Rahman v Shephard
[2025] NZHC 1452
•5 June 2025
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2025-485-146
CIV-2024-485-629 [2025] NZHC 1452
UNDER Part 15A of the Companies Act 1993 IN THE MATTER
of the voluntary administrations of Wellington Combined Taxis Ltd (administrators appointed), Combined
Finance Ltd (administrators appointed) and Wellington Combined Properties Ltd (administrators appointed)
BETWEEN
AZAD RAHMAN
First Applicant
KRISHNA SAMY GOUNDAR
Second ApplicantRAJESHWAR SINGH
Third ApplicantCHELVAKHANTHAN KRPILLAI
Fourth ApplicantAND
IAIN SHEPHARD and JESSICA KELLOW
Respondents
Hearing: 23 May 2025 Appearances:
D P MacKenzie for Applicants
D Kalderimis KC, C T Jolliffe for Respondents J Marcetic for Interested Parties
Judgment:
5 June 2025
JUDGMENT OF BOLDT J
RAHMAN v SHEPHARD [2025] NZHC 1452 [5 June 2025]
TABLE OF CONTENTS
Introduction [1]
The applications [10]
The parties [11]
The companies [15]
Scope of argument [19]
Should the administration be terminated? [22]
WCT’s assets and solvency [26]
Companies Act 1993 Part 15A [34]
Termination of the administration [44]
How should the watershed meeting be conducted? [61]
Should shareholders have a say at the watershed meeting? [79]
Drivers as trade creditors [85]
Proxies [92]
Conclusion [98]
Costs [104]
Introduction
[1] Wellington Combined Taxis Limited (WCT) is an iconic Wellington taxi firm. It has provided a consistently high-quality taxi service in the region since its incorporation in 1993.
[2] WCT is a co-operative; it does not own taxis or employ drivers. Rather, the company, at least as originally envisaged, was made up of shareholders who also worked in the business. Drivers are independent operators who either drive their own WCT-branded taxi, or who lease the right to drive from a WCT shareholder. Drivers
pay monthly levies to WCT, which fund the company’s dispatch and communications systems, along with things like marketing, branding and administration.
[3] Today, WCT’s board and shareholders are embroiled in a bitter and apparently-intractable dispute. WCT, like many traditional taxi companies, has seen a significant downturn in custom in recent years. There are several reasons for that, including the COVID-19 pandemic, from which the company never completely bounced back, the growth of ride-share operators like Uber and a general downturn in the Wellington economy. The number of individual rides in WCT taxis has fallen by over 50 per cent in the last five years, from more than 1.2 million in 2019 to fewer than 600,000 last year.
[4] WCT’s accumulated losses for the five years ending 31 March 2024 were almost $3 million. In the 2023–24 financial year alone, its operating loss, before revaluation of assets, was $861,601. In September 2024 there were just under 500 ordinary shares in the company, but due to the steady decline in demand more than 150 of those shares now lie dormant. The holders of dormant or non-operational shares neither drive a WCT taxi, nor do they lease the right to “drive the share” to another driver.
[5] Many driver-shareholders are deeply unhappy with the performance of WCT’s board. Those shareholders blame the board for the company’s financial state. A central feature of their dissatisfaction was a decision by the board, in September 2020, to reduce the levies payable by holders of non-operational shares by almost 90 per cent (the differential levy policy).1
[6] In October 2023, Associate Judge Skelton granted leave to a group of driver-shareholders to bring a derivative action, on behalf of WCT, against six of the company’s directors.2 The nub of the derivative action is the board’s decision to approve the differential levy policy. The decision led to a financial benefit for holders of non-operational shares, but a reduction in income for the company.
1 When first implemented the new policy saw the holders of “active” shares paying $370 per month to the company, while the holders of non-operational shares paid only $40.
2 Roe v Wellington Combined Taxis Limited [2023] NZHC 2756.
[7] Five of the six directors responsible for the differential levy policy own more than one non-operational share; indeed, three of the directors own more than 20 non-operational shares each, while another owns eight. Some driver-shareholders have accused the directors of making the decision in their own interests, rather than in the wider interests of the company. On 5 September 2024 the Court of Appeal dismissed WCT’s appeal against Associate Judge Skelton’s decision that the company should meet the reasonable costs of the derivative action.3
[8] Just under three weeks later, on 24 September 2024, the board resolved to place WCT in voluntary administration. That decision was extremely controversial. In this Court, a group of driver-shareholders allege the derivative action, and the directors’ concern for their personal financial positions, were the real reasons they decided to appoint administrators.
