McKay v Aisleworx Group Limited

[2025] NZHC 947

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-1015

[2025] NZHC 947

BETWEEN

ANDREW JOHN MCKAY and

REES GRAHAM LOGAN as liquidators of Aisleworx Limited (in Liquidation)

First plaintiffs

AND

AISLEWORX LIMITED (in Liquidation) Second plaintiff

AND

PGL ADMIN LIMITED

Third plaintiff

AND

AISLEWORX GROUP LIMITED

First defendant

AND

DOUGLAS JAMES BARTLETT

Second defendant

Hearing:	19 March 2025
Appearances:	M J Tingey and T L Utama for plaintiffs Second defendant in person
Date of judgment:	17 April 2025

JUDGMENT OF JAGOSE J

This judgment was delivered by me on 17 April 2025 at 3.00pm.

Pursuant to Rule 11.5 of the High Court Rules.

………………………… Registrar/Deputy Registrar

Counsel/Solicitors:

M J Tingey, Barrister, Auckland Fee Langstone, Auckland

Copy to:
Defendants

MCKAY v AISLEWORX GROUP LTD [2025] NZHC 947 [17 April 2025]

[1]    This judgment requires to be read in conjunction with my 22 December 2023 judgment.1 That judgment  dismissed a variety  of causes of action, including  under s 301 of the Companies Act 1993, by which the liquidators and PGL Admin Ltd (PGL) sought Mr Bartlett and Aisleworx Group Limited (Group) contribute to Aisleworx Limited’s (Limited) losses (and in damages to PGL).

Background

[2]    Fundamentally at issue was disposition of Limited’s assets—ultimately to non-party companies incorporated in the United States, including Aisleworx Corporation (Corp), Aisleworx Holdings (Holdings) and Aisleworx Media Corp (Media)—pleaded to have been obtained in breach of Mr Bartlett’s director duties in the context of a stipulated restructuring and its consequences:2

The liquidators’ and PGL’s particular allegations focus on Limited’s restructure, said to have involved a transfer of its assets to Group for inadequate consideration in disregard of creditors’ interests, and failing then to put Limited into liquidation. They say Mr Bartlett did so to strip Limited of assets otherwise available to meet creditors’ claims and did so “intentionally, recklessly or negligently”. Thus Limited and its creditors suffered loss, and Mr Bartlett benefited from the transfer of Limited’s assets to Group.

[3]    I found Mr Bartlett’s duties “were not breached in those terms”,3 because “[n]othing in the restructure alienated any … assets from Limited”.4 Instead,

I explained:5

[O]n 20 September 2015, shortly before the restructure[,] a licencing and services agreement was entered into between Limited, Group and Corp. As the restructure had yet to occur, Group was not then incorporated. Under that agreement, Group would provide FunCarts to Corp by “transfer[ring] ownership of existing carts and associated production getup” and delivering “[f]uture carts” to Corp, for Corp’s “full ownership, management, control of placement, operations, advertising, marketing and all aspects of FunCarts in United States”, in consideration of which Corp would pay Group “fees … and purchase existing carts and associated getup including moulds and parts for

$200,000”. Other references to monetary amounts in the agreement expressly are to “USD”.

I understand ‘existing carts and associated getup’ to mean at least Limited’s inventory landed in the United States. Group had nothing otherwise to

1      McKay v Aisleworx Group Ltd [2023] NZHC 3877.

2 At [44].

3 At [105].

4 At [98]. I identified those assets at [97].

5      At [99]–[105] (footnotes omitted).

‘deliver’. ‘Full ownership [of] … all aspects of FunCarts in United States’ then may incorporate all Limited’s assets for that purpose, beyond inventory to mould, manufacturing and supply contracts and inherent intellectual property. Limited, while described as “Assignor” and a party to the agreement, does not otherwise feature in the agreement. The agreement was not signed for Corp, but for Media (which then was not incorporated), all signatures being by Mr Bartlett. Mr Bartlett said he “made about six or seven different mistakes in that agreement and very unfortunately did not pay proper attention”.

There is no documentation of any prior transaction by which Group obtained Limited’s carts or other assets. A document purporting to be Limited’s asset register at 31 December 2016 — depicting disposal of Limited’s “US Assets” of carts, moulds and tools for NZD 225,000 — is matched by Limited’s receipt of such a payment on 29 September 2015. But the payment’s narration as “EQUITISEPROCEEDS FKA225K+100KEXT” in Limited’s bank account records indicates the payment is of investment in Limited (corroborated by Limited’s subsequent payment of NZD 200,000 to PGL).

