MARK TERENCE MCDONALD and DAVID IAN RUSCOE as liquidators of SATORI HOLDINGS LIMITED (In Liquidation) s SATORI HOLDINGS LIMITED (In Liquidation) AND ISLAND GRACE (FIJI) LIMITED (In Receivership and liquidation)...
[2024] NZHC 2675
•16 September 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2024-404-001732
[2024] NZHC 2675
IN THE MATTER OF The Companies Act 1993 BETWEEN
MARK TERENCE MCDONALD and
DAVID IAN RUSCOE as liquidators of SATORI HOLDINGS LIMITED (In
Liquidation)
First ApplicantsSATORI HOLDINGS LIMITED (In
Liquidation) Second Applicant
AND
ISLAND GRACE (FIJI) LIMITED (In
Receivership and liquidation) First Interested Party
SEQUITUR CAPITAL PTY LIMITED
Second Interested PartySEQUITUR HOTELS PTY LIMITED
Third Interested PartyANDREW HUGH GRIFFITHS
Fourth Interested Party
Hearing: 13 August 2024 Appearances:
W R Potter and M G P Martin for the Applicants
A S Olney for the First, Second and Third Interested Parties No appearance for the Fourth Interested Party
Judgment:
16 September 2024
JUDGMENT OF TAHANA J
This judgment was delivered by me on 16 September 2024 at 4.00pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
MCDONALD and RUSCOE as liquidators of SATORI HOLDINGS LIMITED (In Liquidation) v ISLAND GRACE (FIJI) LIMITED (In Receivership and liquidation) [2024] NZHC 2675 [16 September 2024]
Introduction
[1] The applicants are the liquidators of Satori Holdings Ltd (in liquidation) (Satori) and Satori. Satori was the corporate trustee of the Satori Family Trust (Satori Trust), a foreign trust registered in New Zealand. Mr Griffiths is the sole director and shareholder of Satori.
[2] The applicants claim a right of indemnity out of Satori Trust’s assets for liabilities incurred in Satori’s capacity as trustee. The liquidators have admitted claims in the liquidation of Satori from Island Grace (Fiji) Ltd (in receivership and in liquidation) (Island Grace Ltd)) and from Sequitur Hotels Pty Ltd (Sequitur Hotels). Claims in the litigation by Mr Griffiths and Sequitur Capital Pty Ltd (Sequitur Capital) have not been admitted.
[3]The applicants seek:
(a)declarations that Satori and/or the liquidators have a right to be indemnified out of Satori’s assets for:
(i)the liquidators’ fees and expenses;
(ii)the claims of Island Grace Ltd and Sequitur Hotels; and
(iii)any further creditor claims that are admitted in the liquidation; and
(b)orders for sale of Satori’s assets so that the proceeds from that sale may be used to meet the liabilities referred to at [3(a)].
[4] The liquidators also seek directions under s 284 of the Companies Act 1993 (the Act) as to the liquidators’ proposed actions in selling Satori’s assets and distributing the proceeds of sale.
[5] Counsel for Mr Griffiths by memorandum dated 2 August 2024 indicated that he is taking no steps in this proceeding and no appearance was entered.
Background
Satori’s assets
[6] The liquidators are aware that Satori’s assets are limited to interests held in two unincorporated joint ventures:
(a)a 24 per cent interest in the Island Grace Joint Venture (the Island Grace JV); and
(b)a 31.66 per cent interest in the Vunabaka Bay Joint Venture (the Vunabaka JV).
The Island Grace JV
[7] Satori, Sequitur Hotels, Island Grace Ltd, and two other companies are parties to an amended and restated joint venture agreement dated 14 March 2019, which governs the Island Grace JV (the IGJV Agreement). Island Grace Ltd as trustee held the main asset of the Island Grace JV, which was a Fijian resort known as “Six Senses Fiji”.
[8] The decision of the Court of Appeal in Griffiths v Island Grace (Fiji) Ltd (in rec and liq) summarises what happened with the Island Grace JV including its interrelationship with the Vunabaka JV:1
The joint venture’s principal asset was a Fijian resort, Six Senses Fiji, on land subleased from Vunabaka Bay Fiji Ltd, also a New Zealand company. The resort was planned to form part of a larger development to be undertaken by another joint venture, the Vunabaka Bay joint venture, of which Satori as trustee also holds a 31.66 per cent interest (and shareholding in Vunabaka Bay Fiji Ltd, which is the trustee company for the Vunabaka Bay joint venture).
