Network Plumbing Limited v Beyond the Obvious Limited HC Wellington CIV 2004-485-1792

[2010] NZHC 1188

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2004-485-001792

UNDER  the Companies Act 1993

BETWEEN  NETWORK PLUMBING LIMITED Plaintiff

AND  BEYOND THE OBVIOUS LIMITED Defendant

Hearing:         9 July 2010

Counsel:         AN Isac and PJ Broczek for plaintiff

No other appearances

Judgment:      9 July 2010 at 3:00pm

JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application to remove company from liquidation]

Solicitors:           Fitzherbert Rowe Ltd, Private Bag 11 016, Palmerston North

NETWORK PLUMBING LIMITED V BEYOND THE OBVIOUS LIMITED HC WN CIV 2004-485-001792  9

July 2010

The application

[1]      Application is made by David Monro, a director and shareholder of Beyond the Obvious Ltd for an order to terminate the liquidation of that company.

[2]      The application is made in reliance on the Companies Act 1993, s 250.

The appointment of a liquidator

[3]      Beyond the Obvious Ltd was placed into   liquidation on the application of Network Plumbing Ltd by the High Court at Wellington on 29 September 2004. Paul Bartley was appointed by the court as liquidator.

[4]      Counsel for the applicant confirmed to me that Mr Bartley resigned from the office of liquidator and appointed Geoffrey Abraham of Palmerston North, accountant, as his successor.   Notice of that appointment has been given to the Registrar of Companies.  The appointment is made pursuant to the Companies Act

1993, s 283(2).

Liquidator’s report

[5]      Although  not  specifically  ordered  pursuant  to  the  Companies  Act  1993, s 250(3), the liquidator has filed an affidavit which supports the application for an order terminating the liquidation.   He advises that since the order placing the company into liquidation:

a)        The debts to various creditors have been either paid or assigned;

b)The assignee is a company, Nicholson Road Developments Ltd, in respect of which the applicant shareholder, Mr David Monro, is the sole director and shareholder;

c)       The plaintiff in the application to appoint a liquidator consents to the company being removed from liquidation;

d)All secured creditors of the company have been paid and there are no remaining secured creditors;

e)       The  overwhelming  bulk  of  unpaid  unsecured  creditors  has  been assigned to Nicholson Road Developments Ltd, which is the shareholder, Mr Monro’s company;

f)        Mr Monro, the applicant, supports the application;

g)        No creditor opposes the application; and

h)        Matters with the Inland Revenue Department have been resolved.

[6]      In respect of matters relating to the Inland Revenue Department, a further affidavit has been filed by Mr Monro.   I need not traverse in this judgment the matters that were discussed with the Commissioner.    Suffice to say, the Commissioner’s representative advises that he has no objection to the company being removed from liquidation.

Service of the application

[7]      On 10 May 2010 Associate Judge Gendall gave directions as to service of this application.  That covered all persons who had an interest in this application.  An affidavit which proves compliance with Associate Judge Gendall’s directions as to service has been filed.

The company’s background

[8]      The  company  was  incorporated  on  29 January  2002  for  the  purpose  of undertaking residential developments.  Mr Monro was a director along with a Mr AP

Hewitt.  Mr Monro’s principal role was to provide capital and finance.  Mr Hewitt was responsible for the day-to-day administration of building projects.

[9]      By mid-2004  the  company  fell  into  significant  financial  difficulty.    The evidence  discloses  that  Mr Hewitt’s  management  of  the  building  projects  was unsatisfactory and led to the company’s difficulties.   Mr Hewitt was subsequently adjudicated a bankrupt on 28 September 2006 for other unrelated matters.

[10]     Network Plumbing Ltd, earlier referred to in this judgment, made application to place the company into liquidation.

[11]     The company register still records that Messrs Hewitt, Thompson and Julian own half of the shares in the company.  A share transfer has, however, been executed and will be actioned if the court makes an order removing the company from liquidation.  Mr Monro will then be the sole shareholder.

