McElhinney v Wirecard New Zealand Limited

[2020] NZHC 2312

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-1187

[2020] NZHC 2312

UNDER

the Companies Act 1993, Part 15A and

Part 19 of the High Court Rules

IN THE MATTER OF

the administration of WIRECARD NEW ZEALAND LIMITED

IN THE MATTER OF

an application by

CONOR JOHN McELHINNEY and ANDREW JOHN GRENFELL

Administrators of Wirecard NZ Limited

Applicants

Hearing:	On the papers
Counsel:	K Cornegé and Simon Jass for the Applicants
Judgment:	4 September 2020

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on 4 September 2020 at 5:00pm

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:
Tompkins Wake (K Cornegé/Simon Jass), Hamilton, for the Applicants

McELHINNEY and GRENFELL v WIRECARD NZ LTD [2020] NZHC 2312 [4 September 2020]

[1]    In his judgment of 24 July 2020 (also adopted by me), Associate Judge Andrew extended the convening period for the watershed meeting in the administration of Wirecard NZ Ltd to 5 October 2020 and extended the statutory termination period for employees to 12 October 2020.1 The administrators now apply for further extensions of the convening  period  to  30 October  2020,  and  of  the  termination  period  to  6 November 2020. They also seek a direction allowing the watershed meeting to be conducted by video conference.

[2]    Associate Judge Andrew gave the background to the company and its going into administration. In short, it is a developer and licensor of proprietary software products used in the financial services industry. It is wholly owned by Wirecard Technologies GmbH which has also gone into insolvent administration. Wirecard NZ Ltd is largely independent of the wider group. Wirecard NZ Ltd has an Australian subsidiary, Wirecard Australia Pty Ltd, which is also in administration. When Wirecard NZ Ltd went into administration on 13 July 2020 it had branches in Auckland, Santo Domingo (the Dominican Republic) and Athens (Greece). There were 121 employees (29 in Auckland, 18 in the Dominican Republic and 74 in Greece). Including employees, there were 168 known unsecured creditors and two secured creditors (both with registered purchase money security interests).

[3]    At the time of the application in July, the administrators were investigating options for the sale of some or all of Wirecard NZ Ltd’s business. They hoped for indicative offers to be made by the end of July and final offers by 21 August 2020. Time would be required for a buyer to carry out due diligence and to complete settlement. Their purpose in seeking the extensions of time was to allow the company to continue trading in a stable manner to achieve a sale. Associate Judge Andrew extended the convening period under s 239AT(3) of the Companies Act 1993 and the statutory termination period under s 239Y(4).

1      Re Wirecard NZ Ltd [2020] NZHC 1804.

[4]    For this application, the administrators say that while they hoped to conclude a sale within the time extended by Associate Judge Andrew, they are behind schedule because of the complexity of the business and the significant number of interested parties. By 4 August 2020, 38 parties had expressed an interest in buying the business in some form.  33  of  those  parties  received  the  information  memorandum.  By 14 August 2020, 16 indicative offers for all or parts of the business had been received. Ten of them were invited to carry out detailed due diligence. The administrators received seven final offers by 31 August 2020.

[5]    The administrators intend to negotiate and sign an unconditional agreement with a preferred purchaser by the second week of September 2020. Six of the offers include offers for the purchase of the assets of Wirecard Australia Pty Ltd. The administrators wish to align the timetables for the sale of both businesses. The administrators of Wirecard Australia Pty Ltd have obtained an order in the Supreme Court of Victoria extending the convening period there to 30 October 2020. All the prospective purchasers who have submitted final bids are based overseas and will need to notify the Overseas Investments Office and, for the Australian business, to possibly seek approval from the Australian Foreign Investment Review Board. The administrators believe that settlement of a sale will be completed at the end of September 2020 or shortly afterwards. There will then be a transition for the transfer of the business to the purchasers, which will include assignment or novation of customer contracts, transfer of employees and regulatory approvals from the Overseas Investment Office and the Foreign Investment Review Board. They anticipate that this transition will be completed during October 2020. The administrators have terminated the employment of some staff but have kept others on to ensure the continued operation of the company.

Application without notice

[6]    I am satisfied under r 7.46(3) of the High Court Rules 2016 that the application can be dealt with without notice. Serving the application on all the company’s creditors and employees would incur an expense for the company and would cause undue delay. The orders proposed will not cause any prejudice to the creditors and the employees. Any creditors and employees who consider that they are adversely

affected are entitled to challenge the orders by applying to the court. The administrators propose advertising the orders and that will give the creditors the opportunity to challenge them.

A further extension of the convening period

[7]    The court may extend the convening period under s 239AT(3) and s 239ADO of the Companies Act 1993. The court may also grant further extensions of the convening period.2   Associate Judge Andrew extended the convening  period for    40 days as he accepted the administrators’ estimate that that time was required to achieve a sale of the business, while keeping staff in employment and keeping the business operating. He took into account the international operations of the company and that purchasers may come from off-shore.