…
The Island Grace joint venture was the recipient of a substantial loan from the Fiji Development Bank. Satori did not meet its share of the loan’s debt or respond to a number of capital calls made by the joint venture. By final and binding expert determination of the Hon Paul Heath KC dated 1 April 2022, Satori was found to be liable, among other things, to respond to the capital calls (and for costs). In another proceeding, stayed pending the outcome of
1 Griffiths v Island Grace (Fiji) Ltd (in rec and in liq) [2023] NZCA 627 at [5]–[9]. Footnotes omitted.
the present proceeding in the High Court, Satori sought to set aside Island Grace’s statutory demand for the capital call debt.
After Island Grace’s directors resolved in December 2021 the company was or was likely to become insolvent, Island Grace was put into receivership by Sequitur. The receivers obtained a stay of the consent orders in the Fiji Magistrates Court, and sold the resort to Sequitur in May 2022 for FJD 24.0 million. The sale left FJD 29.8 million owing to creditors, of which Satori is contended liable for its pro rata share.
Also in June 2022, on Island Grace’s application, interim liquidators were appointed to Satori. The liquidators identified Satori’s assets as its interests in the two joint ventures (and a miniscule sum of FJD in a bank account), and its liabilities as the capital calls and loan debt together in the amount of some FJD 8.2 million (as well as costs of NZD 73,000 which Satori was ordered to pay following the expert determination). These are the debts on which Island Grace’s liquidation application primarily relies.
The Vunabaka JV
[9] The Vunabaka JV is governed by a joint venture agreement (the VBJV Agreement). Satori is a party to the VBJV Agreement and Vunabaka Bay Fiji Ltd (Vunabaka Ltd) is the corporate trustee that holds the assets of the Vunabaka JV.
[10]Satori holds:
(a)a 31.66 per cent participating interest in the Vunabaka JV;
(b)a 31.66 per cent shareholding in Vunabaka Ltd; and
(c)a loan of FJD 3,722,555 to Vunabaka Ltd, (the Vunabaka Assets).
[11] The liquidators have identified the Vunabaka Assets as the only assets of any material value in the liquidation of Satori.
Appointment of liquidators
[12] On 21 June 2022, Mr McDonald and Mr Cox were appointed as interim liquidators2 and on 17 February 2023, they were appointed as permanent liquidators. On 28 April 2023, Mr Cox resigned and was replaced by Mr Ruscoe.
Claims in the liquidation
[13] The liquidators have admitted three creditor claims totalling NZD 6,336,630: being two claims from Island Grace Ltd and one claim from Sequitur Hotels:
(a)Island Grace Ltd claims NZD 6,263,630 (equivalent to FJD 8,639,489) arising from unpaid capital calls owing by Satori (which claim was the subject of an expert determination); and an indemnity claim against Satori under the IGJV Agreement; and
(b)Sequitur Hotels claims NZD 73,000 (equivalent to FJD 100,690) arising from a costs determination made by the expert in the expert determination.
[14]The liquidators are yet to determine two further claims:
(a)Sequitur Capital claims FJD 28,026,740 (which equates to approximately NZD 20,556,200) relating to a claim that is before the Fijian High Court; and
(b)Mr Griffiths claims NZD 6,265,311.
[15] The liquidators say that it is unclear what Mr Griffiths’ claim relates to as he has not provided any explanation for the claim or supporting documentation (despite being requested to do so). I note that the financial statements of the Satori Trust for the year ended 31 March 2022 record a loan of NZD 6,265,311 from Mr Griffiths so it appears that Mr Griffiths’ claim relates to that loan.
2 Island Grace (Fiji) Ltd (in rec and in liq) v Satori Holdings Ltd (in interim liq) [2023] NZHC 219 at [119].
Funding from creditors
[16] On 21 March 2023, the liquidators issued their first liquidator’s report. In that report, they sought creditor funding to progress the liquidation.
[17] From 5 May 2023 to 26 June 2023, the liquidators communicated with Mr Griffiths in relation to possible funding of the liquidation.
[18] On 5 July 2023, the liquidators entered into a funding agreement with Island Grace, Sequitur Capital and Sequitur Hotels (the Funding Agreement).
Proposed purchase of the Vunabaka assets by Sequitur Capital
[19] On 15 September 2023, the liquidators received a term sheet containing draft terms on which Sequitur Capital is willing to purchase the Vunabaka Assets.
[20] On or around 25 September 2023, the liquidators filed an application under s 266 of the Act against Mr Griffiths, seeking copies of Satori’s books and records (amongst other things).
[21] On 4 October 2023, the liquidators wrote to Mr Griffiths seeking his feedback in relation to the proposed sale process for the Vunabaka Assets.
[22] On 6 October 2023, the liquidators wrote to Vunabaka Ltd, offering to sell the Vunabaka assets to the other Vunabaka JV parties for FJD 9 million.
