Probis Financial Services Pty Limited (Administrators Appointed) v Mars Cap Limited

[2023] NZHC 2788

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-1714

[2023] NZHC 2788

UNDER

section 241 of the Companies Act 1993 and Part 31 of the High Court Rules 2016

BETWEEN

PROBIS FINANCIAL SERVICES PTY LIMITED (ADMINISTRATORS APPOINTED)

Plaintiff

AND

MARS CAP LIMITED

Defendant

Hearing:

3 October 2023

Appearances:

J Goodall KC, M Kersey and S Jones for the Plaintiff

J Marcetic and Y Yang for W W Kong, Director of the Defendant M C Ryan for Longchamp Absolute Return Unit Trust Fund, Creditor in support

Judgment:

5 October 2023

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 5 October 2023 at 4.15 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Russell McVeagh, Auckland Chapman Tripp, Auckland Solomans, Dunedin

PROBIS FINANCIAL SERVICES PTY LTD (ADMINISTRATORS APPOINTED) v MARS CAP LTD [2023] NZHC 2788 [5 October 2023]

Introduction

[1]    An application has been brought by Probis Financial Services Pty Limited (Administrators Appointed) (Probis) to liquidate Mars Cap Limited (Mars Cap). Interim liquidators were appointed to Mars Cap on 16 August 2023 shortly after the liquidation proceedings were filed, following a without notice application by Probis.1 Two of the four administrators of Probis were appointed as the interim liquidators of Mars Cap. The director of Mars Cap, William Kong, was served with the without notice application to appoint interim liquidators on the day before the hearing so that he could participate but neither he nor counsel instructed by him attended.

[2]    The first call of the liquidation application was scheduled for 29 September 2023. Two days prior to the first call, Mr Kong applied for orders:

(a)granting leave to Mr Kong as the sole shareholder and director of Mars Cap to bring an application for stay;

(b)staying the application to put Mars Cap into liquidation to a date no earlier than 1 November 2023;

(c)rescinding the appointment of Richard Albarran and Brent Kijurina as interim liquidators and in their place appointing independent individuals not representing any creditor of Mars Cap as interim liquidators; and

(d)alternatively, if the Court does not make orders appointing new interim liquidators, making orders that the interim liquidators not be permitted access to the legal files held by Chapman Tripp in their capacity as solicitors of Mars Cap.

[3]    When this matter was called in the liquidation list on 29 September 2023 I adjourned the applications for a hearing on 3 October 2023 as there was not sufficient time for argument in the list and Probis’ notice of opposition to Mr Kong’s application

1      Probis Financial Services Pty Ltd v Mars Cap Ltd [2023] NZHC 2215.

and affidavits in support (including the interim liquidators’ report annexed) had only been filed that morning.

[4]    All of the necessary steps including advertising have been taken by the plaintiff to obtain an order for liquidation and the report of the interim liquidators confirms that Mars Cap is insolvent.

[5]    The questions for the Court therefore arise from Mr Kong’s application. I set out the relevant background to assist in understanding the parties involved before considering whether a stay ought to be granted (together with the necessary leave) and whether alternative interim liquidators ought to be appointed.

Background

[6]    Mars Cap was incorporated in New Zealand on 20 March 2019. Mr Kong is the sole shareholder and director. The affidavits sworn by Mr Kong for this proceeding describe him as being from Hong Kong.

[7]     Probis is an Australian company that operates a financial services business from Sydney and from an office in Japan. Probis offers financial products to clients including foreign exchange contracts and contracts for difference. Probis provides an online trading platform for its customers to use to enter into transactions, providing Probis with payments by way of collateral or margin.

[8]    On 15 November 2019 Probis and Mars Cap entered into a liquidity agreement under which Mars Cap agreed to provide liquidity services to Probis. The liquidity agreement provided for Mars Cap to open an account in Probis’ name that would operate as a clearing account for trades that Probis might execute on behalf of clients. Mars Cap was also to hold cash and any margin moneys on leverage trades. It was agreed that Mars Cap would remit funds back to Probis on a monthly basis.

