New Ezibuy Limited

[2023] NZHC 1015

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE

CIV-2023-454-16

[2023] NZHC 1015

UNDER

sections 239ADO and 239ADR of the Companies Act 1993 and Part 19 of the High Court Rules 2016

IN THE MATTER

of NEW EZIBUY LIMITED, EZIBUY CUSTODIAN LIMITED, EZIBUY HOLDINGS LIMITED, EZIBUY

LIMITED, EZIBUY OPERATIONS

LIMITED, LAST STOP SHOP LIMITED and SARA APPAREL LIMITED (ALL IN VOLUNTARY LIQUIDATION)

AND

of an application by DAMIEN MARK HODGKINSON and KATHERINE

ELIZABETH BARNET

Applicants

Teleconference:	26 April 2023
Counsel:	M Kersey and A A Duff for Applicants
Judgment:	2 May 2023

JUDGMENT OF RADICH J

Introduction

[1]    Voluntary administrators of the Ezibuy Group of Companies1 (the Ezibuy Group) were appointed under Part 15A of the Companies Act 1993 (the Act) on 3 April 2023 when Mosaic Brands Limited, the ultimate holding company, withdrew financial support for the companies in the group.

1      NewEzibuy Limited, Ezibuy Custodian Limited, Ezibuy Holdings Limited, Ezibuy Limited, Ezibuy Operations Limited, Last Stop Shop Limited and Sara Apparel Limited.

RE NEW EZIBUY LIMITED AND ORS [2023] NZHC 1015 [2 May 2023]

[2]    In a judgment of 5 April 2023, Palmer J granted leave for this proceeding to be commenced without notice, made orders as to the way in which notices to creditors under Part 15A of the Act were to be sent, gave directions about the holding of the first creditors meeting and reserved leave for any creditor of the Ezibuy Group to apply to vary or set the orders aside.2

[3]    The first creditors meeting was held in accordance with s 239AN of the Act on 14 April 2023. At that meeting, the administrators outlined:

(a)their intended course of action for Ezibuy Group, including a strategy of realising inventory and pursuing a sale of parts of the business; and

(b)their intention to make the application that is the subject of this decision.

[4]    The next step for the administrators in the administration process prescribed by Part 15A of the Act is the calling of a watershed meeting; a meeting of creditors to decide the future of the company and, in particular, whether the company might execute a deed of company arrangement under subpart 13 of Part 15A.3

[5]    Under s 239AT of the Act, the watershed meeting is to be convened by the administrators within a period of 20 working days from the date of their appointment (the convening period). The Court may, under that provision, extend the convening period. With the appointment of the administrators on 3 April 2023, and in the absence of an extension, the meeting will need to be convened by 4 May 2023.

[6]    The administrators are seeking an extension of the convening period so that they can complete their investigations into the position of the Ezibuy Group, more accurately report to – and make meaningful recommendations to – the creditors, further investigate the potential sale of parts of the group and to continue to trade with the protection of the moratorium that a company’s voluntary administration under Part 15A involves.

2      Re Hodgkinson [2023] NZHC 753.

3      Companies Act 1993, s 239AS.

[7]    Another issue has arisen for the administrators. One of the leases under which an Ezibuy Group member operates is soon to come to an end and others have ended already.   The  administrators  are  concerned  about  their  potential  liability  under  s 239ADI for “other payments” that might be sought for make-good liabilities under the terms of the leases.  In the absence of an exemption  – which is available under   s 239ADK of the Act – for payments of that sort, stores may need to be vacated, trading may be adversely affected and the result, it is said by the administrators in affidavit evidence, would ultimately be detrimental to creditors and to the course of action the administrators are taking for the purpose of maximising the return to creditors.

[8]    Accordingly, orders are sought on a without notice basis to, by way of summary:

(a)extend  the  convening   period  for  the  watershed  meeting  under     s 239AT(3) of the Act to 18 July 2023 (convening period extension orders); and

(b)exempt the administrators, under s 239ADK of the Act from other payments, during the period in which they are using or occupying leasehold property of members of the Ezibuy Group (whether before or after orders are made) in the nature of make-good liabilities or other liabilities arising at the end of the terms of the leases (relevant other payments);

(c)in the alternative to (b), extend under s 239ADO of the Act the period for which the administrators are not liable under s 239ADI of the Act for relevant other payments.

The orders sought under either (b) or (c) above are referred to here as “the VA liability orders”; and

(d)require a copy of the application and any orders made to be served on all creditors of the companies in the Ezibuy Group by email or by post and to reserve leave to any creditor of the group to apply on notice to vary or set aside any orders made (ancillary orders).

[9]    I have not set the orders sought out here in full in order to avoid repetition. For the reasons I go on to give, I am satisfied that the orders should be made. The orders I make at the end of this judgment are largely in the form in which they have been sought.

