McKay
[2019] NZHC 3433
•19 December 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-002757
[2019] NZHC 3433
UNDER Part 29 of the High Court Rules 2016 and ss 239F and 280 of the Companies Act 1993 IN THE MATTER OF
SUNFRUIT ORCHARDS LIMITED
AND
ANDREW JOHN McKAY and ANDREW JAMES BETHELL
Applicants
Hearing: On the papers Counsel:
J C Caird and J S Learner for Applicants
Judgment:
19 December 2019
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 19 December 2019 at 3.00 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date………………………..
RE McKAY & BETHELL [2019] NZHC 3433 [19 December 2019]
Introduction
[1] This is an originating application without notice seeking orders that the applicants, Mr Andrew McKay and Mr Andrew Bethell, of BDO New Zealand Ltd (BDO), may act as joint and several administrators of Sunfruit Orchards Limited (the company), notwithstanding a possible disqualification under ss 239F and 280 of the Companies Act 1993 (the 1993 Act).
Factual background
[2] The company operates as an orchardist in the Hawkes Bay and Waikato regions. It operates across approximately 21 leased properties in both those regions. The company leases land, on which it grows and harvests fruit, predominantly apples, pears and stone fruit. It also leases premises which are used as packhouses for the fruit. The leases are with various different lessors, and each of the leases contains different terms and rental obligations.
[3] The company’s business is seasonal and is at its busiest in summer when the fruit is ripe for picking. The company employs approximately 160 employees. Those employees are currently picking stone fruit, thinning the apple crop, and the apple harvest is due to begin shortly in the new year. During the peak harvest season, the company engages the highest number of staff, with a large proportion coming from overseas to work. Most of the fruit crop is prepared for export to the northern hemisphere, although some of the product is sold domestically.
[4] In November 2018, Mr James Greenway (former BDO partner) and Mr McKay were engaged by the company at the request of the company’s banker, Westpac NZ Ltd (Westpac), as investigating accountants. Mr Bethell has been assisting Mr McKay since Mr Greenway left BDO in June 2019. The engagement was to undertake a review of the company’s financial affairs and to monitor the company’s performance.
[5] Mr McKay has deposed that the company has been under financial pressure for some time and is facing a deterioration in its financial position. Mr McKay’s assessment is that the company is, or may be, insolvent. Following a recent, unsuccessful sales process, on or about 16 December 2019, the applicants were approached by the company’s sole director, Mr John Altham, who indicated his intention to appoint the applicants as joint and several administrators of the company.
[6] Before accepting the proposed appointment as administrators, the applicants considered whether there was any matter that would disqualify them from being appointed administrators pursuant to ss 239F and 280 of the 1993 Act. While the applicants have concluded that there is no conflict which would prevent them from being able to discharge their duties properly as administrators of the company, they are restricted from acting as administrators without the consent of the Court due to their engagement by the company to act as investigative accountants over approximately the past year, and due to their, or their firm’s prior engagements with Westpac.
Analysis and decision
[7] I am satisfied that it is appropriate to commence these proceedings by way of originating application without notice. Given the urgency of the situation, the large number of creditors of the company, the rights of the creditors to replace the applicants at the first creditors’ meeting (s 239AN(1)(b) of the 1993 Act) and the terms of the orders sought (leave to be granted to any interested person to seek to modify or discharge the orders) it is in the interests of justice to permit the proceedings to proceed both by way of originating application and without notice.
[8] The case law also makes it clear that in principle it is appropriate to make an application under s 280 of the 1993 Act as an originating application under Part 19 of the High Court Rules.1
[9] I also find that the applicants should be granted leave under r 5.1(5) of the High Court Rules to file this proceeding in the Auckland Registry of the High Court. The applicants reside in Auckland and despite the company’s registered office being in Hamilton, the circumstances here are one of urgency, the application is being filed on a without notice basis and I am satisfied that it would be more convenient to the parties for the proceedings to be accepted for filing in the Auckland Registry.
[10] I thus turn to address the question of whether orders should be made under ss 239F and 280 of the 1993 Act that the applicants may act as joint and several administrators of the company, despite their possible disqualification.
1 Re Tubbs [2014] NZHC 385 at [11].
[11]Section 239F reads:
239F Who may be appointed administrator
(1)A natural person who is not disqualified under subsection ()2) may be appointed an administrator of a company.
(2)Unless the Court orders otherwise, a person is disqualified from appointment as an administrator if that person –
(a)is disqualified under section 280(1) from being appointed or acting as a liquidator of the company; or
(b)is prohibited from being an administrator by an order made under section 239ADV.
[12]Section 280 reads:
280 Qualifications of liquidators
(1)Unless the Court orders otherwise, none of the following persons may be appointed or act as a liquidator of the company:
…
(ca) a person who has, or whose firm has, within the 2 years immediately before the commencement of the liquidation, provided professional services to the company, unless, within 20 working days before the appointment of the liquidator, the board of the company resolves that the company will, on the appointment of the liquidator, be able to pay its debts and a copy of the resolution is delivered to the Registrar for registration.
(cb) a person who has, or whose firm has, within the 2 years immediately before the commencement of the liquidation, had a continuing business relationship (other than through the provision of banking or financial services) with the company, its major shareholder, any of its directors, or any of its secured creditors, unless, within 20 working days before the appointment of the liquidator, the board of the company resolves that the company will, on the appointment of the liquidator, be able to pay its debts and a copy of the resolution is delivered to the Registrar for registration.
