McGehan v Te Hoe Dairies Limited - [2021] NZHC 1796

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2020-419-000335

[2021] NZHC 1796

UNDER The Companies Act 1993

BETWEEN

MICHAEL BRUCE JAMES McGEHAN and CHARYS SIAN McGEHAN

Plaintiffs

AND

TE HOE DAIRIES LIMITED

First Defendant

JEFFREY CLARKE and TANIA CLARKE

Second Defendants

Hearing: 8 July 2021

Appearances:

P Cornegé and C Oback for Plaintiffs

T M Braun and L Hunt for Second Defendants

Judgment:

22 July 2021

Reissued:

30 July 2021

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by Associate Judge Andrew on 22 July 2021 at 3.00 pm
and re-issued 30 July 2021 at 3.00 pm pursuant to r 11.5 of the High Court Rules

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

McGEHAN v TE HOE DAIRIES LTD [2021] NZHC 1796 [22 July 2021]

Introduction

[1] The plaintiffs, Michael and Charys McGehan,1 jointly own Te Hoe Dairies Ltd2 with the second defendants, Jeffrey and Tania Clarke.3 Each family holds a 50 per cent shareholding. Mr McGehan and Mr Clarke are the two directors of the Company.

[2] The Company carries on business as a dairy farm. Its principal asset is a property in Te Hoe, Waikato, from which the dairy farming business operates.

[3] It is not disputed the parties’ relationship has broken down. The McGehans say the parties and the company are in deadlock and apply to liquidate the company on the just and equitable grounds under s 241(4)(b) of the Companies Act 1993.

[4] To determine the ultimate issue of whether it is just and equitable to make orders liquidating the Company, a matter of discretion, I must resolve two issues:

(a)Has the relationship between the parties deteriorated to the point that there is a serious deadlock imperilling the continued operation of the Company?

(b)If so, are there other realistic alternatives to the impasse, other than liquidation?

Background facts

[5] The Company was incorporated on 28 June 2017. The McGehans hold 250 shares and the Clarkes do likewise.

[6] Mr McGehan and Mr Clarke were associates. Mr McGehan was originally Mr Clarke’s bank manager. The primary purpose for incorporating the Company was the acquisition of the farm, with the goal of both parties being able to hold and run the farm until such time as it could be sold for a profit. The parties agreed, effectively, on a two-stage plan: part of the farm would be subdivided off into sections, and those

1      The McGehans.
2      The Company.
3      The Clarkes.

sections sold. Following that, the remaining property would then be re-marketed and sold.

[7] There is no shareholders’ agreement and most of the arrangements between the parties were oral.

[8] In March 2018, Waikato District Council granted resource consent for the subdivision of three rural lifestyle sections. Mr McGehan and Mr Clarke could not agree on marketing by Bayleys Waikato, whose services the parties engaged to sell the sections.

[9] The relationship between Mr McGehan and Mr Clarke began to sour over farm machinery that…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2021] NZHC 1796
Decision Date: 22 July 2021

CaseChat Overview and Summary

In McGehan v Te Hoe Dairies Limited, the plaintiffs, Michael and Charys McGehan, jointly own Te Hoe Dairies Ltd with the defendants, Jeffrey and Tania Clarke. The parties own equal shares in the company, which operates a dairy farm in Te Hoe, Waikato. The McGehans apply to the Court to liquidate the company on the grounds that it is just and equitable to do so due to a deadlock in the relationship between the shareholders. The Clarkes oppose the application. The Court must decide whether there is a serious deadlock between the parties, and if so, whether there are realistic alternatives to liquidation.

The Court finds that the relationship between the parties has deteriorated to the point of a serious deadlock. Although the farm is still operational, the parties are unable to work together for the benefit of the company. There is a complete lack of trust between them, and they are in dispute over how and when the farm should be sold, and how any remaining funds should be divided. The Court rejects the Clarkes' argument that they are solely responsible for the operation of the company, and that the farm is still functioning. The Court also finds that there are no realistic alternatives to liquidation, and that an independent liquidator would be the most sensible outcome to untangle the company's affairs and sell the farm.

The Court makes the following orders: Te Hoe Dairies Ltd is placed into liquidation, Mr Dennis Clifford Parsons is appointed as liquidator, and advertising is to be dispensed with. The plaintiffs are entitled to costs plus disbursements on a 2B basis. If the parties cannot agree on costs, then memoranda are to be filed and served within 14 days.

Orders