Meltzer v Amstar New Zealand Limited

[2020] NZHC 3510

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-2211

[2020] NZHC 3510

UNDER

Particular 15A of the Companies Act 1993 and Part 19 of the High Court Rules 2016

IN THE MATTER OF

the voluntary administration of LIGHTHOUSE PROPERTY

DEVELOPMENT NO.1 LIMITED
(Administrators appointed)

BETWEEN

JEFFREY PHILIP MELTZER and MICHAEL LAMACRAFT

Applicants

AND

AMSTAR NEW ZEALAND LIMITED

Respondent

Hearing:

10 December 2020

Appearances:

Matt Kersey and Samantha Knott for the Applicants

Christine Meechan QC and Rebecca Saunders for the Respondent

Judgment:

22 December 2020

Reissued:

23 December 2020

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on 22 December 2020 at 4:30pm

pursuant to Rule 11.5 of the High Court Rules

This judgment was re-issued on 23 December 2020, substituting $2,000,000 in paragraph [2]

Solicitors:

………………………….

Registrar/Deputy Registrar

Russell McVeagh (Matt Kersey/Samantha Knott), Auckland, for the Applicants Wynn Williams (Rebecca Saunders), Christchurch, for the Respondent

Copy for:

Christine Meechan QC, Bankside Chambers, Auckland, for the Respondent

JEFFREY PHILIP MELTZER and v AMSTAR NEW ZEALAND LIMITED [2020] NZHC 3510 [22 December 2020]

[1]    Lighthouse Property Development (No. 1) Ltd, a property developer, went into voluntary administration under Part 15A of the Companies Act 1993 shortly after Amstar New Zealand Ltd, its construction contractor, obtained an adjudication determination against it under the Construction Contracts Act 2002. The main question is whether Amstar can enforce its rights under the determination once Lighthouse has gone into administration. At the end of the hearing I held in favour of the administrators. I now give my reasons.

[2]    The applicants, Lighthouse’s administrators, applied for directions under s 239ADR of the Companies Act 1993 that Amstar could not continue its enforcement of the adjudication determination once Lighthouse went into administration. As well as opposing, Amstar cross-applied for orders requiring the administrators to release retentions held under part 2 subpart 2A of the Construction Contracts Act 2002, to obtain the director’s statement under s 239AF of the Companies Act 1993 and to hold

$2,000,000 from the sale of apartments on trust for its benefit. The first two parts of the cross-application were not in issue by the time of the hearing. The administrators accepted that under the construction contract Amstar was entitled to half the retentions.1 The funds are held in a solicitors’ trust account. Lighthouse’s director had already given his report.

[3]The issues are:

(a)Does the administrators’ application come within s 239ADR of the Companies Act 1993?

(b)Were the administrators validly appointed?

(c)Do ss 239ABE and 239ABG of the Companies Act 1993 bar Amstar Ltd from enforcing its adjudication while Lighthouse is in administration?

(d)Should the administrators be required to hold part of the proceeds of sale of apartments on trust for Amstar?

1      The conditions for the other half have not been satisfied yet.

Facts

[4]    Lighthouse was incorporated on 3 April 2018. Its shareholders are Eastmere (Lighthouse) Ltd (51 per cent), Mark Cooper Property Ltd (24.5 per cent) and Pandarama Ltd (24.5 per cent). Until 23 October 2020, the directors of the company were Colin Leuschke, Shannon Walsh and David Linehan. Messrs Linehan and Walsh are directors of Eastmere (Lighthouse) Ltd. Mr Mark Cooper (not the judge) is the director of Mark Cooper Property Ltd. Mr Leuschke is the director of Pandarama Ltd.

[5]    Until shortly before Lighthouse went into administration, the ANZ Bank held a mortgage over its development but that has been discharged. On administration, entities associated with the shareholders and directors had registered mortgages:

(a)Eastmere No 3 LP, of which Eastmere No 3 GP Ltd is the general partner. Messrs Linehan and Walsh are its directors. The limited partnership has a first mortgage.

