Jackson - CBL Corporation Limited

[2018] NZHC 368

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KOTI MATUA O AOTEAROA TAMAKI MAKAURAU ROHE

CIV-2018-404-000361

[2018] NZHC 368

BETWEEN

NEALE JACKSON and BRENDON

JAMES GIBSON as Administrators of CBL CORPORATION LIMITED AND OTHER COMPANIES

Applicants

Hearing:	8 March 2018
Appearances:	D Friar and N Moffatt for the Applicants, by telephone
Judgment:	8 March 2018

JUDGMENT OF HINTON J

This judgment was delivered by me on 8 March 2018 at 5.00 pm pursuant to Rule 11.5 of the High Court Rules

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

Counsel/Solicitors:
Bell Gully, Auckland

CBL Corporation Ltd & Others [2018] NZHC 368 [8 March 2018]

[1]                 On 23 February 2018, Neale Jackson and Brendon James Gibson, insolvency practitioners and partners in the firm of KordaMentha in Auckland were appointed as administrators of eleven New Zealand registered companies within the CBL Group.1

[2]                 They apply on a without notice basis to extend the time period for notice to terminate employment contracts from 9 March 2018 to 30 June 2018 under s 239Y of the Companies Act 1993. They also apply under s 239ADO for orders that the administrators’ personal liability under s 239ADH(1) in respect of proposed funding arrangements with ANZ Bank New Zealand Limited will not extend beyond the value of the companies’ available assets.

[3]                 Mr Jackson has filed an affidavit in support of the application and Mr Friar has signed a memorandum in support.

[4]                 CBL Corporation is the holding company for a specialist insurance and reinsurance group focused on credit and financial risk. It is a listed company, with dual listings on the NZX and ASX, although trading in its shares is currently suspended on both exchanges.

[5]The other companies in the administration are subsidiaries in the CBL Group.

[6]                 Overall, the CBL Group is comprised of 40 registered companies across a number of jurisdictions, namely New Zealand, Australia, Singapore, England and Wales, Ireland, France, Denmark and Luxembourg.

[7]                 The administration of the companies is in its very early days. I am advised that it will be extremely complex. Clearly it will be challenging.

[8]                 The administrators say that from their experience a sale of the businesses and assets of the businesses in the CBL Group as a going concern, will lead to the best outcome for creditors of the company. There is a substantial amount of work that needs to occur before a sales process can commence.

1      The documents refer to 11 companies, but list only 10.

[9]                 Given the time involved in performing this work, the administrators intend to make an application prior to 23 March 2018 under s 239AT(4) of the Act to extend the convening period for the watershed meeting that is required under the Act. The administrators anticipate that they will be seeking an extension until 30 June 2018 to enable them to perform the tasks required to be in a position to create a report and recommendation to creditors for purpose of the watershed meeting.

[10]             The administrators say that during the period before the watershed meeting takes place it is important the administrators can continue the business of the CBL Group without disruption or with as little disruption as possible to ensure that a sale as a going concern remains a possibility.

The employees application

[11]             CBL Corporation currently employs five employees and it is the administrators’ current preference to retain their services.

[12]             Under s 239Y(3) of the Companies Act 1993, the administrators are personally liable for payment of wages or salary that, during the administration of the company, accrue under a contract of employment with the company that was entered into before the administrators’ appointment. That liability will not apply if notice to terminate those employment contracts is given within 14 days of the applicants’ appointment (ie on or before 9 March 2018). The Court has the power to extend that 14-day notice period under s 239Y(4) of the Act. The applicants apply to extend the 14-day period to 30 June 2018 because they are not able to personally incur liability for any wages or salary of CBL’s employees. If the notice period is not extended, the employees of the company will have to be made redundant on 9 March 2018. This application essentially seeks to avoid that occurring in circumstances where the administrators’ intention is to conduct a sale of the businesses within the CBL Group as a going concern.

[13]             While I accept what the administrators are trying to achieve in principle, there is nothing to say that the employees have any idea of this application. It is proposed as part of the orders to give them leave to apply, but it would be preferable to know in

advance of an order, particularly an order extending time to 30 June 2018, that they have no present objection.

