Lock and Sheahan as Liquidators of Ex CED Foods (in rec and in liq) v Lawrence HC Auckland CIV-2011-404-4002
[2011] NZHC 1537
•14 October 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-4002
UNDER s 284(1)(b) Companies Act 1993
IN THE MATTER OF an application for order confirming a decision of liquidators
BETWEEN IAN RUSSELL LOCK AND JOHN SHEAHAN AS LIQUIDATORS OF EX CED FOODS (IN RECEIVERSHIP AND LIQUIDATION)
Applicants
ANDRICHARD LAWRENCE First Respondent
ANDNICHOLAS ANDREW FRANKISH Second Respondent
Hearing: 24 August 2011
Appearances: P G Skelton for the Applicants
P M Muir for the First Respondent
Appearance excused for the Second Respondent
Judgment: 14 October 2011 at 4:30 PM
JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 14 October 2011 at 4:30 pm pursuant to
r 11.5 of the High Court Rules Registrar/Deputy Registrar Date: ...................................
Re-delivered at 4:00 pm on 1 November 2011 as per minute of Peters J of 26 October 2011
Counsel: Mr P G Skelton, Barrister, Auckland – email: [email protected]
Solicitors: Simpson Grierson, Auckland – email: [email protected]
LOCK V LAWRENCE HC AK CIV-2011-404-4002 14 October 2011
[1] The applicants are the liquidators of Ex Ced Foods (―liquidators‖ and
―company‖). The company is unlimited, but was previously registered as a limited company and known as Cedenco Foods Limited.
[2] The respondents are, respectively, the company’s former Managing Director, and Finance Manager and Company Secretary. The respondents have lodged claims (―respondents’ claims‖) for the payment of sums which they contend are due to them under their employment contracts with the company. The liquidators have accepted parts of the respondents’ claims and declined others.
[3] The liquidators have made an originating application to the Court for an order confirming, reversing or modifying their decision to decline the relevant parts of the respondents’ claims (―originating application‖).1
[4] The first respondent seeks leave to commence proceedings in the Employment Relations Authority (―Authority‖)2 and an order staying the originating application.3 The issue is whether I should grant the first respondent’s applications. The second respondent abides the decision of the Court.
Background
[5] ANZ National Bank Limited appointed receivers to the company on
9 November 2009. On 23 November 2009, the receivers terminated the respondents’ employment and then offered to re-employ the respondents. The respondents accepted that offer.
[6] The company was placed into voluntary liquidation on 6 May 2010 and the applicants were appointed as liquidators.
[7] The respondents lodged their claims in the liquidation in early June 2010. Counsel for the liquidators submitted that the respondents’ decision to do so
constituted an election by them to proceed under the Companies Act 1993 (―the
1 Companies Act 1993, s 284(1)(b).
2 Companies Act 1993, s 248(1)(c)(i).
3 High Court Rules, r 15.1(3).
Act‖), rather than to seek to proceed in the Authority. Counsel accepted, however, that it was not apparent that there was a dispute at the time the respondents lodged their claims. Accordingly, the respondents’ actions could not be taken to estop them in any way.
[8] By letters to each respondent dated 27 May 2011, the liquidators advised that they had come to a preliminary decision to admit some parts of the respondents’ claims but to reject the claims for payment in lieu of notice and for redundancy compensation. The sums claimed under these heads were substantial. In the case of the first respondent, the effect of the liquidators’ decision was to accept approximately seven per cent of the total sum claimed and, in the case of the second respondent, to accept approximately 40 per cent of the total sum claimed.
[9] At the liquidators’ request, the respondents’ legal advisers then wrote setting out their clients’ position. By letters dated 1 July 2011 the liquidators confirmed the decisions referred to in [8] above. The liquidators filed the originating application and supporting evidence the same day. The relevant part of s 284 of the Act reads as follows:
284 Court supervision of liquidation
(1) On the application of the liquidator, a liquidation committee, or, with the leave of the Court, a creditor, shareholder, other entitled person, or director of a company in liquidation, the Court may—
...
(b) Confirm, reverse, or modify an act or decision of the liquidator:
...
(3) Subject to subsection (4) of this section, a liquidator who has—
(a) Obtained a direction of a Court with respect to a matter connected with the exercise of the powers or functions of liquidator; and
(b) Acted in accordance with the direction—
is entitled to rely on having so acted as a defence to a claim in relation to anything done or not done in accordance with the direction.
(4) A Court may, on the application of any person, order that, by reason of the circumstances in which a direction was obtained under subsection (1) of this section, the liquidator does not have the protection given by subsection (3) of this section.