(b)Pandarama Ltd, equal ranking second mortgagee.

(c)Rachel Deadman, Mr Cooper’s wife, equal ranking second mortgagee.

[6]    Amstar built 31 apartments for Lighthouse’s development in Karangahape Road, Auckland, under a contract made in April 2018. Practical completion was in August 2020 and a code compliance certificate was issued in September 2020. Amstar referred a dispute with Lighthouse to adjudication under the Construction Contracts Act 2002. The adjudicator’s determination of 19 October 2020 awarded Amstar

$1,545,288.03 plus interest at $446.84 per day plus costs of $66,538 already paid by Amstar and approved the issue of charging orders over the remaining unsold apartments.2 A corrected determination was issued on 22 October. Lighthouse did not pay by 22 October as required.

[7]    On 23 October 2020 at about 2.00 pm Amstar’s lawyers filed in the District Court an application under s 73 of the Construction Contracts Act 2002 for the

2      Construction Contracts Act 2002, s 76.

determination to be entered as a judgment against Lighthouse and an application under s 76 for the issue of charging orders against Lighthouse’s apartments.

[8]    Later in the same afternoon, Messrs Leuschke, Walsh and Linehan resigned as Lighthouse’s directors. Mr Cooper was appointed in their place. At 3.42 pm he signed a resolution that in his opinion as director Lighthouse was insolvent, administrators should be appointed and he appointed the administrators. Afterwards lawyers for the administrators (not their lawyers in this application) emailed Amstar’s lawyers advising of the administrators’ appointment and that under s 239ABG of the Companies Act 1993 enforcement processes could not be begun or continued.

[9]    Documents notifying the administration were lodged in the Companies Office on 27 October. On 29 October Amstar served a notice of suspension under s 59(2) of the Construction Contracts Act 2002 on Lighthouse and copies of the applications in the District Court. Correspondence about whether Amstar could take these steps followed. The administrators’ lawyers advised the District Court that the company was in administration, but they did not take any formal steps to oppose Amstar’s applications. On 6 November Amstar filed documents in the District Court for judgment to be entered and for charging orders to issue. On 10 November the District Court made orders entering the adjudicator’s determination as a judgment and issued charging orders. They were lodged against the titles to Lighthouse’s apartments. The administrators began this application on 12 November. On 20 November the administrators applied to the District Court to recall its decisions of 10 November.

[10]   The first creditors’ meeting of the administration was on 4 November. For this case it was unremarkable. The convening period for the watershed meeting has been extended to 22 January 2021  so  that  the  meeting  will  take  place  no  later  than 29 January.3 The extension is to allow the administrators to continue selling the apartments. There are 15 for sale, of which two are subject to agreements. One was to settle on 11 December. The charging orders block completion of any sales.

[11]   The Commissioner of Inland Revenue is an unsecured but preferential creditor for unpaid GST of $1,333,000. Eastmere Investment No 3 LP, the first mortgagee, is

3      Minute of 20 November 2020.

owed about $5,705,000. Interest is running at about $130,000 a month. It has issued a notice under s 119 of the Property Law Act 2007. The mortgages to Pandarama Ltd and Mrs Deadman are security for loans of $1,160,000 and $1,470,000 respectively on which interest continues to run. There are other unsecured creditors but for smaller sums. The mortgagees agree to the Commissioner of Inland Revenue being paid first after the costs of sales. If the Commissioner and the mortgagees are paid first, there is unlikely to be enough to pay all the unsecured creditors, including Amstar. It is aggrieved that creditors associated with those behind the company will be paid ahead of it. It wants to use its charging orders as leverage to be paid.

Does the administrators’ application come within s 239ADR of the Companies Act 1993?

[12]   The administrators have applied under s 239ADR(1) of the Companies Act 1993:

Administrator may seek directions

(1)     The administrator … may apply to the court for directions in relation to the performance or exercise of any of the administrator’s functions and powers.

