Kyoto Trustee Limited v Annik New Plymouth Limited
[2015] NZHC 1248
•3 June 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-1196 [2015] NZHC 1248
BETWEEN KYOTO TRUSTEE LIMITED
Plaintiff
AND
ANNIK NEW PLYMOUTH LIMITED First Defendant
ANNIK INVESTMENTS LIMITED Second Defendant
ROBIN LESLIE EDWARDS AND MARY CHRISTINA FORBES- EDWARDS
Third Defendantds
Hearing: 3 June 2015 Appearances:
D W Grove for Plaintiff
Judgment:
3 June 2015
JUDGMENT OF WHATA J
Solicitors:
Ellis Law, Auckland
Counsel:
D W Grove, Auckland
KYOTO TRUSTEE LIMITED v ANNIK NEW PLYMOUTH LIMITED [2015] NZHC 1248 [3 June 2015]
[1] Kyoto Trustee Limited (Kyoto) recently obtained orders to sell the shares owned by the third defendants, Mr Robin Leslie Edwards and Mary Christina Forbes-Edwards in Annik Investments Ltd (in liquidation) (AIL).1 Before sale could be achieved the Edwards placed AIL into liquidation. As a consequence, Kyoto must now seek leave of the Court to complete the share sale.
[2] Complicating matters, Mr Edwards has been adjudicated bankrupt and the applicant has been unable to serve Ms Forbes-Edwards with the present application.
[3] The recently appointed liquidator of AIL does not oppose the application, but has not had sufficient time to consider the proposed share sale in terms of the effective liquidation of the company and has sought some time to provide a report to the Court.
[4] In the result I must resolve the following issues:
(a) Whether service of the application must be made on Mrs Forbes- Edwards;
(b)Whether I should afford the liquidator an opportunity to provide a report to the Court before making the orders sought; and
(c) Whether there is a proper basis for making an order for the sale of the shares of AIL in liquidation.
Background
[5] Kyoto obtained judgment against Annik New Plymouth Limited (in liquidation) (ANPL) in the sum of $176,000 together with interest and costs and against the Edwards personally in the sum of $1,113,000 together with interest and costs. Kyoto subsequently placed ANPL in liquidation. Thereafter the liquidators
issued proceedings against AIL and obtained a freezing order. Judgment was
1 Kyoto Trustee Ltd v Annik New Plymouth Ltd & Ors (orders made by His Honour Venning J) HC Auckland CIV-2013-404-1196, 1 April 2015.
obtained by default. An application was then made to the High Court to examine the
Edwards and the examination is part-heard.
[6] Kyoto also obtained an interim charging order against the shares owned by the Edwards in AIL. The charging order was subsequently finalised. An order for the sale of the shares was made on 1 April 2015 in the following terms:
(a) Making a final charging order over the shares owned by the third defendants, Mr Robin Leslie Edwards and Mary Christina Forbes- Edwards, in Annik Investments Ltd and a Rolls Royce, Silver Spur, registration AZY 226.
(b)Ordering the Sheriff at the Auckland High Court to sell the shares owned 50% by Mr Edwards and 50% by Ms Forbes-Edwards in Annik Investments Ltd.
(c) Requiring the third defendants to provide to the Registrar of the High Court in Auckland within five working days of an order, with the “company key” or such other information or documentation that will be required to allow the Sheriff to transfer the shares to a purchaser after the auction.
(d) The third defendants to pay the plaintiff ’s costs of and incidental to
this application on a 2B basis and calculated in the sum of $2,697.55.
[7] Mr Edwards was then adjudicated bankrupt on the petition brought by the Commissioner of Inland Revenue in the Tauranga High Court on 16 April 2015. At about the same time Ms Forbes-Edwards brought an application to appoint an interim liquidator of AIL. That order was made and was finalised on or about
21 April 2015.
Recent application
[8] Given the liquidation, Kyoto responded by filing an application for further orders regarding the sale of shares, namely:
(a) To implement the order for sale of shares made by this Court on
1 April 2015.
(b)Granting permission for the shares owned by the third defendants in Annik Investments Ltd (In Liquidation) to be sold by public auction on the terms that:
(i)the net proceeds of sale after payment of the costs of sale of the shares owned by Robin Leslie Edwards be paid to the OA.
(ii)the net proceeds of sale after payment of costs of sale of the shares owned by Maria Christina Forbes-Edwards be paid to the plaintiff.
Kyoto’s intentions
[9] Ian Robert McKay, a director of Kyoto, has filed various affidavits in support of the applications made against the defendants. He provides some insight into Kyoto’s intentions. He states that Kyoto may in fact purchase the shares. He also avers to having viewed financial accounts of AIL provided to the Court, dated
31 March 2014. He considers that the accounts are incorrect. He believes that references in the accounts to substantial loans alleged to have been made by the Edwards’ Family Trust to AIL are false.
[10] Mr McKay also claims that the proceeds from the sale of the shares will be sufficient to pay off the secured creditors together with all of the other third party creditors and that the only entities that appear to be prejudiced from the interim liquidation are ANPL and Kyoto. His affidavit also notes that judgment was obtained against the Edwards on 7 July 2014. The Edwards, he says, then lodged a mortgage notification on the title of two properties. Mr McKay states that he does not accept that there was any basis for those mortgages.
