Levin v Lawrence

[2012] NZHC 1452

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-0956 [2012] NZHC 1452

UNDER  the Companies Act 1993

IN THE MATTER OF     of the liquidation of WATERMAN BUILDING SUPPLIES LIMITED (In Liquidation)

BETWEEN  HENRY DAVID LEVIN AND VIVIEN JUDITH MADSEN-RIES AS LIQUIDATORS OF PERSONAL HOMES LIMITED

Applicants

ANDSTEPHEN MARK LAWRENCE AND ANTHONY JOHN MCCULLAGH AS LIQUIDATORS OF WATERMAN BUILDING SUPPLIES LIMITED Respondents

Hearing:         18 June 2012

Counsel:         N Malarao and J Blythe for Applicant

D Hughes and P Gautam for Respondents
K Fulton for Fletcher Developments Limited

Judgment:      25 June 2012

JUDGMENT OF TOOGOOD J

This judgment was delivered by me on 25 June 2012 at 4:00 pm

Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:

NH Malarao, Meredith Connell, Auckland:  [email protected]

DM Hughes/P Gautam, Kensington Swan, Auckland:  [email protected] [email protected]

CL Waugh, Craig Griffin & Lord:

Copy:

K Fulton, Auckland:  [email protected]

LEVIN & ORS V LAWRENCE & ORS HC AK CIV-2012-404-0956 [25 June 2012]

Introduction

[1]      This is an application for orders that a company in liquidation, in respect of which a final liquidators’ report has been filed, not be removed from the Register and that the liquidators be directed to permit inspection of the accounts and records of the liquidation and the accounts and records in the company in liquidation, under s 256(1)(a)(ii) of the Companies Act 1993 (“the Act”).

[2]      The essence of the application is a dispute between professional insolvency practitioners who have  been  appointed  the liquidators  of two  companies,  one a creditor of the other.

Background

[3]      The  issue  arises  in  this  way.     Waterman  Building  Supplies  Limited (“Waterman”) was the company vehicle for a joint venture between Waterman Enterprises Limited, Trade Mart Limited (“Trade Mart”) and Fletcher Distribution Limited (“FDL”) for the operation of a PlaceMakers franchise, trading as PlaceMakers Westgate. Trade Mart is a wholly owned subsidiary of FDL.

[4]      Waterman had been trading at a loss and, on or about 30 November 2008, the joint venture was dissolved and Waterman ceased to trade.   No distributions were made to Waterman’s shareholders at that time.   Following dissolution of the joint venture, Waterman’s liabilities to its creditors were paid by FDL in accordance with what I was told was standard practice for PlaceMakers branches throughout New Zealand, no doubt for brand protection reasons.

[5]      FDL then acquired all of the shares in Waterman.  By a shareholder resolution on 20 December 2010 the respondents (“the Waterman liquidators”) were appointed joint and several liquidators.  At the time Waterman was placed into liquidation, it had no assets or liabilities.

[6]      On  13 November 2009,  the  applicants  were  appointed  joint  and  several

liquidators  of  Personal  Homes  Limited  (“Personal  Homes”)  which  had  been  a

customer of Waterman and, latterly, FDL (which operated PlaceMakers Westgate after   Waterman ceased to trade.   The applicant liquidators discovered that, in the period between 28 September 2007 and 6 November 2008, Personal Homes had paid a total of $789,725.87 to Waterman and FDL.  The payments were made within the period of two years before the making of the application to the Court for the appointment  of  liquidators  to  Personal  Homes.    The  applicants  concluded  that, having occurred at a time when Personal Homes was unable to pay its due debts, the payments constituted voidable preferences which enabled Waterman and FDL to receive more than they would have received in the liquidation of Personal Homes. On 15 July 2010, therefore, the applicant liquidators gave notice to Waterman that they wished to set aside the payments made to the company as voidable transactions under s 292 of the Companies Act.

