Khov v NZDMG Limited (in receivership and in liquidation)

[2022] NZHC 1563

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-980

[2022] NZHC 1563

UNDER

Parts 7 and 9 of the High Court Rules 2016 and Part 16 of the Companies Act 1993

IN THE MATTER OF

The liquidation of all or any of NZDMG (IN RECEIVERSHIP AND IN LIQUIDATION), NZDMG APPLIANCE LIMITED (IN

RECEIVERSHIP) and HERA LIMITED
into liquidation

BETWEEN

STEVEN KHOV

Licensed Insolvency Practitioner First Applicant

KIERAN MICHAEL JONES

Licensed Insolvency Practitioner Second Applicant

(continued over page)

On the papers
Counsel:	N R Frith and S Pike for the applicants
Judgment:	1 July 2022

JUDGMENT OF TOOGOOD J

This judgment was delivered by me on 1 July 2022, at 3:30 pm Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar  Date……………………………..

Solicitors/Counsel:
Minter Ellison Rudd Watts, Auckland

KHOV v NZDMG LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) [2022] NZHC 1563 [1 July 2022]

AND

NZDMG LIMITED (IN RECEIVERSHIP

AND IN LIQUIDATOIN), a duly registered company having its registered office at

59 Apollo Drive, Albany, Auckland First Respondent

NZDMG APPLIANCE (IN

RECEIVERSHIP), a duly registered

company having its registered office at Level 18, 80 Queen Street, Auckland Second Respondent

HERA LIMITED, a duly registered company having its registered office at 11 Vestey Drive, Mount Wellington, Auckland

Third Respondent

[1]                  On 6 May 2022, licensed insolvency practitioners Steven Khov and Kieran Michael Jones were appointed liquidators of NZDMG Limited (6426452) (NZDMG). They apply for orders under s 286(4)(b) of the Companies Act 1993 (the Act) permitting them to be appointed as liquidators of NZDMG’s wholly owned subsidiary companies, NZDMG Appliance Limited (6279688) (Appliance) and HERA Limited (6280321) (HERA).

[2]                  The applicants seek leave to bring the proceeding by originating application without notice.

Reason for application

[3]                   The applicants are concerned that they may be disqualified from being appointed as liquidators of the subsidiaries by s 280 of the Act.

Statutory scheme

[4]Section 280 relevantly provides:

280     Who may be appointed as liquidator

(1)A person may be appointed as a liquidator of a company if the person is—

(a)a licensed insolvency practitioner (or, if section 243A applies to the company, a licensed insolvency practitioner or any other person described in section 68(1) of the Insolvency Practitioners Regulation Act 2019); and

(b)permitted to act as a liquidator of the company under the Insolvency Practitioners Regulation Act 2019; and

(c)not disqualified under subsection (2).

(2)Unless the court orders otherwise, the following persons are disqualified from being appointed or acting as a liquidator of a company:

(a)…

(h)a person who has, or whose firm has, within the 2 years immediately before the commencement of the liquidation,—

(i)provided professional services to the company; or

(ii)had a continuing business relationship with the company, its majority shareholder, or any of its directors, or with any of the company’s shareholders that (under its constitution or any other agreement) have a power to appoint or remove a director of the company. …

[5]                  Section 286(4)(b) of the Act provides, however, that the Court may, in relation to a person who is disqualified under section 280 to become or remain a liquidator, order that the person may be appointed and act as liquidator, notwithstanding the provisions of section 280.

Application to bring originating application without notice

[6]                  I am satisfied that under r 7.23 of the High Court Rules 2016, the application may be made without notice because requiring the applicants to proceed on notice would cause them undue delay or prejudice. In that regard, I adopt, with respect, the observations of Lang J in Re Grant:1

Without notice applications will be appropriate where there is urgency and the interests of creditors can be protected. The Court will often direct the successful applicants to serve both the application and the order made by the Court on creditors at the same time and in the same manner as notice is given for the first creditors meeting.

[7]                  I accept that it would be costly, cumbersome and cause delay to require service on all creditors of NZDMG and its subsidiaries, recognising that not all creditors of the subsidiaries are yet known. The applicants say that if the application is granted, notice of the application will be given to known creditors of the Company and its subsidiaries together with the first liquidators’ report.

[8]                  I am also satisfied that it is appropriate, as is commonly done in cases such as this, to permit the proceeding to be brought by way of originating application under  r 19 of the Rules.2

1      Re Grant [2019] NZHC 2423 at [6].

2      High Court Rules 2016, r 19.5(1); and see Re Joleen Enterprises Limited ex parte Blanchett HC New Plymouth CIV-2008-443-495, 3 October 2008 at [4].

The substantive application

[9]                  Having considered Mr Khov’s affidavit in support of the applications and the helpful memorandum filed by Mr Frith, I am satisfied on the merits of the application that:

(a)neither of the applicants has had any prior connection with the shareholders and directors of NZDMG or the subsidiaries;

(b)there is no reason that would preclude their appointment as liquidators of the subsidiaries other than that their appointment as liquidators of NZDMG may be regarded as having had a continuing business relationship with the director and shareholder of the subsidiaries;

(c)there is no perceptible risk that would compromise the independence of the applicants or their ability to discharge their obligations to act independently, professionally and efficiently;3

(d)the best interests of the creditors of NZDMG and its subsidiaries would be served by appointing the same liquidators over the entire group of companies and that this will enable the liquidation of NZDMG and the subsidiaries to be conducted on an expedient and cost-effective basis; and

(e)the appointment of the applicants will not compromise the independence, competence and integrity of the liquidators to carry out their roles or cause risk to the creditors or third parties.4

3      The applicants are subject to oversight and regulation by the Restructuring Insolvency and Turnaround Association of New Zealand and its Code of Conduct, and by Chartered Accountants Australia and New Zealand and its Code of Ethics.

4      Re Bridgman [2016] NZHC 933 at [9]; Re Grant above n 1, at [5].

Decision

[10]For these reasons, I make orders that:

(a)leave is granted to commence this proceeding by way of originating application;

(b)leave is granted to proceed without notice with the originating application;

(c)the applicants are permitted to act as liquidators of the second and third- named respondents pursuant to s 286(4) of the Act;

(d)upon appointment of the applicant as liquidators of the second and third-named respondents, a copy of the originating application together with the sealed orders is to be served on all known creditors of the relevant respondent at the same time and in the same manner as the liquidators’ first report under s 255 of the Act; and

(e)the creditors of the second and third-named respondents that are placed into liquidation pursuant to the leave granted in these orders are granted leave to apply to the Court within 10 working days of service to set aside the applicants’ appointment as liquidators of the corresponding respondent.

Toogood J