[23] On the same day, Vunabaka Ltd replied saying that the other Vunabaka JV parties did not wish to purchase the Vunabaka Assets at the price proposed.
[24] On 9 October 2023, the liquidators wrote to Mr Griffiths, providing more information with respect to the proposed sale process.
[25] In October 2023, the liquidators took steps to publicly advertise and solicit offers to purchase the Vunabaka Assets.
Proceedings by Mr Griffiths
[26] On 17 November 2023, Mr Griffiths applied to review the liquidators’ decisions concerning the Funding Agreement. Mr Griffiths is required to seek leave to bring the application under s 284 of the Act. The application for leave is set down for hearing on 6 November 2024 in the High Court at Hamilton.
[27] On 28 November 2023, Mr Griffiths’ solicitor notified the liquidators that Satori had been replaced as trustee of the Satori Trust. Mr Griffiths alleges that on 18 October 2022 Satori was replaced as trustee by Moboryma LLC, a Delaware entity.
[28] On 30 November 2023, the liquidators again wrote to Vunabaka Ltd, reoffering the Vunabaka Assets to the Vunabaka JV parties at the price offered by Sequitur Capital. On the same day, Vunabaka Ltd responded saying the Vunabaka JV parties did not wish to purchase the Vunabaka Assets.
Capital call
[29] On 28 June 2024, Vunabaka Ltd sent a proposed resolution for a capital call of FJD 8.65 million, for which Satori is obliged to contribute FJD 2,738,590 (the Capital Call). The Capital Call is due to be paid by 30 September 2024. If Satori does not meet that capital call its interest in the Vunabaka JV will be diluted from 31.66 per cent to 2.83 per cent.
Proposed sale and purchase agreement for Vunabaka Assets
[30] The applicants have provided a copy of the proposed sale and purchase agreement for the Vunabaka Assets (the SPA). The key terms provide that Satori will sell the Vunabaka Assets to Island Grace Ltd, Sequitur Hotels and Sequitur Capital (together, Sequitur) for FJD 9,072,309. The consideration for the sale will comprise:
(a)funding advanced under the Funding Agreement plus cash required to complete the liquidation (the Cash component); and
(b)credit bids by Island Grace Ltd and Sequitur Hotels pro rata to their admitted claims (the Credit bid component).
Does Satori have a right of indemnity out of Satori Trust assets?
Relevant law
[31]A trustee has a right of indemnity under s 81 of the Trusts Act 2019:
81Trustee’s liability for expenses and liabilities incurred, and trustee’s right to indemnity
(1)A trustee is personally liable for an expense or a liability incurred by the trustee when acting as a trustee.
(2)However, a trustee who incurs an expense or a liability when acting reasonably on behalf of the trust is entitled,—
(a)if the trustee has paid the expense or discharged the liability out of the trustee’s own funds, to reimbursement from the trust property; or
(b)in any other case, to pay the expense or discharge the liability directly from the trust property (or to have it paid or discharged by a remaining trustee).
(3)The operation and enforcement of the indemnity in this section is governed by the rules of the common law and equity relating to trusts.
(4)This section does not limit any indemnity available at common law or in equity.
[32] A trustee who incurs an expense or liability when acting reasonably on behalf of the trust is therefore entitled to discharge the liability directly from the trust property.
[33] The liquidators refer to Camray Farms Ltd (in liq) v BL (Nature Sunshine) Trustee Ltd, where Edwards J accepted that a trustee has a right of indemnity against the trust assets for liabilities incurred in the performance of the trustee’s duties.3 The right of indemnity may be expressly provided for in the trust deed or implied at equity.4
[34] A trustee’s right of indemnity is enforced by way of an equitable lien over the assets of the trust. This creates a proprietary interest in the trust property in favour of
3 Camray Farms Ltd (in liq) v BL (Nature Sunshine) Trustee Ltd [2019] NZHC 2536 at [57].
4 At [57] citing Worrall v Harford (1802) 32 ER 250 at [7].
the trustee where the right is one of recoupment.5 The lien comes into existence when the right of indemnity arises, that is at the time the liability was incurred.6
Were the liabilities incurred in Satori’s capacity as trustee of Satori Trust?
[35] The financial statements of the Satori Trust for the year ended 31 March 2022 record Satori as the trustee.
[36]The constitution of Satori records that:
Trusteeship: Notwithstanding anything in law (and in particular section 16(2) of the Act) or this constitution the capacity and corresponding rights, powers and privileges of the Company are limited to undertaking the trusteeship of trusts and the Company shall not carry on any other business or activities.
[37] The IGJV Agreement records Satori as trustee of the Satori Trust. In entering that agreement, it was clearly acting as trustee.