[13]   They seek directions whether the voluntary administration prevents Amstar from applying to the District Court for judgment on the adjudication determination and for charging orders, and from lodging charging orders for registration with LINZ, whether Amstar is in breach for maintaining the charging orders and whether the charging orders must be discharged.

[14]   Amstar objects that the application goes beyond the scope of the section. In its submission the section is limited to stating the extent of the administrators’ powers and the manner of their exercise. It says that the administrators ought to apply to the District Court instead to have the charging orders removed. Section 239ADR is narrower than comparable provisions such as s 284 of the Companies Act, under which the court can give directions to liquidators.

[15]   Where someone holds a fund or assets on behalf of others, the law frequently provides that they may apply to the court for directions. Under the Insolvency Act

2006 s 225, the Official Assignee may apply to the court for directions on any question concerning the operation of that act. Under the Receiverships Act 1993 s 34, a receiver may apply for directions in relation to any matter arising in connection with the performance of their functions. Under the Trustee Act 1956 s 66, a trustee may apply to the court for directions “concerning any property subject to a trust, or respecting the management or administration of any such property, or respecting the exercise of any power or discretion vested in the trustee.” The Companies Act 1993 s 284 gives the court wide powers to supervise liquidators, including to “give directions in relation to any matter arising in connection with the liquidation.”4 These provisions are typically used to give those holding the fund or assets directions, including declarations, on matters of law.5 In some cases the courts decline to say how managerial powers should be exercised.

[16]    Amstar says that the orders sought by the administrators are not about the administrators’ functions and powers but are to declare the extent of Amstar’s rights. It submits that s 239ADR is not as extensive as comparable provisions in other legislation and it cannot be used to obtain orders that curtail its rights.

[17] Section 239ADR is taken from s 447D of the Corporations Act 2001 (Cth). Like the rest of Part 15A of the Companies Act, it is “drop-in pitch” legislation. The Australian statute has been copied almost word for word.6 In adopting Australian legislation in such a wholesale manner, Parliament must have intended to apply Australian law as part of New Zealand law. The courts should likewise use Australian judgments as guidance in applying provisions that are common to both countries. That is important in voluntary administrations. In many cases New Zealand subsidiaries are put into administration at the same time as their Australian holding companies and the administrations are run in tandem. It would be inconvenient for common provisions to be interpreted differently according to which side of the Tasman they are applied.

4      Companies Act 1993 s 284(1)(a).

5      In Re CBL Insurance Ltd (in liquidation) [2018] NZHC 2547, [2019] 2 NZLR 262, Courtney J held that the court’s powers under s 284 extended to making declarations.

6      There are some differences, including netting agreements, ipso facto clauses, and pooling orders.

[18]   Other provisions in Part 15A allow creditors to apply when they consider that they are adversely affected by decisions and actions of administrators. Under 239ADP on an application by a creditor “the court may make any order that it thinks necessary to protect the interests of that creditor while the company is in administration.” Under s 239ADS the court may supervise administrators. On the application of a creditor:

The court may make any order it thinks just if it is satisfied that—

(a)the administrator’s …management of the company’s business, property, or affairs is prejudicial to the interests of some or all of the company’s creditors or shareholders; or

(b)the administrator’s … conduct or proposed conduct has been or is or will be prejudicial to those interests.

[19]   As creditors have standing to apply for relief when they consider that they are adversely affected by the actions of administrators, it would be odd to hold that administrators cannot similarly apply when they consider that the conduct of the administration is adversely affected by the actions of a creditor.

[20]   Amstar’s proposed interpretation imposes an unworkable limitation on s 239ADR. It would only allow administrators to apply under that section if the matter did not determine the rights of third parties. But voluntary administration under Part 15A does impact the rights of others, not only creditors, but also directors and shareholders. The powers and functions of administrators under Part 15A do go to the rights and powers of others. In making orders under the section with respect to administrators’ functions and powers the court may define and declare the rights of others. As a trite example, it may be necessary to decide whether someone is a creditor of the company in administration. There may be a question whether they are a creditor of a related entity and the amount of their claim may be in issue. Administrators may legitimately seek decisions on these questions to know how to deal with that person in the administration. It would be absurd if they could not apply to the court to have these matters decided. The section gives them a procedure to bring these matters before the court.