Background

[10]   The two key operating entities in the Ezibuy Group are Ezibuy Limited and Ezibuy Operations Limited.

[11]   In an affidavit of one of the two administrators in support of this application,4 Damien Mark Hodgkinson refers to Ezibuy Limited as the principal contracting party, as having inventory to the value of approximately $24.75 million and as employing approximately 211 people.

[12]   Mr Hodgkinson describes Ezibuy Operations Limited as the entity through which the Ezibuy Group operates its retail leases. The company leases premises at six locations – in Christchurch, Tauranga, Palmerston North, Albany, Sylvia Park and Wellington.

[13]   In addition, Ezibuy Limited entered into leases for a warehouse distribution centre in Palmerston North and for head office space in Auckland.

[14]   The terms of the leases for the retail stores have either expired or, in some cases, are due to expire shortly. The administrators are proposing to occupy and pay rent on those stores until either, in some cases, the end of April or, in others, the end of May 2023. The administrators have given up possession of the head office and are negotiating adjusted terms for the distribution centre.

[15]   The administrators have entered into a licence agreement with another subsidiary company of Mosaic Brands Limited: Noni B Holdings NZ Limited will operate the Ezibuy Group business, using the business assets, on behalf of members of the Ezibuy Group so as to enable the group to continue to trade while minimising professional service costs.

4      Affidavit of Damien Mark Hodgkinson of 21 April 2023 [Affidavit of Mr Hodgkinson].

The administrators’ plan

[16]   The administrators are proposing the following plan for the purpose of maximising the return to creditors and other stakeholders of the Ezibuy Group:5

(a)They wish to keep the Ezibuy Group store network operating, in some cases until the end of April and in others until the end of May, as mentioned in paragraph 14 above.

(b)They will continue to cause the relevant Ezibuy Group companies to pay all rent accruing under the leases – to the extent that the relevant Ezibuy Group companies continue to use, possess and occupy leased premises in question – but, in the absence of the VA liability orders, they will need to vacate possession of leases under which relevant other payments may arise on an expedited basis.

(c)A potential sale process for the e-commerce trading business of the Ezibuy Group is being explored.

(d)A deed of company arrangement under subpart 13 of Part 15A of the Act is being explored. A deed of company arrangement must be approved at the company’s watershed meeting. Such deeds can make provision for a moratorium period over company debt, for the extent to which a company will be released from its debts (potentially on conditions) and the order in which the proceeds of realisation of property will be distributed among creditors.6

[17]   Mr Hodgkinson has explained that the administrators need time to develop a proposal for a deed of arrangement and to consider further a sale process that might be relevant as a counterfactual for creditors to consider.

Extension of the convening period

[18]   As mentioned earlier, s 239AT(3) of the Act permits the Court to extend the convening period on the administrators’ application. This Court has said that the

5      As described in more detail in the Affidavit of Mr Hodgkinson, above n 4.

6      Companies Act, s 239ACN.

power to extend should be exercised in light of the purpose of the voluntary administration regime and the duties imposed on administrators.7 Those objectives are set out in s 239A of the Act and include providing for a company to be administered in a way that maximises the chances of the company continuing in existence, or that results in a better return for the company’s creditors and shareholders than would result from an immediate liquidation of the company.

[19]   This Court has held that achieving these objectives requires a balance between the expectation that administration will be a relatively speedy and summary process on the one hand, and the requirement that undue speed should not be allowed to prejudice actions directed towards maximising the return for creditors and any return for shareholders.8

[20]   In Re DSE (NZ) Limited, Courtney J observed that the appropriateness of an extension is a facts-specific determination but found that relevant factors were likely to include (by way of summary) the size and scope of the business, the number of employees, the nature of complex corporate structures, the nature of transactions entered into by the company, the availability of financial records, the time needed to exercise an orderly process and an assessment proposal for a deed of company arrangement, whether the extension would allow the sale of the business as a going concern and, more generally, whether the additional time is likely to enhance the return for unsecured creditors.9

[21]   I am satisfied, from Mr Hodgkinson’s evidence in support of the application, that:

(a)If the convening period is not extended, and the company is required to convene the watershed meetings by 4 May (such that they would then need to take place by 11 May 2023) then the choices available to creditors would only be to end the administration or to place the Ezibuy Group into liquidation.

7      Re Nylex New Zealand Limited HC Auckland, CIV-2009-404-1217, 11 March 2009; Re DSE (NZ) Limited [2016] NZHC 36; Re Kumfs Group & Ors [2019] NZHC 2552; and Re Advanced Building and Construction Limited [2021] NZHC 937.