[38] Satori seeks to be exonerated for the liabilities arising from Satori’s participation in the IGJV Agreement. In this regard, the liabilities that are the subject of the admitted claims relate to Satori’s failure to comply with a capital call under the IGJV Agreement; Satori’s failure to indemnify Island Grace Ltd under cl 4.3 of the IGJV Agreement and Satori’s failure to comply with the expert costs’ determination. Those liabilities were all incurred in Satori’s capacity as trustee of Satori Trust.
[39] Island Grace Ltd relies on cl 4.3 of the IGJV Agreement for its indemnity claim:
The Joint Venture Parties agree to severally (in their respective Proportionate Shares) indemnify the Trustee for all expenses, costs, losses, claims and liabilities which arise or are incurred by the Trustee in connection with the Property and Assets or as a result of the Trustee agreeing to act, and acting, as trustee for the Joint Venture Parties in accordance with this Agreement, except as may result from the breach of this Agreement by, or default or negligence of, the Trustee.
5 At [62] citing Re Suco Gold (1983) 7 ACLR 873; and Official Assignee v Menzies HC Auckland CIV 2010-404-5457, 14 February 2011.
6 At [35].
[40] The receivers of Island Grace Ltd have demanded payment from Satori to meet liabilities owing to its creditors. Under cl 4.3 of the IGJV Agreement, Island Grace Ltd is entitled to make such a claim. There is no evidence before the Court of any breach of the IGJV Agreement, default or negligence by Island Grace Ltd. Mr Griffiths was entitled to be heard in opposition to this application but determined not to.
[41] The circumstances resulting in the capital call and indemnity claim were summarised in Island Grace (Fiji) Ltd (in rec and liq) v Satori Holdings Ltd (in interim liq):7
[86] In his determination, Mr Heath KC recorded Satori's position as follows:
The consequence of a JV partner not meeting a capital call was to have its proportionate shares diluted in accordance with the agreement. Neither Satori nor NJA (the JV parties who have not met the capital calls) has an ongoing obligation to pay the calls that they have not met. There is nothing for the defaulters to pay.
[87] Despite Satori's position, Mr Heath KC concluded that the agreement imposed an obligation on the JV partners to meet their pro rata share of capital calls. He also concluded that a failure by a JV partner to meet its pro rata share is an event of default. In this case therefore, there was an event of default.
[88] I accept that not all matters in dispute between the parties were resolved by Mr Heath KC. In particular, he did not address the question of whether Sequitur, in bad faith, instituted a capital call process designed to enable it to control the governance and management of the JV. He did nevertheless address the critical issue of default and concluded that Satori and NJA continue to be in default under the agreement. In any event, it does not automatically follow from the decision of Mr Heath KC not to address all outstanding issues that there is an arguable case that Satori is not liable for the capital call debt or that there is any merit to the allegation against Sequitur of bad faith.
[89] Furthermore, the capital call debt is just one of a significant number of debts that the plaintiff, IGFL [Island Grace Ltd], relies upon.
[90] As I have noted above, Mr Griffiths takes issue with a wide range of actions and decisions taken by IGFL. This includes an allegation that IGFL is not entitled to pursue the indemnity claim for FJD 6,166,710 pursuant to cl 4.3 of the ARJVA. Again, Mr Griffiths seeks to put at issue an interpretation of the ARJV A.
7 Island Grace (Fiji) Ltd (in rec and in liq) v Satori Holdings Ltd (in interim liq) above n 2, at [86]- [93].
[91] These issues are integrally linked with the broader contention made by Mr Griffiths that upon a proper accounting being undertaken of the assets of the IGN, Satori will not be a debtor.
[92] In my view, the claims made by Mr Griffiths about the indemnity debt, and in particular the dispute about whether the plaintiff is entitled to enforce the indemnity provision under cl 4.3, is part of a pattern of ever-widening claims made in an attempt to defeat the liquidation application. This appears to be an evolving pattern.
[93] It is of course not enough for Mr Griffiths to make bare allegations; Mr Griffiths needs to demonstrate there is some substance or arguable merit to such contentions. He has not done so.
(footnotes omitted)
[42] In these circumstances on the evidence before the Court, I accept that the liabilities were incurred in Satori’s capacity as trustee of the Satori Trust and accordingly, Satori is entitled to be indemnified out of the assets of the Satori Trust.
[43] The evidence indicates that Satori may have been replaced as trustee of Satori Trust. No notice was provided to the liquidators of Satori of this purported change. The liquidators did not become aware of the change until 28 November 2023 when Mr Griffiths’ counsel wrote to them indicating that Satori “has already been removed as trustee of the Satori Trust.” In an email dated 30 November 2023, Mr Griffiths wrote to Deloitte, the Satori Trust’s accountants, informing them that Satori had been replaced by Moboryma LLC as trustee on 18 October 2022. Despite that, in proceedings regarding the liquidation of Satori,8 there was no indication by Mr Griffiths that Satori was not the corporate trustee of the Satori Trust.
