Pumpkin Patch Limited (in receivership and Administration)
[2017] NZHC 228
•22 February 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2016-404-2957 [2017] NZHC 228
UNDER Part 19 of the High Court Rules and Part
15A of the Companies Act 1993
IN THE MATTER OF
PUMPKIN PATCH LIMITED (In Receivership and Administrators Appointed)
TORQUAY ENTERPRISES LIMITED (In Receivership and Administrators Appointed)
PUMPKIN PATCH DIRECT LIMITED (In Receivership and Administrators Appointed)
PATCH KIDS LIMITED (In Receivership and Administrators Appointed)
Hearing: (on the papers) Counsel:
J C Caird and J S Learner for Applicants
Judgment:
22 February 2017
JUDGMENT (NO. 2) OF HEATH J
This judgment was delivered by me on 22 February 2017 at 9.30am pursuant to
Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Simpson Grierson, Auckland
Re Pumpkin Patch Ltd [2017] NZHC 228 [22 February 2017]
The application
[1] Administrators of a number of companies of (what has been called) the
Pumpkin Patch Group1 (the Group) have applied on a without notice basis for orders:
(a) Permitting them to be appointed as either liquidators or deed administrators of each of the companies in administration, and
(b)Varying the terms on which notice of the orders should be given to each known creditor, if creditors are asked to consider a Deed of Company Arrangement (DOCA) at forthcoming watershed meetings, to be held under s 239AJ(b) of the Companies Act 1993 (the Act).
[2] I am satisfied that the applications are properly made without notice. The orders sought include a provision entitling any interested person to apply to discharge any of them, if necessary. In that situation, I shall grant leave for the application to be made without notice.
Background
[3] Pumpkin Patch Ltd, Pumpkin Patch Originals Ltd, Torquay Enterprises Ltd, Pumpkin Patch Direct Ltd and Patch Kids Ltd were each put into voluntary administration on 26 October 2016. The previous day, Duffy J had made an order entitling the proposed administrators, Messrs Grenfell and McElhinney, to be appointed notwithstanding that their firm had a prior and continuing business relationship with the companies’ major secured creditor.
[4] Following a resolution of the board of directors of each company, Messrs Grenfell and McElhinney (both of whom are based in Auckland) were appointed as joint and several administrators of each of the five companies. Mr Hayes, who is based in Sydney, was also appointed as a joint and several administrator in respect of Pumpkin Patch Originals Ltd. That company operates in both New Zealand and Australia.
[5] On the same day that administrators were appointed, 26 October 2016, Messrs Jackson and Gibson were appointed by ANZ Bank New Zealand Ltd and/or Australia and New Zealand Banking Group Ltd (ANZ) as joint and several receivers and managers of each of the companies.
[6] In respect of the five companies in administration:
(a) Pumpkin Patch Ltd is the parent company. It is the ultimate beneficial owner of shares in the remaining companies. While listed on the New Zealand Stock Exchange, trading in its shares was suspended following the appointment of administrators.
(b) Pumpkin Patch Originals Ltd is the main trading company in New
Zealand and Australia.
(c) Torquay Enterprises Ltd owns the intellectual property for the
Pumpkin Patch Group.
(d) Pumpkin Patch Direct Ltd operates the Group’s on-line business.
(e) Patch Kids Ltd is the holding company for entities involved in the Group’s business in the United States. It has two subsidiary companies based in that jurisdiction: Pumpkin Patch LLC and Pumpkin Patch Wholesale LLC.
Permission to be appointed as liquidators or deed administrators
[7] One of the administrators, Mr Grenfell, has deposed that the administration of each company will probably come to an end following the watershed meetings2 to be held for each company on 7 March 2017. At those meetings, the creditors of each company will vote on whether:
(a) The company should be returned to the control of its board of directors, or
(b) The company should be placed into liquidation, or
(c) A DOCA should be adopted.
[8] At this stage, the most likely outcome is that each company will be placed in liquidation. While it is unlikely that a DOCA will be put to the meeting, Mr Grenfell does not, even at this late stage, wish to exclude that possibility.
[9] As previously indicated, Duffy J made an order on 25 October 2016 entitling Messrs Grenfell and McElhinney to be appointed as administrators notwithstanding their firm’s prior and continuing business relationship with the companies’ major secured creditor.3 A similar order was made in respect of Mr Hayes, for Pumpkin Patch Originals Ltd.
[10] The applicable test in determining whether to grant permission to permit a person to be appointed as an administrator is the same as that applied in respect of someone proposed as a liquidator or a deed administrator for a DOCA. The need for Court permission arises out of s 280(1)(cb) of the Act, which states:
280 Qualifications of liquidators
(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 2 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 the 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 registration:
….
