Kocaturk v Zara's Turkish Limited (in liquidation)

[2020] NZHC 3124

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE

CIV-2020-442-52

[2020] NZHC 3124

BETWEEN

IBRAHIM KOCATÜRK and GÜLER KOCATÜRK
Applicants

AND

ZARA’S TURKISH LIMITED (IN LIQUIDATION)

Respondent

Teleconference:

23 November 2020

Counsel:

A Sharma for applicants

S Galbreath for respondent

Judgment:

25 November 2020

JUDGMENT OF DOBSON J

[1]                 This judgment deals with an application brought under s 248 of the Companies Act 1993 for an order granting the applicants leave to continue Employment Court proceedings against the respondent in liquidation. Those proceedings were adjourned part-heard shortly before the respondent company passed into liquidation.

[2]Section 248 provides as follows:

248     Effect of commencement of liquidation

(1)With effect from the commencement of the liquidation of a company,—

(a)the liquidator has custody and control of the company’s assets:

KOCATÜRK v ZARA’S TURKISH LIMITED (IN LIQ) [2020] NZHC 3124 [25 November 2020]

(b)the directors remain in office but cease to have powers, functions, or duties other than those required or permitted to be exercised by this Part:

(c)unless the liquidator agrees or the court orders otherwise, a person must not—

(i)commence or continue legal proceedings against the company or in relation to its property; or

(ii)exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property of the company:

(d)unless the court orders otherwise, a share in the company must not be transferred:

(e)an alteration must not be made to the rights or liabilities of a shareholder of the company:

(f)a shareholder must not exercise a power under the constitution of the company or this Act except for the purposes of this Part:

(g)the constitution of the company must not be altered.

(2)Subsection (1) does not affect the right of a secured creditor, subject to section 305, to take possession of, and realise or otherwise deal with, property of the company over which that creditor has a charge.

(3)This section is subject to section 139J(1) to (3) of the Reserve Bank of New Zealand Act 1989.

[3]                 The applicants are former employees of the respondent. In September 2017, the Employment Relations Authority (the Authority) awarded them remedies for unpaid wages owed to them by the respondent. The respondent sought a stay of orders made by the Authority, and on 29 November 2017 the Employment Court directed the amounts of the awards were to be paid into the Crown account under the control of the Employment Court registrar.

[4]                 Since that time, there have been protracted proceedings before the Employment Court, with the applicants pursuing additional claims for holiday pay and other allegedly unpaid items, and the respondent disputing liability. The hearings have been unusually protracted by the requirement for interpreters. On Ms Sharma’s estimation, she sees the remaining evidence for the applicants’ case would take a little less than a further week of hearing.

[5]                 Unbeknown to the applicants, as long ago as 2017 the respondent ceased trading. The directors/shareholders sold the undertaking to a company controlled by their son, and he has continued to operate the business, ostensibly as before, from the same premises.

[6]                 On 8 September 2020, the shareholders of the respondent resolved to put that company into voluntary liquidation. Mr Geoff Falloon was appointed liquidator and 10 days later he notified the applicants of the liquidation and of his appointment. A resumed hearing that was then scheduled was adjourned, given the liquidator’s indication that he would not consent to the proceeding continuing against the company in liquidation.

[7]                 The applicants see the directors/shareholders of the respondent as vehemently opposed to paying them the amounts to which they are entitled as employees, and that they are prepared to undertake all possible manoeuvres to obstruct recoveries. On their behalf, Ms Sharma characterises the voluntary liquidation as a device that is part of the employers’ unjustified antipathy towards the applicants who have been placed under substantial pressure by the respondent’s failure to pay them what they claim is due. Ms Sharma instances the fact that the trading entity was substituted when the dispute was well underway, and the absence of any warning to them that the respondent had ceased trading whilst resources were being provided to it for extensive legal initiatives in opposing their claims. Ms Sharma submits that it would be a miscarriage of justice if they were not entitled to proceed and obtain whatever judgment the Employment Court gives them to vindicate their rights as employees.

[8]                 Ms Sharma submitted that the relative importance of employees’ claims against a company is reflected in their statutory priority on a company’s liquidation. In his limited response on behalf of the liquidator, Mr Galbreath questioned whether, in the present circumstances, the applicants would be entitled to preferential treatment given that their claims are for employee entitlements four or more years ago.

[9]                 One consideration under s 248 is whether pursuit of a claim against a company in liquidation would be futile: a liquidator ought not to be required to divert resources into defending a claim if there is not likely to be a source of funds to meet any

judgment against the company. Ms Sharma submitted that the prospects of attributing personal liability to the directors for the extent of the judgment in the circumstances she outlined could not be dismissed. Mr Galbreath countered that an application to join the directors as parties to the Employment Court proceedings had previously been dismissed.

[10]              Given the circumstances in which the company has passed into liquidation, I am not prepared to dismiss the prospect of a solvent entity being rendered liable for whatever Employment Court judgments are obtained. The current, inevitably provisional, status of the assets and liabilities of the company in liquidation is also not decisive against the prospect of a meaningful recovery for the applicants.

[11]              In other respects, the circumstances in which the company has passed into liquidation, the conduct of the directors (which Mr Galbreath was not in a position to respond to in substantive detail) and the point that had been reached when the shareholders put the respondent into liquidation, all point in favour of leave being granted.

[12]              I am satisfied that it is an appropriate case and accordingly grant the leave sought. The applicants are entitled to costs against the company in liquidation for the costs of this proceeding, on a scale 2B basis.

Dobson J

Solicitors:

Anjela Sharma, Nelson for applicants Duncan Cotterill, Nelson for respondent