[9]    Voluntary administrators were appointed to Probis on 17 July 2023 by resolution of the directors. The administrators are Richard Albarran, Brent Kijurina, Cameron Shaw and Aaron Dominish of Hall Chadwick in Australia (Administrators).

[10]   Mr Albarran records in affidavits filed in this proceeding that their investigations have revealed that Probis stopped trading with Mars Cap in or about June 2021 but that it is not clear why the funds that Mars Cap held on behalf of Probis at that time were not repaid. During the period between 2020 and 2022 the Administrators say Probis transferred a total of USD 125 million to Mars Cap under the  liquidity  agreement.  Of  this  sum,  USD  24,990,187  was  repaid   leaving USD 100,009,812 outstanding.

[11]    The Administrators’ investigations have further revealed that on 12 June 2023, Probis and Mars Cap novated the interests of two of Probis’ clients, reducing the amount owing by Mars Cap to Probis to USD 38,402,194. As a result of the novations, the Administrators say Mars Cap owed the balance of USD $61,607,617 to two entities based in the Cayman Islands:

(a)AI Quantum High Income Money Fund (AI Quantum); and

(b)JY SPC Fund (JY SPC).

[12]   On 22 June 2023 Probis issued a formal written demand to Mars Cap for payment of USD 38,402,194, to be paid no later than 6 July 2023. On 10 July 2023 Mr Kong responded by email. In this email he did not dispute that the moneys were immediately due and payable but advised that “most of” Mars Cap’s “capital” was with third party liquidity providers. Mr Kong named these providers as PT Eternity Futures and City Credit Capital (Labuan) Ltd (City Credit). Mr Kong said Mars Cap needed to withdraw funds from these entities in order to pay Probis and that these arrangements were underway but that one of the third party liquidity providers was in liquidation and the other had had its licence suspended by its regulator.

[13]   The Administrators record that their investigations since have revealed that City Credit was placed in liquidation on 23 June 2023, the day after Probis made demand on Mars Cap. As recorded above, Probis was placed in voluntary administration on 17 July 2023. On 28 July 2023, a telephone conference was held with Mr Kong, during which Mr Kong advised the Administrators’ solicitor that he

anticipated Mars Cap would receive sufficient funds to repay Probis by 4 August 2023 and in any event no later than 11 August 2023.

[14]   On 31 July 2023 the Administrators issued Mars Cap with a further formal written demand for payment of USD 38,402,194 and requested details of Mars Cap’s liquidity providers together with correspondence and statements of account relating to those entities.

[15]   On 9 August 2023 Mr Kong sent an email to the Administrators advising that he was “withdrawing 40 mil from the liquidity provider”. However, the Administrators record that Mars Cap has so far not paid anything to Probis.

[16]   Probis filed an application for liquidation of Mars Cap on 11 August 2023 together with a without notice application to appoint two of the administrators of Probis, Messrs Albarran and Kijurina, as interim liquidators. As recorded at the outset, Mr Kong did not appear at the hearing regarding the appointment of interim liquidators and Lang J granted the application unopposed on 16 August 2023.2

[17]   As stated, Probis’ application to liquidate Mars Cap was due for first call in the liquidation list on Friday, 29 September 2023. On 26 September 2023, Longchamp Absolute Return Unit Trust Fund (Longchamp), a creditor of Mars Cap in the amount of USD 3,143,225.57, filed a notice of appearance in support of Probis’ application for liquidation.

[18]   On 27 September 2023 Mr Kong filed his application for a stay, for alternative interim liquidators to be appointed and for orders in respect of Chapman Tripp files.

[19]   On 29 September 2023, a notice of opposition was filed by Probis, together with an affidavit by Mr Albarran attaching a report by the interim liquidators of Mars Cap. As set out above, the report records that the interim liquidators consider Mars Cap to be insolvent and that it may have been so from as early as 31 March 2021. The interim liquidators’ report includes a table of unsecured creditors of Mars Cap showing that they are owed, between them, approximately USD 112 million. Probis and

2      Probis Financial Services Pty Ltd v Mars Cap Ltd, above n 1.

Longchamp are not the only, or even majority, creditors: together they are said to be owed approximately USD 41.5 million. Approximately NZD 33,000 is said to be owing to trade creditors and NZD 73,982 to Mr Kong personally. The remainder of the debt (approximately USD 70 million) is said to be owed to AI Quantum, JY SPC and JY Quant Fund.

