Naylor v Demic Construction Limited (in liq) HC Palmerston North CIV 2006-454-949

[2007] NZHC 1569

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

CIV-2006-454-949

BETWEEN  JOHN DAVID NAYLOR Plaintiff

ANDDEMIC CONSTRUCTION LIMITED (IN LIQUIDATION)

First Defendant

AND4M CONSTRUCTION LIMITED (IN LIQUIDATION)

Second Defendant

Hearing:         29 January 2007

Appearances: J. Reardon for Plaintiff

Judgment:      29 January 2007

ORAL JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

[1]      This  is  an  application  by  the  plaintiff,  the  liquidator  of  both  the  first defendant  company  and  the  second  defendant  company,  for  an  order  under s271(1)(b) Companies Act 1993 that the liquidations of each defendant company are to proceed together as if they were one company.

[2]      Section 271(1)(b) Companies Act provides:

(1)On the application of the liquidator, or a creditor or shareholder, the Court, if satisfied that it is just and equitable to do so, may order that-

...

(b) Where two or more related companies are in liquidation, the liquidations in respect of each company must proceed together as if they were one company to the extent that the Court so

NAYLOR V DEMIC CONSTRUCTION LIMITED (IN LIQUIDATION) AND ANOR HC PMN CIV-2006-

454-949  29 January 2007

orders and subject to such terms and conditions as the Court may impose.

[3]      Section 272(2) Companies Act 1993 sets out certain guidelines for the order sought here.  This section states:

(2)In deciding whether it is just and equitable to make an order under section  271(1)(b)  the  Court  must  have  regard  to  the  following matters:

(a) The extent to which any of the companies took part in the management of any of the other companies:

(b) The conduct of any of the companies towards the creditors of any of the other companies:

(c)  The extent  to  which the circumstances that  gave  rise  to  the liquidation  of  any  of  the  companies  are  attributable  to  the actions of any of the other companies:

(d) The extent to which the businesses of the companies have been combined:

(e)  Such other matters as the Court thinks fit.

[4]      Here, as I understand it, the plaintiff as liquidator of each  company has collected in the assets of the companies and is in a position to make a distribution to all creditors.

[5]      The plaintiff deposes that all the approximately 125 creditors are creditors of both the first defendant company and the second defendant company.   This has apparently come about because the activities of the first defendant company and the second defendant company were conducted together, with all invoices issued to creditors on account paper headed with the names of both defendant companies.

[6]      Further, the plaintiff deposes that the separate bank accounts held by the first defendant company and the second defendant company were effectively used interchangeably.  Receipts were credited to and payments made from and transferred between each account on what appears to be a relatively random basis.

[7]      The plaintiff deposes also that the sole director of each company is Michael John Marshall, and that Mr Marshall was also the sole shareholder of each company. The registered office of both defendant companies was at the same address.  Each

company, in addition, was involved in the same business, that is the construction of cheap housing.

[8]      The plaintiff has served each of the 125 creditors of both companies by mail with  the  current  application  and  supporting  material.    An  affidavit  of  service confirms this service took place on 20 December 2006 when letters were posted to each of the creditors.  This form of service was adopted to minimise costs to the first defendant and second defendant companies, given the limited amounts available from disposal of assets for final distribution amongst creditors.   No response has been received from any creditor.

[9]      The formal grounds upon which the current application is made are noted in the plaintiff’s application in the following terms:

a)        The defendant companies had:

i)        A common directorship. ii)       A common shareholding.

iii)      Been involved in the same business.

iv)      The businesses had been operated as if they were one business. v)     The companies ordered goods and incurred credit noting both

defendants as the person incurring the credit.

vi)The companies paid moneys out of each defendant’s account and paid funds into each defendant’s account, indifferently as to which company was responsible for the payment or entitled to payment.

b)Creditors were not clear which company they were dealing with – indeed on occasions it appeared they were dealing with both companies.

c)        The  plaintiff  is  the  liquidator  of  both  companies  and  has  now liquidated the assets of each company.

d)It is just and equitable to treat all creditors of each defendant company equally.

[10]     In my view the current situation before the Court is not dissimilar to that which  was  apparent  in  the  cases  of  Re  Pacific  Syndicates  (NZ)  Limited  (in liquidation) (1989) 4 NZCLC 64, 757 and In re Dalhoff and King Holdings Limited (in liquidation) (1991) 5 NZCLC 66,959 where orders were made for companies to be wound up together.

[11]     In the present case the two defendant companies in liquidation had effectively operated as one, with each taking part in the management of the other to an extent that it seems creditors were entirely confused as to which companies were involved, or indeed whether they were contracting with both companies.

[12]     The plaintiff deposes, and I accept, it would be close to impossible here to divide the funds held by the plaintiff liquidator between the respective companies. Although  separate  bank  accounts  were  used  by  the  companies,  because  of  the random nature of deposits, payments and transfers to and from the accounts, effectively there was a pooling of all creditors and investors funds.

[13]     Further, I am satisfied from the material provided by the plaintiff that the liquidations here could be brought to an end without further undue expenditure if the order sought is made.

[14]     Finally, it seems to me that there is also a possible argument that creditors might be better off taking a broad overview if the order for pooling which has been sought was made.

[15]     For all those reasons, I am satisfied that the application before the Court should succeed.

[16]     An order is now made pursuant to s271(1)(b) Companies Act 1993 that the liquidations of the first defendant company and the second defendant company must proceed together as if they were one company.

[17]     Mr Reardon, counsel for the plaintiff, confirms that costs are not an issue in this matter.  No order as to costs is made.

‘Associate Judge D.I. Gendall’

Solicitors:

Cooper Rapley, Palmerston North for Plaintiff