[14]             For example, in Re Postie Plus Group Limited (in administration),2 Asher J took comfort from the fact that the employees had at least been advised of the administrators’ intention to seek an extension of the 14-day period, some nine days before the application had been heard and no notice of opposition had been filed. In that case, there was a large number of employees. Here there are only five.

[15]             I raised this matter by telephone conference with counsel for the administrators today and was advised that one of the five employees is on sick leave and has not been contacted to avoid disturbing them. The other four apparently have been advised, although only just, and not raised any immediate objection.

[16]             Counsel agreed with my suggestion that in the circumstances I should order a short-term extension of time only and direct a further telephone conference, which would enable them to file suitable material as to the employees’ position and also to make the application they intend still to make with regard to extension of the meeting date for the watershed meeting.

[17]Mr Friar confirmed that the employees were being paid in the interim.

The funding application

[18]The position with the funding application is more straightforward.

[19]             ANZ is likely to shortly exercise contractual rights of set-off against the bank accounts of CBL Corporation which  will  leave  no  readily-liquid  assets  from  CBL Corporation or the rest of the companies for the funding of the administration. ANZ has agreed to provide funding to the administrators to allow them to perform their role, with this funding taking the form of an on-demand overdraft.

2      Re Postie Plus Group Limited (in administration) [2014] NZHC 1337.

[20]             It is the intention of both the administrators and ANZ that the administrators’ personal liability under the funding arrangements will be limited to the available assets of the companies.

[21]             The effect of s 239ADH(1) is that the administrators may be personally liable to ANZ for amounts advanced by ANZ, even if the company has no available funds to meet those liabilities. This would be contrary to the agreed position between ANZ and the administrators. Section 239ADH(2) further states that (1) applies irrespective of any agreement to the contrary.

[22]             Under s 239ADO, the Court can make any order it thinks appropriate about how Part 15A is to operate in relation to a particular company. When exercising the discretion, the Court’s focus is on promotion of the interests of creditors and ensuring that the objectives of Part 15A are met.3

[23]             The purpose of the contemplated funding arrangements is to allow the administration to continue without the administrators needing to fund it from their own pockets. Without the funding arrangements, there will be no monies to fund the administration which I am assured would be contrary to the interests of creditors generally.

[24]             Further, there is no prejudice to ANZ in the Court granting the orders sought, as ANZ has already agreed that the administrators’ liability will not extend beyond the value of the companies’ available assets.

[25]             I should add here that the form of the orders sought does not fully encapsulate that agreement, in that there are some circumstances in which the administrators’ personal liability does extend beyond the value of the companies’ available assets and Mr Friar volunteered amendment to the order as sought.

[26]             Mr Friar otherwise advises that he is not aware of any reason why the order with respect to funding should not be made, or of any prejudice to any party.

3      Re Pumpkin Patch Limited [2016] NZHC 2771 at [25].

Orders

[27]             I am satisfied that I can properly make orders in terms of the originating application, but subject to the alterations noted above.

[28]Those orders are as follows:

(a)The applicants are granted leave to commence these proceedings without notice.

(b)Pursuant to s 239Y(4) of the Companies Act 1993 (the Act), the period of 14 days in which notice of termination of employees must be given by the administrators under s 239Y(3) of the Act is  extended  for CBL Corporation until 22 March 2018 (noting that the applicants intend to seek a further extension).

(c)Within two working days of the date of these orders, notice of the orders is to be served by email on those employees affected by the orders.

(d)Pursuant to s 239ADO of the Act, the Court orders that the administrators’ personal liability under s 239ADH(1) in respect of proposed funding arrangements with ANZ Bank New Zealand Limited will not extend beyond the value of the companies’ available assets, except to the extent agreed with ANZ Bank New Zealand Limited.

(e)Leave is granted to any person who can demonstrate a sufficient interest to apply to modify or discharge these orders, including any creditor of the companies, on appropriate notice being given to the applicants.

(f)Leave is reserved to the applicants to apply further in respect of any modifications needed to the orders or in respect of any ancillary issues arising out of the orders made.

(g)The applicants’ solicitor/client costs of this application will be an expense incurred by the applicants in carrying out their duties as administrators of the companies.

(h)A further judicial telephone conference is scheduled before me on Wednesday, 21 March 2018 at 1.15 pm.

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Hinton J