Ovato NZ Limited
[2024] NZHC 3228
•1 November 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-2215
[2024] NZHC 3228
UNDER Sections 271 and 271A of the Companies Act 1993 and Part 19 of the High Court Rules 2016 IN THE MATTER
of Ovato NZ Limited, Ovato Print NZ
Limited, PMP Maxum Limited and Ovato Residential Distribution NZ Limited (all in liquidation)
AND
an application by REES GRAHAM LOGAN and ANDREW JOHN MCKAY
Applicants
Hearing: 12 February 2024 Appearances:
A R MacDuff for the Applicants
Judgment:
1 November 2024
JUDGMENT OF ROBINSON J
[Application for pooling orders]
This judgment was delivered by me on 1 November 2024 at 2:00 pm pursuant to Rule 11.5 of the High Court Rules
…………………………………………………………………… Registrar/Deputy Registrar
Solicitors:
Russell McVeagh, Auckland
RE OVATO NZ LIMITED & ORS [2024] NZHC [3228] [1 November 2024]
Introduction
[1] The applicants, Rees Graham Logan and Andrew John McKay, are the liquidators of:
(a)Ovato NZ Limited (in liquidation) (Ovato NZ);
(b)Ovato Print NZ Limited (in liquidation) (Ovato Print);
(c)PMP Maxum Limited (in liquidation) (PMPM); and
(d) Ovato Residential Distribution NZ Limited (in liquidation) (ORD). (together, the “Ovato Companies”, comprising the “NZ Ovato Group”)
[2] Ovato NZ owns all the shares in Ovato Print, PMPM and ORD. They were each part of a larger printing and distribution business that operated in New Zealand and Australia.
[3] Ovato NZ is ultimately owned by an Australian company, Ovato Limited (in liquidation), which was previously listed on the Australian stock exchange before it was placed into voluntary administration on 21 July 2022 and delisted on 22 August 2022.
[4]The applicants apply for orders that:
(a)the liquidations of the Ovato Companies proceed together as if they were one company pursuant to s 271(1)(b) of the Companies Act 1993 (the Act) subject to the terms and conditions in paragraph (b) below; and
(b)pursuant to s 271(2) of the Act:
(i)in respect of the admissible claim of the Commissioner of Inland Revenue (IRD) in the pooled liquidation of the Ovato Companies:
1. the preferential amount of that admissible claim for the purposes of cl 1(5) of sch 7 of the Act is capped at $300,000; and
2. the balance of that admissible claim is a general unsecured claim.
(ii)regarding the admissible claim of the Comptroller of Customs in the pooled liquidation of the Ovato Companies:
1. the preferential amount of that admissible claim for the purposes of cl 1(5) of sch 7 of the Act is capped at $6,451; and
2. the balance of that admissible claim is a general unsecured claim.
[5] In broad terms, the applicants say it is appropriate in the circumstances to make the orders sought because:
(a)the businesses of each of the Ovato Companies were largely combined;
(b)the conduct of the Ovato Companies towards creditors did not reflect the separate legal personality of each of those companies, meaning that creditors of the Ovato Companies often did not know which specific company they were dealing with;
(c)the liquidation of some of the Ovato Companies was attributable to the actions of other Ovato Companies;
(d)proceeding without a pooling order will result in increased costs for the liquidation of the Ovato Companies, which will be borne by creditors and reduce the overall return to creditors; and
(e)a pooling order (on the terms sought and subject to concessions agreed by the IRD and New Zealand Customs (Customs)) will not prejudice creditors and will result in an efficient process for allocating realisations across creditors of the NZ Ovato Group in a manner that is just, equitable and in the best interests of those creditors.
[6] The evidence in support of the application is set out in the affidavit of Rees Graham Logan dated 8 September 2023.
[7] Mr Logan has also filed an affidavit confirming creditors of the Ovato Companies have been given notice of the application in accordance with the Court’s directions dated 2 October 2023, and in compliance with s 271A of the Act. The notice explains the nature of the application and the grounds on which the orders are sought. It advised creditors that further information was available including copies of the documents filed in Court. It explained that creditors were entitled to oppose the application and gave directions on how to do so.
[8]The application is unopposed.