[21]   In this case, Amstar’s charging orders prevent the administrators completing any sales of apartments. That affects the administrators’ powers under ss 239U and 239V, under which they may carry on the business of the company. Section 239ADR

allows them to apply for decisions whether that limit on their powers is authorised under Part 15A.

Were the administrators validly appointed?

[22]   Amstar says that Lighthouse did not pass a valid resolution appointing the administrators and therefore their appointment is void. Under s 239ADQ a creditor may apply for a ruling on the validity of the appointment. Amstar did not make a formal application under that section but raised it in its notice of opposition to the administrators’ application. That did not matter. Both sides gave evidence and submitted on the matter.

[23]Lighthouse was put into administration under s 239I of the Companies Act:

239I     Appointment by company

(1)        A company may appoint an administrator if the board of the company has resolved that,—

(a)in the opinion of the directors voting for the resolution, the company is insolvent or may become insolvent; and

(b)an administrator of the company should be appointed.

(2)        The appointment must be in writing and must state the date of the appointment.

…

[24]   Amstar’s argument is that Lighthouse had only one director when it went into administration, but it required two. It relies on Lighthouse’s constitution and a shareholders’ agreement.

[25]   Under the constitution there are Class A and Class B shareholders.7 Each class has the right to appoint a director of their own choice.8 Under the shareholders’ agreement of 4 April 2018, Eastmere (Lighthouse) Ltd is the Class A shareholder holding 5,100 shares and Pandarama Ltd and Mark Cooper Property Ltd are the Class B shareholders, each holding 2,450 shares. Schedule 2 of the constitution governs

7      Constitution, cl 3.1.

8      Constitution, cl 3.2.

proceedings of the board, subject to a shareholder’s agreement. Schedule 3 of the Companies Act 1993 does not apply.9 Schedule 2 has a quorum provision, cl 1.2:

Except as provided otherwise in the Shareholders Agreement, the quorum necessary for the transaction of business by the board will be as set by the board and, unless so fixed, will be at least one director appointed by the holders of a majority of the Class A shares and at least one director appointed by the holders of majority of the Class B shares.

[26]These provisions of the shareholders agreement are relevant:

Clause 7.3

The holders of the majority of the Group A shares may appoint or remove a Director nominated by them by notice to the company signed by them or on their behalf or by a majority resolution of that shareholder group. The holders of the majority of the Group B shares may appoint or remove a Director nominated by them by notice to the company signed by them or on their behalf or by a majority resolution of that shareholder group. The appointment or removal shall take effect when the notice is delivered to the Company, unless the notice indicates a later date, or, as applicable, when the requisite majority resolution is passed. Each party shall consult with the other before signing any notice or voting to appoint or remove a Director provided that, notwithstanding anything to the contrary in this Agreement, for so long as the Eastmere loan is in place, the holders of a majority of the Class B shares will not sign any notice or vote to appoint or remove a Director without the prior written approval of Eastmere.

Clause 7.5

Subject to clause 7.8, the quorum for transacting business at any Board meeting shall be at least one Director appointed by the holders of a majority of the Class A shares and at least one Director appointed by the holders of a majority of the Class B shares when the relevant business is transacted. If that quorum is not present within 30 minutes from the time when the meeting should have begun or if during the meeting there is no longer a quorum, the meeting shall be adjourned for five Business Days and at that adjourned meeting any Directors present shall be a quorum.

[27]   The evidence includes copies of the written resignations by the three directors and this resolution appointing Mr Cooper addressed to the company:

Notice of appointment of director

In accordance with clause 7.3 of the Shareholders’ Agreement in relation to the Company dated 4 April 2018 (“Agreement”), Eastmere (Lighthouse) Ltd, being the holder of all of the Class A Shares in the Company, hereby gives notice that Mark Alan Cooper be and is appointed as director of the Company with immediate effect.