Should a stay be granted?

[20]   Mr Kong seeks a stay of the liquidation application until 1 November 2023 at the earliest. Mr Kong says that he is in the process of making arrangements that would see the debts Probis and Longchamp claim they are owed by Mars Cap acquired, recording that it will not be Mr Kong who will be acquiring those debts. He explains that he has not been able to engage with Probis and Longchamp about the proposed resolution until those arrangements are in place, including because of confidentiality.

[21]   Mr Kong says that he expects to be able to provide further details to Probis and Longchamp in the coming weeks and to achieve a resolution.

[22]   Mr Kong records that he is associated with the three remaining significant creditors, AI Quantum, JY SPC and JY Quant Fund, and that his understanding is that none of those funds have demanded payment from Mars Cap.

[23]   Finally, Mr Kong says that he will not seek to stay the liquidation beyond 1 November 2023 if matters with Probis and Longchamp have still not been resolved by then (except by consent if more time is needed to negotiate a resolution).

[24]   Rule 31.11 of the High Court Rules 2016 provides a power to the Court to stay liquidation proceedings where “within [five] working days after the date of the service of the statement of claim” the defendant company applies to the Court, both for an order restraining advertising (r 31.11(1)(a)) and for an order staying any further proceedings in relation to the liquidation (r 31.11(1)(b)).

[25]   The rule expressly records at r 31.11(3) that the inherent jurisdiction of the Court is not limited by this rule.

[26]   Probis submits that it is clearly not appropriate to stay the application, that the inherent jurisdiction of the Court is reserved to prevent abuse of process only and where the defendant is clearly insolvent, a stay ought not to be contemplated.3 Counsel submits the application is not a stay in substance because liability to Probis is not disputed and liquidation is not opposed. Counsel describes it as, in reality, an adjournment application made with the hope of enabling Mr Kong to make an offer to some of the creditors to purchase their debt.

[27]   In addition, counsel for Probis raises a concern as to the impact on the position of the interim liquidators if a stay of the liquidation proceedings were granted.

[28]   In circumstances where only a short finite stay is sought, I agree it is more sensible to approach the application as an application to adjourn the liquidation proceedings rather than an application for a stay. This is the approach Longchamp submits is appropriate in the circumstances and a position that Longchamp supports.

[29]   Counsel for Mr Kong did not raise any difficulty with treating the application as an application for an adjournment, saying his client was not concerned as long as he has some time.

[30]   I therefore dismiss Mr Kong’s application for a stay and instead consider his application as an application for an adjournment.

Should an adjournment be granted?

Relevant legal principles

[31]   The commentary to r 31.22 of the High Court Rules, which prevents most interlocutory applications without leave in liquidation proceedings, refers to the adjournment of a liquidation proceeding. The commentary records that the Court is reluctant to adjourn liquidation proceedings where there is no dispute as to indebtedness as it is in the interests of all parties concerned to have the matter finalised

3      Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 (HC).

expeditiously.4 The commentary continues that “in exceptional circumstances, a short adjournment may be appropriate to enable a proposal to be investigated” referring to National Bank of New Zealand Ltd v Perry James Investments Ltd.5 In that case the debt on which the liquidation proceedings were based went back several years. Negotiations by the parties had been continuing for at least 12 months and letters had passed between the parties and their respective solicitors since that time. However, it was only just prior to the hearing that the plaintiff had provided a figure at which the plaintiff might be prepared to settle the indebtedness. The Judge held that it was relevant that the other major creditor of the defendant company was taking no steps at that time, that the shareholders and directors of the defendant company were taking a responsible attitude to the realisation of the company’s assets and endeavouring to meet the company’s liabilities, and that the defendant company and its advisors and shareholders ought to be entitled to a period to respond to the settlement figure.6 An adjournment was therefore granted for one month. The defendant company, Perry James Investments Ltd, had not filed a statement of defence or any other papers.