Legal principles
[9]Insofar as it is relevant, s 271 of the Act provides:
271Pooling of assets of related companies
(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 2 or more related companies are in liquidation, the liquidations in respect of each company must proceed together as if they were 1 company to the extent that the court so orders and subject to such terms and conditions as the court may impose.
(2)The court may make such other order or give such directions to facilitate giving effect to an order under subsection (1) as it thinks fit.
…
[10]Section 272(2) provides:
272Guidelines for orders
…
(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.
…
[11] A company is related to another company if that other company is its holding company or subsidiary,1 or if there is another company to which both companies are related.2 So, for the purposes of s 271(1)(b), each of the Ovato Companies are related to all of the others.
[12] Pooling orders are to some extent contrary to a fundamental principle of company law, namely that a company is a legal entity in its own right, separate from its shareholders.3 Whether it is just and equitable to make a pooling order will turn on the facts and circumstances of each particular case. The extent to which the businesses of the companies in liquidation have been combined is an important factor when
1 Companies Act 1993, s 2(3)(a).
2 Section 2(3)(e).
3 Goodson v Wingate Two Ltd (2010) 3 NZTR 20-002 at [24], citing Mountfort v Tasman Pacific Airlines of New Zealand Ltd [2006] 1 NZLR 104, (2005) 9 NZCLC 263,864 at [58].
considering an application for a pooling order.4 Similarly, the degree of intermingling of the costs and expenses of separate entities is a relevant consideration:5
[31] Here, the operation of what turned out to be a common business in a group structure and the difficulty in attempting to segregate the intermingled income derived from the separate entities from its proper expenditure itself provides grounds for conducting the liquidations of these companies together. In large measure it appears that the companies were run to a certain extent as if they were a single broad entity with their records confusingly intermingled.
[13] In Goodson v Wingate Two Limited, the Court granted a pooling order under s 271(1)(b), holding that:
[27] In the present case it is clear that the three liquidated companies have been treated, to an extent, as different facets of the same enterprise. The management and businesses of the companies were intermingled, and at times the companies have gone about their affairs, including their financial affairs, without regard to proper accounting and legal requirements.
[14] The applicants say that the management and businesses of the Ovato Companies, including their income and expenses, have been similarly intermingled so that it is just and equitable to make the pooling order sought.
Background to the Ovato Companies
[15] By way of background, Mr Logan explains that the Ovato Companies historically operated several different businesses. The Ovato Companies all have the same directors.6
Ovato Print
[16] Ovato Print operated a heatset printing business. Heatset printing is a process that dries printing ink in a heated oven after the ink is applied to the paper, which evaporates the oils in the ink and leaves the pigment along with wax resins. Ovato Print’s heatset business produced an extensive range of materials such as newspapers, catalogues, magazines and marketing material.
4 Re Pacific Syndicates (New Zealand) Ltd (in liq) (1989) 4 NZCLC 64,757 at 64,767 (HC); Re Dalhoff and King Holdings Ltd (in liq) (1991) NZCLC 66,959 at 66,966–66,973 (HC); and Shephard v Carm Holdings Ltd (in liq) HC Wellington CIV-2009-485-1332, 16 September 2009 at [31]–[32].
5 Shephard v Carm Holdings Ltd (in liq), above n 4.
6 Namely, James Hannan, Ian Richard James and Craig Jason Harrison.
[17] The heatset business was closed in April 2022, following a strategic review of the business that itself was triggered by a global paper shortage and an inability to secure a sufficient supply of paper for the heatset business going forward.
[18] Ovato Print also operated a digital printing business. This was also closed in April 2022.
[19] Following the closure of the heatset business, the remaining assets of Ovato Print included the large heatset presses and other ancillary parts and equipment located at premises in Auckland. Most of the ancillary equipment continued to be used in the sheetfed business operated by PMPM.
[20] Mr Logan explains that suppliers and customers continued to trade with the Ovato Companies for the sheetfed business without altering historical contractual arrangements. Supply arrangements were not updated so that the contract was with PMPM on the closure of the heatset business.
[21] Prior to the closure of Ovato Print’s heatset business, the NZ Ovato Group employed approximately 190 employees, 117 of whom were employed by Ovato Print. After the heatset business was closed in April 2022, 137 employees across the NZ Ovato Group were made redundant, 88 of whom had been employed by Ovato Print. This resulted in redundancy costs and crystalised a significant liability to the IRD, discussed further below.