As with the various informal financial statements tendered in evidence, the asset register also is of indeterminate provenance. Without at least apparent foundation in contemporaneous transactional documents, I do not believe any of their contended summaries. I am not prepared to rely on any and disregard all of them. Similarly, I disregard Mr Bartlett’s representations of facts not supported by contemporaneous documents. I particularly view Limited’s asset register record of NZD 225,000 received for disposal of its assets in the preceding year as entirely fabricated. Similarly, the explanation in Limited’s “Profit and loss Consolidated” accounts for the years ending 31 December 2014 and 2015, expressly prepared retrospectively for Ms Toon’s review as liquidator:

In September 2015, [Limited] became a fully owned subsidiary of [Group], and under this restructure sold its US based assets to [Corp] for depreciated market value being $225k.

The materiality of the 20 September 2015 agreement appears to be it (or actions taken purportedly in pursuance of it) effectively alienated Limited’s assets ultimately to Media, whose shares Mr Bartlett valued in 2022 in connection with the “Digicart” business in the United States at NZD 85 to NZD 126 per share. This value is sought to be compared to the NZD 7.85 per share by which FKA obtained its shareholding in Group. It might also be compared to the NZD 7.77 at which Mr Bartlett’s shareholder loan was discharged in connection with the restructure.

Be that as it may, so far as it purports to deal with Limited’s assets, the agreement plainly is a nullity. Nothing in the agreement contends to transfer anything in Limited’s ownership to Group, whether or not for Group’s transmission to Corp (or Media). Nothing in the evidence establishes Group had any Aisleworx business assets then to transfer or deliver. I am not assisted by Mr Bublitz’s concessions under cross-examination “Group took all the assets of [Limited] and then dealt with it as it wished”. That characterisation is not supported by the evidence.

Finally, it was put strongly to Mr Bartlett in cross-examination Limited was insolvent at the time of the restructure, Mr Bartlett responding Limited “had

run out, ran out of money in about, in about June or July [2015]” and was unable to pay due wages but rejecting it was insolvent. …

[4]I accordingly considered:6

Mr Bartlett’s conduct as represented by the 20 September 2015 agreement — alienating control of Limited’s assets to its subsidiary, Corp, without any form of compensation to Limited — appears an obvious breach of his ss 131 and

137 duties to Limited. For the purposes of s 301, it also may be his misapplication of Limited’s property. Mr Bartlett’s conduct purportedly under the 20 September 2015 agreement may be thought the source of the “real controversy” between the parties under this cause of action. But that is not what was pleaded.

I may make any amendment to the claim that is “necessary for determining the real controversy between the parties”. As the parties do not include Corp or Media, that cannot be an amended claim of their liability for knowing receipt of Limited’s assets. I would however entertain an application to amend the claim to include the liquidators’ claim for relief against Mr Bartlett under s 301 of the Companies Act in respect of the 20 September 2015 agreement and its consequences, to be brought on the basis of the evidence at trial.

The amended claim

[5]    My 22 December 2023 judgment is subject to the plaintiffs’ comprehensive appeal. Nonetheless, in response to my invitation, the plaintiffs sought to amend their claim (otherwise dismissed),7 to include new claims for relief from Mr Bartlett under s 301 of the Companies Act 1993, alleging breach of his ss 131 and 137 director duties to Limited in respect of the alienation of Limited’s assets. My 22 August 2024 judgment granted the plaintiffs’ application further to supplement their claim.8 This judgment now determines those new claims.

[6]My 22 December 2023 judgment explained, with ultimate reference to s 301:9

It is well established directors’ primary duty to act in the best interests of the company requires to take into account the interests of creditors when the company is insolvent or nearly so.

But that is not a duty to creditors. Rather, it is “vital” to the best interests of the company in “maintaining solvency”, that “the company is able to pay its debts as they fall due, in the normal course of business”, and “the value of [its]

6      At [131]–[132] (footnotes omitted).

7      Judgment previously was entered by consent in favour of PGL on a standalone ninth cause of action for restoration of its shareholding in Group’s register: at [1], n 1.

8      McKay v Aisleworx Group Ltd [2024] NZHC 2360 at [12].

9      McKay v Aisleworx Group Ltd, above n 1, at [45]–[48] (citations omitted).

assets is greater than the value of its liabilities, including contingent liabilities”.

The s 131 test is subjective as to what “the director believes to be the best interests of the company”, qualified by s 133’s obligation to exercise powers for a proper purpose. Directors’ performance of their statutory duty of care under s 137 is assessed objectively.

In circumstances of breach, relief may be ordered after taking into account “all of the circumstances, including the nature of the breach, the level of culpability and what is required to hold a director to account”, “tailored towards the combination of breaches found”.

