Meng v Registrar of Companies
[2023] NZHC 2093
•9 August 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-1275
[2023] NZHC 2093
UNDER the Companies Act 1993 IN THE MATTER OF
an application to reverse a liquidator’s final report and to restore SOUTH PACIFIC IT LIMITED to the Companies Register
BETWEEN
KEXIN MENG
Plaintiff
AND
REGISTRAR OF COMPANIES
Defendant
Hearing: 17 July 2023 Appearances:
Cherie Holland for the Plaintiff
Guy Caro for the Registrar of Companies
Judgment:
9 August 2023
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
[Reversing liquidator’s final report and restoring company to the register]
This judgment was delivered by me on 9 August 2023 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Turner Hopkins (Cherie Holland), Takapuna, Auckland, for the Plaintiff Companies Office (Guy Caro), Auckland, or the defendant
KEXIN MENG v REGISTRAR OF COMPANIES [2023] NZHC 2093 [9 August 2023]
Introduction
[1] Ms Kexin Meng (Ms Meng) applies for orders reversing a liquidator’s final report and for subsequent restoration of South Pacific IT Limited (South Pacific) to the New Zealand Register of Companies (the register).
Background
[2] South Pacific was incorporated as a company on the register on 26 April 2017. It operated an internet café comprising about 70 computers. Ms Meng was South Pacific’s sole director and shareholder.
[3] On 20 November 2017, South Pacific entered a lease, with Ms Meng as guarantor, for premises at Level 2, 144 Hobson Street, Auckland Central. Thereafter, there were a number of water ingress issues including a major water ingress event on about 25 December 2018, which ultimately led to South Pacific’s cessation of trading and liquidation. The landlord of the premises, the Jedi Family Trust (the Landlord), continued to invoice South Pacific for the rent, which South Pacific refused to pay, before terminating the lease on 8 February 2019.
[4] South Pacific was placed into voluntary liquidation on 8 February 2019 by special shareholder resolution pursuant to s 241(2)(a) of the Companies Act 1993. The liquidator, Daran Nair (Mr Nair), in his first report on 14 February 2019 disclaimed the lease before filing a final report on 12 July 2019 (the final report).
[5] South Pacific was subsequently removed from the register on 30 August 2019. Ms Meng then brought this proceeding to have South Pacific restored to the register.
[6] On its call before me on 19 August 2022, I noted in a subsequent minute, that the Court could not make a restoration order without Ms Meng first applying for an
order under s 284(1)(b) of the Companies Act reversing Mr Nair’s final report.1 This judgment deals with orders for both reversal and restoration.
Ms Meng’s applications
[7]Ms Meng seeks orders:2
a. reversing the liquidator's final report, being in this case the report of Darn Nair, the liquidator, dated 12 July 2019; and
b. an order restoring South Pacific IT Limited ("the company") to the New Zealand Companies Register.
[8]The grounds on which the orders are sought are:3
2. The grounds on which the order reversing the liquidator's final report, being in this case the report of Daran Nair, the liquidator, dated 12 July 2019 is sought are pursuant to s 284(1)(b) Companies Act 1993, being that the court may reverse a decision of the liquidator.
3. The grounds on which the order restoring South Pacific IT Limited ("the company") to the New Zealand Companies Register is sought are pursuant to s 329(1)(a) and (b) Companies Act 1993, being that at the time the company was removed from the register:
a. The company was a party to legal proceedings;
b. The company was in liquidation; and
c. For any other reason it is just and equitable to restore the company to the register.
Affidavit of Kexin Meng dated 16 September 2022
[9] Ms Meng has made an affidavit in support of her application to reverse the liquidator’s final report and restore South Pacific to the register.4
[10] Ms Meng accepts that she placed South Pacific into liquidation by way of special resolution upon the recommendation of her solicitor at the time. However, she deposes she did not fully comprehend the quality of that advice.
1 Re Meng HC Auckland CIV-2022-404-1275, 26 August 2022 (Minute of Associate Judge Taylor).
2 Originating application by applicant to reverse the liquidator's final report and to restore company to New Zealand companies register dated 16 September 2022 at [1].
3 At [2] and [3].
4 Affidavit of Kexin Meng in support of originating application to reverse the liquidator's final report and to restore company to New Zealand companies register dated 16 September 2022.
[11] Ms Meng deposes that the liquidator’s final report should be reversed as is required before restoring South Pacific to the register. Ms Meng says that South Pacific entered the deed of lease on 22 November 2017 (the lease) with the Landlord for the internet café premises. Ms Meng signed the lease as guarantor, guaranteeing the obligations of South Pacific. She deposes that there was significant water damage caused at the premises and that South Pacific stopped paying rent while in discussion with the Landlord.