PMPM
[22] PMPM operated a sheetfed printing business. Sheetfed printing utilises manually-fed sheets of paper or a continuous feed roll that can be cut as needed. The sheetfed business of PMPM involved printing high-quality images, magazines and posters for commercial customers.
[23] The sheetfed printing business was not closed in April 2022 with the other Ovato businesses. However, nine PMPM employees were made redundant at that time. Again, this resulted in redundancy costs and crystalised a liability to the IRD. It was the sole remaining business within the NZ Ovato Group that was still operating
when the applicants were appointed as voluntary administrators of Ovato NZ, Ovato Print and PMPM, and as liquidators of ORD on 21 July 2022.7
ORD
[24] ORD operated a residential distribution business, primarily to distribute what was produced by Ovato Print’s heatset business. It provided direct delivery nationwide of flyers, brochures, magazines, newspapers and catalogues.
[25] This business was also closed in April 2022. The closure of Ovato Print’s heatset business at that time meant there was a lack of material for ORD to distribute.
Ovato NZ
[26] Ovato NZ did not trade externally. It provided various corporate services to the other companies in the NZ Ovato Group. Mr Logan explains that these included:
(a)operating the sole trading bank account with the Bank of New Zealand (BNZ) and a bank account that was secured in favour of Scottish Pacific Business Finance Limited (ScotPac), which provided external funding to the NZ Ovato Group;
(b)acting as lessee for the business premises for the NZ Ovato Group in Auckland and Christchurch; and
(c)employing seven employees who provided the centralised “corporate” function for the NZ Ovato Group, including finance, IT and administrative staff.
[27] Ovato NZ’s primary assets are the shares it holds in Ovato Print, PMPM and ORD, receivables from Ovato Print and PMPM, a receivable from Ovato Australia and other residual debtors. Ovato NZ also owned the intellectual property of the NZ
7 The applicants were subsequently appointed as liquidators of Ovato NZ, Ovato Print and PMPM at the watershed meetings for each of those companies on 5 October 2022.
Ovato Group and miscellaneous plant, fixtures and fittings located in the leased premises.
The administration and liquidation of the Ovato Companies
[28] On 21 July 2022, FTI Consulting were appointed as administrators to Ovato Limited in Australia and other companies within the Australian Ovato Group. On the same date, the applicants were appointed as voluntary administrators to Ovato NZ, Ovato Print and PMPM, and as liquidators to ORD. By then, Ovato Print’s heatset business and print business had closed, as had ORD’s distribution business. As mentioned above, PMPM continued to trade for a period of time in voluntary administration, operating its sheetfed business. During the administration, the applicants also undertook a marketing and sales process to realise the assets of the Ovato Companies. These were principally the assets of the sheetfed business and the remaining unsold assets of the heatset business. The applicants explain that sale process in their report dated 18 August 2022 prepared in advance for watershed meetings.
[29] The joint watershed meeting for each of Ovato NZ, Ovato Print and PMPM was originally convened on 25 August 2022 but adjourned because the administrators were part way through the sales processes. The meeting was held on 5 October 2022, at which the creditors voted to appoint the applicants as liquidators of Ovato NZ, Ovato Print and PMPM.
Liquidation of the Ovato Companies
[30] Mr Logan explains that the liquidators have undertaken a range of investigations into the operations of the Ovato Companies. These included engaging with directors and wider management, reviewing governance and reporting processes, and reviewing processes regarding the sale and purchase of products for each of the Ovato Companies. They also reviewed payments leading up to the administrations and the validity of claims by creditors.
Payment of creditors
[31] Mr Logan explains that on the date he and Mr McKay were appointed administrators of the Ovato Companies, they owed ScotPac approximately $1,100,000 under the secured receivables purchasing facility. This included its guaranteed and cross-collateralised obligations in respect of ScotPac’s advances to the Ovato Australia Group. The total debt owed to ScotPac was repaid from the collection of receivables outstanding at the date of the applicants’ appointment and from the proceeds of their continued trading of PMPM during the administration.
[32] The applicants have also repaid part of a secured debt owed to Opus Group Pty Limited and Opus Group (Australia) Limited (together Opus) ($971,000). This enabled the administrators to obtain releases of security from ScotPac and Opus so that relevant assets can be sold free of known security interests.