8      Re Kumfs Group Ltd & Ors, above n 7, at [13].

9      Re DSE (NZ) Limited, above n 7, at [14].

(b)The convening period will assist the administrators to perform their statutory duties to maximise the chances of some or all of the business remaining in existence or to enable a better return than would result from an immediate liquidation. But the administrators need time to investigate the position of the Ezibuy Group, to recommend an approach and to report accurately to creditors so that they have better information to make informed choices.

(c)An extension would enable the group to continue to trade with the protection of the moratorium under Part 15A of the Act which, in turn, will enable the process of selling the inventory to be better managed – resulting in a better return to creditors.

(d)If the moratorium was to come to an end, leases could potentially be terminated, inhibiting materially the ability of the administrators to realise the assets.

(e)The administrators have received three expressions of interest to purchase the e-commerce business of the Ezibuy Group. Further time is needed, with the moratorium in place, to pursue those prospects and to maximise the prospect of return.

(f)No objections to the proposed orders have been received from the secured creditors of the Ezibuy Group.10

(g)None of the suppliers of goods and services who are owed moneys from the company who were present at the first creditors meeting have raised any objection.

(h)Landlords under leased premises will continue to be paid rent while Ezibuy Group members continue to occupy the leased property.

[22]   The extension sought is, in my view, appropriate having regard to the factors mentioned in [19] and [20] above and applying them to the circumstances of this case,

10 Mr Hodgkinson has described the secured creditors and the priorities between their respective instruments, noting that concerns have not been raised by them following the first creditors meeting.

as summarised in [21] above. I am satisfied that the extended time frame is necessary for the administrators, in terms of the objects of Part 15A of the Act, to maximise the chances of the Ezibuy Group companies – or as much of the group’s business as possible – continuing in existence or for the purpose of producing a better return for the group’s creditors and shareholders than would result from an immediate liquidation of the companies in the Ezibuy Group.

VA liability orders

[23]   As mentioned in [8] above, the administrators are seeking orders to exempt them from liability under s 239ADI of the Act for relevant other payments that arise while any of the Ezibuy Group companies are continuing to use, possess and occupy leased property.

[24]   Under s 239ADG of the Act, an administrator is not liable for the debts of the company, except as otherwise provided. One of those exceptions is s 239ADI which provides that the administrator is personally liable, to the extent described in that provision, “for rent and other payments becoming due by the company under an agreement” relating to the occupation of property. However, under s 239ADK, “the Court may exempt an administrator from liability for rent and other payments under section 239ADI, but the Court’s order does not affect the company’s liability”.

[25]   Neither counsel for the applicants, nor I, have been able to identify any authority in New Zealand on s 239ADK. However, a provision in the Australian Corporations Act 2001, which is in essentially the same terms,11 has been the subject of consideration by the Federal Court of Australia in Re TM Lewin Australia Pty Ltd (admins appointed). That case has a number of factual similarities to the present case.12

[26]Counsel for the applicant have summarised and applied the principles from

TM Lewin in the following way:

11     Corporations Act 2001 (Aus), s 443B(8).

12     Re TM Lewin Australia Pty Limited (admins appointed) [2020] FCA 992.

(a)the administrators were not willing to incur personal liability in the circumstances of an extension not being granted.13 This is consistent with the administrators’ position in this case;14

(b)weight is given to the administrators’ view as to what is in the creditors’ best interests. The administrators considered that excusing the administrators from paying and rent and other amounts falling due would be consistent with achieving the objectives of the voluntary administration regime under the Corporations Act.15 This is consistent with the administrators’ views in this case;16

(c)the maintenance of the store network was necessary to facilitate the sale of inventory at reasonable prices given the inventory is of no material value in the absence of a store network (with the exception of course of e-commerce sales). Similarly, the administrators are working with Noni B in this case to maximise the realisations from inventory sales, and the lease network is an important part of this strategy;17

(d)the lessors / landlords would not be significantly disadvantaged as they would continue to be paid rent for the period that the companies were occupying the leased property,18 which is consistent with the position in this case;19 and

(e)lessors / landlords are able to apply to the court for variations to the orders sought,20 which is consistent with the ancillary orders.

[27]   It has been confirmed previously in Australia that orders made under the equivalent of s 239ADK can be made with retrospective effect.21

13 At [18].

14     Affidavit of Mr Hodgkinson, above n 4, at [45] and [48].

15     Re TM Lewin Australia Pty Ltd, above n 12, at [10] and [15].

16     Affidavit of Mr Hodgkinson, above n 4, at [35]–[45], [45] and [48].

17     At [13] and [29]–[31].

18     Re TM Lewin Australia Pty Ltd, above n 12 at [18].

19     Affidavit of Mr Hodgkinson, above n 4, at [31] and [35(i)].

20     Re TM Lewin Australia Pty Ltd, above n 12, at [22].

21     Silvia v Fea Carbon Pty Ltd (admins apptd) (recs and mgrs apptd) [2010] FCA 515 at [14].

[28]   The plan for  the  administration  of  the  Ezibuy  Group,  as  described  by Mr Hodgkinson, is for:

(a)the administrators to cause the relevant Ezibuy Group companies to continue to use the leased properties;

(b)the administrators to cause the relevant Ezibuy Group companies to continue to make rental payments to landlords under leases while they are using those properties; and

(c)the landlords not to be paid for any “relevant other payments” at the termination of those leases on the basis that liabilities are unsecured claims against the relevant Ezibuy Group companies.