[9] WCT has now been in voluntary administration for more than eight months. In September 2024 the incoming administrators, Mr Iain Shephard and Ms Jessica Kellow of BDO, reported that the company was on the brink of insolvency. Their assessment has not changed in the months since.
The applications
[10] The applications before the Court span two proceedings. The administrators filed the “-629 proceeding” in 2024. They seek directions about the conduct of the administration and the forthcoming watershed meeting, including a novel direction that resolutions at the watershed meeting will not bind the company unless they are approved by WCT’s creditors and its shareholders. The second, the “- 146 proceeding”, is an application by Mr Azad Rahman and three other driver-shareholders. They seek the immediate termination of the administration. If that application is unsuccessful, they seek their own set of directions for the watershed meeting.
3 Wellington Combined Taxis Limited v Roe [2024] NZCA 413.
The parties
[11] The parties are divided into three groups. The first, the administrators, are the applicants in the -629 proceedings and the respondents in the -146 proceedings. They contend the company was properly placed in voluntary administration and strongly oppose the driver-shareholders’ application, in the -146 proceeding, for the administration to be terminated. The administrators favour a deed of company arrangement (DOCA) which would result in the sale of WCT’s assets to Auckland Cooperative Taxi Society Ltd (ACT). It appears, if that occurs, that ACT would offer contracts to many WCT drivers to drive as franchisees.
[12] The second group, the applicants in the -146 proceeding, is led by Mr Rahman. His group comprises four shareholder-drivers. They contend WCT should not have been placed in voluntary administration, that it is not insolvent, and that the board (along with the considerable expense associated with the administration itself) is responsible for WCT’s current financial position. They have obtained a promise of new finance for the company, which they say will address WCT’s short-term liquidity problems.
[13] In the event I dismiss his application for an order terminating the administration, Mr Rahman seeks a series of other orders regarding the watershed meeting.4 For present purposes, it is sufficient to note that Mr Rahman opposes the directions the administrators seek and the administrators oppose the directions Mr Rahman seeks.
[14] The third group of parties comprises WCT’s directors. Associate Judge Skelton granted them leave to intervene in both applications as interested parties, over Mr Rahman’s opposition. Mr Marcetic appeared and made submissions on their behalf, though their position is not materially different to that of the administrators. They agree with the administrators that WCT’s current financial position is desperate. They roundly reject the allegations Mr Rahman and his group have made against them. In particular, they reject the allegation that their personal
4 For the sake of simplicity, I refer only to Mr Rahman in this judgment, but he is before the Court alongside three other driver-shareholders, and represents the interests of many more.
financial positions played any part in their governance of the company, and they do not accept there was any element of self-interest in their decision to place the company in voluntary administration.
The companies
[15] Although I have referred only to WCT so far, the administration spans three closely-related companies, namely WCT, Wellington Combined Properties Ltd (WCP) and Combined Finance Ltd (CFL). WCT is the main operating company which receives levies from drivers and provides the infrastructure for the taxi service, including its dispatch systems. Under WCT’s constitution, only holders of a taxi driver’s licence may become shareholders. WCT is the sole shareholder of CFL and WCP.
[16] WCP owns property assets on behalf of the group, while CFL provides financial services to drivers arising from their use of the ‘Taxicharge’ service. WCT is a partner and shareholder in Taxicharge New Zealand Limited. Taxicharge provides a centralised billing service for taxi travel throughout New Zealand and offers other convenient ways for passengers and companies to pay for taxis, like vouchers and Taxicharge cards. CFL ensures WCT’s drivers are paid immediately for rides which use Taxicharge services, though it does not receive funds from Taxicharge for around a month.
[17] CFL and WCP were placed in administration alongside WCT. It is common ground that the outcome of the administration will affect the three companies equally, and the parties agree that if I do not terminate the administration the three watershed meetings should be held together.
[18] There is one area where the structure of the three companies assumes some importance. As I will discuss in more detail below, Mr Rahman argues that he and his fellow driver-shareholders should be recognised as creditors of CFL, and therefore as company creditors for the purposes of the watershed meeting.
Scope of argument
[19] As may already be apparent, the parties’ positions are entrenched and polarised. Each side’s submissions and evidence have been sprinkled with criticism of the other, and Mr Rahman has made serious allegations about the directors’ motivations when they placed WCT in administration. That said, for the purposes of the current applications how WCT came to find itself in financial difficulty, and in administration, is less important than what should happen next.
[20] One regrettable aspect of the mutual mistrust between the parties has been an attempt, on both sides, to limit the entitlement to participate in forthcoming decisions about WCT to those most likely to support their respective positions. As is discussed below, Mr Rahman’s attempt to characterise driver-shareholders as creditors for the purposes of the watershed meeting, if adopted, would comfortably enable them to defeat the administrators’ proposed sale to ACT. At the same time, he characterises as unprincipled, and contrary to the scheme of Part 15A of the Companies Act 1993 (the Act), the administrators’ proposal that resolutions at the watershed meeting should be the subject of a vote by all shareholders.