9      Constitution, cl 12.

Acknowledgement of appointment of director

Mark Cooper Property Ltd and Pandarama Ltd, being the holders of the Class B Shares in the Company, having been consulted with in accordance with clause 7.3 of the Agreement, acknowledge and agree to the appointment of Mark Alan Cooper as director of the Company by the holder of all of the Class A Shares.

The shareholders in the Company acknowledge that this document shall be deemed to a written resolution of shareholders for the purposes of s 153(2) of the Companies Act 1993.

[28]   Mr Walsh signed the resolution for Eastmere, Mr Cooper for his company and Mr Leuschke for Pandarama Ltd. Mr Cooper’s resolution as director appointing the administrators is a separate document.

[29]   The quorum provisions on which Amstar relies, the clause in the schedule to the constitution and cl 7.8 of the shareholders’ agreement, are the only provisions requiring more than one director to be present for business to be done. The other provisions allow but do not require both classes of shareholders to appoint directors. One class may choose not to appoint a director. It cannot be compelled to. Here the Class A shareholder appointed a director with the consent of the Class B shareholders, but they did not appoint one for themselves. That does not mean that the company could not do business with only one director. When there is only one director, quorum requirements are not triggered. The purpose of a quorum provision is to fix the minimum number required at a meeting, when more than one person is entitled do business for the organisation. When there is only one decision-maker, that person may make decisions for the organisation, even if no-one else is present. It would be silly or pointless to say that a sole director of a company attended a quorate board meeting. Accordingly, as there could be a sole director under the constitution, Mr Cooper could make an effective resolution to put Lighthouse into administration under s 239I.     He did so.

Do ss 239ABE and 239ABG of the Companies Act 1993 bar Amstar Ltd from enforcing its adjudication while Lighthouse is in administration?

[30]   The adjudicator’s determination was enforceable. Under s 59 of the Construction Contracts Act 2002, when Lighthouse failed to pay under the adjudication, Amstar was entitled to recover from it the amount ordered by the

adjudicator as a debt due in any court, plus the actual and reasonable costs of recovery. As the liable party, Lighthouse had two days in which to pay before any recovery steps could start.

[31]   Subpart 2 of Part 4 of the Construction Contracts Act 2002 deals with enforcement of an adjudicator’s determination. Under s 73 the creditor under the determination can apply to the District Court for it to be entered as a judgment. The liable party may oppose under s 74, but the  grounds for opposition are limited  –     s 74(2). The fact that the liable party is a company that has gone into administration is not a ground for opposing the entry of judgment. A liable party has five working days after service in which to apply for any order refusing entry of judgment. If it does apply and the District Court is satisfied that none of the grounds for opposition apply, it must enter judgment on the adjudicator’s determination. Section 75 says:

Entry as judgment if defendant takes no steps

If the defendant takes no steps within 5 working days after the date on which a copy of the application under section 73 to enforce the adjudicator’s determination is served on the defendant, the District Court must, at the request of the plaintiff, enter the adjudicator’s determination as a judgment as soon as practicable.

(Emphasis added)

[32]   Under s 76, if the adjudicator has approved the issue of charging orders, the successful party can apply to the District Court for charging orders against the construction site. If the adjudicator’s determination has been entered as a judgment, the Registrar must issue a charging order, which may be registered against the titles under the Land Transfer Act 2017.10

[33]   Amstar followed these procedures. It applied for the determination to be entered as a judgment and for the charging orders before Lighthouse went into administration. The other steps came after.

[34]   The administrators say on the other hand that there is a moratorium on enforcement while a company is in voluntary administration. They rely on these

10     District Court Act 2016, s 188.

sections in subpart 9 of Part 15A, “Protection of company’s property during administration”:11

239ABE:

During the administration of a company, a proceeding in a court against the company, brought in relation to any of its property, must not be begun or continued except –

(a)with the administrators’ consent; or

(b)with the permission of the court and in accordance with the terms that the court imposes.

239ABG:

During the administration of a company, an enforcement process in relation to the company’s property must not be begun or continued except with the permission of the court and in accordance with the terms that the court imposes.