[7]      On 11 August 2010, Waterman filed a notice of objection, asserting that all payments made by Personal Homes to Waterman were made in the ordinary course of business as part of a continuing business relationship under which Waterman supplied goods, issued credits and received payments.  It was common ground that the payments by Personal Homes were made to Waterman up to the time it ceased to trade and thereafter to FDL as part of the continuing trading relationship between Personal Homes and the PlaceMakers Westgate business.

[8]      On 23 December 2010, the applicant liquidators filed an unsecured creditor’s

claim  on  behalf  of  Personal  Homes  in  the  liquidation  of  Waterman.     On

25 February 2011, the respondent liquidator admitted the claim by Personal Homes in Waterman’s  liquidation  in  the  reduced  amount  of  $52,858.94,  on  a  “running account” basis.

[9]      The applicants had previously requested the Waterman liquidators to convene

a creditors’ meeting, but the request was rejected on the basis that:

(a)       there were two unsecured creditors only; namely, Personal Homes and

FDL (in the sum of $100,000);

(b)there would be no point in holding a creditors’ meeting when the liquidators of Personal Homes would not be in a position to have any resolution passed by both majority numbers and value;

(c)      the   Waterman   liquidators   were   principals   in   an   independent professional firm of insolvency practitioners (the implication being that  they  could  be  relied  upon  to  be  carrying  out  their  duties faithfully); and

(d)there being no funds available in the liquidation, the respondent liquidators would require funding for the calling and holding of a meeting.

[10]     In response to the respondents’ argument that holding a creditors’ meeting would be “a futile exercise”, the applicants suggested that the respondents were in breach of their obligation to hold a meeting.  They renewed their request for such a meeting and nominated replacement liquidators.   They also proposed that a liquidation committee be appointed and suggested conducting a meeting to vote on their propositions by postal vote.

[11]     The respondent liquidators accepted the proposal to have the matters dealt with by postal vote.   On 11 April 2011, they recorded that the resolution that no liquidator be appointed to replace the present liquidator had been passed, FDL voting in favour and the liquidators for Personal Homes voting against.  They also reported that the motion to appoint a liquidation committee was lost, with FDL voting against.

[12]     The solicitors for the applicants wrote to the respondents on 20 April 2011 asking  a  number  of  questions  concerning  the  liquidators’  investigation  into Waterman.   The requests were responded to on 10 May 2011 by solicitors for the Waterman liquidators.   On 11 July 2011, the solicitors for the applicants requested that the applicants be given the opportunity to review the file of the Waterman liquidators and the records of the company.   The solicitors indicated that, if the applicants were satisfied after reviewing the files and records that there were no possible avenues for recovery, that would be the end of the matter.

[13]   The request was declined on the basis that the applicants had no legal entitlement to view the documents.

[14]     Further correspondence  between  the solicitors  followed, culminating in  a letter from the applicants’ solicitors to the respondents saying that an application for an order granting permission to inspect Waterman’s records would be filed with the Court if the respondents did not confirm within seven days that access to the records would be provided voluntarily.

[15]     On 3 October 2011, the Waterman liquidators responded declining the request to make the records available for inspection.  They asked the applicants’ solicitors to ensure that, if they did apply to the Court, they served the application on FDL as the only other creditor in the liquidation.

[16]     The  applicants  did  not  take  any  further  steps  at  that  stage  and,  on

20 January 2012, the respondents filed their final report to creditors and shareholders noting that objections to the removal of the company from the Register were to be lodged by 27 February 2012.

[17]     Given that Waterman had not traded since November 2008; that it had no assets or liabilities; and that it had been placed into liquidation by a shareholder resolution, the liquidation of Waterman was funded entirely by FDL and the only distributions were advertising costs, legal fees and liquidators’ fees.

[18]     The applicants filed their notice of originating application for orders under the Companies Act on 23 February 2012.   An amended notice of application was filed on 23 March 2012, recognising that the liquidators had become functus officio on the filing of their final report and that the final report would need to be set aside before the liquidators could be required to respond to any order by the Court to make records available for inspection.