[29]   As Mr Hodgkinson explains, the administrators are concerned about their potential liability in circumstances in which leases come to an end in accordance with their contractual terms or in circumstances in which, leases having already expired, the relevant Ezibuy Group company then ceases to occupy the leased property.

[30]   The primary, and most pressing, example arises in relation to the Wellington Ezibuy store. The lease for that store expired on 30 April 2023. Administrators have received notice from the entity from which they lease the premises22 requiring the administrators to make good the premises before vacating. However, the administrators wish to trade to 31 May 2023 so as to maximise sales for the benefit of creditors generally. They are concerned also about the potential for similar liabilities to arise under other leases. Because they would not wish to incur personal liabilities of this nature they would, in the absence of the orders sought, need to cause Ezibuy Operations Limited to vacate premises before any obligations for payments of this type become due.

[31]   The relevant “other payments” in question are unsecured claims. In the ordinary course of a company’s liquidation, they could not be paid in preference to secured creditors. If, through the operation of the voluntary administration regime, the administrators were personally liable for these payments, they would, as

22     Which is, itself, a sublessor.

Mr Hodgkinson has described, need to issue non-use notices to avoid incurring personal liability. That, in turn, would increase costs, reduce the efficiency of the realisation of inventory and cause a lower return to the creditor body as a whole. In this sense, landlords would not receive relevant other payments in any scenario.

[32]   Accordingly, I am satisfied, having regard to the relevant provisions, to the objects of Part 15A of the Act and to the circumstances of this voluntary administration that it is appropriate for the VA liability orders to be made.

[33]   The applicants have sought, as an alternative to an order under s 239ADK an order under s 239ADO of the Act, extending the period for which the administrators of any of the Ezibuy Group companies are not liable pursuant to s 239ADI of the Act for relevant other payments arising under leases and during the period that any of the Ezibuy Group companies continue to use or occupy or be in possession of leasehold property under the leases in question.

[34]   For the reasons given above, I am satisfied that an order under s 239ADK is appropriate and so I do not go on to consider the prospect of s 239ADO applying in these circumstances.

Ancillary orders

[35]   I am satisfied, on a similar basis to that expressed by Palmer J when granting leave to commence these proceedings without notice, that it is in order to determine this application without notice. I am satisfied also that it is appropriate for notice of the application to now be given, by the methods proposed, to all creditors of the companies in the Ezibuy Group on the basis that they will have leave to apply on notice to vary or set aside these orders.

[36]   I am satisfied that requiring the applicants to proceed on notice would cause undue delay and prejudice to the administrators and to the creditors as a whole. And I am satisfied that requiring this application to be served in a formal sense on the numerous creditors would be impractical and would defeat the purpose of the application, which is to minimise disruption to the trading and stabilisation of the

business during the administration period and maximise returns for creditors and other stakeholders (including by reducing the costs of the administration).

[37]I make the following orders:

(a)the applicants are granted leave to bring this application without notice;

(b)notice of the application and a copy of these orders will be served on all creditors of the companies in the Ezibuy Group by:

(i)writing to all known creditors as soon as practicable by:

(1)           email, where an email address has been provided to any of the companies in the Ezibuy Group; or

(2)           post to the postal address that has been provided to any of the companies in the Ezibuy Group, if a creditor has not provided an email address to any of the companies in the Ezibuy Group; and

(ii)posting a copy of the application and orders on the website of Olvera Advisors Pty Ltd;

(c)leave is reserved for any creditor of the Ezibuy Group to apply on notice to vary or set aside these orders;

(d)leave is reserved to the applicants to apply further in relation to any modifications or ancillary issues arising out of these orders;

(e)the convening period is extended to 18 July 2023 under s 239AT(3) of the Act; and

(f)the administrators are exempted, under s 239ADK of the Act, from liability for “other payments” for which the administrators are liable under s 239ADI of the Act:

(i)arising under or in respect of any leases of real property that any of the Ezibuy Group companies have entered into (leases);

(ii)arising during the period that any of the Ezibuy Group companies continue to use or occupy or be in possession of leasehold property under the leases (whether current or expired) and whether before or after the date of this order being made; and

(iii)which are in the nature of make-good liabilities or any other liabilities arising at the end of the term of a lease and/or when the relevant lessee ceases to use, possess and occupy the leased premises.

Radich J

Solicitors:

Russell McVeagh, Auckland