[33] The unsecured creditors of the Ovato Companies include the IRD, Customs and employees. Although they are unsecured creditors, sch 7 of the Act provides that their claims have preference over those of other unsecured creditors. These preferential creditors also have priority over other unsecured creditors in respect of accounts receivable and inventory (or their proceeds).8
[34] The applicants have paid the unsecured preferential claims of employees of the Ovato Companies.
Estimated distribution
[35] Following the realisation of assets and payment of creditors the liquidators have approximately $914,721 to distribute to the remaining classes of creditors within the Ovato Group. The remaining creditor claims that are left to be paid are:
(a)the IRD and Custom’s preferential claims, which rank later in priority to the preferential claims of employees;9 and
8 Companies Act, sch 7 cl 2(1)(b).
9 Companies Act, schedule 7.
(b)employees’ non-preferential unsecured claims, the IRD and Customs’ non-preferential unsecured claims, unsecured balances owed to other creditors, trade creditors and intercompany creditors.
[36] The applicants have prepared a “High-level indicative estimated outcome statement” (EOS). This estimates the return to creditors if the liquidation proceeds on a company-by-company basis, without a pooling order. The EOS is attached as sch 2 to Mr Logan’s affidavit. For ease of reference, it is sch 1 of this judgment.
Grounds for making a pooling order
[37] As noted, whether it is just and equitable to make a pooling order under s 271(1)(b) will turn on the facts and circumstances of each case. Mr MacDuff for the applicants emphasises five grounds in support of his submission that it is just and equitable to make the orders sought.
Ground one – the businesses of the Ovato Companies were largely combined
[38] Mr MacDuff emphasises the extent to which the businesses of the companies have been combined10 and the extent to which the companies took part in the management of the others.11
[39] Each of the Ovato Companies have the same board. Although that is not itself unusual, Mr Logan’s investigations indicate that in many respects the Ovato Group was operated as a single business governed by a joint management team without delineation on a company-by-company basis. There were no separate board meetings for each of the Ovato NZ Companies. Only the Ovato Group results were presented at the Ovato Australia monthly board meetings.
Governance and management, employee arrangements and tax arrangements
[40] Although some attempts were made to operate the businesses of each company as a separate legal entity, or to record transactions on a separate-entity basis by way of
10 Companies Act, s 272(2)(d).
11 Companies Act, s 272(2)(a).
recharging intercompany costs, the applicants’ investigations indicate that these efforts were inconsistent and likely inaccurate.
[41] The applicants have been unable to locate board papers addressing the separate businesses of each company. There are no management accounts for each company. Although there are separate accounting ledgers and end-of-month reconciliations for each company, these were prepared to support the Ovato Group management accounts. Mr Logan says the information provided is insufficient to determine the financial performance of each company at an individual level. As noted, financial performance appears to have been reported only on a consolidated basis.
[42] Employment arrangements were also shared between the companies in ways that Mr Logan explains is now difficult to unravel. For example, some employees of Ovato Print supported both the heatset business of that company and the sheetfed business of PMPM, without the costs of those employees being recharged to PMPM.
[43] The sharing of employee services and the consequent intermingling increased after the closure of the heatset business in April 2022. As noted, this resulted in the redundancy of 137 of NZ Ovato Group’s employees:
(a)98 employees of Ovato Print, leaving a total of 29 employees remaining at Ovato Print;
(b)nine employees of PMPM, leaving a total of 15 employees remaining at PMPM;
(c)27 employees of ORD were made redundant after the closure of the business in April 2022; and
(d)three employees of Ovato NZ, leaving a total of five employees remaining at Ovato NZ.
[44] After that, employees of Ovato Print and PMPM were used interchangeably in assisting with PMPM’s sheetfed business. The employee costs were not recharged to
PMPM as they would have been if each company was operating separately. The employees’ contracts were not assigned to PMPM.
[45] In terms of the tax arrangements, Ovato NZ is registered with the IRD for both GST and Income Tax on behalf of the consolidated NZ Ovato Group. Ovato Print is registered with IRD for fringe benefit tax and has payroll registrations for both itself and Ovato NZ separately. PMPM is registered with IRD for fringe benefit tax and has a payroll registration.
[46] Mr Logan explains that the tax position in the liquidation of the Ovato Companies has been made more complicated due to ongoing payment plans that Ovato Print, PMPM and ORD entered into with IRD around May 2022.
