Kroll v Envirocon Limited

[2025] NZHC 497

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-000949

[2025] NZHC 497

UNDER

the Companies Act 1993

IN THE MATTER OF

an application under s 178 of the Companies Act 1993

BETWEEN

JULIAN ANDREW KROLL

Applicant

AND

ENVIROCON LIMITED

Respondent

Hearing:

9 October 2024

Appearances:

W Alexander for the Applicant

T Nelson and C Fraser for the Respondent

Judgment:

13 March 2025

JUDGMENT OF WALKER J

This judgment was delivered by me on 13 March 2025 at 2 pm Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:

Norling Law Limited, Auckland Morrison Partners, Auckland

KROLL v ENVIROCON LIMITED [2025] NZHC 497 [13 March 2025]

[1]    The applicant, Julian Kroll, was a 16 per cent shareholder in Envirocon Limited (Envirocon), a manufacturer of precast concrete modular wall systems. Mr Kroll purchased his shareholding with a loan advanced by the trustees of the Russell Family Trust (the Trust) who are the majority shareholders in Envirocon. The advance to  Mr Kroll is recorded in a loan agreement dated 28 February 2018.

[2]    Mr Kroll resigned as director on 16 May 2023 and indicated that he no longer wished to be a shareholder. A dispute then arose as to Mr Kroll’s entitlement to fair value for the shares. The trustees contend that the fair value provisions in the shareholder agreement are not applicable in the circumstances.

[3]    On 22 August 2023, Mr Kroll first requested information from Envirocon under s 178 of the Companies Act 1993 (the Act). He was still a shareholder at that time. His stated purpose in seeking the information was to value his shareholding so that he could transfer his shares to Envirocon, or to a third party, subject to the pre-emptive rights of other shareholders in Envirocon.

[4]    He contends that Envirocon provided very limited documentation in response and ultimately refused his request for information. Envirocon’s position is that it provided a draft valuation report prepared by Grant Thornton Financial Advisory Services1 and financial statements for the financial year end (FYE) of 31 March 2023. The refusal to provide other requested material was on the basis, among other things, that the information he was seeking was commercially sensitive and confidential or did not exist. The commercial sensitivity appeared to be predicated initially on a concern that Mr Kroll may be undertaking consultancy work or intending to do so for competitors, customers or suppliers and subsequently, because Mr Kroll provided the Grant Thornton draft report and financial statements to a business valuer without the consent of the other shareholders.

[5]    Mr Kroll made a second information request on 20 December 2023 seeking read-only access to Xero, the final FYE 2023 financial statements, the final version of

1      The (indicative) valuation report was dated March 2022 and based on financial information to  31 January 2022.

the Grant Thornton valuation report, and a BNZ forecast prepared by another director of Envirocon to secure funding.

[6]    Envirocon declined to provide the requested information for the same reasons previously relied on, including that there is no final valuation report however it did provide Mr Kroll with full management account statements through to the end of 2023. It says that it did so for pragmatic reasons to try to find a way through the dispute.

[7]    Faced with Envirocon’s refusal to provide all of the information he was requesting, Mr Kroll filed an application on 10 April 2024 seeking orders to make eight detailed categories of information available to him2 and/or to an authorised court-appointed (named) inspector who would then make a full report to the Court,3 and seeking leave to commence the application by way of originating application.

[8]    On 8 May 2024, the trustees of the Trust took possession of Mr Kroll’s shareholding under the security terms of the loan agreement and removed him as shareholder of Envirocon.

[9]    Envirocon originally opposed leave to proceed by way of originating application. Various grounds of opposition were advanced. The leave application was heard on 7 August 2024 before Whata J. Mr Kroll advised the Court then that he intended to narrow the scope of information he was seeking because of his removal as a shareholder. The Court invited the parties to seek instructions about whether there could be resolution on a more limited basis together with orders dealing with commercial sensitivity to address Envirocon’s stated concerns.4

[10]   Mr Kroll revised his application by limiting the scope of information he was seeking to three categories only and proposing confidentiality protections restricting the provision of information to an independent accountant for the purpose solely of valuing Mr Kroll’s former shares in Envirocon (subject to certain practical exceptions). He also withdrew his application under s 179 of the Act, reserving his

2      Companies Act 1993, s 178.

3      Section 179.

4      Kroll v Envirocon Limited HC Auckland CIV-2024-404-000949, 7 August 2024. (Minute No 1 of Whata J).

right to later proceed under s 179, if necessary. Consequently, Envirocon consented to leave to proceed by originating application.5

[11]That resolved the question of leave to proceed by originating application.6

[12]   This judgment determines the application seeking orders under s 178 of the Act.