And this definition in s 239C:

enforcement process, in relation to property, means—

(a)execution against that property; or

(b)any other enforcement process in relation to that property that involves a court or a sheriff

[35]   While Amstar has a charging order, that does not make it a secured creditor of Lighthouse. It cannot take advantage of those provisions allowing secured creditors to enforce their rights.12 “Secured creditor” is defined in s 2:

secured creditor, in relation to a company, means a person entitled to a charge on or over property owned by that company

But the definition of “charge” has a proviso excepting charging orders:

charge includes a right or interest in relation to property owned by a company, by virtue of which a creditor of the company is entitled to claim payment in priority to creditors entitled to be paid under section 313; but does not include

11 Subpart 10 deals separately with the rights of secured creditors, owners and lessors. Subpart 11 is about the interface with liquidation.

12 That said, secured creditors’ rights of enforcement are also limited during the moratorium. They cannot enforce their charges except with the administrator’s consent (s 239ABC(a)), with the leave of the court (s 239ABC(b)), where they are fully secured (s 239ABM), where enforcement started before the moratorium or the charged property is perishable (s 239ABN).

a charge under a charging order issued by a court in favour of a judgment creditor

[36]   The administrators say that the application under 73 of the Construction Contracts Act 2002 for the determination to be entered as a judgment was a proceeding within s 239ABE which was continued after the start of the administration and the application for the charging orders and their registration was in breach of s 239ABG. They point out that these sections operate automatically; the administrators are not required to take any steps to stay a proceeding or enforcement. Both sections allow the court to permit a proceeding or enforcement to continue notwithstanding the administration, and in the case of a proceeding the administrators may also consent. They submit that restrictions on creditors’ rights to take action against the company are required to allow them to perform their role under s 239U.

[37]   Among the Australian authorities they cited is Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd. After recognising that the policy underlying the corresponding part of the Corporations Act 2001 is to maximise the chances of a beleaguered company staying alive, Hammerschlag J said of the comparable Australian provision:13

The stay of proceedings imposed by s 440D may facilitate the achievement of this object, amongst others, by

(a)affording the administrator time to assess and report on the company without the distraction of the proceedings;

(b)putting a brake on legal and associated costs;

(c)allowing time for the development of proposals which might preserve the value of the company as a going concern;

(d)giving the creditors time to consider their position for the purposes of the creditors’ meeting; and

(e)in appropriate circumstances, preventing a creditor from obtaining some advantage over other creditors or potential creditors.

[38]That is equally applicable in New Zealand, given the objects stated in s 239A:

13 Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd [2011] NSWSC 1305, 285 ALR 207 at [38]. See also Foxcroft v The Inc Group Pty Ltd (1994) 15 ACSR 203 at 205, Geoff Sharpe Pty Ltd v M & E Fitzgerald Pty Ltd (No 2) [2010] QSC 231 and Pybar Mining Services Pty Ltd v Challenger Gold Operations Pty Ltd [2018] SASC 156.

The objects of this Part are to provide for the business, property, and affairs of an insolvent company, or a company that may in the future become insolvent, to be administered in a way that—

(a)maximises the chances of the company, or as much as possible of its business, continuing in existence; or

(b)if it is not possible for the company or its business to continue in existence, results in a better return for the company’s creditors and shareholders than would result from an immediate liquidation of the company.

[39]   Amstar says that its actions since Lighthouse went into administration are not caught by ss 239ABE and 239ABG. It does not ask for permission to take those steps, nor does it say that the Construction Contracts Act 2002 overrides Part 15A of the Companies Act 1993. It will not release its charging orders over Lighthouse’s apartments unless ordered to or the administrators make arrangements acceptable to it.

[40]   It says that it began its application for the entry of judgment before Lighthouse went into administration and all the steps afterwards happened automatically. It did not continue any proceeding contrary to s 239ABE. As Lighthouse did not take any steps to prevent judgment being entered, it was entitled to judgment as of right and automatically. Similarly the issue of the charging order was an administrative, not a judicial process. It did not breach s 239ABG because the lodging of the charging orders without more was not execution against Lighthouse’s assets.

