Just Beverages Limited v Horton
[2018] NZHC 2135
•29 August 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-001924
[2018] NZHC 2135
UNDER the Companies Act 1993 BETWEEN
JUST BEVERAGES LIMITED
First Applicant
DANIEL JOSEPH BEARSLEY, MARILYN CELIA BEARSLEY and NAPIER INDEPENDENT TRUSTEES LIMITED
Second Applicants
AND
CHRISTOPHER ROBERT ROSS HORTON
Respondent
Hearing: 30 April 2018 Appearances:
D D Vincent for the Applicants J Lethbridge for the Respondent
Judgment:
29 August 2018
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 29 August 2018 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Lowndes, Auckland
Thomas Dewar Sziranyi Letts, Lower Hutt
JUST BEVERAGES LTD v HORTON [2018] NZHC 2135 [29 August 2018]
Introduction
[1] The respondent in this proceeding, Mr Christopher Horton, is the liquidator of FUB Limited (FUB), having been appointed by shareholder resolution in May 2017. The applicants are Just Beverages Limited (Just Beverages) and the Trustees of the Bearsley Ranui Trust (the Bearsley Trust).
[2] The applicants commenced the proceeding on 11 August 2017 when they filed an originating application claiming orders, pursuant to s 284 of the Companies Act 1993 (the Act), for leave to commence the proceeding by originating application, and to reverse the liquidator’s decision to reject three claims filed in the liquidation of FUB. The application was settled shortly before the hearing was due to commence, with two of the three claims being admitted.
(a)The first and second claims were for amounts purportedly owed by FUB to a Mr Bruce Keatley (a former marketing director and shareholder of FUB) which had been assigned to Just Beverages. The first, now partially admitted, was for holiday pay owed to Mr Keatley. The second (which remains rejected) was for advances Mr Keatley made to FUB (at the time trading under the name Waipak Limited).
(b)The third has been allowed in its entirety. It was made by the Bearsley Trust, and was for unpaid rent, operating expenses, interest and associated legal costs owed by FUB.
[3] On 24 November 2017, prior to the settlement, the respondent filed an interlocutory application regarding the validity of his appointment as liquidator of FUB. Counsel for the parties agree the issues raised in the interlocutory application remain “live” and that the Court should determine the application notwithstanding that settlement has been reached over the disputed rejection of claims. It is that application which is dealt with in this judgment.
[4]The application is opposed by Just Beverages and the Bearsley Trust.
The interlocutory application
[5]The orders Mr Horton seeks are:
(a)A declaration under s 284(1)(b) of the Act, confirming that his appointment as liquidator was valid from the outset under s 280(1) of the Act; and
(b)Alternatively, if the Court is unwilling to make such a declaration, an order under s 286(4)(b) of the Act that he may continue to act as liquidator, despite not complying with the requirements of s 280(1)(cb) of the Act.
[6] The application has been made in anticipation of a formal challenge to Mr Horton’s appointment. The threat of a challenge has come about because Mr Chris Sanson (the sole shareholder and director of Just Beverages) discovered that Mr Horton had previously acted as provisional trustee in the insolvency of Mr McKillen, a former director of FUB.
[7] Mr Sanson has maintained since, that Mr Horton’s appointment as liquidator of FUB was in fact invalid. The allegation is predicated on the basis that Mr Horton’s role as provisional trustee constituted a continuing business relationship within two years before the date of FUB’s liquidation, in contravention of s 280(1)(cb), rendering him ineligible to accept appointment as FUB’s liquidator without leave of the Court. He also contends that Mr Horton demonstrated partiality to Mr McKillen (and associated interests) in his previous role; and that Mr Horton appears to have been similarly less than impartial in his treatment of claims in the liquidation of FUB, placing undue reliance on Mr McKillen’s input. He says there is reason to doubt that Mr Horton will bring the necessary impartiality to further steps that will be needed to complete the liquidation of FUB and that the Court should not exercise its discretion to allow him to continue as liquidator.