[13]   The question before the Court now is whether Envirocon is required to provide the information Mr Kroll seeks. There is by necessity a preliminary gateway issue — whether Mr Kroll has standing to proceed.

The information

[14]   Three categories of company records and information are sought in this application:

(a)financial statements for FYE 31 March 2024;

(b)full (read-only) Xero access from April 2023 to an independent accountant on provision of confidentiality undertakings; and

(c)a final version of the Grant Thornton indicative valuation report (which the respondents deny exists).

[15]   As noted, this is much reduced from the eight categories of access originally sought.

Issues

[16]The issues before the Court can be conveniently distilled as:

5      Joint memorandum of counsel dated 13 August 2024.

6      Orders given by minute of Whata J for leave to proceed by originating application as sought by (joint) consent. Kroll v Envirocon Limited HC Auckland CIV-2024-404-000949, 14 August 2024 (Minute No 3 of Whata J).

(a)The standing issue.

(b)Whether seeking the information for the  purpose  of  valuation  of  Mr Kroll’s shares is a proper purpose under s 178.

(c)Whether Envirocon was justified in refusing his original request for information on the basis that:

(i)the information is commercially sensitive (and relatedly why such commercial sensitivity cannot be adequately overcome by the proposed confidentiality regime); and

(ii)the information does not exist.

Legal principles

[17]Section 178 of the Act relevantly provides that:

178     Information for shareholders

(1)A shareholder may at any time make a written request to a company for information held by the company.

(2)The request must specify the information sought in sufficient detail to enable it to be identified.

(3)Within 10 working days of receiving a request under subsection (1), the company must either—

(a)provide the information; or

(b)agree to provide the information within a specified period; or

(c)agree to provide the information within a specified period if the shareholder pays a reasonable charge to the company (which must be specified and explained) to meet the cost of providing the information; or

(d)refuse to provide the information specifying the reasons for the refusal.

(4)Without limiting the reasons for which a company may refuse to provide information under this section, a company may refuse to provide information if—

(a)the disclosure of the information would or would be likely to prejudice the commercial position of the company; or

(b)the disclosure of the information would or would be likely to prejudice the commercial position of any other person, whether or not that person supplied the information to the company; or

(c)the request for the information is frivolous or vexatious.

(5)If the company requires the shareholder to pay a charge for the information, the shareholder may withdraw the request, and is deemed to have done so unless, within 10 working days of receiving notification of the charge, the shareholder informs the company—

(a)that the shareholder will pay the charge; or

(b)that the shareholder considers the charge to be unreasonable.

(6)The court may, on the application of a person who has made a request for information, if it is satisfied that—

(a)the period specified for providing the information is unreasonable; or

(b)the charge set by the company is unreasonable,—

as the case may be, make an order requiring the company to supply the information within such time or on payment of such charge as the court thinks fit.

(7)The court may, on the application of a person who has made a request for information, if it is satisfied that—

(a)the company does not have sufficient reason to refuse to supply the information; or

(b)the company has sufficient reason to refuse to supply the information but that other reasons exist that outweigh the refusal,—

make an order requiring the company to supply the information.

(8)Where the court makes an order under subsection (7), it may specify the use that may be made of the information and the persons to whom it may be disclosed.

(9)On an application for an order under this section, the court may make such order for the payment of costs as it thinks fit.

[18]   This Court is empowered to resolve disputes between requesting shareholder and company on three different issues:7

7      Wells v Mega-Merger Housing Ltd (2005) 9 NZCLC 263,727 (HC) at [25].

(a)Entitlement to the information.

(b)Payment of any charge for the information requested.

(c)Use to which information supplied may be put.

[19]   Section 178(4) sets out a non-exhaustive list of reasons for properly refusing to provide such requested information including that:

(a)the disclosure of the information would or would be likely to prejudice the commercial position of the company; or

(b)the disclosure of the information would or would be likely to prejudice the commercial position of any other person, whether or not that person supplied the information to the company.

Analysis

Does Mr Kroll have standing to make the application?

