Material Resources and Trading Corporation v Registrar of Companies
[2019] NZHC 286
•28 February 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-2866
[2019] NZHC 286
UNDER the Companies Act 1993 IN THE MATTER
of an application to restore Credomax
Limited to the Register under section 329 of the Act and an application to rectify the share register of Credomax Limited under section 91 of the Act
BETWEEN
MATERIAL RESOURCES AND TRADING CORPORATION
First Applicant
VLADIMIR IVANOVICH VERETENNIKOV
Second Applicant
AND
REGISTRAR OF COMPANIES
First Respondent
CREDOMAX LIMITED
Second Respondent
Hearing: 18 February 2019 Counsel:
CR Andrews for applicants
No appearance for or on behalf of respondents
Judgment:
28 February 2019
JUDGMENT OF FITZGERALD J
[As to application to restore company to the Register]
This judgment was delivered by me on 28 February 2019 at 11:30 am pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
Solicitors: McVeagh Fleming, Auckland
Material Resources and Trading Corporation v Registrar of Companies [2019] NZHC 286 [28 February 2019]
Introduction
[1] The applicants seek an order pursuant to s 329 of the Companies Act 1993 (the Act) restoring the second respondent (Credomax) to the Register of Companies (the Register). The second applicant (Mr Veretennikov) also applies for an order pursuant to s 91 of the Act rectifying Credomax’s share register to record that he holds all 100 shares issued by the company.
[2] The applications proceed by way of an originating application. All parties directed to be served have now been served. Service on Credomax’s sole registered shareholder, Maxhold Ltd (Maxhold) was dispensed with, Maxhold having also been removed from the Register. Service on Credomax’s sole director at the time it was removed from the Register was also dispensed with. That director is believed to reside in Latvia but cannot now be located.
[3] The two parties who were served, being the first respondent (the Registrar) and the Crown, do not oppose the orders being made:
(a)The Registrar consents to an order restoring Credomax to the Register, though on the basis rectification of Credomax’s share register is also ordered. That is so Mr Veretennikov can take steps to appoint New Zealand-based directors who can deal with the restored company in an orderly way.
(b)The Crown does not object to Credomax being restored to the Register and abides the decision of the Court on the applications generally.
Background
[4] The first applicant (Material Resources) is a company incorporated in the Commonwealth of Dominica.1 It says it was a substantial creditor of Credomax at the time Credomax was removed from the Register on 14 December 2012. Material
1 Its Certificate of Incorporation and a recent Certificate of Good Standing have been filed in evidence before the Court.
Resources is unable to take steps to compel recovery or repayment of that debt so long as Credomax remains struck off.
[5] Mr Veretennikov is a Russian citizen and businessman. He explains in his affidavit in support of the originating application that he originally instructed (through overseas agents) Credomax’s incorporation in July 2007. A Mr Glenn Smith has also sworn an affidavit in support of the application, in which he explains that in 2007, he was the principal of “Company Net Ltd” which attended to Credomax’s incorporation. Mr Smith sets out the background to the incorporation and produces Credomax’s share register. This records Maxhold as holding Credomax’s 100 shares. Mr Veretennikov says Maxhold was a nominee shareholder only, and at all relevant times held the 100 shares on trust for him.
[6] Mr Veretennikov also sets out the background to and nature of Credomax’s business, which relates to Russian tourism. Mr Veretennikov provides details of Credomax’s assets, and confirms that the company continued to carry on business at the time it was removed from the Register.
[7] Mr Veretennikov says that by the end of 2011, the agents which had attended to Credomax’s formal company filings ceased communications with him. He notes that for some time after this, he was not aware that Credomax might be or was subsequently removed from the Register. Banking organisations continued to transfer and receive payments on Credomax’s behalf and the company’s commercial activities continued.
[8] Mr Veretennikov became aware that Credomax had been removed from the Register after he attempted to change the company’s banking accounts in June 2016. The bank (presumably after making inquiries as to Credomax’s background) informed Mr Veretennikov that Credomax had been removed from the Register and that its accounts could not be operated while that situation continued. Mr Veretennikov explains the practical difficulties that have arisen as a result.
[9] Mr Veretennikov also confirms that he has not been able to locate and therefore communicate with Credomax’s sole director, a Ms Inta Bilder. She apparently resides in Latvia.
[10] In order to rectify the present situation, if Credomax is restored to the Register and Mr Veretennikov recorded in its share register as the holder of the 100 shares, Mr Veretennikov plans to immediately appoint two New Zealand-based directors who will be instructed to regularise the company’s affairs. The proposed directors (being experienced insolvency and corporate affairs practitioners) have sworn a joint affidavit confirming that they consent to be appointed directors, and that they are instructed to regularise the company’s affairs.