[32]   In this case the application for a stay and for alternative liquidators to be appointed has been filed but no notice of appearance opposing the liquidation application. I do not consider that to be an obstacle however to the application for an adjournment being granted. It appears from r 31.22 that leave may still be required even if Mr Kong’s application is for an adjournment rather than a stay as r 31.22 provides that where liquidation proceedings have been filed, interlocutory applications may not be made except with the leave of the Court before the date of the hearing specified in the notice of proceeding, except for those expressly set out in r 31.22(1).

If necessary, should leave be granted?

[33]   Although there has been some delay by Mr Kong in filing his application, he deposes in affidavits filed that he was unwell during August and ultimately tested positive for COVID-19 and remained unwell for an extended period of time. Mr Kong’s evidence is that he did not properly understand that Mars Cap had been put

4      Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR31.22.04].

5      National Bank of New Zealand Ltd v Perry James Investments Ltd (1991) 4 PRNZ 389 (HC).

6      At 391.

into interim liquidation until his lawyers, Chapman Tripp, contacted him on 23 August 2023 to pass on a letter they had received from Messrs Albarran and Kijurina.

[34]   The timeline for contact with Mr Kong by the interim liquidators following their appointment is relatively short. Following their appointment as interim liquidators, Messrs Albarran and Kijurina sent a letter via post and email dated 17 August 2023 to Mr Kong as a director of Mars Cap requiring immediate access to and control of the books and records of the company and asking for a physical or virtual meeting. The interim liquidators followed up with a further letter on 22 August 2023 and again on 22 September 2023.

[35]   Just prior to the first call in the liquidation list on 29 September 2023, Chapman Tripp sent a letter to the Administrators on behalf of Mr Kong addressing the matters raised and seeking more time in which to respond to the interim liquidator’s letter dated 22 September 2023.

[36]   Counsel for Mr Kong submits that Mr Kong’s application is not frivolous, as he is only seeking a short finite stay for the specific purpose of enabling a resolution between Mars Cap, Probis and Longchamp. Counsel points to the filing and service of a further affidavit by Mr Kong and submissions on his behalf at short notice following the list call on 29 September 2023 as indicating that the application is being approached seriously.

[37]   In relation to the leave necessary for a shareholder to apply for a stay pursuant to r 31.11, counsel for Mr Kong refers to Island Grace (Fiji) Ltd (in rec and liq) v Satori Holdings Ltd (in interim liq), where Associate Judge Andrew held that the requirement for leave is a safeguard against frivolous applications by shareholders.7 Similar considerations must apply if instead the leave is required to file an application for an adjournment. Although there has been some delay, I accept that the application is a serious application requiring proper consideration and therefore grant leave if required.

7      Island Grace (Fiji) Ltd (in rec and in liq) v Satori Holdings Ltd (in interim liq) [2023] NZHC 219 at [62].

Should the short finite adjournment sought be granted?

[38]   A key factor in respect of the adjournment is that Longchamp consents to the adjournment sought as referred to above. Not only is Longchamp a creditor of the defendant company in the amount of approximately USD 3 million, it is also a significant a creditor of Probis in the amount of approximately USD 85 million. Longchamp submits that this represents 99.8 per cent of the total creditor claims against Probis. Counsel for Probis says that the exact amount and percentage is in dispute between the parties but accepts that Longchamp is a significant creditor of Probis.

[39]   Longchamp records in its submissions that it has considered the letter from Mr Kong’s solicitors, Chapman Tripp, to the solicitors for Probis and Longchamp dated 2 October 2023, confirming that the stay sought is a finite one and that Mr Kong would not seek a further stay of the liquidation proceedings beyond 1 November 2023 except by consent. Longchamp says that it has had no opportunity to explore the proposed resolution with Mr Kong and would like the opportunity to do so. It submits that there will be no prejudice given the interim liquidators are in place and that it is in the interests of both Probis and Longchamp for the possibility of a resolution to be explored before a final liquidation order is made. Longchamp therefore consents to Probis’ application for liquidation to be adjourned to 1 November 2023. In these circumstances, I consider it is appropriate to afford significant weight to Longchamp’s position.

[40]   Counsel for Probis notes that Mr Kong was a previous director of Longchamp’s investment manager, City Credit Asset Management, and therefore Longchamp’s support of the proposed adjournment ought to be seen in that context.

