LBC Holdings New Zealand Limited

[2018] NZHC 3413

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-002763

[2018] NZHC 3413

UNDER

Part 19 of the High Court Rules and sections 239ADRZ(1) and 239ADO of the

Companies Act 1993

IN THE MATTER OF

LBC HOLDINGS NEW ZEALAND LIMITED, LBC HOLDINGS UK

LIMITED, LBC HOLDINGS EUROPE LIMITED, LBC HOLDINGS

AUSTRALASIA LIMITED and LBC

TREASURY COMPANY LIMITED (ALL ADMINISTRATORS APPOINTED)

AND

NEALE JACKSON and BRENDON JAMES GIBSON

Hearing:	On the papers
Judgment:	19 December 2018

JUDGMENT OF COURTNEY J

This judgment was delivered by Justice Courtney on 19 December 2018 at 3.00 pm

pursuant to R 11.5 of the High Court Rules Registrar / Deputy Registrar

Date ………………………

RE LBC HOLDINGS NZ LTD & ORS (ADMINISTRATORS APPOINTED) [2018] NZHC 3413 [19 December 2018]

Introduction

[1]    The Administrators of five companies in the CBL Group have applied for a direction that they may execute deeds of company arrangement (DoCAs) in circumstances where none of the companies have a functioning board able to resolve to execute the DoCAs.

[2]    The application was made without notice and in urgent circumstances because the watershed meeting at which creditors were expected to approve the DoCAs was to be held on 18 December 2018, starting the limited time allowed for the execution of the DoCAs to run.1 Counsel advised that the only parties likely to be affected are the directors and the three known creditors of the companies. However, the only director still listed on the Companies Office website has not responded to the copy of the draft application and affidavit emailed to him, and the creditors (three banks) have indicated that they do not object to the application. Counsel for one of the creditors, the ANZ Bank New Zealand Ltd, has filed a memorandum in support of the application.

[3]    For the reasons that follow, I grant the application. Regrettably, given the urgency under which the application came to me, my reasons are less fulsome than they would otherwise have been.

The problem and the direction sought

[4]    The companies concerned are LBC Holdings NZ Ltd (LBCNZ), LBC Holdings UK Ltd (LBCUK), LBC Holdings Europe Ltd (LBC Europe), LBC Holdings Australasia Ltd (LBC Australasia) and LBC Treasury Company Ltd (LBC Treasury) (each a “DoCA company” and together “the DoCA companies”). All are under the administration of Neale Jackson and Brendon Gibson.

[5]    The only known creditors of these companies are three banks. In his affidavit in support of the application, Mr Jackson explains that the banks were expected to approve a DoCA at the watershed meeting scheduled for Tuesday, 18 December 2018. If the resolution was to be approved, each company would be required to execute the

1      Companies Act 1993, s 239ACO(2).

DoCA within the time frame provided for. The Companies Act 1993 requires a DoCA to be executed by the company. But none of the companies has a functioning board. Company Office records had shown two directors of the DoCA companies, but one resigned earlier this year and the other claims to have resigned in 2017 (though his resignation is not recorded on Company Office records) and has indicated that he will not authorise or execute any DoCA. If the DoCAs are not executed by the companies, the DoCA proposal will fail and the companies will be placed in liquidation.

[6]The Administrators have applied for:

(a)a direction under s 239ADR of the Companies Act that, in respect of any DoCA company where the creditors resolved that the DoCA company execute a DoCA, the Administrators have the power to authorise that the DoCA be executed by or on behalf of that DoCA company or otherwise have the power to execute the DoCA without requiring any resolution of the board of the company; or

(b)in the alternative, orders that the operation of s 239ACO of the Act is to be amended pursuant to s 239ADO(1) in respect of any DoCA company where the creditors resolved that the company execute a DoCA, such that the Administrators of that company have the power to authorise that the DoCA be executed by or on behalf of that DoCA without requiring any resolution of the board of the company.

The application

[7]    DoCAs are provided for by Part 15A of the Companies Act, which governs the statutory scheme of voluntary administration of distressed companies. The object of Part 15A is to provide for insolvent companies or those that may become insolvent to be administered in a way that:2

(a)maximises the chances of the company, or as much as possible of its business, continuing in existence; or

2      Companies Act 1993, s 239A.

(b)if it is not possible for the company or its business to continue in existence, results in a better return for the company’s creditors and shareholders than would result from an immediate liquidation of the company.

[8]    Under s 239U, the administrator has very broad powers, with control of the company’s affairs, business and property and the power to manage and dispose of assets:

While a company is in administration, the administrator –

(a)has control of the company’s business, property, and affairs; and

(b)may carry on that business and manage that property and those affairs; and

(c)may terminate or dispute of all or part of that business, and may dispose of any of that property; and

(d)may perform any function, and exercise any power, that the company and or any of its officers could perform or exercise if the company were not in administration

[9]    Under s 239X the appointment of an administrator does not remove the directors from office but severely constrains their ability to act:

(1)The appointment of an administrator does not remove the directors of the company from office.

(2)However, a director of a company that is in administration must not exercise or perform, or purport to exercise or perform, a function or power as a director of the company except –

(a)    with the prior, written approval of the administrator, or

(b)    as expressly permitted by this Part.

[10]   After an administrator is appointed, he or she investigates the company’s affairs and forms an opinion as to whether it would be in the interests of creditors for the company to enter into a DoCA, for the administration to end or for a liquidator to be appointed.3 The decision as to which of these is preferred is made at the watershed

3      Companies Act 1993, s 239AE.

meeting.4 If the creditors resolve that the company should execute a DoCA, the provisions of subpart 13, which relate to the execution and effect of a DoCA, apply.

