Mason v McKay

[2021] NZHC 1766

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-1265

[2021] NZHC 1766

BETWEEN

DAVID HAMILTON MASON

Plaintiff

AND

ANDREW MCKAY and REES LOGAN

First Defendants

WESTPAC BANKING CORPORATION
Second Defendant

LEONARD MAGINNESS and JARED WAIATA BOOTH

Third Defendants

VINLINK MARLBOROUGH LIMITED

Fourth Defendant

Hearing:	13 July 2021
Appearances:	B O’Callahan and A Cherkashina for Plaintiff No appearance for Defendants (not yet served)
Judgment:	13 July 2021
Reasons:	14 July 2021

REASONS FOR JUDGMENT OF LANG J

[on oral without notice application for interim injunction]

This judgment was delivered by me on 14 July 2021 at 9 am, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

MASON v MCKAY and LOGAN [2021] NZHC 1766 [13 July 2021]

Introduction

[1]    The plaintiff, Mr David Mason, is a director and shareholder of Sacred Hill Marlborough Vineyards Limited (SHMVL) and Sacred Hill Vineyards Limited (SHVL). Those companies are involved in the production and sale of wine both domestically and overseas.

[2]    The first defendants, Messrs Andrew McKay and Rees Logan (the receivers), were appointed as receivers of both companies on 6 May 2021 by the second defendant, the Westpac Banking Corporation (Westpac).

[3]    Both companies are also in voluntary administration under Part 15A of the Companies Act 1993. The third defendants, Messrs Leonard Maginness and Jared Booth, are the companies’ administrators.

[4]    The receivers have entered into an agreement to sell the companies’ business and stock to the fourth defendant, Vinlink Marlborough Limited (Vinlink), for the sum of approximately $41 million. That contract is conditional on the expiry of notices that Westpac served on the companies under s 119 of the Property Law Act 2007 (the PLA notices). These required the companies to remedy outstanding defaults under various loan facilities and general security agreements by repaying Westpac the sum of approximately $53 million no later than 13 July 2021. If the companies failed to do so the contract with Vinlink would become unconditional.

[5]    Mr Mason believes the sale to Vinlink is for a sum that is considerably less than the market value of the companies’ assets. He also wishes the companies to have an opportunity to redeem Westpac’s securities by repaying Westpac in full before the end of July 2021. They will lose that opportunity if the agreement for sale of their assets is permitted to become unconditional.

[6]    At  4.15 pm on 13 July 2021 I commenced hearing an oral  application on  Mr Mason’s behalf for orders designed to prevent the agreement for the sale and purchase becoming unconditional. At 4.55 pm I made an order requiring the receivers to grant the companies an extension of time to remedy the defaults until midnight on 15 July 2021. With the benefit of hindsight the order should probably have been

directed to Westpac, either in addition to or rather than, the receivers. I therefore vary the order to include Westpac within its ambit. I now give my reasons for making these orders.

Background

[7]    The background that follows is as explained to  me during the  hearing  by  Mr O’Callahan on Mr Mason’s behalf. At that time no documents had been filed. Midway through the hearing a memorandum of counsel was received by email.

[8]    Mr O’Callahan explained that SHMVL obtains grapes from vineyards that it leases and then uses them to produce wine. It then sells the wine both domestically and overseas.

[9]    SHMVL sells some of its produce into the United States through SHVL. SHVL has entered into a contract to supply wine to a company based in Louisiana called Mach Flynt Inc. Mach Flynt in turn supplies the wine to the Costco chain of supermarkets. Mr Mason says this contractual arrangement enables SHVL to derive profit in the vicinity of NZ$12 million per annum. The arrangement has at least five more years to run and can then be renewed or extended by agreement between the parties. The arrangement is therefore likely to provide SHVL with profit of around

$60 million over the next five years.

[10]   Mr Mason is aware that the sale to Vinlink does not include an assignment of the contract between SHVL and Mach Flynt. Furthermore, this aspect of the companies’ affairs is not reflected in the current sale price. He believes that, if the sale is completed, Vinlink will negotiate a fresh contract to supply wine to Mach Flynt. In that event the companies will receive nothing from SHVL’s existing contractual arrangement with Mach Flynt. Mr Mason therefore considers the receivers have agreed to a sale price that undervalues the companies’ assets by a considerable margin.