[8] Mr Sanson points out that there is further work to be done in the liquidation, involving a review of the interests of the former directors of FUB, and transactions they were involved with.
[9]Mr Horton accepts that there is more work to be done, but counters that:
(a)His appointment as provisional trustee was not contrary to s 280(1)(cb), as there never was a disqualifying continuing business relationship between himself and the former director of the company.
(b)Mr McKillen was not a director of FUB at the time of Mr Horton’s appointment, and he was not a majority shareholder.
(c)But in any case, the Court should exercise its discretion, pursuant to s 286(4)(b), to allow him to continue in his role as liquidator, as any conflict he might conceivably have arising from the relationship between himself and the former director would be merely trivial in nature. Further, his conduct of the liquidation to date has been unimpeachable. He has acted with independence, impartiality and professionalism.
The issues for determination
[10]The issues that arise for determination are twofold:
(a)First, whether Mr Horton did accept appointment as liquidator of FUB in breach of s 280(1)(cb) of the Act. Did he in fact have, within the two years immediately before the commencement of the liquidation, a continuing business relationship with one of FUB’s directors, a Mr McKillen?
(b)Secondly, whether (assuming an affirmative finding on the first issue) any risk to his independence and ability to carry out the role of liquidator arising from the relationship is no more than trivial in nature,
making it appropriate for the Court to exercise its discretion to allow his appointment as liquidator of FUB to continue.
[11] As Mr Horton has made the application, he has the onus of demonstrating that his appointment did not breach s 280(1)(cb) of the Act; or alternatively if the appointment was not compliant, that the Court should exercise its discretion to allow him to continue as liquidator - failing which, the inevitable outcome must be his replacement by a suitable alternative liquidator with no connection to FUB.
Background
Voluntary liquidation of FUB and Mr McKillen’s adjudication
[12] Mr Bruce Keatley and a Mr Mannington were the founding shareholders and directors of FUB in 2007. At that time, the Company was called Waipak Limited. Mr Keatley ultimately resigned as a director of the company in 2015.
[13] In December 2010, Mr McKillen became a director of FUB and was appointed its Chairman. He formally resigned from his directorship on 17 March 2016, as Mr Sanson suggests, in anticipation of his impending adjudication after previous attempts to avoid bankruptcy had failed. His adjudication was ordered by the Court on 5 April 2016.
[14] When Mr McKillen resigned as director, Mr Martin Fine (whom Mr Sanson describes as Mr McKillen’s lawyer and trustee) immediately took over the directorship until he also resigned just over a year later, on 9 May 2017. Seven days prior to his resignation, Mr Fine changed the company name from Waipak to FUB. (Mr Keatley makes a point in his affidavit evidence of explaining that the “B” of “FUB” stands for “Bruce”. But he leaves unsaid – I can only assume intentionally – what the letters “FU” might abbreviate. His evidence also suggests that Mr Fine and Mr McKillen felt more than a little animosity towards himself).
[15] On 4 April 2017, over a year after he had resigned as director and about a year after his adjudication, Mr McKillen approached Mr Horton and enquired whether Mr Horton would be willing to accept appointment as liquidator of the Company.
[16] Shortly after his own resignation as a director Mr Fine formalised Mr McKillen’s request by email dated 12 May 2017. In the email Mr Fine stated he was acting on the instruction of the Company’s incumbent directors, Mr Mannington and a Ms Belinda Somerville. He also recorded that a sale of Company assets had just been completed, that FUB obtained around $45,000 from the transaction, and that solicitors from Lowndes Jordan acted for FUB in the transaction.
[17] A week later, on 19 May 2017, FUB entered into voluntary liquidation when Mr Horton was appointed liquidator.