The orders sought by the applicants

[19]     In their amended notice of originating application, the applicants seek orders:

(a)      that they be granted leave to commence the proceedings by way of originating application;

(b)      that  the  application  be  served  on  the  respondents,  FDL  and  the

Registrar of Companies;

(c)       granting leave to make applications under s 284 of the Companies

Act;

(d)reversing under s 284(1) of the Act the sending of the final report under s 257;

(e)      that Waterman not be removed from the Companies Office Register pursuant to s 323 of the Act;

(f)      that the respondents should permit the accounts and records of the liquidation of Waterman and the accounts and records in Waterman to be inspected by the applicants in accordance with s 256(1)(a)(ii) of the Act; and

(g)      costs.

The principal issue

[20]     Before making any order permitting inspection, it would be necessary for the Court to determine that the act of the liquidators in filing their final report should be reversed, and the liquidators reinstated.  Nevertheless, the focus of the application, and  the  arguments  for  and  against  it,  has  been  on  the  exercise  of  the  Court’s discretion  under  s 256(a)(ii)  to  permit  the  applicants  to  inspect  the  liquidators’ records and the records of the company.  Specifically, the arguments have focused on the principles to be applied by the Court in considering an application for permission to inspect, and whether the application should be granted in the present case.

[21]     While  the  respondents  indicated  that  initially  they  would  require  the applicants  to  fund  any  inspection  of  the  records,  funding  issues  are  no  longer

relevant.  It is not likely that the Waterman liquidators would be put to much trouble and expense in complying with any order for inspection and the applicants have accepted, in any event, that they would meet the costs of any inspection.

[22]     In those circumstances, it might be thought that it would be a simple matter for the Waterman liquidators to hand over the records and allow the applicants to inspect them.

[23]     It  might  also  be  thought  that  the  views  of  the Waterman  liquidators,  as experienced insolvency practitioners, that there is nothing to be recovered in the Waterman liquidation, would be accepted by the applicants as liquidators of a company owed only $52,000.

[24]     In his affidavit filed in opposition to the application, Mr Lawrence (who as joint and several litigator has carried the argument on behalf of the respondents) deposes that the liquidators’ investigations into the affairs of Waterman included the following actions:

(a)      receiving from the sole director of Waterman a business questionnaire which   indicated   that   Waterman   had   ceased   to   trade   from

30 November 2008,  on  dissolution  of  the  joint  venture,  some  two years before the company was placed into liquidation;

(b)conducting  an  examination  of  Waterman’s  financial  records  from which it was determined that the company had traded at a loss prior to ceasing  to  trade  in  November 2008;  that  as  at  the  time  of  the liquidation the company had no assets or liabilities; and that there were therefore no assets for realisation by the liquidator;

(c)      making inquiries which indicated that no distribution had been made to the Waterman shareholders when the company ceased to trade and that,  following  closure  of  the  company,  FDL had  paid  all  of  the creditors of Waterman in accordance with what was the standard practice for PlaceMakers branches throughout  New Zealand.   The

inquiries also revealed that no company funds had been used to pay debts owed by the directors of Waterman;

(d)taking legal advice and being satisfied that there were no potentially voidable transactions  for the  liquidators  to  investigate  pursuant  to s 292 of the Act;

(e)      obtaining from FDL documentation relating to the commencement and dissolution of the joint venture; and

(f)      making  telephone  or  email  inquiries  of  Mr Mark  Waterman,  a previous director of Waterman, and deciding that there was no basis on which an examination of Mr Waterman under oath was warranted.

[25]     Mr Lawrence  confirmed  that  had  the  liquidators’ investigation  uncovered issues requiring further investigation,  a lack  of funding  would not have been  a barrier to such investigation because FDL was likely to fund any such inquiry.

[26]     Mr Lawrence recorded that in his affidavit his belief that the liquidators had discharged their statutory duties; that the liquidation was now at an end; that there was no benefit to reopening the liquidation or permitting inspection of the accounts and records by the applicants; and that the application by the liquidators for Personal Homes was frivolous, vexatious and unfounded.

[27]     In his reply affidavit of 22 March 2012, Mr Levin explained the basis upon which he wished to pursue what might seem on its face to be the fruitless exercise of inspecting the records of the liquidation and Waterman.