[10] The first respondent then filed an appearance under protest to jurisdiction. The essence of the protest was that there was a dispute between the parties; that the dispute constituted an employment relationship problem within the meaning of s 5 of the Employment Relations Act 2000; and that the Authority had exclusive jurisdiction to determine the dispute.4
[11] At the same time, the first respondent filed an application to the Authority pursuant to s 158 Employment Relations Act 2000, and sought an urgent fixture. The first respondent cannot pursue this application without obtaining leave to do so pursuant to s 248(1)(c) of the Act.
[12] It is common ground that, but for the fact that the company is in liquidation, the dispute between the parties as to the respondents’ claims would constitute an employment relationship problem and so be subject to the exclusive jurisdiction of the Authority.
[13] The liquidators have applied to set aside the first respondent’s appearance to protest jurisdiction. The first respondent opposes the application to set aside and (orally) made the applications for leave and for the stay of proceedings that are referred to in [4] above. The liquidators oppose both applications. I am satisfied that the High Court has jurisdiction to hear and determine the originating application. Accordingly, I propose to set aside the first respondent’s appearance to protest jurisdiction dated 20 July 2011 (see r 5.49(6)(a), High Court Rules).
Discussion
[14] In so far as concerns the first respondent’s application for leave, the relevant part of s 248(1)(c)(i) of the Act reads as follows:
4 Employment Relations Act 2000, s 161.
248 Effect of commencement of liquidation
(1) With effect from the commencement of the liquidation of a company,—
...
(c) unless the liquidator agrees or the Court orders otherwise, a person must not—
(i) commence or continue legal proceedings against the company or in relation to its property; ...
[15] The primary factors that the Court will consider in exercising its jurisdiction to grant leave are:5
(a) the requirement for equality among creditors;
(b)the consideration that the assets of the company should not be dissipated in wasteful litigation, particularly if there is a more convenient method of determining the claim;
(c) the need for consideration of the alternative procedure prescribed by s 302 of the Act, coupled with the Court’s power of review in s 284(1)(b) of the Act;
(d)the proposed claim must be shown to be not unsustainable, but beyond that the Court should not examine the merits of the case;
(e) whether, even if successful, the relevant proceedings are likely to be fruitless; and
(f) whether there has been any delay by an applicant.
[16] The party seeking leave has the onus of satisfying the Court that leave should be given.6
5 IH Wedding & Sons Ltd v Buy-Sell Realty NZ Ltd HC Auckland CIV-2008-404-5502, 27 November
2008 at [12].
6 Ibid.
[17] The Court may stay a proceeding on such conditions as it considers just.7
[18] Counsel for the first respondent largely rested her case on the fact that, but for the liquidation, the matters in dispute between the parties would have to be determined by the Authority. In addition, counsel submitted that the experience and expertise of the Authority makes it the best forum for determination of the issues in dispute.
[19] In opposing the first respondent’s applications, the liquidators relied on two principal matters as being relevant to the exercise of my discretion to grant leave to commence proceedings and to stay the originating application. The first concerned the effect of liquidation on a company, on the respondents as creditors and on the appropriate dispute resolution measures to be adopted as between creditor and company. The second matter relied upon concerned the nature of the dispute between the parties. Counsel for the liquidators submitted that the dispute raises legal issues which are not peculiar to the employment context and that the nature of the issues is such that the High Court is as well placed as the Authority to resolve the matter.
[20] The liquidators’ submissions as to the significance of the fact of liquidation were as follows. First, the liquidators submitted that liquidation alters the rights and obligations of creditors and changes the status of a company. Such changes are reflected in matters such as the need, after the appointment of liquidators, to obtain leave to transfer shares and the need for a creditor to obtain leave to commence proceedings against the company. Counsel also submitted that the Act, in contrast to its predecessor Companies Act 1955, contemplated that liquidators would have more autonomy to conduct the affairs of the company in liquidation, reflecting an expectation that the Court would have a lesser role to play.
[21] Counsel also submitted that a liquidator is an officer of the High Court and that, as such, he or she comes under the direction and supervision of the High Court, not the Authority; that the Authority does not have jurisdiction to confirm, modify or
reverse a decision of a liquidator and that, even if the Authority did have jurisdiction
7 High Court Rules, r 15.1(3).
to hear and determine the originating application (which was denied), only an order of the High Court could protect the liquidators from personal liability under s 284(3) of the Act.