[11] Mr McKay says further that there is no prejudice to any other creditors in the share sales proceeding. He expresses the view that the Edwards have liquidated this
company solely to avoid payment to creditors and defeat the enforcement proceedings being pursued by Kyoto.
The Official Assignee
[12] The Official Assignee did not agree to the application as it relates to Mr Edwards and Kyoto now abandons the application regarding the shares owned by Mr Edwards given his bankruptcy.
Service
[13] The revised application has been served on the liquidator’s solicitor. It has confirmed receipt of the application, but no notice of opposition has been filed, or was filed by the time of the hearing, although Mr Whale attended the hearing on the liquidator’s behalf.
[14] I am advised by counsel that the revised application has not been served on Ms Forbes-Edwards, but the order for sale was however formally served on her. This is confirmed by an affidavit of EE Boad, and in particular, Exhibits C & D. There has also been correspondence about the current application with Mr Kevin McDonald, who acted for Ms Forbes-Edwards in recent related enforcement proceedings. Mr McDonald also advised the Registrar that he was acting for Ms Forbes-Edwards in relation to sale of the shares on 17 April 2015.
Argument
[15] Mr Grove contends that:
(a) The additional orders are simply consequential orders giving effect to the original orders as to the sale of the shares.
(b)The need for the order arises from the placement of AIL into liquidation, thereby triggering s 248 of the Companies Act 1993 and the requirement to seek leave of the Court to continue with the sale.
(c) Citing Hight v Chilcott,2 in order to obtain an order Kyoto must show some benefit to the company or those with an interest in the company;
(d)Kyoto has a legitimate interest in the company and will actively pursue or assist in pursuing controversies relating to the AIL for the benefit of among others, creditors; and
(e) Any proceeds of sale of the shares after payment of costs will also benefit creditors.
[16] Mr Whale noted that the liquidator does not presently oppose the application as it has not had sufficient time to consider the position. He doubted whether Kyoto had a sufficient interest in the company to satisfy the requirements of s 248. He indicated, properly in my view, that I was not required to have regard to the liquidator’s position, but noted that I might be assisted by a report from the liquidator. He also noted that the making of the order was not likely to affect the liquidators powers, but that he had not considered the issue in any depth.
Assessment
Service
[17] I propose to deal first with the issue of service. I can be brief. I see no prejudice whatsoever to Ms Forbes-Edwards in giving effect to the Court’s orders as to sale via the grant of leave pursuant to s 248. It is tolerably clear that Ms Forbes- Edwards has actively sought to avoid service of the application. As noted by the applicants, Mr McDonald was until very recently acting for Ms Forbes-Edwards. While I have no reason to doubt that Mr McDonald is no longer instructed to act on this matter his disengagement is remarkable for its timing. I think it would be naïve to suggest that Ms Forbes-Edwards is not aware of this application given her connection to Mr McDonald and her recent prior involvement.
[18] For completeness I record that I mean no criticism of Mr McDonald. He can only act on instructions.
2 Hight v Chilcott HC Auckland M1683/96, 20 June 1997.
Liquidator’s position
[19] As to the liquidator’s position, while I appreciate and would normally endorse the liquidator’s cautious approach, this is a case where the timing of the appointment, over the top of the orders of this Court for the sale of the shares, calls for an immediate response. It is not mere coincidence. I prefer then to deal with this matter with alacrity to send a clear message to other debtors in similar positions that the Court will not sit idly while its orders are undermined by what appears to be engagement of ancillary legislative procedures that have the effect of avoiding the orders.
[20] I also take comfort from the fact that the orders, if made, do not cut across the powers of the liquidator in any obvious way.
The application
[21] Section 248(1)(d) of the Companies Act 1993 requires leave of the Court to sell shares of a company in liquidation in the following terms:
248 Effect of commencement of liquidation
(1) With effect from the commencement of the liquidation of a company,—
(a) …
(d) Unless the Court orders otherwise, a share in the company must not be transferred:
[22] The relevant threshold test under this section is longstanding and can be found in the judgment of Kay LJ in Re The Onward Building Society as follows:3
… before the Court gives leave to register such a transfer, it ought to see that to do so would be of some benefit to the company or those interested in its assets, and that it would not so exercise its discretion unless for very strong reasons.
[23] I do not accept Mr Grove’s argument that an order if granted would obviously benefit the company. It does not appear to be that Kyoto has any direct interest in
3 Re The Onward Building Society [1891] 2 QB 463 (CA) at 483. Cited in Hight & Ors v Chilcott
HC Auckland M1683/96, 20 June 1997. See also Koutsojiannis v Brown (1980) 1 NZCLC 95-
007 (HC) and Westland v Rainbow Corporation Limited (1992) 6 NZCLC 96-522 (CA).
the operations of the company. Rather, it is seeking to recover a judgment debt from the proceeds of the sale of the shares or through the sale of the assets in the company.
[24] I am prepared to accept, however, that on the evidence before me as noted at [9] and [10] above, Kyoto intends to actively pursue the resolution of controversies relating to the company that may ultimately benefit those with interests in the company, especially creditors of the company. I accept that this is a somewhat liberal extension of the common law principle, but it is driven by what I perceive to be an act designed by Mr Edwards and/or Ms Forbes-Edwards to avoid the sale of the shares by placing the company into liquidation.
[25] In those circumstances there shall be orders as sought by the applicants in respect of the shares held by Ms Forbes-Edwards.
Costs
[26] Costs are reserved.
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