The grounds advanced in support

[12]     Mr Isac, in his full and careful submissions, drew attention to the following matters which, he said, justified the court making an order under the Companies Act

1993, s 250, namely:

a)        The  creditor,  who  sought  the  order  placing  the  company  into liquidation, consents to the order sought;

b)Mr Monro,    the    applicant,    has    entered    into    arrangements    to compromise all of the arm’s length creditor debts;

c)        The  company  will  not  accrue  any  future  debts  as  it  will  not  be undertaking any trading activity whatsoever;

d)       The costs of the liquidator’s to date have been paid;

e)       The  creditors  consent  or  offer  no  opposition  and,  indeed,  obtain benefits by the arrangements that have been put in place if the order is made.   Without the order being made they would not obtain those benefits; and

f)        Although one of the principal reasons for the application is to enable Mr Monro to take advantage of the trading losses of the company in relation to his own tax affairs.   The matter is not opposed by the Commissioner of Inland Revenue.

The law in relation to termination of liquidations

[13]     The Companies Act 1993, s 250 gives the court for the first time an express statutory power to terminate a liquidation.  The predecessor to the Companies Act

1993, s 250, the Companies Act 1955, s 250, gave the court a discretion after an order for winding up was made to make an order staying a winding up on proof to the satisfaction to the court that all proceedings in relation to the winding up ought to be stayed.  The only way, under the former legislation, that a liquidation could be terminated was pursuant to an inherent jurisdiction: Bridon New Zealand Ltd v Tent

World Ltd.[1]

[1] Bridon New Zealand Ltd v Tent World Ltd [1992] 3 NZLR 725.

[14]     The  Companies  Act  1993,  s 250,  however,  gives  the  court  a  power  to terminate the liquidation.  Application for such an order may be made by the persons referred to in s 250(2) which include a director or shareholder of the company.  The application, in this case, is made by a shareholder.

[15]     The section does not specify the particular matters which are important in the exercise of the court’s discretion.  Some caution was expressed on laying down hard and fast rules in re Bell Block Lumber Ltd (in liquidation).[2]

[2] re Bell Block Lumber Ltd (in liquidation) (1992) 5 PRNZ 642.

[16]     In re Bell Block Lumber Ltd (in liquidation)[3]  when dealing with the former provision in the Companies Act 1955, s 250, considered that the criteria specified in Re Calgary v Edmonton Land Co Ltd[4]  were entirely appropriate in considering the exercise of the discretion.  In summary, the matters that are important then are:

[3] Ibid.

[4] Re Calgary and Edmonton Land Co Ltd [1975] 1 All ER 1046 per Megarry J.

a)        Whether the creditors consent or have been paid in full;

b)        Whether the liquidator’s costs have been fully paid or secured; and c)           Whether the shareholders consent or would be no worse off.

[17]     Re Falcon Concrete Contractors Ltd[5]  and re KW and LM Powell Ltd[6]  raise

[5] Re Falcon Concrete Contractors Ltd (1983) 1 NZCLC 98,696.

[6] Re KW and LM Powell Ltd (in liq) (1983) 1 NZCLC 98, 704.

some doubts as to the appropriateness of exercising the discretion which would allow an insolvent company to be restored for the purpose of taking advantage of tax losses.   Those authorities were considered in Commissioner of Inland Revenue v Eden Electroplaters Ltd.[7]   Associate Judge Doogue was satisfied in that case that, because:

[7] Commissioner of Inland Revenue v Eden Electroplaters Ltd High Court AK CIV 2006-404-1305, 17 November 2006 per Associate Judge Doogue.

a)        all present creditors, other than the related entity, would either would be paid or had other arrangements made to protect their position; and

b)it  was  not  a  case  where  the  company  would  embark  on  doing business still saddled with all the debts accumulated before the liquidation proceedings were commenced

it was appropriate to exercise the discretion to order a termination of the liquidation. I agree with the approach adopted in that case.

This application has the support of the liquidator, all of the creditors and the shareholder of the company.  The Commissioner of Inland Revenue does not oppose the  application.    There  is  apparently  no  public  policy  interest  involved.    The company has no intention of trading.   Accordingly, I am satisfied that an order terminating the liquidation should be made.

[18]     There is no need for any order for costs.   The application is made by the shareholder who effectively is the benefactor of this application.   No party has appeared in opposition.

Orders

[19]     I order that the liquidation of Beyond the Obvious Ltd terminate.  This order is made at 3pm.

JA Faire

Associate Judge