[44] The appointment of a new trustee does not affect any lien to which a trustee may otherwise be entitled.9 A trustee retains its right of indemnity from trust assets when it has been replaced as trustee.10 The right is an equitable lien against the trust assets and that right takes priority over any beneficial interest in the trust property.11 A former trustee however, may only have recourse to trust assets with the Court’s
8 Griffiths v Island Grace (Fiji) Ltd (in rec and in liq) [2023] NZCA 627.
9 Trusts Act 2019, s 116(3).
10 Temple 88 Ltd (in liq) v Hassine [2021] NZHC 2351 at [21].
11 At [21]–[22].
assistance.12 An equitable lien may be enforced by judicial process, including an order for sale.13
[45] I am satisfied that Satori has a right to be indemnified out of Satori’s assets in accordance with s 81 of the Trusts Act and at common law. Further, even if Satori is a former trustee, it retains the right to be indemnified for liabilities incurred while acting as trustee.
Are the liquidators entitled to rely on Satori’s right of indemnity?
[46] In Camray Farms Ltd, Edwards J considered that a trustee’s right of indemnity and equitable lien passes to a liquidator.14 A liquidator is entitled to have recourse to the trust assets for the purposes of meeting the fees and expenses of liquidation insofar as they relate to the trust.15 A liquidator’s right to remuneration is regarded as a debt incurred in performing the duties of the trustee.16
[47] The right to an indemnity therefore extends to the liquidators in relation to fees and expenses.
Should orders be made for the sale of the Vunabaka Assets?
[48] As set out above, an equitable lien may be enforced by judicial process, including an order for sale.17 Satori holds an equitable lien over the Vunabaka Assets. In circumstances where it is not clear whether Satori remains the trustee of the Satori Trust, orders are required for the sale of the Vunabaka Assets.
[49] I accept that the liquidators have taken reasonable steps to sell the Vunabaka Assets for a fair price. Those steps include:
(a)Obtaining an independent valuation.
At [23] citing LSF Trustees Ltd v Footsteps Trustee Company Ltd (in liq) [2017] NZHC 1676 at
[16] and [19]; and Camray Farms (in liq) v BL (Nature Sunshine) Trustee Ltd, above n 3, at [62].
13 At [24].
14 Camray Farms (in liq) v BL (Nature Sunshine) Trustee Ltd, above n 3, at [65].
15 At [66], citing Re Suco Gold Pty Ltd (in liq) (1983) 7 ACLR 873 (SASC).
16 Temple 88 Ltd (in liq) v Hassine, above n 10, at [25].
17 At [24].
(b)Offering the Vunabaka Assets to the Vunabaka JV parties under the VBJV Agreement, including Mr Griffiths.
(c)Public advertising and contacting banking, legal and real estate professionals to solicit interest in the sale.
(d)Reoffering the Vunabaka Assets to the Vunabaka JV parties at the price offered by Sequitur Capital.
(e)Proposing to sell the Vunabaka Assets at the highest price offered to date being the value of the consideration set out in the SPA.
[50] The Capital Call for Vunabaka JV is due on 30 September 2024. If that call is not met, Satori’s interest will be substantially diluted from 31.66 per cent to 2.38 per cent. If that occurs, I accept on the evidence from Mr McDonald that it will be even more difficult to sell the Vunabaka Assets. In the absence of a sale, the liquidators will not be able to realise the value of those assets, and creditors and the liquidators are unlikely to be paid.
[51] Under the proposed SPA, the consideration for the sale of the Vunabaka Assets is FJD 9,072,309 comprising the Cash component and the Credit bid component. Mr McDonald’s evidence is that the Cash component cannot yet be specified in the SPA as the cost to complete the liquidation is not yet known; but it will be substantial (in light of the funding provided and the liquidators’ fees and expenses to date). The Credit bid component will be less than Island Grace Ltd and Sequitur Hotels’ admitted claims. There will therefore likely be a shortfall in meeting the admitted claims.
[52] Turning to whether it is just and equitable to order a sale of the Vunabaka Assets, the only party who potentially opposes the sale, Mr Griffiths, did not appear. Mr Griffiths has separately challenged the funding arrangements. His application for leave is set down for hearing on 6 November 2024. Mr Griffiths has also filed a complaint with the liquidators’ professional body, which was dismissed. I cannot determine the validity of Mr Griffiths’ allegations regarding funding in the context of this application. The evidence before the Court indicates that the value of the
Vunabaka Assets will diminish and will become more difficult to sell if the Capital Call from Vunabaka Ltd is not met.