[8]    In hindsight, it can be seen that the 40-day extension was too short. That does not mean that the court should be censorious. The sale of the business has generated more interest than the administrators anticipated. The sales process has been more complex. The considerations for the original extension of the convening period continue to apply. In Re Nylex (New Zealand) Ltd,3 Heath J cautioned that extensions should not be granted for the purpose of delay. A balance needs to be struck between the expectation that an administration will be relatively speedy and the need to ensure that overdue haste does not prejudice sensible and constructive actions directed at maximising returns to creditors. Time for the convening period can be properly extended for an orderly sale of a business.

[9]    Here, an orderly disposal of the sale does require longer time than initially anticipated, and there should accordingly be an extension as proposed. An added consideration is to ensure that the administration of Wirecard NZ Ltd runs parallel with the administration of Wirecard Australia Pty Ltd. The extension is granted accordingly.

2      Re CBCH New Zealand Ltd [2020] NZHC 1146.

3      Re Nylex (New Zealand) Ltd HC Auckland, CIV-2009-404-1217, 11 March 2009 at [18]-[22].

Extension of time under s 239Y

[10]   Under s 239Y(3), administrators are personally liable for wages and salary in employment contracts, unless the administrators lawfully give notice of termination within 14 days of appointment. Under s 239Y(4), the court may extend the 14-day period. Associate Judge Andrew was satisfied that time should be extended and employees kept on with a view to selling the business as a going concern. The administrators say that if there is no extension of the period under s 239Y, to avoid personal liability, they will terminate the continuing employees. To re-hire the staff after the end of the extended termination period will obviously not make good sense. Given the extension of the time to complete the sale of the business, I am satisfied that the extension to 6 November 2020 is appropriate and I order accordingly.

Meeting by video conference

[11]   The administrators propose that the watershed meeting be conducted by video conference. A direction from the court allowing this is required because clause 1 of Schedule 5 of the Companies Act 1993, which allows for a creditors’ meeting to be held by audio-visual means, does not apply to meetings of creditors under Part 15A of the Companies Act.4 Creditors may be represented by proxy and postal votes may be cast,5 but that would be second best. Here some of the creditors are overseas and cannot fly to New Zealand.

[12]   Recently the court has allowed meetings by video-conferencing because of COVID-19 restrictions on gatherings.6 While COVID-19 restrictions on meetings have been relaxed, there is continued uncertainty. There can be no guarantee that fresh restrictions will not be imposed by the time of the watershed meeting. Under current rules, overseas creditors wishing to attend the meeting in person would need to undergo two weeks’ isolation after entering New Zealand before they could attend. That would be impractical. In short, the circumstances make it appropriate for

4      Companies Act 1993, s 239AK(1).

5      Companies Act 1993, s 239AK(1) and Schedule 5, cls (6) and (7).

6    See, for example, the COVID-19 Public Health Response (Alert Levels 3 and 2) Order 2020 and for cases Re Encorefx (NZ) Ltd [2020] NZHC 674, Re Ripetime Ltd HC Auckland, CIV-2020-404-1377, Minute of 21 August 2020,  Re STA  Travel  NZ Ltd  HC Auckland CIV-2020-404-1401, Minute of   26 August 2020.

creditors to attend by video-link if they wish. That is not to stand in the way of creditors attending in person (subject of course to any lockdown restrictions).

[13]   The administrators must make sure that all creditors taking part can simultaneously hear each other throughout the meeting.7 Minutes required to be tabled at the meeting may be tabled by emailing a copy to the email address of the creditor or such other email address as the creditor may designate. Any creditor attending by video-conference may vote.

[14]   I am satisfied that the orders sought by the administrators are consistent with the objectives of Part 15 of the Companies Act.8

[15]The costs of the application, including the administrators’ fees, expenses and

legal costs, are expenses incurred in carrying out their duties as administrators.

[16]Within seven days of these orders, the administrators must:

[a]advertise the orders once in The New Zealand Herald;

[b]make available copies of the application and the orders on McGrathNicol’s website; and

[c]provide a copy of the orders to the employees (including a translation of the orders in the employee’s language) through ordinary communication channels.

[17]   The administrators have presented a draft order. The order may be sealed, subject to the following:

[a]Order 3(d)(iii) (2) is amended to make it clear that the application as well as the order must be made available on the McGrathNicol’s website.

7      Companies Act 1993, Schedule 5, Clause 1(b).

8      Companies Act 1993, s 239A.

[b]Order 3(e) is amended by adding:

“(iii)The administrators must ensure that all creditors taking part can simultaneously hear each other throughout the meeting.”

……………………………….

Associate Judge R M Bell