[28]     First, he said that he made a reluctant decision not to contest the reduction of Personal Homes’s claim against Waterman down to $52,858.94.   He said if his inspection of the records disclosed a material recovery being available to the respondents then he would further consider  whether a running account  between Personal Homes and Waterman had in fact existed.  If he concluded that it did not,

then he would consider whether he should realistically seek to be admitted to a revised claim for an amount up to the original claim of some $789,000.

[29]     I infer from that statement that he intends to embark on an inquiry as to whether there is evidence that might be the basis for an enhanced claim by Personal Homes.

[30]     Mr Levin also said that he believes it is the right of any materially affected creditor of a failed company to test a liquidator’s conclusions.  Since Mr Lawrence has been "uncooperative", he suggests the only alternative is to satisfy himself that there is no recovery possible by the Waterman liquidators.  He says that it might be possible that Waterman has potential claims against FDL or a party indemnified by FDL and, further, that a different view might be taken in relation to any potential claims which Waterman may have to recover additional funds.

[31]     It appears that, having regard to the close relationship between FDL and Waterman,   Mr Levin’s   suspicions   are   aroused   by   FDL’s   opposition   to   the replacement of the respondents as liquidators, to the appointment of a liquidation committee, and to the inspection of records.  Mr Malarao was obliged to concede in argument that there was no evidence currently available to the applicant liquidators to support such contentions but, he submitted, that was because inspection of records had been declined.

The relevant statutory provision

[32]     Section 256 of the Companies Act, so far as is relevant, provides as follows:

256     Duties in relation to accounts

(1)      Subject to subsection (2) of this section, the liquidator of a company must—

(a)       Keep  accounts  and  records  of  the liquidation  and permit those accounts and records, and the accounts and records in the company, to be inspected by—

(i)        Any liquidation committee appointed under section 314 of this Act, unless the liquidator believes on reasonable grounds that inspection would be prejudicial to the liquidation; and

(ii)      If the Court so orders, a creditor or shareholder ....

[33]     It can be seen that creditors and shareholders of a company in liquidation do not have a right to inspect accounts and records, but that they may be permitted to do so by the Court.   The plain wording of the section implies a presumption against allowing  creditors  and  shareholders  to  inspect  the  records  of  a  company  in liquidation and the liquidator’s records.   The question of principle on which the insolvency practitioners in this case are divided is the basis upon which the Court should exercise its gatekeeper role under the section in relation to creditors.

[34]     In the absence of any express statutory guidance, it is necessary to consider the legislative wording and the statutory purpose,1 and the Court should endeavour to give practical effect to the legislative intention and make the Act work.2

[35]     Mr Malarao argued that the Court should not impose a high threshold for disclosure to creditors or shareholders under sub-paragraph (ii) of s 256(1)(a).  He submitted, first, that some guidance can be obtained from the “gateway threshold” imposed by Parliament in respect of disclosure to liquidation committees on application under sub-paragraph (i).   There the presumption is that a liquidation committee should be permitted to inspect the accounts and records, but may be prevented from doing so if the liquidator believes on reasonable grounds that an inspection would be prejudicial to the liquidation.

[36]     I do not think the approach to be taken under sub-paragraph (i) assists the applicants under sub-paragraph (ii).  Liquidation committees are formed to assist the orderly management of creditor interests in a liquidation, particularly where there are a large number of creditors.   It is clear Parliament intended that liquidation committees should be provided with access in the ordinary course of events, the only basis for refusal being the liquidator’s reasonable belief that inspection would be

prejudicial to the liquidation.

1 Interpretation Act 1999, s 5(1).

2 See R v Salmond [1992] 3 NZLR 8 (CA) at 13; Northern Milk Ltd v Northland Milk Vendors

Association Inc [1988] 1 NZLR 537 at 537; Walker v Allen [2002] 1 NZLR 278.