[21] Similarly, the administrators ask me to direct that more than 200 proxies from driver-shareholders which have been entrusted to Mr Rahman and his group should not be valid for the purposes of any shareholder vote at the watershed meeting. A direction that Mr Rahman must start collecting proxies from scratch in the short period before the watershed meeting would plainly make it more difficult for his position to prevail.
Should the administration be terminated?
[22] Voluntary administration is a relatively recent innovation in New Zealand company law. Administrations are governed by Part 15A of the Act, which came into effect in 2007. Section 239A sets out the objects of Part 15A, which are to provide for an insolvent company “or a company that may in the future become insolvent” to be administered in a way that maximises its chances of continuing in existence or, failing that, produces a better return for creditors and shareholders than would result from immediate liquidation.
[23] The phrase “may in future become insolvent” assumed particular importance in this case. While Mr Rahman accused the directors of “engineering a liquidity crisis”, with a view to WCT being placed in administration and sold, the directors say the company was on the verge of insolvency in September 2024. The board had engaged BDO to investigate its financial position and to provide independent advice. The minute of the meeting of the WCT Board on 20 September 2024 recorded Ms Kellow’s observations:
JESSICA KELLOW – BRIEFING
Have provided letter of advice, based on available information. Situation is complex and difficult for directors.
Two issues:
Viability now. Group has significant cashflow challenges. Likely only 3-4 weeks at most to make decisions before insolvency. Does not get any better.
Coupled with litigation — cost to WCT group. Litigation seemingly not going away anytime soon.
Even if no litigation/costs, WCT still has need for very careful management. Steady decline in assets due to losses. Phase 1 restructure, Runway to restructure any further has run out. Won’t get any/sufficient benefits in available time.
[24] The minutes record that Ms Kellow summarised her advice in the following way:
Administration gives company a short space to find solution as opposed to advancing further to insolvency or liquidation now.
[25] In light of Ms Kellow’s advice, the board unanimously voted to put the company in voluntary administration.
WCT’s assets and solvency
[26] In this Court Mr MacKenzie described the administration as “improper from the outset”, and asserted it was “aided, unfortunately, by ill-considered advice from the administrators prior to their appointment”. His principal submission is that WCT was not insolvent in September 2024 and is at no immediate risk of insolvency today, at least as that term is used in the Act.
[27] The company has a strong balance sheet. Among other things it owns an investment property valued at more than $1 million, which was always intended as a rainy-day asset. Mr John Scutter, an experienced insolvency practitioner, swore an affidavit on behalf of Mr Rahman. He observed that on 31 March 2024 WCT had equity of $6,786,031. Its debts, not including the as-yet-unbilled costs of the administration, were around $870,000.
[28] Mr MacKenzie submitted the appropriate course for a company that is asset-rich but suffers from cashflow difficulties is to have recourse to its assets, either as security for further borrowing, or to pay existing debt. Mr Rahman and his colleagues lay WCT’s current difficulties entirely at the feet of the board. They say that if the board were replaced and the differential levy policy were reversed, the company would have every chance of trading its way out of difficulty.
[29] Importantly, an Auckland businessman, Mr Robert van Heiningen, through a company called Mountain Dog Day Limited, has offered to provide fresh funding to WCT. In an updated affidavit filed after the hearing, Mr van Heiningen increased the sum Mountain Dog Day Limited is prepared to advance WCT to $1.5 million, which is more than enough to clear its current debts.
[30] The administrators, supported by the directors, reject that analysis. Despite the WCT’s non-liquid asset base, they say it is on the brink of insolvency. With Mr MacKenzie’s consent, Ms Kellow gave evidence before me and was cross-examined.
[31] Ms Kellow gave evidence that on 21 May 2025, two days before the current applications were argued, WCT’s finance manager messaged her to say that payments due that week would breach the company’s overdraft limit. The administrators were faced with the choice of an immediate cessation of trading, or approaching the company’s bank, Bank of New Zealand (BNZ), for more headroom.
[32] On the morning of 23 May, while the applications were being argued, BNZ agreed to extend the company’s overdraft by $200,000. A condition of the extra headroom is that the overdraft, which currently stands at around $600,000, must be
repaid in full when the administration ends. WCT’s other major creditor is the Ministry of Social Development (MSD), which is owed around $72,000. WCT is also liable for staff retention bonuses of between $100–$120,000, and faces pressing issues with its IT systems, which will shortly require a substantial upgrade costing around
$300,000. In addition, Ms Kellow gave evidence that she and Mr Shephard, as administrators, have unbilled fees of around $470,000 for their work at WCT this year.