Order for restoration of Credomax to the Register
[11] An order to restore a company to the Register may be made by, relevantly, a creditor, a party who had an undischarged claim against the company at the time it was removed from the Register, or any other person with leave of the Court.2
[12] In considering whether to restore a company to the Register, the Court must have regard to the reasons for the company’s removal. Based on the materials before me, it seems clear the Registrar had quite understandably (given the company’s failure to file documents) formed the view it was no longing carrying on business. As noted, however, Mr Veretennikov has given evidence of Credomax’s ongoing business activities at that time.
[13] Mr James, the sole director of Material Resources, also explains in his affidavit sworn in support of the application the basis upon which Material Resources was a creditor of Credomax at the time it was removed from the Register. Mr James’ affidavit annexes a copy of an investment contract between Material Resources and Credomax and confirms that the loan advanced under that contract (a principal sum of US$300,000) remains outstanding.
2 Companies Act 1993, s 329(2).
[14] I am therefore satisfied Material Resources is a proper applicant for the purposes of s 329 of the Act and there are proper grounds for restoring Credomax to the Register.
[15] I further record that, had it been necessary, I would have also concluded Mr Veretennikov had standing to apply to restore Credomax to the Register. Mr Veretennikov is the beneficial owner of the Credomax’s 100 shares, Maxhold being a nominee shareholder only.3 As explained later in this judgment, without Credomax being restored to the Register, it is not possible for Mr Veretennikov’s interest in the company to be recorded and reflected in its share register. I am therefore satisfied that for the purposes of s 329(2)(c), it would have been appropriate to grant leave to Mr Veretennikov to apply for Credomax to be restored to the Register, had it been necessary to do so.
[16] My conclusion that there are proper grounds to restore Credomax to the Register is reinforced by Mr Veretennikov’s confirmation that, assuming he is entered in Credomax’s share register as the holder of the 100 shares (and thus has the power to appoint directors), he will immediately take steps to appoint New Zealand-based directors to regularise the company’s affairs. Mr van Delden and Mr McLennan, a partner and senior employee respectively in the insolvency and business recovery firm McDonald Vague, have consented to being appointed as directors of Credomax. They have also confirmed that, upon appointment, they are to take steps to acquire a sufficiently full understanding of Credomax’s affairs, effect an orderly discharge of its liabilities and transfer or distribute the company’s assets, and eventually wind up its affairs in accordance with the provisions of the Act and any other applicable New Zealand legislation. Ultimately, it is beneficial for such orderly steps to be taken.
Rectification of the Share Register
[17] As noted, Mr Veretennikov seeks an order pursuant to s 91 of the Act that Credomax’s share register be rectified to record him as the holder of the 100 shares, on the basis he is the beneficial owner of those shares.
3 The declaration of trust between Maxhold and Mr Veretennikov has been produced before the Court.
[18]Section 91 of the Act provides as follows:
91 Power of court to rectify share register
(1)If the name of a person is wrongly entered in, or omitted from, the share register of a company, the person aggrieved, or a shareholder, may apply to the court—
(a)for rectification of the share register; or
(b)for compensation for loss sustained; or
(c)for both rectification and compensation.
(2)On an application under this section the court may order—
(a)rectification of the register; or
(b)payment of compensation by the company or a director of the company for any loss sustained; or
(c)rectification and payment of compensation.
(3)On an application under this section, the court may decide—
(a)a question relating to the entitlement of a person who is a party to the application to have his or her name entered in, or omitted from, the register; and
(b)a question necessary or expedient to be decided for rectification of the register.
[Emphasis added]
[19] The ability of the Court to rectify a company’s share register is a discretionary power to ensure the register correctly reflects that which ought to have been done.4 As Mr Andrews notes, rectification is an equitable remedy. To obtain rectification, the applicant must show it has some equity which the Court will protect.5 In considering such an application, the Court must take into account all of the circumstances of the case and consider what equity the applicant has to support the application.6
[20] I queried with Mr Andrews whether the fact Mr Veretennikov is a beneficial owner of the shares means he has been “wrongly” omitted from the share register and is therefore “[a] person aggrieved”. Beneficial owners are not ordinarily reflected in
4 In re Marlborough Brewery & Aerated Water Company Ltd (Brands case) (1912) 31 NZLR 817:
Nicholls v Parkview Projects Ltd (1999) 8 NZCLC 262,016 at 262,021.