[12] Ms Meng deposes that the Landlord brought proceedings against her as guarantor in about March 2020. She says that at the time South Pacific was placed into liquidation those proceedings had been issued against her. She believes the Landlord has breached its obligations under the lease which gives South Pacific a real, valid and substantial right to claim against the Landlord for breach of the lease and damage of its assets. Ms Meng concludes that South Pacific will be unable to pursue its claim unless the liquidator’s final report is reversed, and South Pacific is restored to the register. She says her decision to liquidate South Pacific was somewhat misguided.
Registrar of Companies’ opposition
[13] The Registrar of Companies (the Registrar) opposes the application on the following grounds:5
a. South Pacific IT Limited ("the company") was not a party to legal proceedings at the time it was removed from the New Zealand register.
b. The company was not in liquidation at the time it was removed from the New Zealand register as the liquidator had previously filed the final liquidation report.
c. There is no other reason why it is just and equitable for the company to be restored to the New Zealand register or why the final liquidation report should be cancelled. The applicant wants the company restored and the final liquidation report cancelled in order for the company through the liquidator to bring proceedings in respect of a lease. The applicant's evidence is that the liquidator previously disclaimed the lease. The disclaimer brought to an end the rights, interests, and liabilities of the company in relation to the lease.
5 Notice of opposition dated 10 May 2023 at [1]–[3].
Affidavit of Sheree Evelyn McDonald dated 10 May 2023
[14] Ms McDonald, Deputy Registrar of Companies since 20 December 2021, has made an affidavit in support of the Registrar’s opposition to Ms Meng’s application. She deposes that South Pacific was incorporated on 26 April 2017 and removed from the register on 30 August 2019.
[15] Ms McDonald says Daran Nair was appointed as liquidator, as registered in his 10 February 2019 notice of appointment. She says his final report was registered on 12 July 2019 and attaches the notice, report and correspondence between Ms Meng’s and the Registrar’s solicitors regarding this proceeding.
Legal principles
[16]Section 284(1)(b) of the Companies Act 1993 (the Act) relevantly provides:
284 Court supervision of liquidation
(1) On the application of the liquidator, a liquidation committee, or, with the leave of the court, a creditor, shareholder, other entitled person, or director of a company in liquidation, the court may—
…
(b) confirm, reverse, or modify an act or decision of the liquidator:
…
[17]Section 329 then provides:
329 Court may restore company to New Zealand register
(1) The court may, on the application of a person referred to in subsection (2), order that a company that has been removed from the New Zealand register be restored to the register if it is satisfied that,—
(a)at the time the company was removed from the register,—
(i)the company was carrying on business or a proper reason existed for the company to continue in existence; or
(ii)the company was a party to legal proceedings; or
(iii)the company was in receivership, or liquidation, or both; or
(iv)the applicant was a creditor, or a shareholder, or a person who had an undischarged claim against the company; or
(v)the applicant believed that a right of action existed, or intended to pursue a right of action, on behalf of the company under Part 9; or
(b) for any other reason it is just and equitable to restore the company to the New Zealand register.
(1A) In considering whether to restore a company to the register on the ground referred to in subsection (1)(a)(i) or (b), the court must have regard to the reasons for the company’s removal and whether those grounds existed at the time of removal or exist at the time of the hearing of the application.
(2)The following persons may make an application under subsection (1):
(a)any person who, at the time the company was removed from the New Zealand register,—
(i) was a shareholder or director of the company; or
(ii) was a creditor of the company; or
(iii) was a party to any legal proceedings against the company; or
(iv) had an undischarged claim against the company; or
(v) was the liquidator, or a receiver of the property of, the company:
(b)the Registrar:
(c)with the leave of the court, any other person.
(3) Before the court makes an order restoring a company to the New Zealand register under this section, it may require any provisions of this Act or any regulations made under this Act, being provisions with which the company had failed to comply before it was removed from the register, to be complied with.
(4) The court may give such directions or make such orders as may be necessary or desirable for the purpose of placing the company and any other persons as nearly as possible in the same position as if the company had not been removed from the New Zealand register.
