the rules a teleconference may only be convened after the date for filing a defence has passed.
[57] In my view there is, without more, little if any merit in any of these points. For what it is worth I record my view that:
(a) there is no requirement in s 174 that KFL be named as a defendant;
rather than the Bakers. On the contrary, subs (3) provides that:
No order may be made against the company or any other person under subsection (2) of this section unless the company or that person is a party to the proceedings in which the application is made.
Accordingly if the s 174 order is sought against “any other person” (here, the defendants) then it is that other person who is to be made party to the proceeding;
(b)KFL was, in any event, subsequently named as a defendant and was also formally served with the proceeding in the week before the hearing;
(c) while there may have been mistakes made in the forms used no identifiable prejudice to the defendants flows from that (or from the fact that the statement of claim was not signed);
(d)the Court has the power under r 5.47(2)(b) to truncate the time for filing a statement of defence;
(e) r 18.1(b) makes it clear that proceedings invoking ss 34 and 172 of the Act can appropriately be brought under that part. In any event the applications made under those sections were not pursued;
(f) to the extent there was some delay in serving my first minute on the defendants that is regrettable. The important question is whether any prejudice flowed from that delay.
(g)As my earlier chronology of the relevant events makes clear the plaintiffs genuinely but mistakenly believed that the defendants’ solicitors had been served. The defendants had, in any event, been served personally; and
(h)in the circumstances I can see nothing improper in the convening by the Registry of the teleconference. The defendants’ absence from it was the result of a combination of unfortunate factors for which no real blame can fairly be attributed.
[58] As some of my comments above indicate, the real issue with which the Court should rightly be concerned is whether the defendants have suffered any prejudice as
a result of the above matters. I accept that they were put under pressure by the urgency with which the matter was treated and the truncation of relevant timeframes. But my rejection of most, if not all, of the alleged deficiencies suggest that the same, or similar directions would have been made even if the defendants had attended the first teleconference.
[59] The only matters of significance advanced by Mr Maassen in support of a submission of prejudice were that:
(a) there were some important documents that were not before the Court;
and
(b)there was other evidence that the defendants might have filed had they had more time.
[60] As to the first matter, Mr Maassen said that the lease between KFL and the Stewarts might be relevant because it would be expected that any rent paid by them would (at least) service the BNZ debt. He also said that the evidence was unclear as to the capacity in which the Hodders were alleging that they were prejudiced, because there appeared to be some confusion about whether it was the Family Trust or DBL which was KFL’s major creditor. He also said that the Trust Deed should have been put in evidence.
[61] In my view, none of these things is of such moment that it might affect the Court’s decision on the substantive s 174 application. Even if any rent paid by the Stewarts was available to pay the BNZ, the reality remains that, historically, the Hodder entities have had to service the bank debt because in the years when DBC was the lessor no (or very little) rent was paid. In any event, KFL’s huge debt to BDL remains. Whether that debt is owed to BDL or to the Family Trust is similarly of no moment. BDL is owned by the Trust. The Hodders are the Directors of BDL and the Trustees of the Trust. As I have said there can be no doubt that it would be contrary to their responsibilities in those capacities to permit the status quo to continue.
[62] As to the second matter, it was suggested that the defendants might have obtained an affidavit from Mr Hall to the effect that he would have been prepared to forego some of his due diligence, or increase his price, rendering his offer more attractive to the Hodders (and more acceptable to the Bakers). But putting aside the speculative nature of that proposition, I am unable to see how that would have materially advantaged the defendants. As I have noted above, the reality is that the farm must be sold. Even a price of $5 million will not see its secured creditors paid in full. There would be nothing left for the defendants, in the event that they are owed anything.
[63] The interlocutory application must fail accordingly.
Conclusion
[64] For the reasons given, the plaintiffs’ application under s 174 of the Companies Act is granted. I order that the defendants are, forthwith, to sign the special resolution necessary to authorise the sale of Heron Creek to the Stewarts.
[65] The defendants’ interlocutory application is declined.
[66] Although Mr Maassen asked that, in the event that s 174 orders were made, I stay my decision in order that the defendants could appeal to the Court of Appeal I decline to do so.
[67] While I accept that any appeal by the Bakers may be rendered nugatory in the absence of a stay there are powerful competing factors here. These include the indisputable fact that KFL's indebtedness increases by the day as does the associated loss to the Hodder interests. The sale to the Stewarts may be lost if the matter is not resolved now.
[68] The answer might be different if the Bakers' position offered the possibility of some alternative way through or around all of the present difficulties. It does not. Continuing to hold up the sale to the Stewarts can only make things worse for the Hodders and for KFL. And perhaps more importantly (in the context of a stay application) it gives rise to no obvious benefit to the Bakers. As I have said there are
separate remedies available to them under the Act if it transpires that they have been wrongly prejudiced by anything that has transpired. So while I understand am sympathetic to their dismay at recent events, and the potential effect of those events on their family, it does not seem to me that encouraging this dispute to be prolonged by way of an appeal will serve anybody's interests. The application for a stay is declined accordingly.
[69] I did not hear from counsel on costs. Memoranda may be submitted.
“Rebecca Ellis J”
Solicitors: Cooper Rapley Lawyers, Palmerston North, for Plaintiffs
Parker Cowan Lawyers, Queenstown, for Defendants
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