[11]A DoCA is defined as:5

…. the deed that is executed by the company and its creditors providing for payments towards the creditors’ debts.

[12]   The first step in implementing a DoCA is for the “deed administrator” to prepare the DoCA, which must include (among other things) the identity of the deed administrator:6

… who may or may not be the same person as the administrator, [and] is the person who is appointed the administrator of the deed of company arrangement.

[13]   There are specific requirements, including a tight time frame, for the execution of the DoCA. Section 239ACO provides that:

(1)The deed is a deed of company arrangement when it is executed by both the company in administration and the deed administrator.

(2)The deadline for the execution of the deed by the company and the deed administrator is –

(a)15 working days after the watershed meeting has approved it; or;

(b)the further time that the court allows, if the deed administrator has applied to the court for an extension before the end of the initial period of 15 working days after approval;

(3)The company may not execute the deed unless the board of the company has, by resolution, authorised the deed to be executed by the company or on its behalf.

(4)Subsection (3) has effect despite s 239X, but does not limit the function and powers of the administrator of the company.

4      Companies Act 1993, s 239ABA.

5      Companies Act 1993, s 239B.

6      Companies Act 1993, ss 239B and 239ACN.

[14]   If the DoCA is not executed within the time required, the administration ends and the administrator must apply for the appointment of a liquidator or the resumption of a prior liquidation.7

[15]   Because there is no effective board in this case, the DoCAs can only be executed if the Administrators are entitled to execute them on behalf of the company. But the Administrators are concerned that the relationship between s 239ACO(3) and

(4) is not sufficiently clear for them to be sure that they have the power to do so; although s 239ACO(3) suggests that only the board can authorise the execution of a DoCA, s 239ACO(4) makes it clear that s 239ACO(3) does not affect the power of the Administrators, which, under s 239U, includes “any power … that the company or any of its officers could perform if it were not in administration”.8

[16] There are no New Zealand authorities on the point. In Australia, the position is clear that under the equivalent provisions the administrator may execute the deed on behalf of the company through the powers conferred by the equivalent of s 239U.9 However, the wording of the relevant provision, s 444B of the Corporations Act 2001, is slightly different to s 239ACO. It requires the company to execute the DoCA and provides that “the board of the company may, by resolution, authorise the instrument to be executed by or on behalf of the company” but the provision “does not limit the functions and powers of the administrator of the company”. In comparison, while s 239ACO(4) also preserves the powers of the administrator in the face of s 239ACO(3), the latter nevertheless suggests that board resolution is a prerequisite to the exercise of those powers.

[17]   It is clear from Parliamentary materials that the Voluntary Administration scheme was intended to reflect the Australian provisions, on which it was based.10 It is unfortunate that the wording adopted in s 239ACO differs from its Australian counterpart, resulting in confusion here. The views of commentators in New Zealand reflect the uncertainty. For example, the learned authors of Heath and Whale on

7      Companies Act 1993, ss 239E(2)(e) and 239ACR.

8      (emphasis added).

9      MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636 (HCA) at 645-646; and Surber v Lean (2000) 36 ACSR 176 (WASCA) at [21].

10     See e.g. the Insolvency Law Reform Bill 2005 (14-1) (explanatory note) at 11.

Insolvency consider that, despite the existence of an administrator, the company board must resolve to execute the DoCA.11 But the learned authors of Insolvency Law and Practice, whilst accepting that the provisions could be interpreted in that way, note that the outcome would be to allow company directors to veto a DoCA that may have overwhelming support among the company’s creditors.12 They propose an alternative interpretation  that  would  see  the  administrator’s  powers  prevail  by  virtue  of     s 239ACO, on the basis that allowing a company’s board to thwart a DoCA that is supported by the creditors would be contrary to the purposes, objectives and the scheme of Part 15A.

[18]   In my view, the latter interpretation is right. Absent s 230ACO(3), the administrator would undoubtedly have the power to execute the DoCA on behalf of the company. Although obscurely worded, the effect of s 239ACO(3) and (4) can be interpreted as conferring express permission on the directors to authorise a DoCA for the purposes of s 239X(2)(b). However, the purposes of Part 15A would be undermined if a proposed company arrangement that fulfilled those purposes could be scuttled by the inability or refusal of a board to do so. In my view, while the directors have the power to authorise the execution of a DoCA, their failure to do so does not preclude the administrator from stepping in and exercising that power; if s 239ACO(3) was intended to preclude the administrators from doing so, s 239ACO(4) would have been unnecessary.

[19]   In the present circumstances, I therefore consider that it is open to the Administrators to proceed and execute the DoCAs on behalf of the DoCA companies.

Result

[20]   The application for directions under s 239ADR(1) is granted. I direct that, in respect of any DoCA company where the creditors resolve that the DoCA company is to execute a DoCA, the administrators of that DoCA company will have the power to authorise that the DoCA be executed by or on behalf of that DoCA company or

11     Paul Heath QC and Michael Whale (eds) Heath and Whale on Insolvency (looseleaf ed, LexisNexis) at [17.94(a)].

12     Abigail Milburn (ed) Insolvency Law and Practice (looseleaf ed, Thomson Reuters) at [CA239ACO.03].

otherwise have the power to execute the DoCA without requiring any resolution of the board of the DoCA company.

P Courtney J