[7]    In reliance on my finding Mr Bartlett had alienated Limited’s assets in terms of a 20 September 2015 agreement “(or actions taken purportedly in pursuance of it)”,10 the plaintiffs now allege such was in breach of Mr Bartlett’s good faith and best interests duties under both s 131 and at common law (the 10th cause of action), and of his duty to exercise the care, diligence and skill of a reasonable director under s 137 (the 11th cause of action). They say, in either respect, Limited was left without assets and unable to pay  its debts,  causing Limited and its creditors to suffer loss, to      Mr Bartlett’s benefit as director of all relevant entities falling within the Aisleworx umbrella (including Group, Corp, Holdings and Media) as recipients of Limited’s assets for no consideration or compensation. They seek relief under s 301. The defendants generally deny the allegations, referring to various documents in evidence.11

Discussion

[8]    On establishment of breach of a director’s duty to the company, relief under  s 301 is discretionary.12 “[C]ompensation for the full extent” of the company’s losses “should be regarded as the norm”.13 I am:14

10 At [103].

11 The defendants’ former solicitors and counsel were granted leave to withdraw on 11 November 2024: McKay v Aisleworx Group Ltd HC Auckland CIV-2021-404-1015, 13 December 2024 (Minute of Jagose J) at [2]. Given the defendants’ failure thereafter to meet that minute’s consequent directions at [4], for pursuit of the defendants’ then-extant application for leave to appeal my 22 August 2024 decision, I struck out the application: McKay v Aisleworx Group Ltd HC Auckland CIV-2021-404-1015, 5 March 2025 (Minute of Jagose J). Mr Bartlett represented himself for and at the resumed 19 March 2025 hearing.

12 Yan v Mainzeal Property and Construction Ltd (in liq) [2023] NZSC 113, [2023] 1 NZLR 296 at [343].

13 At [350].

14 At [351].

… free to tailor relief in ways that respond to the particular breach or wrong, to the harm that flows from that and, at least to some extent, the culpability (particularly amongst themselves) of the directors.

[9]    For the plaintiffs, Murray Tingey argues Limited’s liabilities included debts payable to each PGL and Gwendoline Grace Holdings Limited.15 He points to Limited’s acknowledgement of arrangements to obtain payment of its liabilities to PGL.16 However—particularly given my findings as to resolution of some of those claims,17 and rejection of the liquidators’ admission of PGL’s revised claim18—I am not prepared now to engage in such further fact finding. I need not do so, because— by alienating Limited’s assets without any  consideration or  compensation, when  Mr Bartlett acknowledged Limited had no money and was unable to pay due wages— Limited inarguably was insolvent.

[10]   I find Mr Bartlett’s conduct as represented by the 20 September 2015 agreement—in insolvent circumstances, alienating control of Limited’s assets to its subsidiary, Corp, without any form of consideration or compensation to Limited—was in breach of his ss 131 and 137 duties to Limited. Specifically—given Mr Bartlett’s concession under cross-examination Limited “had run out, ran out of money in about, in about June or July [2015]” and was unable to pay due wages19, even on the basis of that liability alone—there was no foundation for Mr Bartlett, acting in good faith, to believe disposition of Limited’s assets without consideration or compensation then was in Limited’s best interests.

[11]   Limited’s best interests were in maintaining its solvency, to be able to pay its debts as they fell due in the ordinary course of business, by retaining the value of its assets in excess of the value of its liabilities. Disposition of Limited’s assets without any consideration or compensation in circumstances of those outstanding liabilities is the precise antithesis of Limited’s best interests. Mr Bartlett’s exercise of his power so to dispose of Limited’s assets accordingly was not for a proper purpose. No reasonable

15     McKay v Aisleworx Group Ltd, above n 1, at [9] and [38].

16     At [21]–[23], [27]–[29], [33]–[35] and [101].

17     At [37]–[38].

18     At [39]–[40] and [77].

19 At [105].

director could so have exercised the power. It thus appears to me Mr Bartlett has misapplied Limited’s property and was in breach of his director’s duties to Limited.

[12]   Under s 301(1)(b)(ii), having enquired into Mr Bartlett’s conduct to those ends—and noting in particular his failures both to maintain formal financial statements for Limited,20 and to provide adequate contemporaneous discovery from which Limited’s accounting records could be reconstructed21—I will order he contribute a sum to Limited’s assets by way of compensation as I think just.

[13]   Despite my unpreparedness to rely on any of the informal financial statements (and assets register) tendered in evidence as summarising Limited’s financial realities,22 I nonetheless consider it just to hold Mr Bartlett to their representations for the purpose of quantifying that sum of compensation.