Analysis
[18] Before dealing with the substantive issues in this judgment of whether the liquidator’s final report should be reversed and South Pacific restored to the register, I deal with the following preliminary matters as follows:
(a)I accept the submissions of Mr Caro, for the Registrar, that ss 329(1)(a)(ii) and (iii) are not grounds upon which Ms Meng’s application can be sustained, as South Pacific was not a party to legal proceedings or in liquidation at the time of its removal. The liquidator’s final report had been filed, ending the liquidation.6 Accordingly, the application is dealt with in this judgment as an application under s 329(1)(b) of the Act, being an application that South Pacific should be restored to the register on the grounds that it is just and equitable to do so.
(b)Mr Caro has made the point that the application does not specifically seek a reversal of the liquidator’s decision to disclaim the lease. Ms Holland, for Ms Meng, submits that the request in the application to reverse the liquidator’s final report, which refers to the first report which in turn refers to disclaiming of the lease, is sufficient as a pleading for reversal under s 284(1)(b) of the Act of the liquidator’s decision to disclaim the lease.
My view on this point is that while the application could have been better drafted to specifically refer to reversal of the liquidator’s decision to disclaim the lease, the intention of the application was clear. Accordingly, under r 1.9 of the High Court Rules 2016, I am prepared to treat Ms Meng’s application as seeking an order reversing the liquidator’s decision to disclaim the lease (as part of the order to reverse the liquidator’s final report).
However, as will become clear later in this judgment, reversing the liquidator’s decision to disclaim the lease is not necessary.
[19] Having dealt with these preliminary matters, I now turn to the main question to be determined in this judgment, namely whether the liquidator’s final report and decision to disclaim the lease, should be reversed and South Pacific restored to the
6 Registrar of Companies v Body Corporate 3077030 [2014] 2 NZLR 623 at 626 and Williams v Registrar of Companies [2015] NZLR 3217 at [13] to [19].
register. Having heard the submissions of Ms Holland for Ms Meng and Mr Caro, in my view the essential issue as to whether it is just and equitable to restore South Pacific to the register, turns on whether or not South Pacific, if restored to the register, can bring counterclaim proceedings under the lease against the Landlord for breach of the lease. If such counterclaim proceedings are successful, then South Pacific’s liability to the Landlord may be reduced or extinguished and Ms Meng’s liability as guarantor under the lease reduced accordingly. This issue involves examination of the effect of the liquidator disclaiming the lease prior to South Pacific being removed from the register.
[20] Mr Caro submits that under s 269(3)(a) of the Act, the effect of the disclaimer is that it:
“brings to an end on and from the date of the disclaimer the rights, interests, and liabilities of the company in relation to the property disclaimed.”
He submits that South Pacific, through the liquidator, is no longer able to issue proceedings in respect of the lease because following the disclaimer the company has no rights or interests in the lease.
[21] Mr Caro refers to the decision of the Court in Millennium Securities Ltd v Parekura Bay Vineyard Estates Ltd (in liq).7 He submits in that case Moore J made an order restoring the company to the register so that property could be sold to satisfy a mortgage liability, although His Honour did not order a cancellation of the final liquidation report. The Registrar restored the company but then removed it again as the final liquidator’s report remained registered. The matter was referred back to Moore J who made the following comments:8
The only appropriate, indeed the only possible cause of action, is for Millennium to bring a fresh application if it chooses to do so. However, the Registrar has also made a helpful submission as to the wisdom of this step. She points out that the effect of the liquidator disclaiming the property was to vest it in the Crown. She thus argues that even if Parekura was restored to the Register it would no longer have this property to sell. In any event, she also points out that the mortgagee has its own separate remedy under s 269(5) of the Act which can be invoked in preference.
7 Millennium Securities Ltd v Parekura Bay Vineyard Estates Ltd (in liq) [2016] NZHC 2873.
8 Above n 7, at [19].
[22] In this instance, as it is an important point, the Court has carried out its own research into the effect of the disclaimer of the lease on South Pacific’s right to bring an action against the Landlord for breach of the lease. It is common ground the lease was disclaimed in accordance with s 269(1) of the Act. However, the important point here is that the liquidator did not disclaim South Pacific’s litigation right against the Landlord under the same section. As the District Court summarised in Downtown House (No.2) Ltd v Batistich:9
[Section 269 of the Companies Act 1993] is unambiguous so far as the position of the Lessee where its liquidator has disclaimed liability. In that event, the lease comes to an end. The lease does not spell out what the position of the Guarantor will be in the event of a disclaimer. Section 269(3)(b) does however indicate that any liability that any other person has will not be affected. The subsection does not create a liability where none would otherwise exist. The only effect of the subsection is to maintain a pre-existing liability on the part of a third party after the event of disclaimer has occurred whether or not such a liability continues.