[41]   Probis opposes any adjournment on the basis that the evidence from Mr Kong is oblique and falls far short of justifying an adjournment when NZD 188 million is owed by Mars Cap in total. Probis submits that Mr Kong has been making promises of payment since 10 July 2023 and nothing has materialised. He has also ignored requests by the interim liquidators for documents and assistance and his response to

questions from the interim liquidators regarding recent outcomes of a creditor’s meeting for City Credit, one of Mars Cap’s liquidity providers, is vague and concerning.

[42]   In Probis’ submission, if Mr Kong does manage to arrange payment of the debts outstanding, he can always apply to terminate the liquidation under s 250 of the Companies Act 1993 and so there can be no prejudice to Mr Kong or Mars Cap (and its creditors) from liquidation now, or at least no prejudice that outweighs the benefit of liquidation now.

[43]   Probis submits that the only party that an adjournment would advantage is Mr Kong himself as it may allow him to potentially avoid personal liability.

[44]   Counsel for Mr Kong responds that no prejudice would arise from an adjournment given the appointment of interim liquidators to Mars Cap:

(a)with interim liquidators appointed, there is no prospect of the dissipation or alienation of assets from Mars Cap, unlike in situations where a director remains in control of the company; and

(b)it does not appear that the interim liquidators have suffered any prejudice or difficulties since their appointment by not being “full” liquidators, with their comprehensive report indicating they have been able to undertake investigations as necessary.

[45]   Importantly, counsel for Mr Kong submits that the short stay would not cut across any of the reasons identified by Lang J for appointing interim liquidators as Mr Kong would not have control of Mars Cap, nor control of recovery action on its behalf and nor could Mr Kong make payments on behalf of Mars Cap.

[46]   I accept that the affidavits filed by Mr Kong provide very little detail in respect of any proposal and that there have been many promises made without payment so far.

[47]   In addition, I agree with counsel for Probis that Mr Kong’s application is likely to be very much for the purposes of protecting himself but if a by-product of that is that the creditors of Mars Cap are repaid then an adjournment would be worthwhile.

[48]   Given the amounts at stake and the paucity of information as to a possible proposal or in fact in relation to the position of the liquidity providers, City Credit and PT Eternity Futures, it appears resolution may be unlikely but weighing up the possible benefit of the short adjournment sought against the prejudice suffered as a result squarely lands in favour of an adjournment.

[49]   It does appear that arrangements were made previously in respect of large parts of the debt owed to Probis by novating more than USD 60 million to two of the trust funds that are now creditors of Mars Cap. Furthermore, it may be that the only real prospect of a return to creditors in this case is through access to the liquidity providers which appears only perhaps to be available through Mr Kong.

[50]   Mr Kong has gone to considerable effort to seek a relatively short adjournment which supports to some extent his claim that he is putting a proposal together. The usual position where a representative of a company attends the first call of a liquidation proceeding and asks for more time to resolve matters is to allow an adjournment to the next liquidation list of that judge, approximately one month later. In this case interim liquidators have already been appointed and very considerable amounts of money appear to be missing which causes considerable concern. But the company is at least protected from the director’s actions by the interim liquidators.

[51]   In the circumstances of a short adjournment of less than one month, with the support of Longchamp, a creditor of Mars Cap and the major creditor of Probis, and where Mr Kong has undertaken not to seek another adjournment (unless by consent), I consider it appropriate to grant the adjournment sought.

Should alternative interim liquidators be appointed?

Mr Kong’s submissions

[52]   Mr Kong has applied for alternative interim liquidators to be appointed if a stay (or adjournment) is ordered. This application is made on the basis that there is a risk of conflict where the interim liquidators also occupy the role of Probis’ Administrators.

[53]   Counsel for Mr Kong points to s 280(2)(a) of the Companies Act 1993 which provides:

280     Who may be appointed as liquidator

…

(2)Unless the court orders otherwise, the following persons are disqualified from being appointed or acting as a liquidator of a company:

(a)a creditor of the company:

…

[54]   Mr Kong accepts that Messrs Albarran and Kijurina are not personally creditors of Mars Cap but submits their appointment raises potential conflict concerns that s 280(2)(a) substantively seeks to address and avoid.

