Jones v Williams - [2023] NZHC 2344

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-1826

[2023] NZHC 2344

UNDER
part 19 of the High Court Rules and

ss 239AM and 239ADO of the Companies Act 1993

BETWEEN

RICHARD WARWICK JONES and KAREN FRANCES MATTHEWS

Applicants

AND

BRYAN EDWARD WILLIAMS

Respondent

Hearing: 25 August 2023

Appearances:

T B Fitzgerald for Applicants J Marcetic for Respondent

K Cocks for the Liquidators
C Osborne for the Lookman Family Trust

Judgment:

25 August 2023

JUDGMENT OF ISAC J

[Voluntary administration orders under the Companies Act 1993]

Introduction

[1] Design Electronics Ltd (DEL) was placed in liquidation on the application of one of its creditors on 8 June 2023. Following a creditors’ meeting and vote, the company was placed in voluntary administration under Part 15A of the Companies Act 1993 and Mr Bryan Williams, the respondent, was appointed its administrator. The administration has the effect of suspending the company’s liquidation and passes effective control of the company to the administrator.1

1 Companies Act 1993, ss 239U and 239AC.

JONES & ANOR v WILLIAMS [2023] NZHC 2344 [25 August 2023]

[2] On 22 August 2023, Mr Williams delivered his administrator’s report. In that report, he stated his view that a proposed deed of company arrangement (DOCA) would likely result in a better outcome for DEL’s creditors compared to what they might expect in the company’s liquidation.

[3] Mr Williams has now also called a watershed meeting, which is to be held on 29 August 2023.2 The purpose of the watershed meeting is to enable creditors to vote on a proposal that DEL enter into the DOCA.

[4] While DEL’s liquidation is currently suspended by operation of s 239AC of the Companies Act, if DEL’s creditors do not resolve to enter into the DOCA, DEL’s liquidation will most likely resume at the end of the watershed meeting.3

[5] The applicants are Mr Richard Jones and Ms Karen Matthews. They are DEL’s shareholders and Mr Jones is its director. They also claim to be substantial creditors of the company. The outcome of the vote on the resolution may turn on whether the applicants, as related parties of DEL, are entitled to have their votes counted. The administrator must disregard a related creditor’s vote on a resolution at a creditors’ meeting “unless the court orders otherwise”.4 However, a feature of the Companies Act’s voluntary administration provisions is that they appear to contemplate that related creditors may apply for such orders after the watershed meeting has taken place. In particular, s 239AM(2)–(2A) of the Companies Act provides:

(2)A related creditor may apply to the court for an order that its vote be taken into account.

(2A) A related creditor that intends to apply for an order must,—

(a)before a vote is taken on the resolution, give notice in writing to the administrator that the creditor—

(i)is a related creditor; and

(ii)intends to apply to the court for an order that its vote be taken into account;…

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.

Continue reading Jones v Williams

Details

AGLC: Jones v Williams [2023] NZHC 2344
Case: [2023] NZHC 2344
Decision Date: 25 August 2023

CaseChat Overview and Summary

In the High Court of New Zealand Auckland Registry, the applicants, Mr Richard Jones and Ms Karen Matthews, sought an urgent order to extend the voluntary administration of Design Electronics Ltd (DEL). The company was in liquidation, but its creditors had voted to place it in voluntary administration, appointing Mr Bryan Williams as the administrator. Mr Williams had proposed a deed of company arrangement (DOCA), which, he believed, would benefit creditors more than the liquidation of the company. The applicants, who are both shareholders and substantial creditors of DEL, sought an order to prevent the voluntary administration from ending if the creditors did not approve the DOCA. They were concerned that their votes as related parties might not be counted, as per the Companies Act 1993.

The primary legal issue before the court was whether it should grant the applicants' urgent application to extend the voluntary administration of DEL. This involved interpreting the relevant sections of the Companies Act 1993, including sections 239ADO, 239AM, and 239E, and determining the court's discretion in exercising its powers under these sections. The court had to consider the objectives of Part 15A of the Act, which aims to maximize the chances of a company continuing in existence or achieving a better return for creditors and shareholders than an immediate liquidation. The court also had to balance the interests of the applicants with those of other creditors and the general objectives of the Act.

The court found that it was appropriate to grant the application to extend the voluntary administration. It noted the urgency of the matter and the narrow focus of the application, which supported granting leave to proceed by way of an originating application. The court also found that there was a nexus between the proposed order and the purposes of Part 15A of the Act, as the extension would allow potentially affected creditors to apply to the court for their votes to be taken into account. The court was persuaded that the balance of convenience favoured granting the order, as not doing so could result in a worse outcome for creditors and potentially render the applicants' application nugatory. The delay was likely to be relatively short and might be inconsequential if the necessary voting threshold for the DOCA was reached without the applicants' votes.

The court granted leave to commence the proceeding by way of an originating application and made an order under section 239ADO(1) of the Companies Act 1993. The voluntary administration of DEL would not end if the watershed meeting scheduled for 29 August 2023 ended without a resolution to execute a DOCA, until the later of ten clear working days after the meeting, the determination of the applicants' application, or any other application made under section 239AM of the Act. The application was adjourned in all other respects pending the outcome of the watershed meeting and any other applications to the court. The administrator was directed to serve the application on the creditors of the company, and leave to apply on 24 hours' notice was reserved. Costs were also reserved.

Orders