[13] In Re Tubbs,2 Associate Judge Osborne approved the appointments of the applicants who had previously been engaged as investigating accountants to investigate the affairs of the company. In reaching that decision, his Honour held:
2 Re Tubbs, above n 1.
[26] The situation is directly parallel to that of the proposed (and approved) administrators in Icon Digital.3 I apply that decision. In both cases, there was a prior appointment (at the behest of a bank) to investigate a situation but with an emphasis on independent investigation. In both cases, there was also the prior relationship to the bank in question through which the administrators had been appointed to various professional roles.
[27] I am satisfied that, as in Icon Digital, nothing in those circumstances compromises the independence of Messrs Tubbs and Gower or their ability to carry out their role of administrators professionally and effectively. The prior involvement of the proposed administrators is in fact likely to enable the administration to take place more quickly and efficiently than otherwise.
[14] The principles relating to s 280(1)(cb) of the Act were summarised by Associate Judge Abbott in Re Joeleen Enterprises Ltd:4
[15] There is no definition of a “continuing business relationship” in the Act. The cases I have just reviewed indicate that the Court will decide on the circumstances of each case whether there is such a relationship, and whether it is of such a nature and degree that a person should not be appointed. The Court will have particular regard to whether the person or persons seeking appointment … have a direct relationship or whether it is merely by virtue of their involvement in a firm. It will clearly be a relevant consideration whether or not any other member of the firm could have a role in the decisions or administration of the liquidation.
…
[18] I remain of the view expressed in Icon Digital Entertainment Ltd that the critical issue in considering whether the damage of conflict of interest exists due to a continuing business relationship (however that may be defined) is whether there is a risk that the applicant’s independence and ability to carry out their tasks professionally and effectively could be compromised in the particular circumstances of the case.
[15] The evidence clearly establishes that the applicants are chartered accountants and both experienced, accredited insolvency practitioners. They are, as noted, both partners of BDO and specialise in corporate advisory, turn around and insolvency. The evidence also establishes that they have been appointed on numerous occasions as administrators, liquidators or receivers of companies.
[16] I accept the submission of counsel for the applicants that despite their engagement as investigating accountants of the company, the applicants’ ability to act
3 Icon Digital Entertainment Ltd v Westpac NZ Ltd HC Auckland, CIV-2007-404-7124, 20 November 2007.
4 Re Joeleen Enterprises Ltd HC New Plymouth CIV-2008-443-0485, 3 October 2008. The principles have been recently affirmed by Grice J in Fisk v Fargher Construction Ltd [2018] NZHC 441.
independently and to perform their duties as administrators would not be compromised were I to grant the application. Rather, as was held in both Icon Digital and Re Tubbs, the in-depth knowledge of the company, which the applicants have gained through their investigative role is of benefit to the company’s creditors and will allow the applicants to quickly and efficiently perform those duties. By contrast, a completely new insolvency practitioner would lack the advantage of some sustained practical exposure to the company’s affairs that has to date been enjoyed by the applicants.
[17] I also note that the applicants intend to continue trading the company at the busiest time of the year, when fruit is ripening and requiring harvest. The continued involvement therefore, of the applicants, with a clear understanding of how the company’s business functions will be critical and is a further factor supporting the making of the orders sought.
[18] In relation to the “ongoing business relationship” between BDO and Westpac, I find that although there may be a theoretical possibility of a conflict of interest, there is no real conflict because the services provided by BDO in the past were completely unrelated to the company. Each professional engagement undertaken for Westpac in relation to a particular entity or group of entities is conducted on a separate basis that appears to have no bearing on this proposed appointment.
[19] I therefore conclude that the relationship between BDO and Westpac does not and will not compromise the applicants’ independence, competence or integrity and does not and will not affect their ability to carry out their tasks as administrators professionally and effectively.
[20] I have of course already referred to the rights of the creditors to seek to replace the administrators at the first creditors’ meeting and the terms of the orders sought. I thus accept the submission of the applicants that the creditors will not be prejudiced if I grant the orders sought.
[21]For all of these reasons I grant the applications.
Result
[22]I order that:
(a)leave is granted that the proceeding be commenced by way of originating application without notice;
(b)under High Court Rule 5.1(5), leave is granted to commence the proceeding in the Auckland Registry of the High Court;
(c)under ss 239F and 280 of the Companies Act 1993, Andrew John McKay and Andrew James Bethell may be appointed to act as joint and several administrators of Sunfruit Orchards Limited;
(d)notice of this application and any orders is to be given to each known creditor of the Company at the same time and in the same manner as notice is given to those creditors of the first creditors’ meeting under s 239AO;
(e)leave is granted to any person who can demonstrate a sufficient interest to apply to modify or discharge these orders within 10 working days of service;
(f)the applicants’ reasonable solicitor/client costs of this application will be an expense incurred by the applicants in carrying out their duties as administrators of the Company;
(g)the Court file in this proceeding shall be marked and treated as confidential and shall not be available for search by any person until administrators are appointed to the Company or by further order of the Court;
(h)leave is reserved to the applicants to apply further in respect of any ancillary issues arising out of the orders made.
[23] I also approve the terms of the draft order filed by the applicants dated 18 December 2019.
Confidentiality
[24] In relation to the issue of confidentiality, I accept the submission of the applicants that the potential administration of the company may well be commercially
sensitive. If the appointment of the applicants were to come to the attention of the public or the company’s creditors it could have an adverse effect on the administration and the business generally, to the detriment of creditors. On that basis I have granted the order sought that the court file in this proceeding shall be marked and treated as confidential and should not be available for search by any person until administrators are appointed to the company.
Associate Judge P J Andrew
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