[53] Further, Mr Griffiths has submitted a claim in the liquidation but has not responded to requests for information. Mr Griffiths has not provided a copy of the trust deed for Satori Trust. It appears, from the financial statements of the Satori Trust for the year ended 31 March 2022, that the claim arises from a loan from Mr Griffiths to the Satori Trust. The financial statements record a beneficiary loan from Mr Griffiths to Satori Trust for NZD 6,265,311. Mr Griffiths’ claim in the liquidation dated 17 October 2023 is for NZD 6,265,311.
[54] This Court in Camray Farms Ltd considered the priority of a trustee’s right of indemnity as against the interests of beneficiaries:18
[60] The trustee’s right of indemnity takes priority over the beneficiaries’ interest in the trust property. The rationale is that it is inequitable for a beneficiary to benefit from the property without also bearing the burden associated with that property. However, a trustee can only call on the indemnity if a liability has been properly incurred. If a trustee is in breach of the trust, then the right of indemnity might be lost.
[55] Even if Mr Griffiths’ claim is admitted, the right of indemnity takes priority over his interest in the beneficiary loan.
[56] Turning to the liabilities of Satori, I have set out above my findings that the liabilities arising under the admitted claims were incurred in Satori’s capacity as trustee of Satori Trust. It is therefore just and equitable that the Vunabaka Assets be sold to meet those liabilities. Further, the liquidators are entitled to be indemnified for their reasonable fees and expenses.
Should directions be made under s 284 of the Act?
Relevant law
[57] Section 284 of the Act confers jurisdiction on the Court to supervise liquidations as follows:
18 Camray Farms (in liq) v BL (Nature Sunshine) Trustee Ltd, above n 3, at [60]. Footnotes omitted.
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—
(a)give directions in relation to any matter arising in connection with the liquidation:
(b)confirm, reverse, or modify an act or decision of the liquidator:
(c)order an audit of the accounts of the liquidation:
(d)order the liquidator to produce the accounts and records of the liquidation for audit and to provide the auditor with such information concerning the conduct of the liquidation as the auditor requests:
(e)in respect of any period, review or fix the remuneration of the liquidator at a level which is reasonable in the circumstances:
(f)to the extent that an amount retained by the liquidator as remuneration is found by the court to be unreasonable in the circumstances, order the liquidator to refund the amount:
(g)declare whether or not the liquidator was validly appointed or validly assumed custody or control of property:
(h)make an order concerning the retention or the disposition of the accounts and records of the liquidation or of the company.
(2)The powers given by subsection (1) are in addition to any other powers a court may exercise in its jurisdiction relating to liquidators under this Part, and may be exercised in relation to a matter occurring either before or after the commencement of the liquidation, or the removal of the company from the New Zealand register, and whether or not the liquidator has ceased to act as liquidator when the application or the order is made.
(3)Subject to subsection (4), 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), the liquidator does not have the protection given by subsection (3).
[58] As to the distribution of the proceeds of the sale of the Vunabaka Assets, the liquidator must pay out of the assets of the company, the expenses, fees, and claims set out in sch 7 of the Act to the extent and in the order of priority specified in that schedule.19 After paying preferential claims, the liquidator must apply the assets of Satori in satisfaction of all other claims.20
[59]Schedule 7 of the Act sets out the priority of payments to preferential creditors:
1 Priority of payments to preferential creditors
(1)The liquidator must first pay, in the order of priority in which they are listed,—
(a)the fees and expenses properly incurred by the liquidator in carrying out the duties and exercising the powers of the liquidator, and the remuneration of the liquidator; and
(b)the fees and expenses properly incurred by the administrator in carrying out the duties and exercising the powers of the administrator and the remuneration of the administrator; and
(c)the reasonable costs of a person who applied to the court for an order that the company be put into liquidation, including the reasonable costs incurred between lawyer and client in procuring the order; and
(d)the actual out-of-pocket expenses necessarily incurred by a liquidation committee; and
(e)to any creditor who protects, preserves the value of, or recovers assets of the company for the benefit of the company’s creditors by the payment of money or the giving of an indemnity,—
(i) the amount received by the liquidator by the realisation of those assets, up to the value of that creditor’s unsecured debt; and
(ii) the amount of the costs incurred by that creditor in protecting, preserving the value of, or recovering those assets.