[14]   In particular, I refer to Limited’s “Profit and loss Consolidated” accounts for twelve months ending 31 December 2014 and 2015, expressly prepared retrospectively  for Ms Toon’s  review as  liquidator,23  which  attribute $238,788 and

$122,400 respectively as the value of Limited’s carts and moulds at 31 December 2014, then represented by blank entries in the 31 December 2015 accounts.24 I had found Limited’s contended records of their disposal in consideration of payment for

$225,000 to be “entirely fabricated”.25 Nonetheless, I consider it just for Mr Bartlett’s contribution of compensation to Limited’s assets to be quantified in terms of his representations for Limited’s liquidation, in the course of which my s 301 power to order such contribution arises.

20     At [49]–[55].

21     At [102], n 46.

22 At [102].

23 At [102].

24 I distinguish this document from a similar Limited document, titled “Finance Report consolidated ($NZ)” for the 12 months ending 31 December 2015. That document’s internal headings identify it as “draft”. It purports to describe Limited’s “Non Current assets” for the year ending 31 December 2014 as comprising $39,540 attributed to carts and spares and $152,000 to moulds. Its respective 31 December 2015 figures are $183,040 and $192,670. The document is inconsistent with both Limited’s “Profit and loss Consolidated” accounts for twelve months ending 31 December 2014 and 2015 and, more significantly, my finding as to Mr Bartlett’s conduct in relation to the 20 September 2015 agreement: at [10] above.

25 McKay v Aisleworx Group Ltd, above n 1, at [103].

[15]   Mr Bartlett said in submission before me even the $225,000 was well in excess of the carts’ and moulds’ value; he contended they instead were “obsolete and worthless”. But I am not valuing Limited’s assets. I am instead establishing a sum of compensation for Mr Bartlett’s contribution to Limited’s assets. I will not permit him further to diminish the $361,188 total position he represented in Limited’s liquidation as reflected by the value of the carts and moulds at 31 December 2014. That sum is conservative, because it does not reflect the value of the whole of Limited’s alienated assets,26 extending “beyond inventory to mould, manufacturing and supply contracts and inherent intellectual property”.27 Nonetheless, I do not have any better basis on which to give weight to “the full extent” of Limited’s loss.

[16]   As a “money judgment”,28 I also must order interest from the date on which the causes of action arose or a later day (“if the amount on which interest is to be awarded was not quantified at the day on which the cause of action arose”.29 Given quantification of the amount on which interest is to be awarded only arises by derivation from Limited’s informal accounts, and there are no contemporaneous documents permitting its more accurate calculation  located with  reference to  the  20 September 2015 agreement, I specify 20 September 2015 as the day for such quantification.

Result

[17]   I find against Mr Bartlett on the  plaintiffs’ 10th and 11th  causes of action.    I therefore:

(a)declare—by entering into the 20 September 2015 agreement (or taking actions purportedly in pursuance of it), when Limited inarguably was insolvent—Mr Bartlett:

(i)misapplied Limited’s property; and

(ii)breached his ss 131 and 137 duties to Limited; and

26 See [97].

27 At [100].

28     Interest on Money Claims Act 2016, s 6(1) (definition of “money judgment”).

29     Section 9.

(b)order Mr Bartlett contribute the sum of $361,188 to Limited’s assets by way of  compensation,  together  with  interest  calculated  from  20 September 2015 and ending on the day on which the judgment debt (including all interest payable under the Interest on Money Claims Act) is paid in full.

Costs

[18]I previously reserved costs.30

[19]   In my preliminary view, the plaintiffs ultimately having succeeded on the basis of the evidence at trial—in this proceeding of average complexity requiring counsel of skill and experience considered average in the High Court, in which a normal amount of time is considered reasonable for each step—Mr Bartlett should pay the plaintiffs a single sum of 2B costs. In my preliminary view, again, the overall history of this proceeding militates against any increase or reduction in costs on account of any party’s unnecessary contribution to the time or expense of the proceeding.

[20]   If the parties disagree with my preliminary views, and cannot otherwise cannot agree, costs remain reserved for determination on short memoranda each of no more than five pages—annexing a single-page table setting out any contended allowable steps, time allocation and daily recovery rate—to be filed and served by the plaintiffs within 10 working days of the date of this judgment, with any response or reply to be filed within five working day intervals after service.

—Jagose J

30     McKay v Aisleworx Group Ltd, above n 1, at [136]; and McKay v Aisleworx Group Ltd, above n 8, at [14].