The orders sought

[11]Mr Mason sought the following orders:

(a)An order that the date upon which the existing PLA notices expire be extended until 30 July 2021; and /or

(b)An order that the receivers in Vinlink are restrained from completing the existing sale and purchase of the companies’ assets until 30 July 2021.

Grounds for application

[12]   Mr O’Callahan submits that this Court has an equitable jurisdiction to intervene in a receivership in exceptional circumstances. These may arise where receivers propose to engage in reckless conduct that will result in the sale of a company’s assets for considerably less than their true value.

[13]   Mr O’Callahan acknowledges that any sale of a company’s assets for less than their true value would normally result in a remedy based in damages rather than an injunction. He says the delay in applying for injunctive relief has arisen because, up until now, he could not argue in good faith that the Court should grant an injunction because there was no prospect the companies could repay the debt now owing to Westpac. That has risen to approximately $68 million because of the costs of the receivership. He submits, however, that the position is different when the equity of redemption is engaged.

[14]   Mr O’Callahan advises me that Mr Mason has now received an indication from a third party that it may be prepared to provide Mr Mason with sufficient funding to enable the companies to repay the debt owing to Westpac in full by 31 July 2021. In addition, this party is apparently prepared to provide funding to enable the companies to repay debts owed to creditors other than Westpac. Mr O’Callahan submits that these changed circumstances justify the Court granting injunctive relief to enable Mr Mason to finalise arrangements with the third party so that the companies can repay the debt owing to Westpac and the receivership can be brought to an end.

Reasons for decision

[15]   In the limited time available I was obviously unable to conduct any research into the legal propositions Mr O’Callahan advanced on Mr Mason’s behalf. Assuming they are correct, however, I considered that on the information presently available there is a serious issue to be tried regarding the sale price the receivers have negotiated with Vinlink. If the sale is completed for the sum presently payable under the agreement for sale and purchase the loan to Westpac cannot be repaid in full. There will be a shortfall of approximately $27 million.

[16]   At this stage it is not known whether SHVL’s rights under the contract with Mach Flynt can be assigned. Assuming they can be, however, it must be arguable that the receivers would have been able to obtain a higher sale price if they had included an assignment of SHVL’s rights under the Mach Flynt contract as one of the assets to be sold to Vinlink.

[17]   Secondly, the balance of convenience clearly favours the granting of interim injunctive relief for a short period. Vinlink has always known it would need to wait until the PLA notices had expired before the agreement with the receivers would become unconditional. I do not consider Vinlink will be greatly prejudiced if the companies are granted a short extension of time to enable Mr Mason to further investigate the prospect of repaying Westpac in full. Westpac would obviously be in a significantly better position if it could be repaid in full rather than have the sale to Vinlink proceed with the resulting inevitable shortfall.

[18]   On the other hand, the consequences for Mr Mason if relief is not granted would be significant. The agreement between the receivers and Vinlink would become unconditional and any claim he might have would be for damages only. He would have no prospect of regaining control of the companies in which he has no doubt invested considerable effort and expense over many years.

The orders

[19]   I was not satisfied the Court had the jurisdiction to make an order that the time for compliance with the PLA notices be extended to 30 July 2021. Furthermore, I

considered that date to be too distant to be appropriate in the present circumstances. However, I was satisfied I could direct the receivers (and now Westpac) to grant the companies a short extension of time within which to comply with the PLA notices. This would enable Mr Mason to persuade Westpac that the companies have a realistic prospect of repaying the debt in full. That is the order I have now made.

Next event

[20]   I have directed that counsel for Mr Mason is to serve all documents on affected parties as soon as they have been filed. That direction extends to the minute I issued yesterday afternoon and to these reasons.

[21]   The matter will now be listed for mention in the Duty Judge List on Thursday 15 July 2021 at 10 am. Whether the orders are extended further will depend on the information then available.

Lang J

Solicitors:

Norling Law Ltd, North Shore, Auckland Counsel:

B O’Callahan, Auckland