[18] On 11 August 2017, Just Beverages and the Bearsley Trust filed their originating application to reverse Mr Horton’s rejection of their claims. On 8 September 2017, Mr Horton filed documents in opposition. All the while the two sides continued to exchange correspondence regarding the claims Just Beverages and the Bearsley Trust sought to have admitted in the liquidation. While Mr Horton declined to reverse the rejections, in his affidavit evidence filed in support of his opposition he deposed that he remained open to the possibility of revisiting the matter, but that he was concerned Just Beverages and Bearsley Trust appeared to be drip-feeding information or omitting material information in support. He says that he arranged for Lowndes Jordan to write to Just Beverages and the Bearsley Trust, but that the response he received in a letter dated 27 October 2017 contained no further information of consequence. He says there was no subsequent meaningful engagement with “my reasons for declining these claims”, though some further information was provided in relation to the holiday pay claim. He also says that the Trust accepted its claim was overstated.
[19] However, Mr Sanson subsequently learned of Mr Horton’s previous role as provisional trustee in the insolvency of Mr McKillen, and criticised Mr Horton’s appointment as liquidator. He expressed doubt regarding his independence,
particularly considering his lack of transparency about his prior role as provisional trustee, when accepting the role of liquidator.
[20] A hearing of the substantive application was set down for 5 April 2018. At the commencement of the hearing the Court was advised of the settlement of the challenge to the rejection of claims. It was also advised that only the interlocutory application required hearing and determination.
The earlier unsuccessful proposal to Mr McKillen’s creditors, and Mr McKillen’s adjudication
[21] Going further back to 2014, Mr McKillen was in financial difficulty. He hoped to avoid being adjudicated bankrupt. On 28 October 2014, Mr Horton was approached on Mr McKillen’s behalf by Lowndes Jordan1 concerning his potential appointment as provisional trustee for the purposes of preparing a proposal to Mr McKillen’s creditors and seeking the Court’s approval of the proposal under s 333 of the Insolvency Act 2006. Mr Horton promptly accepted the appointment and sent a letter recording his terms of engagement the next day, on 29 October. It is sufficient to note that:
(a)Mr Horton described his role as Provisional Trustee for Mr McKillen as a “business relationship”;
(b)The letter recorded that he was asked to act initially as provisional trustee, and subsequently (following High Court approval of the proposal) as trustee for the implementation of the proposal;
(c)While work was to be for the McKillen Family Trust No. 2, the work was ultimately for the benefit of Mr McKillen;
(d)A fair and reasonable fee was to be charged, being $450 per hour for services rendered by Mr Horton;
1 Lowndes first acted for Mr McKillen, who asked for Mr Horton to be approached as a possible provisional trustee. Now they are acting in this proceeding for Mr Horton. They also acted for FUB in the sale of company assets immediately prior to the liquidation.
(e)The terms were accepted by the trustees of the McKillen Family Trust No. 2, who signed and returned a copy of the letter to Mr Horton.
[22] Mr Horton agreed to have his name endorsed on the proposal when it was filed in Court (as required by s 327 Insolvency Act 2006) having determined which of the creditors’ claims would be admitted. The proposal recorded that Mr McKillen had debts and liabilities amounting to $33,803,509 but limited assets of $107,500; and it sought the creditors’ agreement to a compromise of his debts on the basis that certain creditors only would share in the proposed payment of just over three cents for every dollar owed.
[23] As required by ss 330 and 331 of the Insolvency Act 2006, Mr Horton put the proposal to Mr McKillen’s creditors and the requisite majority of creditors accepted the proposal, along with his appointment. Two creditors, Audrey Investments Ltd and the BNZ, refused to accept the proposal. Together they were owed over $6 million. The creditors who did accept the proposal included three trusts of which Mr McKillen was a trustee and beneficiary, and a company of which he was a shareholder and director. Mr McKillen’s combined liability to these entities was approximately
$24 million. Though they were not to participate in the payments proposed by Mr McKillen, their combined voting power was determinative in securing the creditors’ acceptance of the proposal.
[24] Mr Horton then set about applying to the Court for approval of the proposal under s 333 of the Insolvency Act 2006. Both creditors who refused to accept the proposal also opposed the application for approval.
Appeal against Mr Horton’s decision to admit to claims
[25] Audrey Investments also filed an appeal to the Court, pursuant to regulation 32 of the Insolvency (Personal Insolvency) Regulations 2007, against Mr Horton’s decision to admit the claims of some of the creditors who accepted the proposal. The claims appealed against were those of the related third-party creditors of Mr McKillen.