[23] In this case the object of Ms Meng’s application to reinstate ``South Pacific is to have it pursue a counterclaim as lessee against the Landlord for breach of the lease in order to offset the Landlord’s current claim against her personally as guarantor. So it is the litigation right against the Landlord which Ms Meng wishes to pursue and which has not been disclaimed.
[24] Mr Caro, for the Registrar, says that South Pacific need not be restored to the register as the correct remedy is for Ms Meng to apply to have the disclaimed lease vested in her personally under s 269(5) of the Act, which can occur if such a vesting is shown to be “just” under s 269(6). However, importantly, subsection (5) only permits Ms Meng to “apply to the Court for an order that the disclaimed property be delivered to or vested in [her]”. The disclaimed property is the cancelled lease - which is of little use to Ms Meng. The disclaimed property is not the breach of contract cause of action which arose before the lease was disclaimed. In other words, s 269(5) cannot give Ms Meng any effective remedy as it does not allow the Court to vest in her South Pacific’s litigation right which was never disclaimed in the first place.
9 Downtown House (No.2) Ltd v Batistich [1999] DCR 1155 at 1160.
[25] Company Law in New Zealand makes this very point, where the learned authors stated:10
... whilst future performance of the contract must be discharged, a right to claim damages in respect of a pre-disclaimer breach of contract must remain enforceable by both parties, as would any debts arising out of the contract that have accrued before the disclaimer.
[26] Expanding on the point made by the learned authors, in Pitfield v Dorchester Finance Ltd the Court noted:11
[Section 269(5)] is designed to enable those who have suffered loss as a result of a disclaimer to claim in the liquidation for that loss. The claim is for the amount of the loss suffered as a result of the disclaimer and not the loss suffered under the contract disclaimed.
South Pacific’s litigation right to claim against the Landlord is not something that can be said to be a loss or damage arising as a consequence of the disclaimer, nor is it disclaimed property – it is a pre-disclaimer litigation right which was not disclaimed. Hence s 269(5) yields Ms Meng no remedy.
[27] In conclusion on this point, it is necessary that South Pacific be restored so that South Pacific can bring its claim against the Landlord for breach of the lease, being a claim that arose prior to the disclaimer and not disclaimed. In addition, Ms Meng would not have any effective remedy under s 269(5) as submitted by Mr Caro, as the rights to claim for breach of the lease by South Pacific against the Landlord have not been disclaimed and therefore could not be vested in her.
[28] Mr Caro also referred to the decision in Millennium Securities.12 In my view, the comments in that decision are of little assistance here. The object of the restoration application in that case was to sell the disclaimed property to pay off the mortgagee and the property sought was itself disclaimed and so vested in the Crown, which means the loss resulted from the disclaimer and the mortgagee could possibly receive vesting of the disclaimed property from the Crown under s 269(5). In the present case
10 Company Law in New Zealand (Peter Watts, Neil Campbell and Christopher Hare, (2nd ed., LexisNexis Wellington 2015) at 903 citing Christopher Moran Holdings Ltd v Bairstow [2000] 2 AC 172 (HL), and Pitfield v Dorchester Finance Ltd [2004] 3 NZLR 237 (HC) at [35].
11 Pitfield v Dorchester Finance Ltd [2004] 3 NZLR 237 (HC) at [32].
12 Above, n 7.
however, South Pacific’s litigation right was never disclaimed, the right arose prior to the disclaimer, and the guarantor could not receive vesting of that non-disclaimed property under s 269(5).
[29] As a final point, I note that South Pacific’s litigation right against the Landlord for breach of the lease, as it was property not distributed or disclaimed when South Pacific was removed from the register, would have vested in the Crown by operation of s 324(1) of the Act. However, if South Pacific is restored to the register, then in accordance with s 331(1), that litigation right will “vest in the company as if the company had not been removed from the register”.
Result
[30] As a result of the conclusions I have reached at [27] and [29], the liquidator’s final report should be reversed pursuant to s 284(1)(b) of the Act, and South Pacific should be restored to the register under s 329(1)(b) of the Act on the grounds that it is just and equitable to do so.
Orders
[31]I make the following orders:
(a)The liquidator’s final report dated 12 July 2019 in the liquidation of South Pacific is reversed pursuant to s 284(1)(b) of the Companies Act 1993;
(b)South Pacific is restored to the Companies Register pursuant to s 329(1)(b) on the grounds that it is just and equitable to do so;
(c)No order is made as to costs.
…………………………….. Associate Judge Taylor
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