…
19 Companies Act 1993, s 312(1).
20 Section 313(1).
Distribution of the sale proceeds
[60] The liquidators seek declarations to the effect that the proposed distribution is consistent with sch 7 of the Act. In particular, the liquidators seek:
(a)a declaration that Island Grace Ltd, Sequitur Hotels (together, the Funders) are creditors who protected, preserved the value of, or recovered the Vunabaka Assets;
(b)a declaration that the proceeds of the Vunabaka Assets are properly applied, in accordance with sch 7 of the Act in the circumstances of this liquidation:
(i)first, to the liquidators' fees and expenses;
(ii)second, to the reasonable costs of the applicant for liquidation, namely Island Grace Ltd; and
(iii)third, to the Funders, up to the value of the Funders' unsecured debt which is FJD 8,740,179 and the amount of the Funders' funding to the Liquidation which at the time of this application is NZD 486,535.
[61] I am satisfied that by reason of advancing funding to Satori, the Funders have acted to protect, to preserve the value of, and to recover, the assets of Satori for the benefit of its creditors such that they come within the definition at cl 1(1)(e) of sch 7. I am also satisfied that the proposed priority of payments is consistent with sch 7. In making directions, I make no findings as to the validity of the Funding Agreement. My findings arise by reason of the use to which the funds have been put by the liquidators. In that regard, the liquidators have used the funding to preserve the value of the Vunabaka Assets and to realise that value by the proposed entry into the SPA.
Declarations as to the conduct of the liquidators
[62] The liquidators also seek declarations as to their powers, and the reasonableness of their conduct. In particular, they seek:
(a)A declaration that the liquidators, acting on behalf of Satori as trustee or former trustee of the Satori Trust, have power to and would be acting reasonably by entering into the SPA.
(b)A declaration that the liquidators' fees and expenses incurred to date, namely NZD 777,000, were properly incurred by in carrying out the duties and exercising the powers of the liquidators.
[63] I do not consider that a declaration as to the reasonableness of the liquidators’ fees and expenses is urgent. The information provided to the Court is very high level and the Court does not have evidence as to the breakdown of those fees and expenses. It would be inappropriate to make declarations as to the reasonableness of those fees and expenses in the context of this urgent application and in the absence of further evidence. I therefore decline to make any declarations in that regard.
[64] Turning to the application for directions as to the power of the liquidators to enter into the SPA, I have already determined that it is just and equitable for the Vunabaka Assets to be sold to meet the liabilities of Satori. It follows that Satori is entitled to enter into the SPA to enable it to exercise its equitable lien over the Satori Trust assets. I accept therefore, that the liquidators have the power to act on behalf of Satori in that regard.
[65] Turning to whether the Court should make declarations as to the reasonableness of the liquidators’ proposed entry into the SPA, s 284(1) confers jurisdiction to, among other things, give directions in relation to any matter arising in connection with the liquidation. The Court may also confirm an act or decision of the liquidator.21
[66] As noted in Re CBL Insurance Ltd, the general purpose of directions under s 284 is described in Heath & Whale on Insolvency:22
21 Companies Act, s 284(1)(b).
22 At [20], citing Paul Heath and Michael Whale (eds) Heath & Whale on Insolvency (looseleaf ed LexisNexis) at [22.1] and [22.8(e)], citing (among others) Finnigan v Butcher, above n 22, at [17]– [18]). See also Re Ansett Australia Ltd (No 3), above n 22, at [65].
The nature of a liquidator’s duties means that, on occasion, difficult legal or commercial decisions may need to be made by him or her. On legal points, the liquidator is entitled to seek directions from the High Court under s 284(1)(a) of the Act. However, the court will rarely assist if purely commercial decisions are in issue; those are aspects with which the liquidator should deal.
…
… The courts have indicated that they will not make a commercial decision for the liquidator except where a liquidator’s decision is criticised by creditors as being unreasonable or as evidence of bad faith.
[67] In Re CBL Insurance Ltd the Court accepted that the scope of s 284(1) allowed the Court to make declarations as to the ownership of property and powers to sell it.
[68] The liquidators accept that the Court will generally not make a direction where the decision to be made is in truth, a commercial decision for the liquidator.23 I accept that the power to enter into the SPA is not a commercial decision in circumstances where Satori is a former trustee of Satori Trust. It is appropriate that directions be made as to the liquidators’ power to sell the assets held by Satori as trustee of Satori Trust.
[69] The reasonableness of the terms of the SPA and in particular, the consideration for the Vunabaka Assets is however, a commercial decision because it turns on the fair value of those assets. It is a matter for the liquidators as to the reasonableness of the consideration having regard to the value of the Vunabaka Assets.
[70] It follows from the above, that it is appropriate to give directions as to the proposed decision to enter into the proposed SPA. The liquidators have disclosed in some detail the process they have undertaken to arrive at the decision to enter into the SPA. That background includes obtaining an independent valuation of the Vunabaka Assets, offering them to the Vunabaka JV parties (including Mr Griffiths), advertising the Vunabaka Assets for sale, engaging professional advisers, considering the consequences of not selling, and in the absence of any other offer, determining that Satori should enter into the SPA.