Consolidation of the appeal and application for approval of proposal to creditors
[26] The application for approval and the appeal were consolidated in a single proceeding and heard before Associate Judge Doogue. He issued his judgment on 11 December 2015.2
[27] Judge Doogue refused to approve the proposal. He found that a provisional trustee, taking a rational approach to the admission of claims in the insolvency for the purposes of approving a proposal to creditors, would not have admitted the claim of the largest related third-party creditor, whose claim stood at $23.6 million. This was because the claim form submitted by the creditor did not comply with the mandatory requirements of regulation 12 of the Insolvency (Personal Insolvency) Regulations 2007, in that it did not provide sufficient evidence of the debt, including how and when the debt was incurred.
[28] Judge Doogue went on to hold that in terms of s 333, grounds existed to refuse to approve the proposal, stating:3
[67] It is not at all clear that, in these circumstances, the Proposal is reasonable or calculated to benefit the general body of creditors. There is reason to suppose, in my view, that the insolvent and related parties have used their voting power to attempt to foist on the minority creditors an arrangement which is contrary to the interests of the latter.
Discussion
First issue – was the appointment of Mr Horton as liquidator valid?
[29]Section 280(1)(cb) states:
280 Qualifications of liquidators
(1)Unless the court orders otherwise, none of the following persons may be appointed or act as a liquidator of a company:
…
(cb)a person who has, or whose firm has, within the 2 years immediately before the commencement of the liquidation,
2 Horton v McKillen [2015] NZHC 3134.
3 At [67].
had a continuing business relationship (other than through the provision of banking or financial services) with the company, its majority shareholder, any of its directors, or any of its secured creditors, unless, within 20 working days before the appointment of the liquidator, the board of the company resolves that the company will, on the appointment of the liquidator, be able to pay its debts and a copy of the resolution is delivered to the Registrar for registration:
…
[30] For a person to contravene the foregoing section they must have been in a continuing business relationship:
(a)With any of the named persons (in this scenario “any of its directors”);
(b)Within the period of two years immediately prior to the commencement of the liquidation.
[31] Whether the relationship between the liquidator and a director can be described as a “continuing business relationship” for the purposes of s 280(1)(cb) depends on the circumstances of the case.
[32] In the present circumstances, I am not persuaded by the argument for the liquidator that no disqualifying relationship existed in terms of s 280. Rather, I am satisfied that there must have been a continuing business relationship between Mr Horton and Mr McKillen within the proscribed period.
[33] Tellingly, Mr Horton described his relationship with Mr McKillen in his letter of acceptance of appointment as provisional trustee, as a “business relationship”. Such a description is plainly right. It was his professional responsibility to manage the proposal of Mr McKillen through the approval process and he provisionally agreed to give effect to the proposal as trustee when and if the Court approved it. Pursuant to the terms of his engagement, for these services he was to be handsomely rewarded for his services as an experienced insolvency practitioner.
[34] Mr Horton claims that he did not have much involvement with the proposal between the filing of the application for approval and the Court’s decision. Counsel for Mr Horton also submitted that the relationship in fact went into abeyance and did not continue after the hearing of the application (it took place on 22 June and 21 September 2015). Even accepting there were times when Mr Horton’s involvement was minimal that does not mean the relationship did not continue or was terminated. Mr Horton’s status and responsibilities as provisional trustee obviously continued until the Court’s decision to refuse approval to the proposal was issued in December 2015. It was only then that Mr Horton’s engagement ceased and he submitted a final account to cover his unpaid work to that point.
[35] The relationship therefore continued for a period of approximately 13 months between October 2014 and the release of Associate Judge Doogue’s judgment on 11 December 2015, only coming to an end when the court refused to approve the proposal.
