Pattison v Garrity Holdings Limited

[2013] NZHC 712

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2013-485-495 [2013] NZHC 712

IN THE MATTER OF     an application under section 280 of the Company Act 1993 for an order that Jeremy Michael Morley and Tony Wayne Pattison not be disqualified from appointment as liquidators of Acorn Ventures Limited

BETWEEN  TONY WAYNE PATTISON AND JEREMY MICHAEL MORLEY Applicants

ANDGARRITY HOLDINGS LIMITED Respondent

Judgment:      11 April 2013

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by me on 11 April 2013 at 3.30 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date .....................................................

Solicitors:           JT Law, Barristers & Solicitors, PO Box 25443, Wellington 29937

TW PATTISON AND JM MORLEY V GARRITY HOLDINGS LIMITED HC WN CIV-2013-485-495 [11 April

2013]

[1]      Before the Court is a without notice application for an order that Tony Wayne

Pattison and Jeremy Michael Morley (the applicants) not be disqualified under s 280

Companies Act 1993 from being appointed liquidators of Garrity Holdings Limited

(the company).

[2]      In addition, that application seeks the leave of the Court for the proceeding to be commenced by way of an originating application pursuant to r 19.5 High Court Rules and seeks an order dispensing with service of the application and supporting affidavit.

[3]      Under all the circumstances here I am satisfied that leave should be granted to commence this proceeding by way of an originating application and an order to this effect is now made.   In addition a further order is now made dispensing with service of this application and the affidavit in support, given the matters which I note below.

[4]      The principal order sought in the application that the applicants not be disqualified from being appointed liquidators of the company is said to be necessary because the applicants who are chartered accountants and directors in Pricewaterhouse Coopers might be otherwise disqualified under s 280 Companies Act 1993 from being so appointed.   This is because Pricewaterhouse Coopers has provided accounting services to a secured creditor of the company, namely the Bank of New Zealand.   These services, the Court is advised in the affidavit of Jeremy Michael Morley (Mr Morley) sworn 28 March 2013, were provided in the two years prior to the proposed commencement of this company’s liquidation.   The services however it is said were provided by other officers and departments within the firm of Pricewaterhouse Coopers and essentially do not appear to relate to the company itself.

[5]      It is deposed that the applicants have not personally provided and are not providing any of those services, and no person who is involved in providing the services in question will be permitted to be involved in the liquidation of the company.

[6]      Accordingly it is said that there can be no potential prejudice to the company or the creditors, shareholders or directors of the company by virtue of the association with Pricewaterhouse Coopers.

[7]      Further, it is noted that the shareholders of the company have resolved to appoint the applicants as joint and several liquidators of the company.

[8]      Section 280 of the Act sets limits on who may be appointed a liquidator. Section 280(1) was amended on 1 November 2007 by the Companies Amendment Act 2006. Relevantly, a new subsection was added to s280(1) preventing a person from being appointed or acting as a liquidator of a company in certain circumstances where there was “a continuing business relationship”.

[9]      On this, s. 280(1)(cb) dealing with the qualification of liquidators reads:

“(1)       Unless the Court orders otherwise, none of the following persons may be appointed or act as a liquidator of a company:

(cb)      a person who has, or whose firm has, within the two years immediately before the commencement of the liquidation, had a continuing business relationship (other than through the provision of banking or financial services) with the company, its majority shareholder, any of its directors, or any of its secured creditors, unless, within 20 working days before the appointment of liquidator, the board of the company resolves that the company will on the appointment of the liquidator, be able to pay its debts and  a  copy of the  resolution is  delivered to  the  Registrar for registrations.”

[10]     Clearly from this section, the Court still retains the power to allow a person to act as a liquidator, notwithstanding the limits set out in s280(1). (And similarly, s286(4)(b) of the Act empowers the Court to allow a person to continue to act as a liquidator notwithstanding that there may be a breach of s280 of the Act).

[11]     The Court has been asked to consider the application of s280(1)(cb) in a number of cases. His Honour Associate Judge Abbott reviewed those authorities recently in Re Joeleen Enterprises Limited (HC New Plymouth, CIV-2008-443-485,

3 October 2008), summarising the position as follows:

[15]       There is no definition of “a continuing business relationship” in the Act.

The cases I have just reviewed indicate that the Court will decide on the circumstances  of  each  case  whether  there  is  such  a  relationship,  and whether it is of such a nature and degree that a person should be appointed.

The Court will have particular regard to whether the person or persons seeking appointment (or continuation of an appointment) have a direct relationship or whether it is merely by virtue of their involvement in a firm.

It will clearly be a relevant consideration whether or not any other member of the firm could have a role in the decisions or administration of the liquidation.