[47] In May 2022, Ovato Print, PMP and ORD each entered into payment arrangements with the IRD in respect of unpaid PAYE and other tax due to the significant redundancy payments that had been made to employees made redundant around the time the heatset business closed in April 2022. In summary, Ovato Print, PMP and ORD arranged to pay IRD $1,824,768.58, $142,611.73 and $257,236.03 respectively through six equal monthly instalments (and a final balancing payment), with the first payment to be made on 20 June 2022.
[48] Mr Logan understands that the first two monthly instalments were made prior to his and Mr McKay’s appointment as administrators or liquidators of the Ovato Companies on 21 July 2022. These payments were funded by Ovato Limited in Australia. That funding ceased to be available when the Australian Ovato companies were placed into administration.
Trading of the Ovato Companies
[49] Mr MacDuff submits there are several other aspects of the Ovato Companies’ trading operations that show they were operated as a single business:
(a)Bank accounts: Ovato NZ operated two bank accounts for the NZ Ovato Group. All trade receivables generated by companies in the NZ Ovato Group were required to be paid into an ANZ account. A BNZ
account in the name of Ovato NZ was operated as a common operating bank account for each of the Ovato Companies.
(b)Lease: Ovato NZ was the lessee of the business premises in Auckland and Christchurch. These premises were used for both the heatset business and the sheetfed business. Ovato NZ did recharge corporate expenses including rent to the other Ovato Companies. The applicants will need to consider the fair allocation of the rental charges following the closure of the heatset business.
(c)Machinery: The Ovato Companies owned large printing machines. Machines were used for both the heatset business and the sheetfed business without a clear cost allocation between the two.
(d)Inventory ownership: Significantly, Mr Logan understands that in many instances inventory purchased under an agreement with a particular Ovato Company was actually used by a different Ovato Company. For example, inventory was purchased under supply agreements with Ovato NZ (and subject to security granted by Ovato NZ) but the inventory was used by Ovato Print or PMPM. The ownership of the inventory and the liabilities associated with it remained with Ovato NZ, notwithstanding that Ovato NZ was a non-trading company.
(e)Customers/debtors: Customers entered into contracts with various Ovato Companies, but often the terms and conditions referred to more than one company, or simply to “Ovato”. Customer invoices were recorded by the appropriate Ovato Company supplying goods, but the invoices were all on Ovato Print letterhead. Following the closure of Ovato Print’s heatset business in April 2022, PMPM operated the remaining business of the Ovato Companies, but the invoices still used an Ovato Print letterhead. Mr Logan also understands that asset sales and miscellaneous sales by Ovato NZ were on separate Ovato NZ
letterhead, notwithstanding that Ovato NZ did not own the asset being sold.
[50] Mr Logan explains that there were no intercompany recharges between the operating companies for shared costs of employees, plant and equipment, and inventory purchased by one company but used by others. Mr MacDuff submits that these factors strongly indicate that the businesses of the Ovato Companies were combined and that a pooling order would more accurately reflect the way in which those companies operated in practice.
Ground two – Creditors often did not know which of the Ovato Companies they were dealing with
[51] Section 271(2)(b) requires the Court to have regard to the conduct of any of the companies towards the creditors of any of the other companies.
[52] Mr Logan explains that in many cases the Ovato Companies’ suppliers and creditors did not properly understand which Ovato company they were dealing with. Many believed they were dealing with a single Ovato company, or simply with “Ovato”, when in fact they were dealing with multiple Ovato Companies. This arose because suppliers might contract with one company but, perhaps unbeknown to them, also supply others. For example, a paper supplier would contract with Ovato Print, but it would unknowingly supply PMPM and its invoices would be addressed to it.
[53] As a result, many suppliers and creditors have made claims against the wrong Ovato Company. For the same reason, the Ovato Companies are holding inventory that will have been paid for by another Ovato company.
Ground three – the liquidation of some of the Ovato Companies was attributable to the actions of others
[54] The Court must have regard to the extent to which the circumstances giving rise to the liquidation of any of the companies are attributable to the actions of any of the others.12
12 Companies Act, s 272(2)(c).
[55] As noted, the applicants believe that the liquidation of ORD was attributable to the closure of the heatset business and the resultant lack of material to distribute. Mr Logan confirms the applicants’ belief that because of the interconnectedness of the Ovato Companies the liquidation of either PMPM or Ovato Print would have resulted in the liquidation of the other Ovato Companies.
