Liang
[2024] NZHC 368
•29 February 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-365
[2024] NZHC 368
UNDER the Companies Act 1993 IN THE MATTER
of an application under s 250 of the Companies Act 1993 to terminate the
liquidation of BRIGHT CONSTRUCTION LIMITED (in liquidation)
BETWEEN
YAN LIANG
Applicant
Hearing: On the papers Counsel:
JRF Cochrane and X Q Casey for the Applicant
Judgment:
29 February 2024
JUDGMENT OF WOOLFORD J
This judgment was delivered by me on 29 February 2024 at 12:15 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Solicitors:
Lane Neave (JRF Cochrane), Auckland
RE LIANG [2024] NZHC 368 [29 February 2024]
[1] The plaintiff, Yan Liang, as sole director and shareholder of Bright Construction Company Limited (in liquidation) (the company), applies without notice for orders:
(a)directing that the statement of claim need not be served on any party; and
(b)terminating the liquidation of the company.
Factual background
[2] The plaintiff is the sole director and shareholder of the company. On 1 December 2023, Craig Alexander Sanson and Stephen Robert White of PriceWaterhouseCoopers (Auckland) were appointed as liquidators of the company. Prior to liquidation, the company was in the business of providing construction services.
[3] The liquidation of the company arose because it defaulted on payment of a tax debt due to Inland Revenue Department (IRD) and following a proceeding being filed in the High Court by the IRD to place the company into liquidation (CIV-2023-404- 2322).
[4] The plaintiff explains that she was unaware that the company had a tax liability. She relied on the company’s previous accountants to ensure that the company was meeting its tax obligations. As English is her second language, she had not appreciated the significance of the communications the IRD had sent to the company. In hindsight, she acknowledges she should have taken advice sooner regarding the IRD’s application to liquidate the company. She had hoped the tax issues would be able to be resolved before the company was liquidated, but this was not the case.
[5] The plaintiff says she is very keen to get the company out of liquidation as soon as possible. She has a number of staff who were on visas through the company’s Employer Work Visa Accreditation (EWVA). She is concerned their visas could be affected if the liquidation continues. She is eager to resolve the debt with the IRD and to avoid similar issues happening in future. The company has engaged new
accountants and the plaintiff is hopeful that the change of accountants means that the company’s tax position is better understood and managed.
[6] At the time of liquidation, the plaintiff believed the company could have sourced funds to pay the tax debt claimed by the IRD.
[7] Following the company’s liquidation, through her solicitors, Lane Neave, she advised the liquidators and Immigration New Zealand that she anticipated applying to the High Court to terminate the liquidation. She has also advanced shareholder capital totalling $592,936.57 (the capital) to the company for the payment of the liquidators’ costs, employee costs and settlement of all creditor claims lodged by the liquidators.
[8] The plaintiff has provided company records to the liquidators at their request. The plaintiff says she moved quickly to address the company’s liquidation and do all things necessary to advance the termination proceeding. The plaintiff says it has been a highly stressful time for her and the company’s employees, who are now on liquidator employment agreements.
[9] In an affidavit sworn by one of the liquidators, Mr Sanson, he confirms that the liquidators have followed standard process in the liquidation of the company. As liquidators, they have commenced receipting creditor claim forms, vetting them and verifying the admissible claim amounts in the liquidation of the company. He also says that the liquidators’ costs and expenses are sufficiently secured.
[10] Based on the company’s records, creditors’ claims in the liquidation can be summarised as follows:
(a)Inland Revenue Department - $528,885.25.
(b) IRD petitioning creditor costs - $1,504.94. (c) ACC - $8,225.97.
(d) Employees - $85,500.67.
(e) Bunnings Limited - $350.90.
Total claims as at 21 February 2024 were $624,467.75.
[11] To the best of Mr Sanson’s knowledge, the above estimate is an accurate reflection of the company’s creditors who have or might lodge a claim in the liquidation. As noted in their first report, notice has been given to creditors to make claims. The liquidator’s public notice of appointment in the New Zealand Herald and Gazette fixed 19 January 2024 as the date by which the creditors of the company were to make their claims.
[12] Since the company was put into liquidation, Mr Sanson confirms the company received an injection of capital from its shareholder totalling $592,936.57 on 21 February 2024. The capital is being used to pay all admitted creditor claims and to provide certainty to the liquidators to allow the company to continue to trade while the termination proceeding is being prepared.
[13] The liquidators terminated 22 of the company’s existing employment contracts upon liquidation but offered 20 staff members new liquidator employment contracts with the company to enable continued operations.
[14] Liquidator’s fees and expenses billed to 15 February 2024 are $80,140 plus GST. Further liquidator fees and expenses will continue to be incurred until the termination order is made. At this stage, Mr Sanson says the liquidators’ fees and expenses are sufficiently secured to 29 February 2024, subject to the ongoing collection of debtors and the payment of staff wages incurred in February and due in March.
[15] Mr Sanson notes that the liquidators are also in receipt of an undertaking from Ms Liang’s lawyers regarding them holding in their trust account a further $100,000 for the payment of wages to the company’s employees if required before a termination order is made. Mr Sanson also acknowledges the letters received by the liquidators from company customers as to future workflows.