[36] Mr McKillen was a director of FUB within the 2 year proscribed period, which runs backwards from 19 May 2017 to 19 May 2015. Mr Horton’s engagement as provisional trustee extended for approximately 6 months within that period, from May 2015 to December 2015. His role as Mr McKillen’s provisional trustee, and as his prospective trustee, was intended to keep Mr McKillen out of bankruptcy and to enable him to continue to be involved in the running of FUB and to retain his directorship. Such services are services to a director of FUB and rendered Mr Horton ineligible for appointment as liquidator, without first obtaining the Court’s permission when FUB went into voluntary liquidation on 19 May 2017. The fact that certain events occurred before the date of Mr Horton’s agreement to act as liquidator of FUB (Mr McKillen’s resignation as director approximately 13 months beforehand, and the cessation of Mr Horton’s engagement as provisional trustee approximately four months before that) does not legitimize his breach of s 280(1)(cb) of the Act.
[37] I also do not accept the kernel of an argument made by counsel for Mr Horton, that Mr Horton had not provided services of any kind to a director of FUB. This was presumably on the basis that Mr McKillen resigned as director on
17 March 2016 which was prior to Mr Horton’s appointment as liquidator on 19 May 2017. The argument lacks any merit.
[38] As Mr Vincent points out, much of the force of the section would be nullified if a director could resign from his or her position within the 2-year proscribed period prior to the liquidation, so as to be deemed to not be a director of the relevant company, thereby allowing a liquidator who would otherwise have a potential conflict of interest to accept appointment.
The second issue – should the Court order that Mr Horton be allowed to continue to act as liquidator?
[39] The further issue for the Court to determine is whether it should exercise its discretion under s 286(4)(b) of the Act to allow Mr Horton to continue to act as liquidator notwithstanding that his appointment breached s 280(1)(cb). Section 286(4) provides that:
…
(4)A court may, in relation to a person who fails to comply with an order made under subsection (3), or is or becomes disqualified under section
280 to become or remain a liquidator,—
(a)remove the liquidator from office; or
(b)order that the person may be appointed and act, or may continue to act, as liquidator, notwithstanding the provisions of section 280.
…
[40] The starting point for considering whether, in circumstances where a breach of s 280(1)(cb) has been found, the Court should exercise its discretion to allow the liquidator to continue to act (or conversely to be removed) is the statement of principle of Associate Judge Abbott in Re Joeleen Enterprises Ltd. His observations are apposite in the present case.
[41]He stated:4
There is no definition of “a continuing business relationship” in the Act. The cases I have just reviewed indicate that the Court will decide on the circumstances of each case whether there is such a relationship, and whether it is of such a nature and degree that a person should not be appointed. The Court will have particular regard to whether the person or persons seeking appointment (or continuation of an appointment) have a direct relationship or whether it is merely by virtue of their involvement in a firm. It will clearly be a relevant consideration whether or not any other member of the firm could have a role in the decisions or administration of the liquidation.
[42]He continued:5
I remain of the view expressed in Icon Digital Entertainment Limited that the critical issue in considering whether the danger of conflict of interest exists due to a continuing business relationship (however that might be defined) is whether there is a risk that the applicant’s independence and ability to carry out her or his task professionally and effectively could be compromised in the particular circumstances of the case. I come to the view on the facts of the present case that the provision of services to secured creditors by other members of the firm will not have this effect if those providing the services are not involved in the liquidation.
[43] In this case, the relevant relationship was not merely by virtue of Mr Horton’s involvement in a firm, unlike in the case of Re Inglis & Co Ltd. In that case the liquidators sought leave of the Court prior to their appointment on the basis that the firm at which they were employed provided services to the Bank of New Zealand, a secured creditor in the liquidation6. In giving leave, Associate Judge Gendall was influenced by the fact that the firm was a large organisation, providing unrelated services to the Bank, none of which implicated the company in liquidation, its directors or its shareholders. He was satisfied on this basis that there was no more than a mere theoretical possibility of a conflict of interest affecting the liquidators’ independence as the relationship between the liquidators’ firm and the Bank did not go far enough “towards a conclusion that the applicants will lack the independence and integrity needed to carry out their role…”7
[44] Looking at the facts of the present case, Mr Horton’s relationship with Mr McKillen was considerably closer. He was personally and directly involved with
4 Re Joeleen Enterprises Ltd HC New Plymouth CIV-2008-443-0485, 3 October 2008 at [15].
5 At [18].
6 Re Inglis & Co Ltd HC Wellington CIV-2009-485-1336, 16 July 2009.
7 At [25].
Mr MacKillen’s proposal, shepherding it towards approval and implementation. In that role Mr Horton was intimately involved in the attempt to limit the latter’s exposure to his personal creditors and protecting his right to continue to participate in the running of the company.