Ground four – consequences if the orders are not granted
[56] Mr MacDuff submits that if the pooling order sought is not granted, the time and cost of the applicants taking further steps in the liquidations will have a materially prejudicial impact on creditor recovery.
[57] Mr Logan explains that if the pooling order sought is not granted, the applicants will have to build up, or reverse engineer, a balance sheet for each company, so as to identify each of their creditors and the assets available for realisation and distribution to them. Mr Logan anticipates that this would likely involve:
(a)assessing creditor arrangements (before and after the appointment of the applicants) to determine which Ovato Company is liable to each creditor, and in what amount. This will involve an analysis of contractual, transactional and financial arrangement with creditors, and a review of any intra-group reallocations.
(b)allocating a fair and equitable recharge of central costs incurred by Ovato NZ, including any changes after the closure of the heatset business;
(c)allocating debtor invoices outstanding at the date of appointment to the correct trading company, and reallocating subsequent invoices from Ovato Print to PMPM;
(d)allocating the amount paid to ScotPac between the Ovato Companies that generated the receivables assigned to ScotPac;
(e)allocating the sale proceeds from asset sales;
(f)assessing the extent to which machinery owned by one company was used by another, and making appropriate recharges; and
(g)assessing how the employee cost base should be fairly allocated between the company, particularly where Ovato Print staff were working for PMPM customers and vice versa.
[58] Mr Logan considers that there is likely to be a degree of uncertainty, estimation and/or assumptions required in undertaking that analysis, given the complexities of the intermingling of the operations of the Ovato Companies.
[59] Mr Logan estimates the cost (including legal costs) of this exercise to be between $200,000 and $250,000. Again, the applicants will need to determine how to allocate these costs between the different companies. These costs will have first priority over the remaining assets of $914,721, leaving approximately $665,000 to
$715,000 for creditors (or 72%–78% of the amount currently available for distribution).
Ground five – pooling order would not prejudice creditors
[60] With reference to the EOS, Mr Logan explains that under a company-by-company liquidation scenario without a pooling order:
(a)the IRD’s preferential claim would largely be against Ovato Print. The IRD is estimated to receive a total distribution of $125,743 on its aggregate preferential claims of $1,530,486 and its non-preferential unsecured claim against PMPM of $6,801. This is comprised as follows:
(i)$14,697 on its claim of $1,257,743 into Ovato Print, at 0.119 cents on the dollar. This very small return is due to the high IRD claim into Ovato Print and the relatively limited assets available to that company following the shutdown of its heatset business in April 2022;
(ii)$110,740, being 100 per cent of its preferential claim in PMPM; and
(iii)$27.00, being 0.0039 cents on the dollar on its non-preferential unsecured claim of $6,801 into PMPM.
(b)general unsecured creditors are projected to receive the following cents on the dollar on their claims:
(i)Ovato NZ: 55.61;
(ii)Ovato Print: 0.00;
(iii)PMPM: 0.39; and
(iv)ORD: 0.00.
[61] The liquidators explain that the primary drivers of the Ovato NZ distribution of 55.61 cents on the dollar to unsecured creditors is the cash on hand upon the appointment of administrators, and the claim of $11,076,217 that Ovato NZ has in the liquidation of PMPM, from which Ovato NZ is estimated to derive a distribution of
$43,317. As previously explained, the bank account through which all the Ovato Companies traded was in the name of Ovato NZ, although Ovato NZ itself did not trade. Mr Logan considers this is one of the key factors supporting the pooling application.
[62] Conversely, there is no projected return to non-preferential unsecured creditors of Ovato Print, notwithstanding that those unsecured creditors are largely trade creditors and employees. As Mr Logan points out, Ovato Print would not be expected to have any significant trade creditors given that its heatset business closed down in April 2022. For the same reason, Ovato Print employees’ claims should be met by PMPM.
[63] As for PMPM, the majority of its creditors are employees and intercompany creditors, with limited trade creditors. The $11,076,217 intercompany claim from
Ovato NZ represents 94 per cent of unsecured claims, which means that Ovato NZ (and therefore indirectly its creditors) will receive the vast majority of funds if a distribution to unsecured creditors of PMPM was to occur.