[37]     So far as the rights of creditors and shareholders are concerned, however, the presumption is reversed by the wording of s 256(1)(a)(ii), and is against disclosure to such persons unless the Court orders otherwise.  Individual creditor or shareholder access is the exception to the usual rule.  Permitting such parties to have access in any case where there was no likelihood of prejudice to the liquidation would make access the rule rather than the exception.   If that had been Parliament’s intention, there would have been no need for a separate, differently-worded sub-paragraph to deal with the position of creditors and shareholders.

[38]     Next,  Mr Malarao  argued  that,  because  of  the  fiduciary  obligations  of liquidators, the Court should not hesitate to order liquidators to permit inspection. He referred to the observations of the learned authors of Heath & Whale on Insolvency at 22.3 as follows:3

The liquidator’s relationship to the company is that of an agent. This is not a normal agency position because the liquidator controls the principal (the company)  and  has  statutory  duties  under  the  Companies Act  which  are focused on protecting the interests of creditors.   It is an agency subject to external rules and ethical obligations.

The consequences of the application of agency principles are that:

...

Fiduciary principles apply.

[39]     Mr Malarao submitted that the approach under s 256(1)(a)(ii) should be to apply equitable principles as a guide in the absence of an express legislative scheme. In  making  that  submission,  he relied  upon  the  approach  taken  by the  Court  in relation to liquidators’ remuneration in Flynn v McCallum4. He then drew an analogy between the fiduciary obligations of liquidators to the creditors of a company in liquidation and the fiduciary obligations of a trustee to the beneficiaries of a trust

which include a duty to provide accounts and allow inspection by the beneficiaries. He suggested that creditors should be permitted to inspect the records of a liquidated company and the liquidation as a matter of course unless there was good reason to

rule otherwise.

3 Paul Heath and Michael Whale (eds) Heath and Whale on Insolvency (loose-leaf ed, LexisNexis) at

22.3.

4 Flynn v McCallum HC Tauranga CIV-2005-470-611, 17 December 2009.

[40]     The simple answer to that submission is that it reverses the presumption of non-inspection in the absence of a Court order.   I have explained above why that proposition is untenable on a plain reading of the legislative wording.

[41]     Third,  Mr Malarao  argued  that,  while  there  does  not  appear  to  be  any authority  in  which  express  attention  has  been  paid  to  the  interpretation  and application  of  s 256(1)(a)(ii),  the  approach  of  the  Courts  has  been  to  apply  a presumption in favour of a thorough investigation of the financial history and status of a company in liquidation.

[42]     In advocating support for the position taken by Mr Levin, Mr Malarao places considerable reliance upon the observations of Fisher J in the Ocean Shipping case.5

[43]     He also relies on Black v Selwyn Developments Limited (In Liquidation),6

Katavich v Meltzer & Anor,7 and Drilling Fluid Equipment NZ Limited v Registrar of

Companies & Anor,8 in which Fisher J’s comments were adopted.

[44]     Ocean Shipping concerned an application under the Companies Act 1955 for orders that Ocean Shipping Limited be restored to the Register, revoking the filing of the liquidators’ final report, and replacing the former liquidators.   In that case, the basis of the application was that the creditor (Orient Shipping) had been caused major loss by the failure of the company in liquidation.  The only opposition to the applications came from a former director of the company.  The point made by the applicant was that there had never been full and adequate exploration of the financial history of Ocean Shipping Limited with a view to maximising the possible returns to creditors, the company having been placed in voluntary liquidation.

[45]     The grounds for the applicant’s allegations were twofold.   First, there was said to be a possibility of reckless trading on the part of the former director, arising

5 Re Ocean Shipping Limited (In Liquidation) HC Auckland M348/96, 16 July 1996.

6 Black v Selwyn Developments Limited (In Liquidation )& Anor HC Auckland CIV-2007-404-4525,

20 August 2007.

7 Katavich v Meltzer & Hayward as liquidators of Blackmore Kitchens Limited (In Liquidation) & Anor [2011] NZCCLR 8.

8 Drilling Fluid Equipment NZ Limited v Registrar of Companies & Anor HC Wellington CIV-2008-

485-1985, 17 December 2008.

from the circumstances in which the company in liquidation elected to take a charter from the applicant based upon the financial security of  another company which turned out to be ill-placed.  It was also alleged that when Ocean Shipping Limited sub-chartered two ships to another company, that may have represented the disposition of valuable rights at an under-value.