[20]   A condition precedent to an application under s 178 is that “a shareholder [must] have made a written request for information held by the company.”8 This requirement is clearly satisfied because Mr Kroll’s solicitors sent a request for information to Envirocon dated 22 August 2023. At the time of sending the request he was a shareholder.

[21]   Counsel advise that there does not appear to be an authority on the question of standing for a former shareholder who was a shareholder at time of request but is no longer one at the time of hearing the application, and my own research has not turned up any case in this jurisdiction.

8      Kelly v Kelly Construction (2002) Limited [2020] NZHC 458 at [11].

[22]    Mr Nelson, on behalf of Envirocon, submits that s 178(7) implicitly requires that an applicant must have been and remain a shareholder, notwithstanding that it frames the right to apply in terms of “a person who has made a request”, because:

(a)the text of s 178 is generally directed at current shareholders;

(b)the Act expressly refers elsewhere to “former shareholders” when the intention is to confer rights on former shareholders;

(c)the purpose of s 178 is to ensure that those in control of a company are accountable to shareholders and that purpose is inapplicable to former shareholders; and

(d)no injustice results since a (former) shareholder who considers their shareholding has been wrongly taken has remedies under s 174 and the ability to obtain documents through established discovery processes (including potentially non-party or pre-commencement discovery).

[23]   In the alternative, should there be standing, Mr Nelson submits that access should be limited to documents existing at the date of Mr Kroll’s original requests or at the latest, the date on which he ceased to be a shareholder (8 May 2024). The evidence filed is that the FYE 2024 financial statements had not yet been completed by those dates and there is  no “final” Grant Thornton valuation  report.   Finally,  Mr Nelson points to the evidence that the Xero access cannot be limited by date range, so the request is unworkably broad in practice.

[24]    Ms Alexander, for Mr Kroll, submits that the clear and unambiguous wording of the section entitles Mr Kroll as a “person” who made a written request at the time of being a shareholder, both to bring the original application and the revised application before the Court.

[25]   She submits that if the intention was that this mechanism was available only to current shareholders, then it would have used that expression or referred to “shareholder”. She points to other provisions of the Act, including s 178(1) where the

word shareholder is specifically used to denote that only a shareholder can request information.

[26]   She submits that this retrospective entitlement enables the Court to determine whether Envirocon was, as at August 2023, justified in refusing to provide the information to Mr Kroll at the time in which he was a shareholder. This, she says, is consistent with the overarching purpose of s 178 to ensure that “those in control of the company… are accountable to the shareholders.”9 She says that it would be inappropriate to permit Envirocon’s removal of Mr Kroll via the majority shareholders (the trustees of the Trust), thereby depriving him of the rights he had as a shareholder. She characterises Envirocon’s actions as strategic interference with Mr Kroll’s rights at the time he was a shareholder and thus with the policy behind s 178.

[27]   Section 178 of the Act confers on shareholders the right to request information held by the company, enforceable by an application to the court if the request is refused. It was first introduced by the Companies Act 1993 following recommendations made by the Law Commission which recommended significant changes to the company law regime in New Zealand.10

[28] The forerunners of ss 178 and 179 of the Act are found in cls 138 and 139 of the draft legislation recommended by the Law Commission. They were based on Australian legislation then in force: ss 265B and 265C of the Companies Act 1981 (Cth). That legislation has since been repealed and the current provisions are found at ss 247A-247D of the Corporations Act 2001 (Cth). Clause 138 of the proposed draft legislation did not refer to “a person who has made a request”. It referred instead to “[a] shareholder aggrieved by the decision of a company in relation to a request for information may apply to the Court for relief…”.

[29]   Between the Law Commission recommended draft and the first reading of the Bill in Parliament, the wording changed to “a person who made the application”. There is no discussion in the explanatory notes to the Bill as to the reason for or effect of the change, and the Hansard reports of that time do not shed light on the intent.

9      Ayyildiz v Casablanca Sylvia Park Limited [2018] NZHC 2782 at [14].

10     Law Commission, Company Law Reform and Restatement (NZLC R9, 1989).

[30]   The meaning of legislation must be ascertained from its text and in the light of its purpose and context.11 The text includes indications provided in the legislation, including headings and the organisation and format of the legislation.12

[31]   Section 178 sits within Part 9 of the Act dealing with “Enforcement”. It nests within a subheading “Inspection of records” which follows sections dealing with personal actions by shareholders against a company and its directors. The section provides a tool for accessing company information to facilitate enforcement remedies where the majority seeks to withhold information from minority shareholders. Section 178 is entitled “Information for shareholders”.

