Jarrold and Munro, re HC Christchurch CIV 2010 409 2069
[2010] NZHC 1716
•20 September 2010
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV 2010 409 002069
UNDERParts 7 and 19 of the High Court Rules and ss 280 and 286 of the Companies Act 1993
IN THE MATTER OF OTUWHERO ESTATE WINES LIMITED AND GRANT STEPHEN JARROLD AND
PAUL JASON MUNRO Applicants
Hearing: (Determined on the papers) Appearances: G J Ryan for Applicants Judgment: 20 September 2010
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
as to approval of liquidators
[1] The applicants, Paul Jason Munro and Grant Stephen Jarrold, are chartered accountants with experience in insolvency practice. They have been approached by the directors of Otuwhero Estate Wines Limited (the company) and asked to accept appointment as liquidators to the company and the company’s subsidiary companies, Otuwhero Estates Limited, Otuwhero Estates No.3 Limited, and OTU & Co Limited (the subsidiaries) to be appointed by the shareholders. The applicants are partners in the firm Deloitte in Christchurch. Their inquiries show that Deloitte has a continuing business relationship with the Bank of New Zealand and Combined Rural Traders Society Limited which are secured creditors of the company and the subsidiaries. The business relationship involves provision of professional services to the Bank of New Zealand and Combined Rural Traders Society Limited but Deloitte has not provided any advice to the Bank of New Zealand or Combined Rural Traders
Society Limited in connection with the company or the subsidiaries. The continuing
GRANT STEPHEN JARROLD AND MUNRO HC CHCH CIV 2010 409 002069 20 September 2010
business relationships have been disclosed to the directors and shareholders of
Otuwhero.
[2] The applicants also disclose that in or about July 2010 Deloitte provided professional services to Otuwhero, limited to the preparation of an indicative valuation of the company. Deloitte was paid for its professional services and there has been no subsequent professional relationship with the company and its subsidiaries in the last two years. Mr Munro was one of the Deloitte partners who signed the valuation but apart from that work neither of the applicants has had an professional relationship with the company or its subsidiaries.
[3] The applicants recognise that by s 280(1)(cb) Companies Act 1993 (“the Act”) the business relationship between Deloitte, the Bank of New Zealand and Combined Rural Traders Society Limited constitutes a relationship disqualifying the applicants from appointment, unless the Court makes an order pursuant to s 286 of the Act that they may be appointed and act as liquidators notwithstanding the provisions of s 280 of the Act.
[4] The application is made without notice under r 7.46(3) High Court Rules.
[5] The applicants also seek leave to commence the proceeding by way of originating application under r 19.7 High Court Rules.
[6] Substantive applications of the present nature have been commenced by originating application pursuant to orders under both s 280 and s 286 of the Act on many occasions. See for instance the cases collected in the judgment of Associate Judge Abbott in Re Joeleen Enterprises Limited ex parte Blanchett HC New Plymouth CIV 2008-443-000485, 3 October 2008 at [4].
[7] Rule 19.5(1) allows the Court to permit a proceeding to be commenced by originating application if that is in the interests of justice. I am satisfied that it is in the interests of justice that the proceeding be so commenced.
[8] I grant leave accordingly.
Substantive application
[9] The applicants also seek to proceed without notice of their substantive application.
[10] They rely upon r 7.46 High Court Rules and in particular r 7.46(3)(a) and (e)
which provide:
The Judge may determine that an application can properly be dealt with without notice only if the Judge is satisfied –
a.requiring the applicant to proceed on notice would cause undue delay or prejudice to the applicant; or
…
e.the interests of justice require the application to be determined without serving notice of the application.
[11] They refer again to the decision of Associate Judge Abbott in Re Joeleen Enterprises Limited ex parte Blanchett as justifying both the without notice aspect of the proceeding and the substance of the orders sought. I agree that the circumstances in this case are similar, although not identical, to those pertaining in Re Joeleen Enterprises Limited:
a. The company and its subsidiaries consider themselves to be insolvent.
b.A special resolution has been signed by 75% of the shareholders of the company placing the company into liquidation and appointing the applicants as liquidators.
c. Mr Jarrold deposes that the delay caused by requiring the application to be served on all creditors could potentially prejudice creditors and the shareholders that have provided personal guarantees in respect of the debts of the company and its subsidiaries.
d.As in the Re Joeleen Enterprises Limited case, the directors are endeavouring to take a responsible approach by seeking prompt
liquidation and could potentially be prejudiced (due to their continuing personal liabilities) if liquidation is delayed.
e.The creditors will have opportunities to remove the applicants as liquidators (if they object to the appointment) by reason of the leave I will reserve and by their rights to seek removal as a creditors’ meeting.
Discussion
[12] It is accepted by the applicants in the present case that s 280(1)(cb) of the Act applies inasmuch as, within the last two years, Deloitte had a continuing business relationship with two secured creditors of the company and its subsidiaries.
[13] The applicants implicitly acknowledge the possible perception of conflict of interest in that situation but Mr Jarrold deposes that neither nor his co-applicant, Mr Munro, has himself a continuing relationship with any of the company’s secured creditors within the last two years.
[14] I adopt the approach taken by the Associate Judge Abbott in Re Joeleen Enterprises Limited (by reference to his earlier decision in Icon Digital Entertainment Limited v Westpac New Zealand Limited HC Auckland CIV 2007-
404-7124, 20 November 2007), that the critical issue in considering whether a material conflict of interest exists due to the relationship (in this case with creditors) is whether there is a risk that the applicants’ independence and ability to carry out their task professionally and effectively could be compromised in the particular circumstances of the case.
[15] I have concluded on the information provided to the Court that the provision of services to the two secured creditors by other members of Deloitte will not create a material conflict of interest. As in the Re Joeleen Enterprises Limited case, I come to that conclusion upon the basis that the members of the firm who are involved in providing services to the other secured creditors will not be involved in the
liquidation of the company and its subsidiaries and, further, that the creditors will have an opportunity to take issue with leave reserved.
Orders
[16] I order:
a.The applicants may have this proceeding dealt with without notice, pursuant to r 7.46(3) High Court Rules.
b.Grant Stephen Jarrold and Paul Jason Munro may act jointly and severally as the liquidators of:
• Otuwhero Estate Wines Limited;
• Otowhero Estates Limited;
• OTU & Co Limited;
• and Otuwhero Estates No. 3 Limited.
c.The applicants, during the liquidation of the company and subsidiaries, shall ensure that parties or employees of Deloitte who are involved in providing services to the secured creditors of the company and its subsidiaries shall not be involved in the liquidation.
d.The originating application and orders shall be served on all known creditors of the company at the same time and in the same manner as the liquidators’ first report under s 255 of the Companies Act 1993.
e. Any creditor of the companies is granted leave to apply to the Court within five working days after such service to set aside the applicants’ appointment as liquidators; and
f.The applicants’ reasonable solicitor/client costs of this application shall be an expense incurred by the applicants in carrying out their
duties as liquidators of the companies.
Solicitors:
Duncan Cotterill, Auckland
0
0
0