Milnes v Glenara Holdings Ltd

[2012] NZHC 2634

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV 2012-488-96 [2012] NZHC 2634

BETWEEN  FREDERICK SELWYN MILNES Plaintiff

ANDGLENARA HOLDINGS LTD Defendant

Hearing:         9 October 2012 (by telephone) Counsel:          F A King for Plaintiff

D M Grindle for Defendant

Judgment:      10 October 2012

JUDGMENT OF HEATH J

This judgment was delivered by me on 10 October 2012 at 4.00pm pursuant to Rule

11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:
Lewis’, PO Box 529, Cambridge
Webb Ross, Private Bag 9012, Whangarei
Counsel:

F A King, 2313 Mountain Road, Inglewood RD 8

MILNES V GLENARA HOLDINGS LTD HC WHA CIV 2012-488-96 [10 October 2012]

Introduction

[1]      Mr Selwyn Milnes (the Father) and Mr Frederick Milnes (the Son) are father and son.  The Father is the sole director of a family company, Glenara Holdings Ltd, in which the Son has a shareholding of 26.67%.

[2]      Since 2004, the Son has become increasingly concerned about the way in which his father is running the company.  He alleges that he has attempted to obtain relevant company records to ascertain the true financial position but has not been able to do so.   He also asserts that he has not been invited to any annual general meetings of the company, notwithstanding his status as a shareholder.

[3]      The Son has brought an application under s 179 of the Companies Act 1993 (the Act) to appoint an auditor.  Section 179(1) provides:

179     Investigation of records

(1)      The Court may, on the application of a shareholder or creditor of a company, make an order authorising a person named in the order at a time specified in the order, to inspect and to make copies of, or take extracts from, the records or other documents of the company, or such of the records or documents of the company as are specified in the order, and may make such ancillary order as it thinks fit, including an order that the accounts of the company be audited by that person.

....

[4]      The application is opposed, on the grounds that it is unnecessary.  It was set down for hearing before me today.  However, following a telephone conference on 9

October 2012, counsel have today put forward a joint memorandum in which orders are sought on the s 179 application.  That is done in a manner designed to promote the primary objective of establishing the value of shares owned by the Son, so that arrangements can be made for those shares to be acquired by the Father or his nominee.

The order

[5]      Subject to one additional order,[1]  a consent order is made on the following terms:

[1] See para [10] below.

(a)      [The Son] is granted an order under s 179 of the Companies Act 1993 (“the Act”) to appoint Trevor Newland of KPMG (Hamilton Branch) to audit the defendant company.

(b)[The Son] is further granted an order under s 179 of the Act for the inspection of the following company records of the defendant company:

(i)Any and all records in respect of shareholder loans, including the most recently alleged shareholder loan credited against [the Son] in the sum of $38,000;

(ii)Any and all records in respect of authorisation of [the Son] to enable another person to sign company documents on his behalf.

(iii)Any and  all  records  in  respect  of the major transaction  of selling farm property in 2006; and

(iv)Any and all records in respect of the alleged present major transaction involving a significant land purchase.

(c)      Costs to be awarded to [the Son] on a category 2B basis plus disbursements as fixed by the Registrar.

(d)      Judgment cannot be enforced until after 8 November 2012.

[6]      In their joint memorandum, counsel have indicated that the reason the order is to lie in Court and not be enforced or implemented until 8 November 2012 is to allow the parties an opportunity to use their best endeavours to agree upon a method of valuing the son’s shares in Glenara and to arrange for them to be surrendered or transferred for that agreed value.  If a methodology cannot be agreed, it is accepted that the son may seal an order for costs on the present application on a 2B basis, together with reasonable disbursements, as fixed by the Registrar.

[7]      By 16 November 2012, the Son will either file a discontinuance confirming that the proceeding has been settled with no issue as to costs or a memorandum outlining the steps that have been taken to enforce the judgment and indicating what further involvement is required from the Court.

[8]      I draw counsel’s attention to s 179(3) of the Act which requires a person appointed by the Court under s 179(1) to make “a full report to the Court”.  Section

179(3) states:

179    Investigation of records

...

(3)      A person appointed by the Court under subsection (1) of this section must diligently carry out the inspection and, having done so, must make a full report to the Court.

....

[9]      In considering s 179(3) in Re Mega-Merger Housing Ltd,[2] I said:

[2] Mega-Meger Housing Ltd (2005) 9 NZCLC 263,727 (HC) at para [27](c).

[27]      ...

...

c)The person appointed by the Court must make “a full report to the Court”:  s179(3).    On  receiving  that  report  the  Court  may  make further orders in relation to the disclosure and use of records and information obtained: s179(4).  The need for the Court to determine issues of disclosure and use is reinforced by s179(7) and (8).  The nature of any report must, necessarily, be linked to the purposes for which the information is required.  That suggests that, in supervising the inspection, the Court is required to have regard to public interest considerations, as well as to the private interests of those who seek

the order.   For example, if records obtained disclosed that tax was not  being  paid  or  that  compliance  was  not  being  made  with regulatory requirements imposed by the 1993 Act (or other statutes) it would seem to be within the proper discretion of the Court to refer those matters for investigation by the Commissioner of Inland Revenue, the Registrar of Companies or any other relevant regulator.

[10]     I add to the order submitted by the parties one that will require the appointee, Mr Newland, to report to this Court on or before 7 December 2012 on the outcome of his inspection and audit.  That additional order is made because of the mandatory terms in which s 179(3) is couched.

[11]     I thank counsel for their assistance and for facilitating the sensible orders that they proposed.

[12]     Leave is reserved to either party to apply, in the event of any unexpected developments.  If a notice of discontinuance were not filed by 7 December 2012, the Registrar shall allocate a telephone conference before an Associate Judge on the first

available date, so that further directions can be made.

P R Heath J

Delivered at 4.00pm on 10 October 2012