N M Tobin Orthodontics Limited v Tobin

[2013] NZHC 366

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

CIV2012-454-000440 [2013] NZHC 366

UNDER  the Companies Act 1993

IN THE MATTER OF     an interlocutory application for leave to bring a derivative action

BETWEEN  N M TOBIN ORTHODONTICS LIMITED First Plaintiff

ANDTHE ORTHODONTIC CENTRE LIMITED

Second Plaintiff

ANDSADIE TOBIN First Defendant

ANDJOHN CAWOOD AND LYNN CAWOOD Second Defendants

Hearing:         9 August 2012

Appearances: P J Drummond for applicant

D G Dewar for respondent

Judgment:      28 February 2013

JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 28 February 2013 at 5pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

M Woods, Winter Woods, PO Box 12067, Palmerston North
Thomas Dewar Sziranyi Letts, PO Box 31240, Lower Hutt 5040

Counsel:

P J Drummond, Barrister, PO Box 12164, Palmerston North

N M TOBIN ORTHODONTICS LIMITED V SADIE TOBIN HC PMN CIV 2012-454-000440 [28 February

2013]

[1]      The applicant, Mr N M Tobin, has applied under s 165 of the Companies Act

1993 (the Act) for leave to bring a claim in the name of two companies, N M Tobin Orthodontics Ltd and the Orthodontics Centre Ltd, against his estranged wife, Mrs S Tobin, as first defendant and her parents as second defendants.

[2]      Mr Tobin is an orthodontist.  He provided his orthodontic services to N M Tobin Orthodontics Ltd, operating out of premises owned by The Orthodontic Centre Ltd.    Mr  and  Mrs  Tobin  are  directors  and  minority  shareholders  of  the  two companies.  A family trust owns the majority of the shareholding in both companies (95% of the shares in N M Tobin Orthodontics Ltd and 90% of the shares in The Orthodontic Centre Ltd).

[3]      Mr and Mrs Tobin have separated.  After separation, Mrs Tobin (a signatory on the company’s bank accounts), transferred $220,000 from the account of N M Tobin Orthodontics Ltd to an account in the names of her parents, and $3,393 from the  account  of  the  Orthodontic  Centre  Ltd,  also  to  her  parents’ account.    The withdrawal of funds from N M Tobin Orthodontics Ltd was only possible because the company had an overdraft facility, and resulted in the company being in overdraft to the sum of $163,217.   The transfers removed all cash held in the account, representing in part the sum of $32,533.53 collected as costs, for which the company was accountable to the Commissioner of Inland Revenue.

[4]      Mr Tobin seeks leave to bring proceedings in the name of the two companies to seek repayment or compensation to the companies.

[5]      The respondents (Mrs Tobin and her parents) oppose leave being granted. They say that the underlying purpose of the companies was to provide financial support for the family, and that there was an accepted practice between them that they could draw from the companies for that purpose, that she had transferred the money for that purpose, that it was common ground that Mrs Tobin would receive at least this amount upon a distribution of relationship property (and that Mr Tobin had made an offer over relationship property which included that she retain the money), and that any issues were appropriately resolved as part of a relationship property

division.  They also rely on the fact that Mr Tobin has possession or use of the rest of the companies’ assets, and continues to use them through a separate company that he has established to continue his practice.

[6]      The application was heard on 9 August 2012. As I have made a decision as to the outcome of the application, but am not yet in a position to release a reasoned judgment, I am releasing this judgment without reasons, and will provide the reasons as soon as I can do so.  This will allow the parties to decide steps that will flow from the decision.

[7]      The Court has a discretion whether or not to grant leave.  It is required to take into account factors set out in s 165(2) of the Act, but is not limited to those matters. It is established law that the discretion is exercised by reference to whether a prudent business person, conducting his or her own affairs, would decide to bring a claim.[1]

[1] A test adopted in Vrij v Boyle [1995] 3 NZLR 763, and applied in many cases since: refer Brookers

Company & Securities Law CA165.01.

[8]      Weighing the circumstances of the case, and applying the prudent business person test, I consider that this is an appropriate case to grant leave, and order accordingly.

[9]      I record  that  the  applicant  has  agreed  to  meet  the costs  of bringing  the proceedings, subject to seeking reimbursement from the company when it is in a position to meet those costs.  I make no finding at this point as to whether it would be unjust or inequitable for the companies to bear those costs.

[10]     I will release reasons for this decision as soon as the reasoned judgment can be completed.

Associate Judge Abbott