[55]Mr Kong submits that the principle underpinning the s 280 regime is:8

…to ensure persons appointed have sufficient independence, competence and integrity to carry out the roles without causing risk to creditors or third parties.

[56]   The relevant authorities have held that a key consideration is to determine whether there is a risk that a proposed liquidators’ independence and ability to carry out their tasks might be compromised in the particular circumstances. The interests of creditors are important.9

[57]   Counsel for Mr Kong points to the fact that Messrs Albarran and Kijurina were appointed administrators of Probis along with two further members of Hall Chadwick

8      Re Bridgman [2016] NZHC 933 at [9].

9 At [10].

on 17 July 2023. Within a month, they applied for orders appointing themselves as interim liquidators of Mars Cap on the basis of the alleged debt of approximately USD 38 million owed by Mars Cap to Probis.

[58]   Counsel for Mr Kong relies on the summary of creditors set out in the interim liquidators’ report which says Mars Cap’s creditors are alleged to be owed approximately USD 112 million between them. As stated, Probis and Longchamp are not the only, or even majority, creditors: together they are said to be owed approximately USD 41.5 million.

[59]   Mr Kong submits that there is a clear potential conflict for Messrs Albarran and Kijurina in carrying out their duties as interim liquidators in accordance with their duties to Mars Cap at the same time as acting in accordance with their duties to Probis as Administrators.

[60]   Mr Kong says that is the substantive issue which s 280(2)(a) seeks to avoid. It is a “real” risk of conflict, rather than the “theoretical” risk of conflict the Court has previously found in s 280 applications is not sufficient to prevent appointment.10 Mr Kong accepts that Lang J held that Messrs Albarran and Kijurina were “suitable appointees for present purposes”,11 but Mr Kong submits that it does not appear that the potential conflict set out above was addressed in that hearing.

Probis’ submissions

[61]    Counsel for Probis says there is no merit or evidence to support the argument that the interim liquidators would favour Probis over other creditors. Counsel points to the fact that they are highly experienced insolvency practitioners and have already been entrusted by the court on the interim liquidation. Furthermore, if Mr Kong had any legitimate concerns about the interim liquidators' conduct, he would have provided evidence of those concerns and brought his application well before now. In fact, Probis submits Mr Kong ought to have made submissions at the original hearing as he

10     Re McKay [2019] NZHC 3433 at [18].

11     Probis Financial Services Pty Ltd v Mars Cap Ltd, above n 1, at [23].

was served with copies of the documents prior to the hearing so that it could be heard on a “Pickwick” basis. Despite that, Mr Kong took no steps.

[62]   In addition, counsel for Probis points to the fact that Mr Kong was a director of Probis between 2016 and 2018 and that the substantial work already undertaken by the interim liquidators both in Australia and other jurisdictions to try and trace funds flowing from Probis to Mars Cap (they say with no cooperation from Mr Kong) shows that this is not a classic arm’s length liquidation and bears some similarities to the liquidation of a corporate group. There are many apparent relationships between Probis, Probis’ creditors (including Longchamp), Mars Cap and its creditors (including Longchamp again) and the recipients of Mars Cap’s funds. Counsel for Probis says appointments to group companies commonly arise without issue when there is intercompany debt, emphasising that interim liquidators are not creditors in their personal capacities and that they owe statutory duties.

[63]   Counsel for Probis notes further that if any issues do arise, amongst other available protections, liquidators and creditors can apply to the Court for directions under s 284 of the Companies Act, or a “conflict” liquidator may be able to be appointed, which is common practice in Australia. Furthermore, Probis submits creditors, shareholders and directors can also seek leave to review any decisions of liquidators.12

[64]   As far as funding is concerned, Probis submits that there are efficiencies if Probis’ Administrators continue as the interim liquidators and are appointed permanent liquidators as they can coordinate steps with those to be taken by Probis and have access to funding from Probis. By contrast Probis submits that Mr Kong is the subject of freezing orders obtained by Probis in Australia and there is no evidence of funding for the proposed replacement interim liquidators, Messrs Fisk and Sanson.