(Emphasis added)
[11] Section 239ABY of the Act provides that the administrator will become the liquidator by default in the circumstances it describes:
239ABY Former administrator is default liquidator
In the case of the appointment of a liquidator to a company in administration by the creditors, the former administrator is the liquidator if—
(a) the creditors’ resolution does not nominate a person for appointment;
or
(b) the person nominated is disqualified from acting as the liquidator or has not consented in writing; or
(c) the person nominated is for any other reason unable or unwilling to act as liquidator.
[12] Section 239ABY(b) operates to require permission under s 280(1)(cb). Otherwise, the default liquidator has the same problem as to qualification, if a “continuing business relationship” were to exist.
[13] Similarly, the administrator becomes a deed administrator by default if the creditors do not appoint someone else to fulfil that role.4 A similar provision applies in respect of appointment of a deed administrator. Section 239ACD(2) provides:
239ACD Who may be appointed deed administrator
…
(2) Unless the court orders otherwise, a person is disqualified from appointment as a deed administrator if that person is—
(a) disqualified under section 280(1) from acting as a liquidator of the company; or
(b) prohibited from being a deed administrator by an order made under section 239ADV.
[14] I am satisfied that the nature of the continuing business relationship between the administrators’ firm, McGrathNicol, and the secured creditor of each company, ANZ, is not sufficient to disqualify the existing administrators from acting in the role of either liquidators or deed administrators. There is nothing in the evidence provided by Mr Grenfell to suggest any meaningful conflict of interest might exist. To the extent that I may not be aware of any other relevant factors, an ability for any affected person to apply to discharge this order will protect creditors.
[15] I take a similar view with regard to Mr Grenfell’s current role as a receiver of one of the creditors of Pumpkin Patch Originals Ltd, Volapuk Design International Ltd. Its debt amounts to less than 0.5% of Pumpkin Patch Originals Ltd’s unsecured debt. Although there is a theoretical conflict, there is no indication that any problem arising out of a conflict of loyalty will emerge. Again, the ability for someone to apply to discharge the order protects creditors.
[16] In any event, should any unexpected matters of a material nature arise, I would expect the responsible professionals who are involved in these administrations to resign, or to seek further directions from the Court. I am confident they would do so.
Directions as to service
[17] In my judgment of 18 November 2016, on an application to extend the period within which watershed meetings could be held,5 I expressed some views about the approach to be taken to service of documents in the context of administrations of this magnitude.
[18] My observations were made in the context of the service requirements set out in s 239AU of the Act (in respect of watershed meetings) but they apply equally to service requirements involving notice of execution of a DOCA, under s 239ADY of the Act. Sections 239AU and 239ADY provide:
239AU Notice of watershed meeting
(1) The administrator must convene the watershed meeting by—
(a) giving written notice of the meeting to as many of the
company’s creditors as reasonably practicable; and
(b) advertising the meeting in accordance with section 3(1)(b). (2) The administrator must take the steps in subsection (1) not less than 5
working days before the meeting.
(3) The following documents must accompany the notice of the watershed
meeting that is sent to the company’s creditors:
(a) a report by the administrator about—
5 Re Pumpkin Patch Ltd [2016] NZHC 2771.
(i) the company’s business, property, affairs, and
financial circumstances; and
(ii) any other matter material to the creditors’ decisions
to be considered at the meeting; and
(b) a statement setting out the administrator’s opinion, with
reasons for that opinion, about each of the following matters:
(i) whether it would be in the creditors’ interests for the company to execute a deed of company arrangement:
(ii) whether it would be in the creditors’ interests for the
administration to end:
(iii) whether it would be in the creditors’ interests for the
company to be placed in liquidation; and
(c) if a deed of company arrangement is proposed, a statement setting out the details of the proposed deed.
239ADY Deed administrator must give notice of execution of deed of company arrangement
As soon as practicable after a deed of company arrangement is executed, the deed administrator must—
(a) send to each creditor a written notice of the execution of the deed;
and
(b) advertise the execution of the deed in accordance with section
3(1)(b); and
(c) file a copy of the deed with the Registrar.
[19] In my judgment of 18 November 2016, I said:6
[25] In my view, the Court’s approach to this issue should be guided by the need to achieve an outcome that accords with the overall objectives of the voluntary administration regime. Viewed in that way, the question becomes: what is the best method by which the accompanying documents can be provided to ensure creditors have an adequate opportunity to consider them before the meeting? The purpose of providing the accompanying documents is to enable creditors to consider the content and to make an informed decision on the important questions to be debated at such a meeting. That means that, when exercising the discretion, the Court’s focus is on promotion of the interests of creditors and ensuring that the objectives of Part 15A are met.