5 At 262,025.
6 At 262,025.
a company’s share register.7 Mr Andrews submits, however, that this case has some peculiarities which mean Mr Veretennikov nevertheless falls within the scope of s 91.
[21] I accept Mr Andrews’ submission that the concepts of “wrongly” and “aggrieved” in s 91 do not require culpable conduct by any person. As Mr Andrews notes, if that had been intended, Parliament would have presumably used the word “wrongfully” rather than “wrongly”. That culpable conduct is not required was also reinforced in Aburn v Terawhiti Farming Co Ltd,8 in which Associate Judge Gendall referred to s 91 as being capable of correcting purely procedural mistakes in a company’s share register.
[22] Allan J adopted a similar approach in Masson v Barloy Enterprises Ltd, when concluding that the applicant administrator in that case was a person “aggrieved” and entitled to an order for rectification under s 91.9 In Masson, the administrator would have ordinarily been entitled to be registered as the shareholder in the respondent companies.10 But, as Allan J noted:11
The difficulty is that, following the deaths of both of the former directors and shareholders, there is now no person with authority to effect registration of the applicant as a shareholder in each company by making an appropriate entry in the share register.
[23] Mr Andrews relies on Masson for his submission that Mr Veretennikov is similarly a “person aggrieved” and the Court should exercise its discretion to rectify Credomax’s share register. He points to the fact that the registered legal owner of the shares, Maxhold, no longer exists and is thus unable to transfer title in the shares to Mr Veretennikov. Mr Andrews also notes that Credomax’s sole director cannot now be located to effect the registration of any such transfer in any event.
[24] Mr Andrews also refers to Parkinson v James Products Ltd in support of the rectification application.12 In that case, the shareholder named in the respondent
7 Section 92 of the Companies Act 1993 provides that “no notice of a trust, whether express, implied, or constructive, may be entered on the share register”.
8 Aburn v Terawhiti Farming Company Ltd HC Auckland CIV-2006-404-7541, 20 February 2007.
9 Masson v Barloy Enterprises Ltd HC Auckland CIV-2009-404-5243, 23 September 2009.
10 At [7], pursuant to s 93 of the Act.
11 At [7].
12 Parkinson v James Products Ltd (2009) 10 NZCLC 264,438.
companies’ share registers was acknowledged to be a nominee, holding the subject shares on trust for the applicants. It appears from the judgment, however, that there had been a transfer of legal title in the shares from the trustee to the applicants. The respondent companies’ director nevertheless refused to register the applicants’ names in the companies’ share registers, on the basis the transfer breached the pre-emptive share rights provisions in each company’s constitution. Andrews J held that the transfer did not trigger the pre-emptive provisions and granted the application for rectification.
[25] Unlike in Parkinson, there has not been a transfer of legal title in the shares from Maxhold to Mr Veretennikov. I am nevertheless satisfied that in the particular circumstances of this case, Mr Veretennikov is an “aggrieved person” for the purposes of s 91 of the Act and that the rectification application ought to be granted.
[26] Mr Veretennikov is the beneficial owner of the shares in Credomax. Maxhold, as the nominee shareholder, has also been removed from the Register such that Mr Veretennikov cannot now call upon it to transfer legal title in the shares to him. Maxhold would need to be restored to the Register to effect that transfer and there is no information before the Court on whether such an order would be granted.
[27] In addition, the affidavit material confirms that Maxhold was a nominee shareholder in relation to several hundred companies, many of which have also been removed from the Register. I accept Mr Andrews’ submission that an application to restore Maxhold to the Register simply to effect the transfer of legal title in shares beneficially owned by Mr Veretennikov could have significant consequences and be a lengthy and complex exercise. Further, the sole director of Credomax cannot now be located to register any transfer from Maxhold to Mr Veretennikov in any event.
[28] The above circumstances are accordingly similar to those existing in Masson, in which the unavailability of anyone to effect the necessary transfer and subsequent registration was found to be a proper basis for making a rectification order. In exercising my discretion under s 91, I also take into account that once Mr Veretennikov is registered as the holder of Credomax’s 100 shares, he will take steps to appoint
properly qualified, New Zealand-based directors to ensure the company’s affairs are dealt with in an orderly way.
Result
[29] The applications to restore Credomax to the Register and for rectification of its share register are granted. There are orders in terms of paragraphs 1, 2 and 3 of the draft orders attached to Mr Andrews’ memorandum dated 13 February 2019.
Fitzgerald J
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