[65]   In addition, Probis submits it is significant that Lang J did not consider that there was any issue with independence.

12     Companies Act, s 284(1)(b).

[66]   Counsel for Probis referred to four authorities, Re Jackson,13 Re Bridgman,14 Re Grant,15 and Re McKay,16 which they submit support the position that it is commonplace for the same liquidators to be appointed across related companies or where liquidators have previously provided professional services.

[67]   Counsel for Probis submits that all that would happen if alternative interim liquidators were appointed would be that it would slow matters down in circumstances where Mr Kong is not being frank about his concerns and is not providing the information requested. In Probis’ submission, the Court should not countenance granting Mr Kong’s application.

Longchamp’s position

[68]   Longchamp does not take a position in respect of the application for alternative interim liquidators to be appointed.

Discussion

[69]   In the circumstances I consider it is appropriate to appoint alternative interim liquidators. I accept that Messrs Albarran and Kijurina are very experienced insolvency practitioners, registered in both Australia and New Zealand, and that no circumstances have so far arisen which Mr Kong can point to as indicating that they have preferred the position of Probis over Mars Cap.

[70]   However, I consider that although they may not expressly fall within one of the categories in s 280(2) of persons who are automatically disqualified from acting as a liquidator and so require leave to be appointed, they occupy a position that is sufficiently similar to those categories that their continuation as interim liquidators needs to be carefully considered.   As Mr Kong accepts, they do not  fall within        s 280(2)(a) as they are not creditors of the company but they are administrators of a creditor. Furthermore, s 280(2)(c) prevents a person being appointed who has within the two years immediately before the commencement of the liquidation been a director

13     Re Jackson [2018] NZHC 2447.

14     Re Bridgman, above n 8.

15     Re Grant [2019] NZHC 2423

16     Re McKay, above n 10.

of a creditor of the company. As administrators Messrs Albarran and Kijurina stand in the position of directors of Probis.

[71]   Section 280 does not apply expressly to interim liquidators, but interim liquidators must be required to be independent in the same way permanent liquidators are. The commentary in Company Law agrees that it is unlikely the Court would appoint a person as an interim liquidator who would not be qualified to act as a liquidator.17

[72]   In McCallum v Acoustical Material Supplies Ltd, Master Thomson considered that the flavour of s 246 was that interim liquidators were required to be neutral and should be seen to be so.18 In that case Master Thomson noted personality differences between the proposed liquidator and one of the defendant company’s officers and also the fact that the proposed liquidators were also liquidators of a company who appeared to be the most substantial creditor of the defendant company. Master Thompson commented that situation could be seen by other creditors as effecting the ability of the proposed interim liquidators to remain neutral. In the circumstances, he therefore appointed the Official Assignee of Wellington as the interim liquidator.

[73]   Counsel for Probis submits that s 280 was particularly concerned with the position before the promulgation of the Insolvency Practitioners Regulations 2020, as at that stage anyone could be appointed liquidator. However, following the promulgation of those regulations s 280 was amended and continues to disqualify certain categories, including those providing professional services, so it must not be sufficient to avoid its application by being a licensed insolvency practitioner.

[74]   In the earlier decisions relied on by Probis, leave to be appointed as liquidator despite disqualification under s 280 was granted on an unopposed basis and where the companies were either clearly part of the same corporate group or the work completed only raised a theoretical risk of conflict rather than a real risk. In my view, those circumstances are clearly distinguishable from the position here.

17     Company Law (online ed, Thomson Reuters) at [CA246.05].

18     McCallum v Acoustical Material Supplies Ltd (1998) 8 NZCLC 261,556 (HC).

[75]   As counsel for Probis submits, the likely source of funds for resolving the debts will be from Mars Cap and potentially the key to unlocking that liquidity is through the liquidity providers.

[76]   Mr Goodall KC submits that if I confirm there is no conflict issue in terms of the interim liquidators then that will enable discussions to be had with the liquidity providers and also mean that there would be no basis for Chapman Tripp resisting providing all of its Mars Cap files. But I do not accept that it will be as simple as that. The fact that both the liquidity providers and Chapman Tripp have resisted providing documents or access at this stage, in my view, highlights the concern around conflict.