[45] The fact that Mr McKillen has since been adjudicated does not remove the potential for conflict. Indeed, there is ample room for conflict between the interests of a former director in bankruptcy (including his related interests) and the creditors of the insolvent company. The liquidator may for example have reason to look closely at pre-liquidation transactions such as the sale of company assets to related interests or the payment of sale proceeds to a director. It is true that when Mr Horton came to be appointed as liquidator some 18 months had passed since he had ceased acting as Mr McKillen’ trustee, and I accept that the time lapse is a factor weighing potentially in his favour. But it cannot be determinative, or the Act would not require the Court’s approval within the 2-year period.
[46] Moreover, the question as to why Mr Horton failed to conscientiously take the necessary step of satisfying the Court that there was in fact no real conflict, prior to accepting appointment, remains unanswered by any convincing explanation. That failure is a concern because Mr Horton, a self-confessed professional liquidator with considerable experience, was required to and in fact did certify his eligibility pursuant to s 280(4) of the Act. He had to have known about his obligation to seek Court approval in situations of conflict, and in light of the foregoing, it would have been beyond prudent for him to do so. That he did not seek approval inevitably leaves open the suspicion that the personal interests of Mr McKillen, and those associated with him, may influence the conduct of the liquidation inappropriately. The liquidator is an officer of the Court and must not only be impartial, but must also appear to be, so as to avoid unduly attracting suspicion about the liquidator’s partiality.
[47] Further, in this case there are added reasons for concern. As Judge Doogue found, when acting as provisional trustee, the creditors’ proposal demonstrated partiality to Mr McKillen and related interests over those of other creditors, and Mr Horton’s admission of related third-party creditor’s claims was not wholly rational or fair. When findings of such a kind are coupled with a failure to obtain permission
to act as liquidator, a suspicion of partiality is anything but dampened. On the contrary, it is inevitably heightened.
[48] The fact that it was Mr McKillen, a bankrupt former director of the Company who had previously engaged Mr Horton’s services as his provisional trustee, who initially approached Mr Horton to act as the Company’s liquidator, exacerbates the concern about partiality. Mr Fine’s involvement by formalising the request made by Mr McKillen, compounds the concern.
[49] A further factor is the way Mr Horton initially dealt with claims in the liquidation. He was quick to reject a claim from the landlord for the Company’s rent, and a claim for holiday pay owed to Mr Keatley. Though he subsequently accepted the claims were clearly owing, averting the need for a defended hearing on them, it was only after the claimants had been put to the time and cost of issuing proceedings, and made their discovery of the prior disqualifying relationship, that he was willing to concede he may have been wrong in his wholesale rejection. I do not dismiss Mr Horton’s contention that the claimants did not initially provide sufficient information to support their claims in the liquidation of FUB – that may be right – but I cannot dismiss the alternatives. It is simply unsafe to rule out the possibilities that he was entrenched in his refusal, not only because he favoured Mr McKillen’s advice, but because he was truly over-zealous in preferring it, only thinking twice about the rejection of the claims when faced with legal proceedings.