[32]Section 96 of the Act defines “shareholder” in the following terms:

96       Meaning of shareholder

In this Act, the term shareholder, in relation to a company, means—

(a)a person whose name is entered in the share register as the holder for the time being of 1 or more shares in the company:

(b)until the person’s name is entered in the share register, a person named as a shareholder in an application for the registration of a company at the time of registration of the company:

(c)until the person’s name is entered in the share register, a person who is entitled to have that person’s name entered in the share register under a registered amalgamation proposal as a shareholder in an amalgamated company.

[33]   There are multiple references to “shareholder” in s 178. (Comparatively other provisions in the Act refer to both a “shareholder” and/or “former shareholder”.)13 First, under s 178(1), there is the entitlement of a shareholder to make a written request to a company. There are references to the company being required to agree to provide the information within a specified period if the shareholder pays a reasonable charge for the cost of providing the information and the shareholder being entitled to withdraw the request if the company requires payment. Yet in s 178(6) and similarly in s 178(7), the term “shareholder” is not repeated but replaced by “…a person who

11     Legislation Act 2019, s 10(1).

12     Section 10(4).

13     Companies Act 1993, ss 98, 99, 163, 169, 174 and 268.

has made a request for information”. That clearly refers to s 178(1). A person who has made a written request to a company must be a shareholder. Shareholding status at the time of making the written request is therefore a precondition to making an application to the Court under subs 178(6) and (7).

[34]   The purpose of s 178 is to ensure that those in control of a company, the directors and management, are accountable to shareholders.14 It is a streamlined access mechanism to enable a shareholder to assess threats or risks to their investment in a timely manner. It is not intended as a substitute for other information gathering mechanisms in a litigation process such as pre-commencement discovery or non-party discovery.

[35]   A request for information under s 178 must be made in good faith and for a proper purpose. 15

[36]   The issue can be reframed as whether Mr Kroll has a proper basis for seeking the information when he is no longer a shareholder of Envirocon.

[37]   The express language chosen by the legislature is important but if the legislature intended that the application could be made at a time when the applicant was no longer a shareholder, I expect that would have been made clear in subs 178(6) and (7) as it is in s 174 of the Act, for example. I consider the reference to “a person” is shorthand. The contextual factors relied on by Envirocon set out above support its position. In my view once shareholding comes to an end, this process for obtaining information about the company ceases to be available to the shareholder who no longer has a proper interest in knowing about the company’s affairs.

[38]In sum, I find that Mr Kroll does not have standing to make this application.

Is seeking the information for the purpose of valuation of Mr Kroll’s shares a proper purpose under s 178.

14     Ayyildiz v Casablanca Sylvia Park Ltd [2018] NZHC 2782 at [14]. Johnson v Johnson [2021] NZHC 2220 at [24]–[25].

15     Kelly v Kelly Construction (2002) Limited [2020] NZHC 458 at [10] citing Wells v Mega-Merger Housing Ltd (2005) 9 NZCLC 263,727 (HC) at [21].

[39]   While not strictly necessary to determine given my view on standing, a related limb of opposition is the question of what constitutes a proper purpose within the scope of s 178.

[40]   Mr Kroll deposes that the sole purpose for which he requires the information is to assess the fair value of his former shares in Envirocon. In short, to determine whether the value of his relinquished shares, which flowed from the detailed loan and security documentation, was greater than the sum owing under those arrangements. That would then determine whether he has a claim against other shareholders rather than Envirocon.16 That is a personal interest rather than relevant to the exercise of shareholder rights, in a present sense.17 Mr Nelson characterises the purpose as having the  character  of  pre-commencement   discovery   through   a   backdoor   when   Mr Kroll would not be entitled to such under r 8.20 of the High Court Rules 2016.18

[41]   A proper purpose is one rationally connected with a shareholding interest. The broad access rights of a shareholder are subject to the company’s ability to refuse to provide information under subs 178(3)(d) and (4) but should not be interpreted in such a way as to cause avoidable disruption of the activities of a company.19 Since this is not about ensuring those in control of a company are accountable to shareholders, I am inclined to agree with Mr Nelson that this militates against granting the application even if there was standing.

Was Envirocon was justified in refusing Mr Kroll’s original request for information?