[64] Mr Logan explains that limited trading creditors have claims in PMPM ($156,548) which was the primary Ovato Company trading at the time of his appointment. This makes little sense when compared with Ovato Print, which has trading creditors of $478,143 although it ceased trading in April 2022, and Ovato NZ, which has trading creditors of $1,387,160 although it did not trade in the traditional sense at all.
[65]Understandably, Mr Logan says that the above features are anomalous.
[66] On the other hand, if a pooling order is made without further adjustment, all of the funds available ($914,721) would go to meet the preferential claims of the IRD and Customs ($1,571,569). Other creditors, including trade creditors, would receive nothing. Mr Logan explains that to mitigate the risk of this potential inequity, the applicants have entered into binding arrangements with both the IRD and Customs, pursuant to which:
(a)the IRD’s preferential claim is limited to $300,000;
(b)the balance of the IRD’s claim (approximately $1.2 million) will be treated as a general unsecured claim; and
(c)Customs’ claim will be treated in the same manner (with the same proportion being preferential and general unsecured claims) as the IRD.
Discussion
[67] Although the different operating companies in the group owned different businesses, in many material respects they were governed, managed, operated and financed jointly, or at least in combination. The contractual and financial arrangements of each of the Ovato Companies with third parties (including employees), and between themselves, are largely entwined. Their income and assets
have been intermingled. Their intercompany arrangements have been extensive but are imprecise. It is difficult for the applicants to determine which Ovato Company is indebted to which of the various claiming creditors.
[68] As a result, the applicants estimate it will cost approximately 25 per cent of the funds available for distribution for them to determine who is entitled to those funds. This could well prove to be a conservative estimate.
[69] As noted above, Ovato NZ has received many of the funds now available for payment to creditors, and on the face of it owes a relatively small amount to the IRD, employees and other trading creditors. This does not reflect reality. Rather, it is the result of the intermingling of the NZ Ovato Group’s operations and business activities over time, especially since the restructure in April 2022.
[70] As Mr Logan has responsibly pointed out, an unadjusted pooling order will result in the IRD and Customs receiving almost all the funds available for distribution, while trade creditors and others receive nothing. I do not consider that would be just and equitable. If that were the only option, it would be better for the applicants to spend the time and incur the costs of unravelling the group’s affairs, rebuilding the balance sheets and distributing assets in the orthodox way.
[71] However, I am satisfied that the binding arrangements the liquidators have entered into with IRD and Customs make this unnecessary. By making the orders sought, the IRD and Customs will receive more than they otherwise would on a company-by-company basis, but so will the rest of the general body of creditors. Essentially, the funds that are saved in liquidators’ costs will be shared between preferential creditors and the general body of creditors.
[72] It must be acknowledged that some particular creditors may receive less as a result of the pooling order than they would without it. However, without further investigation and further cost, it is impossible for the applicants to identify those creditors, given the extent of intermingling of the Ovato Companies’ affairs. In this regard, it is relevant that each of the creditors have been notified of the application with no resultant opposition.
[73]For these reasons I consider it is just and equitable to make the orders sought.
Result
[74] In accordance with [1(b)] of the applicants’ originating application dated 11 September 2023, I make the following orders:
(a)the liquidations of the Ovato Companies proceed together as if they were one company pursuant to s 271(1)(b) of Companies Act 1993, subject to the terms and conditions in paragraph (b) below;
(b)pursuant to s 271(2) the Companies Act 1993:
(i)in respect of the admissible claim of the Commissioner of Inland Revenue in the pooled liquidation of the Ovato Companies:
1. in respect of the admissible claim of the Commissioner of Inland Revenue in the pooled liquidation of the Ovato Companies:
a.the preferential amount of that admissible claim for the purposes of cl 1(5) of sch 7 of the Companies Act 1993 is capped at $300,000; and
b.the balance of that admissible claim is a general unsecured claim;
2. in respect of the admissible claim of the Comptroller of Customs in the pooled liquidation of the Ovato Companies:
a.the preferential amount of that admissible claim for the purposes of cl 1(5) of sch 7 of the Companies Act 1993 is capped at $6,451; and
b.the balance of that admissible claim is a general unsecured claim.
Robinson J
Schedule 1
1
1