[12]     His Honour continued:

I  remain of the view expressed in  Icon Digital Entertainment Limited that the critical issue in considering whether the danger of conflict of interest exists due to a continuing business relationship (however that might be defined) is whether there is a risk that the applicant’s independence and ability to carry out his or her task professionally and effectively could be compromised in the particular circumstances of the case.”

[13]     Similarly, in the commentary now appearing in Anderson’s Company Law

(Brookers) at paragraph 280.01(5):

“Each case  concerning the  validation of  an  appointment by the  Court,  despite s280(1)(cb), will depend on the relevant circumstances as to whether a continuing business relationship exists, and if so, whether it is of such a nature and degree that the person should not be appointed. The critical issue is whether there is a risk that the applicant’s independence and ability to carry out his or her task professionally and effectively could be comprised in the particular circumstances of the case.”

(emphasis added)

[14]     Finally, the Court has made similar orders under s280 of the Act in other like cases when considering the continued or future appointment of liquidators, including Re Mountain View Developments Ltd (In Liq); WHK Gosling Chapman v Leisureworld Ltd  (In Rec) (HC, Auckland, 2007-404-4374, 15 November 2007, Associate  Judge  Sargisson);  Bridgecorp  Holdings  Ltd  v  Goodman  Ltd  (HC, Auckland, CIV 2007-404-4866, 9 August 2007, Courtney J); Re Fisk & McIvor (HC, Napier, CIV 2007-441-943, 28 November 2007, Associate Judge Gendall); In Re Gridline Construction Ltd (In Liq) (HC Auckland, CIV 2007-404-7330, 13 February

2008,  Associate  Judge  Christiansen);   McCloy  v  Titan  Foundation  Ltd   (HC Auckland, CIV 2008-404-2243, 23 April 2008, Associate Judge Robinson); and Re Kensington Construction Limited.

[15]     Before  consenting  to  being  appointed  liquidators  of  the  Company,  the applicants here have said they have properly considered whether there was any matter that would disqualify them from being appointed liquidators pursuant to s280

of the Act. As part of that consideration, as noted above the applicants concluded that there is a potential issue arising out of Pricewaterhouse Cooper’s relationship with one of the secured creditors of the Company, Bank of New Zealand (“BNZ”). This necessitated the present application for leave.

[16]     That said, although there may be a possibility of a conflict of interest arising out  of  Pricewaterhouse  Cooper’s  relationship  with  that  secured  creditor,  I  am satisfied that there is no real conflict for the following reasons:

(a)      Pricewaterhouse Coopers  is  a large organisation,  operating out  of offices in Auckland, Wellington and Christchurch, and it provides financial services to many companies in New Zealand;

(b)It acts for a number of other banks other than the BNZ and secured lenders too; and

(c)      None of these services provided by Pricewaterhouse Coopers to the secured creditor BNZ it is said in any way relates to the Company, the directors of the Company, or the shareholders of the Company.

[17]     The applicants have also confirmed that they are satisfied there is no other reason that would disqualify them as liquidators. Clearly, they are ready and willing to act as liquidators of the Company, and the shareholders wish to appoint them.

[18]     Applying the principles set out in Re Joeleen Enterprises Limited here, the circumstances of the present case and the nature of the relationship with the secured creditor BNZ (even if that relationship was seen to be a “continuing business relationship” within the meaning of s280(1)(cb) of the Act), in my view do not compromise the applicants’ independence or their ability to carry out their task as liquidators professionally and effectively. The relationships, such as they are, in my view do not go a sufficient distance towards a conclusion that the applicants will lack the independence and integrity needed to carry out their role without causing risk to creditors of the Company or third parties.

[19]     In  summary,  I  am  satisfied  the  general  relationship  of  PriceWaterhouse Coopers with the BNZ, alone and of itself, does nothing to compromise the independence and ability of these insolvency practitioners to act in this case.

[20]     For all these reasons I now make orders as sought as follows:

(a)      Directing that the applicants not be disqualified under s 280 of the Companies Act 1993 from being appointed liquidators of Garrity Holdings Limited; such that if an appropriate shareholders’ resolution has been passed, the date and time of appointment of the applicants as liquidators of the company is to be the date and time of the making of this order (s 241(5) of the Companies Act 1993);

(b)That the present application and the present orders made by the Court may be served on all known creditors of the company at the same time and in the same manner as the applicants’ first report as liquidators of the company under s 255 of the Act; and

(c)      That the creditors of the company have leave to apply to the Court within ten working days of service as per 20(b) above to set aside the applicants’ appointment as liquidators of the company.

‘Associate Judge D.I. Gendall’