[42]   Similarly, it is not strictly necessary to discuss this issue and I do so only briefly. I am satisfied that if Mr Kroll had standing and I was minded to exercise the

16 Mr Kroll could potentially have a claim under s 174 if he considers his shares were wrongly taken.

17 In Leadenhall Australia Pty Ltd v Cape Lambert Resources Ltd (2018) 125 ACSR 484; [2018] FCA 558 one of the applicants seeking information under s 247A of the Corporations Act 2001 (Cth) was a shareholder at the time he commenced the application to court but had sold his shares before the court decided the application. The Court held that this applicant was not a member of the company for the purpose of s 247A, therefore did not have standing to pursue the application. However, section 247A very clearly limits applications to a court to members of a company. It reads: “On application by a member of a company…the Court may make an order”.

18 I am not persuaded that authorities holding that it is not necessary that quantum be established pre-commencement are apposite since the very existence of a claim depends on whether there is a delta between sums owing under the advance and the value of the shares rather than a liability claim in which quantum can be assessed later. See for example Gilmer Investments Ltd v Wilson Parking New Zealand Ltd [2021] NZHC 1071 at [12].

19 Wells v Mega-Merger Housing Ltd (2005) 9 NZCLC 263,727 (HC) at [23].

Court’s discretion in Mr Kroll’s favour, his access ought to be confined to information in existence when he was a shareholder rather than more recent information. There must be a temporal connection. This is consistent with the question whether, as at August 2023, Envirocon was justified in refusing the requests.

[43]   There is a short answer to the request for a “final” Grant Thornton valuation report (category (c) above at [14]). A director of Envirocon, Mr Bright, has deposed on multiple occasions that there is no final version. Mr Kroll has sought to cast doubt on this statement in the absence of confirmation from Grant Thornton. I am not prepared to go behind the affidavit evidence of Mr Bright. There is no cogent basis to do so. This disposes of the request in respect of category (c).

[44]   As noted, Mr Kroll ceased being a shareholder on 8 May 2024. His request for the FYE 2024 financial accounts of Envirocon (category (a)) was not made in either his first or second information request, both of which predated the end of the 2024 financial year and the evidence filed is that a finalised version of them did not exist while Mr Kroll was a shareholder. However, Envirocon did provide the management accounts through to December 2023, in February 2024. To the extent that the FYE 2024 financial accounts were finalised prior to 8 May 2024, they should in theory be available to Mr Kroll. If they were indeed at that time only in draft, it seems to me to be unwise to provide only the draft version and not the final version due to the risk of misleading Mr Kroll. However, regardless I would not have been prepared to exercise my discretion to make that order given the insufficient link between the purpose of his request and the purpose of the s 178 regime.

[45]   Category (b) comprises full read-only access to Xero from April 2023. An independent expert accountant engaged by Envirocon, Mr MacDonald, deposes that “[t]here is no ability to restrict a read only user’s access to a specific part of the Xero system, nor to information within a specific date range (or ranges).” Moreover, read-only access provides access to contact or other information relating to customers/clients, suppliers or staff potentially stored on the Xero system.

[46]The expert deposes:

In my opinion, a valuer undertaking a valuation of Envirocon's shares (including those formerly held by Mr Kroll) will be able to undertake their role to prepare an indicative valuation without needing access to Xero. I would expect that primary regard would be had to the annual financial statements prepared by Envirocon's accounts. Should the valuer consider information from Envirocon's management accounting system (i.e. Xero) is required, they could easily ask to be provided the specific detail/reports making up the accounts that they feel need reviewing to determine any normalisation in reaching their valuation conclusion.

[47]   Mr Kroll’s proposed independent expert has provided in her reply a non-exhaustive list of the kind of information she wishes to access to complete a valuation. I am not satisfied that it is sufficiently specific or focused. Bearing in mind the stated purpose of obtaining the information which Mr Kroll seeks and the personal interest he is motivated to pursue, I would also have declined this aspect of the application.

Conclusion

[48]   I find that Mr Kroll does not have standing to apply under s 178 once he was no longer a shareholder and his purpose in seeking the documents would otherwise militate against grant of his application.

[49]Accordingly, I decline Mr Kroll’s application.

Costs

[50]   I reserve costs. If there is no agreement as to costs, memoranda of no more than three pages may be filed within 21 days of this judgment, with any responsive memorandum within a further seven days.

............................................................

Walker J