23 Re CBL Insurance Ltd (in liq) [2018] NZHC 2547, [2019] 2 NZLR 262 at [19] citing Finnigan v Butcher [2012] NZHC 810 at [17]–[18]; Re Spedley Securities Ltd (in liq) (1992) 10 ACLC 1742 (NSWSC) at 1744; Re Ansett Australia Ltd (No 3) [2002] FCA 90, (2002) 115 FCR 409 at [65].
[71] The correspondence provided to the Court indicates that Mr Griffiths challenges the underlying basis of the claims by Island Grace Ltd. He also challenges the validity of the expert determination as to costs. In those circumstances, it is appropriate that the Court make directions as to the liquidators’ powers to sell the Vunabaka Assets to realise their value to meet those claims.
[72] Mr Griffiths also challenges the liquidators’ conduct in relation to the funding arrangements, which is the subject of Mr Griffiths’ separate application for leave. It would be inappropriate to use this application to determine the issues that are the subject of that separate application.
[73] I accept that a direction as to the sale of the Vunabaka Assets is necessary in circumstances where those assets are trust assets and Mr Griffiths has challenged the validity of the realisation of assets and distribution of the proceeds of sale. I accept on the evidence provided to the Court that the steps the liquidators have taken to obtain the best possible price for the Vunabaka Assets are reasonable. The price for the Vunabaka Assets as set out in the SPA is also, on the evidence, the best price offered to the liquidators so that too indicates the reasonableness of the liquidators’ proposed entry into the SPA insofar as it relates to the value ascribed to the assets.
[74] A general declaration that the liquidators will be acting reasonably by entering into the SPA could, however, impact the determination of other issues that are not currently before the Court, including the validity of the funding arrangements or the rejection of other claims in the liquidation. In those circumstances, I do not consider that it is necessary to make a declaration as to the general reasonableness of the liquidators’ conduct. The liquidators will be entitled to rely on the Court’s order as to the sale of the Vunabaka Assets by reason of s 284(3). They will also be entitled to rely on the Court’s observations in this judgment as to the reasonableness of the steps taken to realise the value of the Vunabaka Assets.
[75] I have already determined that it is just and equitable for the Vunabaka Assets to be sold to realise the liabilities of Satori. I cannot in the context of this application determine the validity of Mr Griffiths’ claims regarding the funding arrangements or the merits of his claim in the liquidation.
[76] On the evidence before the Court, I am satisfied that the sale of the Vunabaka Assets is necessary to preserve and realise the value of those assets for the benefit of Satori’s creditors. I also consider that the liquidators have the power to sell the Vunabaka Assets by reason of their right to be indemnified from Satori Trust assets for liabilities incurred in Satori’s capacity as trustee.
Result
[77]For the reasons above, I make the following declarations:
(a)Satori and the liquidators have a right of indemnity or exoneration over the assets of the Satori Trust for:
(i)the liquidators’ reasonable costs and expenses;
(ii)the creditors’ claims currently admitted in the liquidation, namely claims from Island Grace Ltd and Sequitur Hotels; and
(iii)any further creditors’ claims that are admitted in the liquidation that concern debts incurred by Satori when acting in accordance with its obligations as trustee of Satori Trust.
(b)Satori and the liquidators’ right of indemnity or exoneration is enforceable by way of an equitable lien over the Satori Trust assets and in particular the following (collectively Vunabaka Assets):
(i)the 31.66 per cent participating interest in the Vunabaka Bay Joint Venture (VBJV);
(ii)the 31.66 per cent shareholding in VBFL; and
(iii)the loan of FJD 3,722,555 to VBFL.
(c)Island Grace Ltd and Sequitur Hotels (together, the Funders) are creditors who protected, preserved the value of, or recovered, the Vunabaka Assets.
(d)The proceeds of the Vunabaka Assets are to be applied, in accordance with sch 7 of the Companies Act 1993:
(i)first, to the liquidators' reasonable fees and expenses;
(ii)second, to the reasonable costs of the applicant for liquidation, namely Island Grace Ltd;
(iii)third, to the Funders, up to the value of the Funders' unsecured debt which is FJD 8,740,179 and the amount of the Funders' funding to the liquidation which at the time of this application is NZD 486,535.
(e)The liquidators, acting on behalf of Satori as trustee or former trustee of the Satori Trust, have the power to enter into the sale and purchase agreement attached as sch 1 to the application.
[78]I order the sale of the Vunabuka Assets by the liquidators.
Tahana J
Solicitors/Counsel:
Lane Neave, Auckland
Bankside Chambers, Auckland Buddle Findlay, Wellington
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