[46]     It was against that background that Fisher J said:9

... there is a very strong presumption that the creditors of a failed company are entitled to a full and thorough investigation of the financial history and status of the company.  That is especially the case where they are prepared to fund the exercise.   Orient Shipping [the creditor] have been denied  that opportunity in the present case.   It may be that at the end of the day, as Mr Bourgogne alleges, the further investigation will prove fruitless but for my  part  I  would  be  very  slow  to  see  a  creditor  denied  at  least  the opportunity.

[47]     Ocean Shipping is distinguishable from the present case in that it did not concern an application under the 1993 Act by creditors to inspect accounts and records.   It concerned an application under the Companies Act 1955 to reinstate a liquidation on the ground that there had not been a full investigation by the former liquidators of the matters which were of concern to the creditor.  That much is clear from the remarks of the Judge in the paragraph immediately following that quoted at

[46] above:10

In the present case the former liquidators do not suggest that they have fully investigated those and other matters in respect of which Orient Shipping has concerns.  Rather, as I understand it, the former liquidators seem to have a difference with Orient Shipping over the question of funding and the extent to which Orient Shipping were actively seeking further investigation and were prepared to pay for it.   In those circumstances it seems to me that Orient Shipping have put up a respectable case for having the matter investigated further. (Emphasis added)

[48]    Fisher J’s assertion of a presumption in favour of "a full and thorough investigation" (by a failed company’s liquidators) is referable to the failure or refusal by the appointed liquidators in that case to undertake any investigation.  Here, the liquidators have conducted an investigation, as described by Mr Lawrence in his

affidavit and summarised at [24] and [25] above.

9 At 2-3.

10 At p4.

[49]     The application to the Court in Black v Selwyn Developments was, similarly, for an  order restoring the liquidated  company to  the Register and  revoking the former liquidator’s final report.   In that case, it was alleged that the company had been the subject of a voluntary liquidation on the basis that it was solvent whereas, according to the knowledge of a director of the company, it was still facing a claim which had been issued in the District Court and which would have potential benefit for the plaintiffs.   It was also alleged in that case that the liquidator had failed to make any effort to adequately investigate the circumstances of the company before completing his final report, and that had he done so he would have discovered the existence of the District Court claim.   The liquidator, although served  with the application for restoration and revocation, took no steps in respect of it.   In my respectful view, it was appropriate of Courtney J to adopt the approach taken in Ocean Shipping in such circumstances.

[50]     In Katavich v Meltzer the principal issue was whether the liquidators should be required to carry out investigations into the conduct of the company’s business which, it was acknowledged, merited investigation but which the liquidators refused to carry out unless they were funded by the creditors.  Duffy J resolved the issue by replacing  the  private  liquidators  with  the  Official Assignee  as  liquidator.    The question of who should fund an investigation for which there were acknowledged grounds was not resolved at that stage.

[51]     In Drilling Fluid v Registrar of Companies, Gendall AJ also took a similar view to that taken in Ocean Shipping.  Drilling Fluid, however, was a case where the applicant’s complaint was that the Official Assignee had failed to investigate the relationship between the liquidated company and the third party company to whom it had sold off its assets.  There were also allegations of reckless trading which had not been examined.   Restoration of the company to the Register and applications to reverse the liquidators’ final report and appoint fresh liquidators were not opposed by the Official Assignee.