[41]   A money judgment is for a previously existing liability that has been ascertained or established in the proceeding.14 That is to be contrasted with orders to pay, which may impose fresh liabilities (as with costs orders) and may be conditional.15 The process from the facts of a claim occurring to the entry of judgment requires procedural steps to be taken in the court: filing initiating documents, serving them on the party alleged to be liable and giving them the opportunity to oppose and to be heard. Sometimes the procedures are complex and protracted; others may be short and straightforward. Even if a party’s liability is obvious, the entry of judgment is

14     Ex parte Chinery (1884) 12 QBD 342 (CA) at 345.

15     For example, under an order for specific performance of an agreement for sale and purchase of land, payment is usually required only upon the other side transferring the property.

important, not only in recognising the liability, but also in allowing the liability to be enforced through the execution remedies of the court against the judgment debtor’s assets. Under our adversarial system, the party making the claim is active in pursuing it. It files the initiating documents, serves them on the other side and asks the court to enter judgment. It decides whether, how and when to enforce any judgment.

[42]   That applies to obtaining judgment on adjudication determinations under the Construction Contracts Act 2002. While the application for judgment was started before administration, Amstar was actively involved in obtaining judgment during the administration. It served Lighthouse and asked the District Court for judgment after Lighthouse took no steps in response. It would not have obtained judgment, if it had not done so. Those procedural steps continued the proceeding against Lighthouse’s assets: it wanted a judgment it could enforce against the apartments. It does not matter that it obtained judgment by default instead of after an opposed hearing. It breached  s 239ABE.

[43]   Amstar cited case law under the repealed Arbitration Act 1908 that filing an address for service and making an appearance to consent to an adjournment did not amount to taking a step in a proceeding, so as to lose the right to seek a stay.16 Those circumstances are quite removed from these and do not help Amstar. It also cited Orakei Group (2007) Ltd v Doherty as an example of a court making orders in a proceeding after it had gone into liquidation.17 In that case the court held that money paid into court by way of security for costs was not the asset of the company. This case instead does involve Lighthouse’s assets, its apartments and the proceeds of sale and whether Amstar can have resort to them for payment while Lighthouse is in administration.

[44]   Amstar says that obtaining and lodging the charging orders did not breach     s 239ABG because obtaining a charging order does involve execution against the land. It says that a charging order is no more than a precursor to execution, which is usually

16     Air Nauru v Niue Airlines Ltd [1993] 2 NZLR 632 (HC).

17     Orakei Group (2007) Ltd v Doherty [2008] ERNZ 505 (EMC).

by a sale order in this Court. It cites Gate v Sun Alliance Insurance Ltd, which held that a charging order did not survive bankruptcy.18

[45]   In this case Amstar applied for charging orders, had them sealed and lodged them against the titles to Lighthouse’s apartments. Those were enforcement steps under s 239ABG. Under the District Court Act 2018, part 10, a charging order is one way to enforce a money judgment.19 While it may be a precursor to a sale order, it is nevertheless enforcement, as it limits the judgment debtor’s ability to deal with the property and to dispose of it. That fetter can be undone only by satisfying the judgment.

[46]   In lodging the charging orders against the titles to the apartments, Amstar’s object has been to obtain an advantage over other creditors. That strikes against the purpose and the text of s 239ABG. In summary, under ss 239ABE and 239ABG Amstar was barred from continuing its application to enter judgment in the District Court for the adjudicator’s determination and to obtain and register its charging orders. The administrators are entitled to the directions they sought.

Should the administrators be required to hold part of the proceeds of sale of apartments on trust for Amstar?