[22] These submissions are sound as matters of principle but they are not persuasive on the facts of this case. That is because, first, the company is not insolvent. On the contrary, counsel for the liquidators advised that the claim of every creditor has been, or is able to be, met in full. Nor are the liquidators facing a multitude of claims, whether by creditors or others. In fact, the respondents appear to be the only parties seeking to bring a claim. Accordingly, factual circumstances which might arise in other liquidations and which would make it appropriate for the High Court to decline leave and decline a stay do not arise in this case.
[23] Secondly, the first respondent seeks a stay, not the dismissal, of the originating application. If a stay is granted, the liquidators may pursue the originating application after the dispute between the parties has been resolved. Counsel for the first respondent advised that the first respondent would not seek to have ―another bite of the cherry‖ under s 284(1)(c) of the Act if he did not succeed in his proceedings. In any event, even if he were to have standing at a later hearing, the first respondent would need leave to appear on the originating application. On the information before me, it appears unlikely that any other party would seek to appear on the originating application.
[24] Thirdly, it is always a possibility that a creditor or other party will be given leave to pursue legal proceedings against the company in liquidation. In fact, there is authority to the effect that it is preferable for a creditor who is dissatisfied with a decision of a liquidator to seek leave to commence proceedings under s 248(1)(c) of the Act, rather than to seek leave under s 284(1)(b) to apply to reverse a liquidator’s
decision.8
[25] Both parties made submissions as to the nature of the dispute and whether it was such that it was best determined by the Authority.
8 Re HIH Casualty and General Insurance (N.Z.) Limited (in Liq) HC Auckland CIV-2009-404-3637,
23 March 2011.
[26] Counsel for the first respondent submitted that there are factual and legal disputes between the parties and that those issues are of a type which are routinely dealt with by the Authority. Counsel submitted that the factual issues include, for instance, the basis on which the first respondent accepted the receivers’ offer and whether the role which the receivers offered to the first respondent in November
2009 was the same as the role he had undertaken prior to the receivers’ appointment.
[27] I have reviewed the application which the first respondent filed with the Authority. It states that the claim comprises sums said to be due for redundancy compensation and for salary in lieu of notice. Clearly these matters derive from the employment contract between the first respondent and the company.
[28] Counsel for the liquidators submitted that there were no particular issues between the parties which meant the case was more suited to resolution in the Authority than in the High Court. Counsel submitted the issues in dispute did not include factual issues and nor was it necessary to determine the quantum of the respondents’ claim. The quantum is known.
[29] Counsel for the liquidators submitted that the issues which required determination were points of law and that the procedure contemplated by s 284(1)(b) of the Act was appropriate in the circumstances. Counsel said that the issues in dispute were whether the respondents were under an obligation to mitigate their loss; whether a receiver who is appointed under the Receiverships Act 1993 and who exercises powers to terminate employment and then to re-employ creates a
redundancy entitlement;9 and whether, in admitting or rejecting the respondents’
claims under s 304 of the Act, the liquidators were bound by previous statements of the receivers.
[30] I accept that these may be the issues which the liquidators anticipate but, clearly, the first respondent anticipates other, factual issues. Given the potential significance of the re-employment effected by the receivers, it may be that one or
more witnesses, including the receivers, will be required to give evidence.
9 Receiverships Act 1993, s 32(2)(b).
[31] The matter is finely balanced but I have decided to grant leave to the first respondent to commence proceedings before the Authority and to stay the originating application pending further order of the Court. I also grant the same relief in respect of the second respondent, as he abides the decision of the Court.
[32] The matters which weigh with me particularly are those referred to in [22]
and the nature of the dispute between the parties.
[33] The effect of these decisions will be to delay the determination of the originating application. There would, however, have been a delay in determining that application in any event, because the application would have been opposed. I am not satisfied that the delay will be increased by granting the applications sought by the first respondent. Also, as counsel for the first respondent submitted, the liquidators did not respond to the respondents’ claims for almost 12 months. Similarly, the liquidators delayed communicating their final decision on the respondents’ claims until they had prepared their legal proceedings and affidavit evidence in support. If the respondents were to delay from hereon, then the liquidators may seek to bring on the originating application.
[34] Pursuant to r 5.49(6)(a), High Court Rules I set aside the first respondent’s appearance to protest jurisdiction dated 20 July 2011. Pursuant to s 248(1)(c) of the Act, I grant leave to the respondents to commence legal proceedings against the company in the Employment Relations Authority. Pursuant to High Court Rules, r 15.1(3), I stay the liquidators’ originating application dated 4 July 2011 pending further order of the Court. I grant costs to the first respondent on a 2B basis with disbursements as fixed by the Registrar. I make no order as to costs or disbursements in favour of the second respondent.
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PETERS J
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