[52]     None of these authorities assists the applicants in the present case.   The Waterman liquidators have deposed on oath that they have fully investigated the business and financial affairs of the company in liquidation.   The director of the

company has completed a business questionnaire.  The financial records have been examined and the liquidators have satisfied themselves that the company traded at a loss prior to ceasing to trade and that, as at the time of the liquidation, the company had no assets or liabilities.   The liquidators have established that, as a closely interested party, FDL paid all of the creditors of the company without being under any  legal  obligation  to  do  so.    The  liquidators  obtained  confirmation  that  no company funds were used to pay debts owed by the directors of the company. As the company ceased trading more than two years prior to the appointment of the liquidators, the liquidators were satisfied there were no potentially voidable transactions  to  be  investigated  under  s 292  of  the Act.    Finally,  the  liquidators reviewed documentation relating to the commencement and dissolution of the joint venture and were satisfied that there was nothing to justify a further inquiry.

[53]     It is not without significance that counsel for the applicants did not seek to cross-examine Mr Lawrence on his evidence about these matters.

[54]     The Court is required to exercise a supervisory jurisdiction over liquidations and to intervene when it is appropriate to do so.11   But the statutory regime under the Companies Act favours allowing liquidators to make business decisions which they, as the persons appointed to exercise statutory responsibilities, are better qualified than the Courts to make.  Without abrogating its supervisory obligations, the Court should  be  slow  to  intervene  where  matters  of  judgment  and  assessment  on commercial matters are concerned.12   That includes assessing how far to investigate possible avenues of recovery of funds for distribution.  Weighing the likely cost of pursuing such avenues against the prospects of success and the amount which may be recovered are matters for judgment which are squarely within a liquidator's domain.13

[55]     It would be inconsistent with the statutory scheme to provide opportunities for the automatic review of a liquidator's decisions by permitting any creditor or

11 Companies Act 1993, s 284.

12 Commissioner of Inland Revenue v Hulst (2000) 19 NZTC 15,693 at [25].

13 Re Callis; Callis v Pardington (1996) 7 NZCLC 261,211 at 261,216.

shareholder to inspect the accounts or records of the company and the liquidation merely because they wish to do so.

[56]     That  is  not  to  say  that  there  should  be  a  high  threshold  for  permitting inspection, but there must be some good reason for the Court to order inspection in circumstances where the statutory scheme does not ordinarily permit it.14   The test of “good  reason” does  not  require  any further elaboration;  whether the  Court  will exercise its discretion to order access to the records will depend on the particular circumstances of each case.

Should inspection be permitted in the present case?

[57]     I am not persuaded that there is any good reason to impede the orderly liquidation of Waterman by permitting the applicants to inspect the records.   It is insufficient that Mr Levin may have suspicions about possible sources of additional funds to meet creditors’ claims arising out of the relationship between Waterman, Trade Mart and FDL.  Mr Levin’s suggestions come close to alleging that there may have been some incompetence, if not impropriety, on the part of the respondents in the conduct of their statutory functions.   I am more than satisfied that there is no arguable basis for any such proposition.

[58]     Having reached the view that there is no good reason to permit the applicants to inspect the accounts and records, it is unnecessary for me to consider whether, in order to allow that course, the Court should direct that the company not be removed from the Register and reverse the act of the respondents in filing their final report.

[59]     The opposition of the respondent liquidators and FDL to the making of such orders was founded, in part, upon a submission that, in bringing the proceedings, the applicants   had   delayed   unreasonably   between   9 September 2011   (when   the Waterman  liquidators  were  given  seven  days  to  confirm  that  they  would  allow

inspection under the threat of the issuing of proceedings) and 23 January 2012 when

14 Re Birmingham Banking Co, ex parte Brinsley (1866) 36 LJ Ch 150; re Imperial Land Co of

Marseilles [1882] WN 173.

the final report was provided to the applicants.   While there is some force in the criticism of the applicants for delay, I would have been inclined, in any event, to make the necessary orders if I had come to the view that inspection of the records should be permitted.

Disposition

[60]     In the absence of any opposition, leave is granted under r 19.5 of the High Court Rules for the bringing of this proceeding by originating application, but the applications are dismissed.

Costs reserved

[61]     Costs are reserved.  Any application for costs by the respondents and/or FDL should  be  made  by  memorandum  filed  and  served  by  16  July 2012.     Any submissions in reply on  behalf of the  applicants should be filed and served by

13 August 2012.  Costs will then be determined on the papers.

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

Toogood J