[47]   Amstar cross-applies for an order that the administrators hold up to $2,000,000 of the proceeds of sale of apartments undisbursed until the watershed meeting. This is a fall-back application in case it was unsuccessful in its arguments under ss 239ABE and 239ABG. It accepts that the Commissioner of Inland Revenue will become a preferential creditor only on Lighthouse going into liquidation, but the company is not in liquidation. The mortgagees are related creditors and under s 239AM will be barred from voting at the watershed meeting unless the court orders otherwise.20 Amstar objects to the administrators making any payments to the Commissioner or the mortgagees. Instead a fund should be provided as a substitute for its charging orders.

18     Gate v Sun Alliance Insurance Ltd (1996) 9 PRNZ 568 (HC).

19     District Court Act 2016, s 184.

20     The mortgagees have not applied for their votes to be counted.

[48]   It says that the order may be made under ss 239ADO, 239ADP and 239ADS. A creditor has standing under each section. Under s 239ADO the court may make any order that it thinks appropriate about how Part 15A is to operate in relation to the company. That power allows the court to make orders dispensing with compliance with parts of Part 15A or adjusting how the part applies. Under s 239ADP the court may make any order that it thinks necessary to protect the interests of a creditor while the company is in administration. Under s 239ADS the court may make any order it thinks just if it is satisfied that the administrator’s management of the company’s business, property or affairs or the administrator’s conduct is prejudicial to the interests of some or all of the creditors.

[49]   It is appropriate to assess matters in the case of a possible liquidation. Lighthouse is insolvent and is likely to go into liquidation if there is not a deed of company arrangement. At the watershed meeting the creditors are likely to consider the likelihood and effects of liquidation. Amstar as an unsecured creditor will not enjoy any priority in a liquidation. It will rank below the Commissioner of Inland Revenue’s preferential claim. On liquidation the mortgagees, secured creditors, will have their options under s 305 of the Companies Act 1993 to realise their securities, value their securities and claim in the liquidation for the unsecured balance or surrender their security to the liquidator and claim as unsecured creditors for the whole of the debts owing to them. It is possible that the proceeds of sale of the apartments will not be enough to clear all the charges and that the lower-ranking mortgagees will claim in the liquidation. Amstar will not be able to claim any priority because of its charging orders, because it was not entitled to lodge the charging orders during the administration. There is no priority for unsecured creditors who miss in trying to beat the moratorium. There is no reason why funds should be set aside for it in the meantime. At the start of the administration Amstar was an unsecured creditor of Lighthouse for the amount of the adjudication determination and it has remained that. Its position is the same as that of other unsecured creditors. It has got worse only because interest has continued to accrue on the mortgages, so that there is less prospect of Amstar and other creditors receiving anything.

[50]   The administrators have investigated the first mortgage to Eastmere Investment No 3 LP. There was an initial advance of $1,448,000 with further loans to

give a total of $3,126,000. Interest is charged at 20% per annum compounding. The administrators say that that is not unusual for mezzanine finance for a multi-unit residential development, especially because the directors of the mezzanine lender guaranteed the ANZ Bank’s loan of $12,000,000. In short the administrators are satisfied that the first mortgage is in order. At this stage there is no reason to suggest that Eastmere does not have priority for its mortgage. It was submitted for the administrators that as funds become available, Eastmere should be paid to stop the debt to it building. Interest is running at $136,000 a month. Delay in paying Eastmere will reduce funds for lower-ranking creditors. It makes sense to pay Eastmere when funds become available. I see no reason to order otherwise.

[51]   In short Amstar has not made out the grounds under any of the sections it relies on to make the orders it seeks. Accordingly I dismiss that part of its cross-application.

Outcome

[52]   I make orders for the administrators in terms of their application. I order the administrators to pay or give directions that Amstar is to be paid forthwith its half share of the retentions. Leave is reserved to apply for further directions if payment is not made or if the conditions for paying the remaining retentions are satisfied. No order is required for the director’s report under s 239AF. Amstar’s application for funds to be held is dismissed.

[53]   The administrators are entitled to costs. If counsel cannot agree costs, memoranda may be filed. The parties are not expected to agree costs before the end of January 2021. If they cannot agree, memoranda may be filed for me to decide costs on the papers.

…………………………………….

Associate Judge R M Bell