[50] I add a word or two about the association between Mr McKillen and Mr Fine, who formally approved Mr Horton’s appointment as liquidator (ostensibly under instruction from the incumbent directors but clearly with some involvement from Mr McKillen). Both seem to have given expression to a grudge against Mr Keatley – Mr Fine by his involvement in the name change of the company to FUB, and Mr McKillen by opposing the claim for Mr Keatley’s holiday pay in an overtly vigorous and aggressive manner (by sending an email to Mr Horton entitled “Bruce Keatley Waipak fraud”). The email has not been produced, but in a reply email Mr Horton refers to it and appears to accept the fraud details provided as justifying refusal of the holiday pay claim. If Mr McKillen and Mr Fine have an axe to grind with Mr Keatley, their role in Mr Horton’s appointment and assistance to him in
assessing creditor’s claims in the liquidation casts suspicion over whether Mr Horton is sufficiently independent from Mr McKillen and Mr Fine to remain uninfluenced by the pressure they might attempt to exert.
[51] Based on the foregoing, I am not able to accept counsel for Mr Horton’s submission that, as Mr Horton is an experienced respected liquidator who understands his responsibilities, the risk of conflict is trivial. Reliance on a liquidator’s experience and standing does not of itself adequately address the question whether there is in fact a risk of compromise to his or her independence that is no more than trivial (and therefore whether the court can safely put to one side doubts when exercising its discretion to put aside a prima facie disqualification). In some cases, it may well be that such experience, when taken with other pertinent factors, is sufficient to demonstrate that any concern about partiality is minimal or theoretical, as in Re Inglis. This is not such a case. The potential for conflict arising from the prior continuing business relationship that Mr Horton had with Mr McKillen, cannot be so readily brushed to one side.
[52] There is to my mind, cause for an appreciable concern that Mr McKillen seeks to exert influence over Mr Horton and that Mr Horton may by reason of the past relationship be careless of the need to act in the interests of the whole body of creditors. There remains the lingering possibility that Mr Horton lacks the necessary independence and objectivity to so act. Whether Mr Horton is affected in this way, or is able to resist improper influence, is not something I can, or am required to, determine definitively on the evidence; but the fact that concerns exists goes to the heart of the Court’s exercise of discretion. Creditors are entitled to be assured that the liquidator’s impartiality is not placed at risk by non-compliance with the limitations placed on appointment.
[53] For the present, the disputes between Mr Horton and Just Beverages and the Bearsley Trust have been resolved, and arguably on that basis there might not be an ongoing risk that Mr Horton will prejudice the interests of some creditors, but it is common ground there is still much left to be done in the liquidation. One of the directors, Belinda Somerville, is said to have significant unpaid share capital; and Mr McKillen is said to have indirect interests in the Company via several trusts
(of which Mr Fine is a trustee), as well as personal shares in the Company. Mr Sanson argues that the necessary review of these and other matters necessitates the involvement of a liquidator who has no apparent conflict. I accept he is right about that.
[54] Weighing the various factors, Mr Horton has not satisfied me that that I should exercise my discretion to permit him to continue as liquidator of FUB despite his breach of s 280(1)(cb) of the Act.
Result
[55] I find that the appointment of Mr Horton as liquidator was in breach of s 280(1)(cb) of the Act. I decline the application to declare otherwise, pursuant to s 284(1)(b) of the Act.
[56] I am also not satisfied that there is no real risk that his actions as liquidator will be free of the risk of conflict, such that I should exercise the court’s discretion to allow him to continue as liquidator. His application for an order under s 286(4)(b) is therefore also declined.
[57] I note that Mr Sanson in his affidavit and Mr Vincent in submissions have deposed that there is a neutral liquidator ready to take over from Mr Horton.
[58] I think however, that the proper course in the circumstances, given the high level of suspicion that has affected the relationships of the directors and the creditors, is to appoint the Official Assignee as liquidator.
[59]I therefore make ancillary orders:
(a)Removing Mr Horton from the office of liquidator pursuant to s 286(4)(a) of the Act; and
(b)Appointing the Official Assignee as liquidator. The appointment takes effect from 3pm on the date of the issue of this judgment.
[60] As costs follow the event, it is my provisional opinion that the applicants to this proceeding are entitled to the costs of and incidental to the interlocutory application on a 2B basis. If counsel are unable to agree to this then they may file and serve memoranda within five working days.
Associate Judge Sargisson
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