[16] Mr Sanson concludes that, overall, the liquidators consider that the orders sought by the plaintiff terminating the liquidation of the company and returning it to her control to be the best outcome for all parties involved. The liquidators support the Court making an order terminating the liquidation. The liquidators recognise the plaintiff’s concerns regarding the potential loss of the EWVA status and ask the Court to give directions dispensing with service and make a termination order as soon as possible.
Legal principles
[17] The plaintiff applies for a direction under r 18.6 of the High Court Rules 2016 (the Rules), directing that the statement of claim need not be served on any parties. The termination proceeding is a proceeding under r 18.1(b)(iii), being a proceeding in which the relief is claimed solely under the Companies Act 1993 (not being a proceeding properly brought under Pt 19 or 31 of the Rules).
[18] Under r 18.4, the termination proceeding must be commenced by a statement of claim and accompanied by an application for directions as to service and representation under r 18.7.
[19] Rule 18.9 requires the statement of claim to be verified where the statement of claim is not required to be served (for example, where the proceeding is without notice) or where service has been dispensed with. The plaintiff has verified the grounds in the statement of claim in her affidavit filed in support.
[20] Then, the plaintiff applies to terminate the liquidation under s 250 of the Companies Act 1993. Under s 250, the Court has the discretion, at any time after the appointment of a liquidator of a company, if it is satisfied that it is just and equitable to do so, to make an order terminating the liquidation of a company.
[21] In the ordinary run of cases, the Court will only exercise its discretion to order termination of a liquidation if:1
1 Re Bish: Snakk Media Ltd (In Liq) [2020] NZHC 2531 at [49] citing Re Bell Block Lumber Ltd (In Liq) [1992] 6 NZCLC 67,690.
(a)all the creditors have been paid in full or satisfactory provision has been made for them to be paid or they have consented;
(b)the liquidators’ costs have been paid or secured; and
(c)the shareholders have given their consent or would be in no worse position than if the liquidation had proceeded to its conclusion.
[22] The Court’s starting point is to consider whether these factors have been met and, if not, whether there are any exceptional circumstances that warrant the making of the order even if those principles are not fully satisfied.
[23] The Court is not constrained to a consideration of only these factors in determining whether it would be just and equitable to terminate the liquidation. The Court will also have regard to the public interest, and it will be concerned to protect the interests of the present creditors of the company, as well as the interests of those parties who would, in future, have dealings with it if the liquidation were terminated. The Court’s power under s 250 is expressed in very broad terms. These factors, although they might be necessary pre-conditions to the exercise of the power to order termination, should not be seen as an exclusive set of criteria.
Discussion
[24] As to the service application, I am of view that the requirements of rr 7.23(2)(a)(i) and (b) are met. While the service application is not of a kind that is likely to be contested if it were made on notice, counsel has certified that the service application complies with the Rules.
[25] To require the service application to be brought on notice would unduly prejudice, increase cost and/or delay the plaintiff, the liquidators, the company, and the company’s employees and clients in relation to the termination proceeding.
[26] As noted above, all known creditors have or will have their debts satisfied. Progressing on notice would likely delay the orders that the plaintiff seeks and increase
cost for the plaintiff as shareholder and the company itself in terms of ongoing costs of funding the liquidation.
[27] The plaintiff and liquidators are concerned that, if directions dispensing with services are not made, this could negatively affect the company’s EWVA status (including that this could be revoked entirely), in turn, potentially negatively affecting the company’s employees own individual visas.
[28] As to the termination proceeding, I agree with counsel that the factors set out above in paragraph [21] have been met in this case. As far as I can ascertain, there are no parties who might be adversely affected by the service application or the termination proceeding. The creditors of the company have, or will have, all have their debts satisfied and are, or will be, no longer creditors (including the petitioning creditor).
[29] The plaintiff, as sole director and shareholder of the company, has or will put in place practices and procedures which should avoid insolvency in the future if the liquidation is terminated. In this regard, the company’s creditors and the public interest are protected in respect of further dealings.
[30] The company will be no worse off if the liquidation is terminated than if it had proceeded to its conclusion.
[31] The liquidators have entered into satisfactory arrangements regarding their costs and expenses with the plaintiff and have filed an affidavit in support of the service application and termination proceeding.
[32] If an order is made and the company comes out of liquidation, it would be in a position to continue successfully trading and providing construction services to those projects referred to the plaintiff’s affidavit. In that event, it is expected that the company would be better off than if the liquidation is completed because it will allow the assets to be utilised to further the company’s business interests.
[33] When the liquidators were appointed, 22 staff employment agreements were terminated and 20 employees were put on liquidator employment agreements. If an order terminating the liquidation is not made, the existing liquidator employment contracts will be terminated.
[34] If the termination proceeding is not successful, the company’s EWVA status will likely be lost. If the EWVA status is lost, it is likely that the company’s employees will be negatively affected.
Result
[35] In all the circumstances, there will be a direction that the statement of claim need not be served on any party. Further, there will be an order terminating the liquidation of the company under s 250 of the Companies Act 1993.
Woolford J
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