[26] Contrary to what may have been assumed in other cases, s 239AU(3)
does not prescribe any particular method by which notice should be sent to
6 Ibid, at paras [25]–[28] (footnotes omitted).
the company’s creditors. For present purposes, the relevant concepts are those of “written notice” of the meeting and the need to “send” the accompanying documents to the creditors.
[27] The requirements of s 239AU must be read in the context of the Electronic Transactions Act 2002. That statute provides that a legal requirement that information be in writing is met by information that is in electronic form if the information is readily accessible so as to be usable for subsequent reference. Further, a legal requirement to give information in writing is met by giving the information in electronic form, whether by means of an electronic communication or otherwise, if the information is readily accessible so as to be usable for subsequent reference; and the person to whom the information is required to be given consents to the information being given in electronic form and by means of an electronic communication, if applicable. That rule applies even if that information is required to be given in a specified manner; for example, by sending, serving, delivering, lodging, or posting it.
[28] Those provisions of the Electronic Transactions Act create default rules to apply to situations in which private individuals or companies are dealing with each other. That is the reason why “consent” is needed before a legal requirement that information be given in writing will be met through the use of electronic means. If consent were available, the notice requirements of s 239AU could be met by electronic means without the need for a Court order. An order from the Court enables notice to be given in such alternative manner as may be directed, whether by electronic means or otherwise. The issue will always be whether the order sought promotes the interests of creditors and is consistent with the objectives of Part 15A.
[20] It may not be necessary for notice to be given under s 239ADY. That depends on whether a DOCA is executed. Nevertheless, I am satisfied that it is appropriate to make an order. The existence of an order enables the administrators to comply with the statutory requirements at short notice, if necessary.
Result
[21] For those reasons, I make the following orders:
(a) Leave is granted for the applications to be made on a without notice basis;
(b) Under ss 239ACD of the Companies Act 1993:
(i)Andrew John Grenfell (the first named applicant) and Conor John McElhinney (the second named applicant) may be appointed to act as liquidators or deed administrators of
Pumpkin Patch Limited (In Receivership and Administrators Appointed), Pumpkin Patch Originals Limited (In Receivership and Administrators Appointed), Torquay Enterprises Limited (In Receivership and Administrators Appointed), Pumpkin Patch Direct (In Receivership and Administrators Appointed) and Patch Kids Limited (In Receivership and Administrators Appointed), if appointed as such at a watershed meeting of creditors in the administrations of the companies; and
(ii)Joseph David Hayes (the third named applicant) may be appointed to act as a liquidator or deed administrator of Pumpkin Patch Originals Ltd if appointed as such at a watershed meeting of creditors in the administration of Pumpkin Patch Originals Ltd;
(c) Under s 239ADO of the Companies Act, if Messrs Grenfell and McElhinney are appointed as deed administrators of Pumpkin Patch Ltd or Pumpkin Patch Originals Ltd and Mr Hayes is appointed as deed administrator of Pumpkin Patch Originals Ltd at the watershed meeting of creditors, the requirements under s 239ADY(a) relating to notice to creditors of the execution of the deed of company arrangements (DOCA notice) be varied so that the DOCA notice is to be provided to creditors of Pumpkin Patch Ltd and/or Pumpkin Patch Originals Ltd by:
(i) Uploading and publishing the DOCA notice on the applicants’
website and
(ii)Emailing a copy of the DOCA notice to the creditor’s email address by which the companies normally communicate with that creditor; or
(iii)Where an email address is not known, or at the creditor’s request, by posting a copy of the DOCA notice to the physical address by which the companies normally communicate with that creditor;
(d)Notice of the orders is to be given to each known creditor of the companies by;
(i)posting copies of the orders on the applicants’ website respect of Pumpkin Patch Ltd and Pumpkin Patch Originals
Ltd:
1. emailing a copy of the orders to the creditors’ committees
of Pumpkin Patch Ltd and Pumpkin Patch Originals Ltd;
2. when sending creditors notice of the watershed meetings:
a. referring creditors to the website to obtain a copy of the orders; and
b.advising that copies of the orders can be sent to creditors by email or post upon request to the applicants.
(iii)In respect of Torquay, Pumpkin Patch Direct and Patch Kids, by emailing a copy of the orders to the sole creditor of each company;
(e) Leave is granted to any person who can demonstrate a sufficient interest to apply or modify or discharge these orders on appropriate notice being given to the applicants; and
(f) Leave is reserved to the applicants to apply further in respect of any ancillary issues arising out of the orders made.
[22] I thank counsel for their helpful submissions.
P R Heath J
Delivered at 9.30am on 22 February 2017
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