[77]   I accept that it is a very significant step to replace the interim liquidators and that the likely prospect of resolution appears slim given the time that has passed and the amounts involved. In addition, there certainly appear matters that require investigation. But if I am prepared to grant a short adjournment to allow one final effort to resolve matters, a step that the major creditor of Probis and one of the creditors of Mars Cap’s supports, then in my view at the same time it is appropriate to appoint interim liquidators for which there is no question of conflict. If there is to be a resolution with Probis in respect of the debt owing, then having that negotiation take place in a situation where the Administrators of Probis and the interim liquidators of Mars Cap are the same people may, in my view, cause difficulties.

[78]   Any issues with funding are likely to be able to be resolved as if it is in Probis’ interests now to provide funding to the interim liquidators of Mars Cap, then it should still be in Probis’ interests if there is a change in identity of the individuals involved.

[79]   I accept that there will be some time required for new interim liquidators to come up to speed but helpfully the current interim liquidators have prepared the report for the Court that will be able to be used as a base. Furthermore, at this stage Mr Kong has not corresponded with the interim liquidators to any great extent or provided the documents required by them and so the relationship with him and information to be obtained will not require much by way of getting up to speed. Although not a determining factor, the hourly charge out rate of Messrs Fisk and Sanson is

considerably less than that of the current interim liquidators and so the cost of replacing the interim liquidators may not be significant in the end.

[80]   Counsel for Probis says there is no example of actual conflict but it is difficult at this stage to make that assessment given that no records or access to the documents of Mars Cap have yet been provided. Counsel for Mr Kong says that the very obvious situation where there would be a real risk of conflict would be if the interim liquidators came across a potential counterclaim by Mars Cap against Probis. That is only likely to arise once the Mars Cap documents are provided to the interim liquidators.

[81]   The interim liquidators’ report in fact refers to a potential issue in respect of the tripartite agreements entered into between Probis, Mars Cap and two of the three funds, AI Quantum and JY SPC, who are also creditors of Mars Cap. The interim liquidators’ report records:

The Administrators of Probis are currently investigating these agreements and considering whether or not they should be treated as claims against [Mars Cap] or claims against Probis. If the latter, that might result in an increase in Probis’ alleged claim against [Mars Cap], and [AI Quantum] and [JY SPC] not being creditors of [Mars Cap].

[82]   Determining whether the claims should be treated as claims against Mars Cap or claims against Probis places the current interim liquidators in a difficult position.

[83]   Furthermore, the fact that the interim liquidators refer to the “Administrators of Probis” investigating when they, as interim liquidators, are also Administrators of Probis highlights the conflict that arises. Other parties may be reluctant to provide documents and information to the interim liquidators if they consider that information will be used by the Probis’ Administrators in such investigations.

[84]   Finally, I note that the current interim liquidators are administrators rather than liquidators of Probis. In my view this would appear to heighten the potential risk of conflict as it has not yet been determined whether Probis will continue to operate or will go into liquidation. It may be that certain outcomes are preferable if Probis wishes to remain in business rather than go into liquidation and this again seems to introduce a complicating factor.

[85]   I therefore make orders below that the interim liquidators are to be replaced by Messrs Fisk and Sanson.

Documents held by Chapman Tripp

[86]   No orders need to be made in respect Mr Kong’s application regarding documents held by Chapman Tripp in respect of Mars Cap because of the orders made appointing alternative interim liquidators.

Result

[87]   For the reasons discussed above, I dismiss Mr Kong’s application for a stay but grant an adjournment of the liquidation application to 1 November 2023 at 2.15 pm.

[88]   From 9 am on Friday, 6 October 2023 Richard Albarran and Brent Kijurina are removed as interim liquidators and John Howard Ross Fisk and Craig Alexander Sanson are appointed in their place.

[89]Leave is reserved to apply for further orders if necessary.

Costs

[90]   I did not hear from the parties on costs and so ask counsel to confer and only if an agreement cannot be reached to file memoranda, on behalf of Mr Kong within 25 working days and Probis and Longchamp within a further 10 working days (or as otherwise agreed and advised to the court by joint memorandum).

Associate Judge Sussock