[33] Ms Kellow rejected the suggestion that the company’s assets could be used to secure an additional line of credit. She gave evidence that Mr Rahman’s group had explored various refinancing options with first and second-tier lenders earlier this year and that none were prepared to advance funds to WCT in light of its ongoing cashflow shortfall. At the time of the hearing, Mountain Dog Day Limited proposed to lend
$1 million to WCT, repayable in two years. The loan would carry an ordinary interest rate of 11.9 per cent per annum and a penalty rate of 18.9 per cent.5 Ms Kellow gave evidence that an injection of $1 million would not cover the company’s existing debts although, as noted, since the hearing Mr van Heiningen has pledged to increase the loan to $1.5 million, with the final $500,000 repayable in three years rather than two.
Companies Act 1993 Part 15A
[34] The parties disagree fundamentally about whether WCT is insolvent. Indeed, they disagree fundamentally about what insolvency means in the context of Part 15A of the Act. An examination of the voluntary administration regime, and the caselaw decided under it to date, provides context for the competing positions.
[35] Justice Katz’s decision in Cargill International SA v Solid Energy New Zealand Limited is a helpful starting point. She observed:6
[19] Part 15A fills a gap that previously existed in New Zealand’s corporate insolvency framework. It provides broader protection and greater flexibility to companies wishing to consider corporate rescue as an alternative to immediate liquidation. Voluntary administration is a different concept to liquidation under Part 16 of the Act, which is designed simply to realise and distribute a company’s assets. As Sir Roy Goode explains:
5 The current interest rate on the BNZ overdraft is 8.65 per cent.
6 Cargill International SA v Solid Energy New Zealand Ltd [2016] NZHC 1817 at [19]. Footnotes omitted.
The primary objective of administration is not to bury the company forthwith but to restore it to profitable trading where possible and, in the event that liquidation becomes unavoidable (as is usually the case), to deal with the business or assets in such a way as to produce better dividends for creditors than if the company had gone into winding up from the outset.
[36] An administrator may be appointed by a company’s board provided the directors are of the opinion the company is insolvent or may become insolvent.7 As Katz J observed in Cargill, administration is intended to be a relatively short-term measure which freezes the company’s financial position while the administrator and creditors determine its future.8 The administrator takes control of the company and investigates its affairs. The administrator must form an opinion about whether it would be in the creditors’ interest for the company to enter into a DOCA, for the administration to end, or for a liquidator to be appointed.9
[37] A DOCA is a document which sets out how the company is to pay its debts. In some cases that may include some form of compromise with creditors, but in the present case there is no doubt, whatever happens, that the creditors will be repaid in full. A DOCA may require the sale of some or all of the company’s assets.
[38] The administrator’s opinion is reported to creditors, initially at a first creditors’ meeting and later at a watershed meeting. The administrator must outline the options available to creditors, give an opinion on each and recommend which option will be in their best interests. Timeframes are usually tight — the Act provides that the “administrator must convene the watershed meeting within the convening period”.10 The convening period comprises the 20 working days after the administrator was appointed.11 That said, s 239AT(3) permits the Court, on the administrator’s application, to extend the convening period, and in the present case the convening period has been extended a number of times. At the time the applications were argued, the convening period ended on 6 June 2025. The watershed meeting must be held within five working days of that date.12
7 Companies Act 1993, s 239I(1).
8 Cargill International v Solid Energy, above n 6, at [14].
9 Companies Act, s 239AE.
10 Section 239AT(1).
11 Section 239AT(2).
12 Section 239AU(2).
[39] A particular strength of Part 15A is the flexibility it affords administrators and creditors to craft a bespoke deed which best suits the needs of the company. As Katz J observed in Cargill:13
[26] Part 15A affords creditors considerable flexibility, as it prescribes only basic minimum content requirements for a deed of company arrangement. The Companies (Voluntary Administration) Regulations 2007 (“VA Regulations”) provide default provisions, including relating to deed administrators and to creditors’ committees, but these are not mandatory and may be excluded by the terms of a deed of company arrangement. Unique deeds of company arrangement can accordingly be developed, tailored to the particular circumstances of a troubled company, within certain broad legislative parameters but otherwise restricted only by the wishes of the creditors and the ingenuity of drafters. The flexibility inherent in Part 15A is, however, balanced against the Court’s power to intervene to prevent unfair prejudice to dissentient creditors bound by a deed of company arrangement.
[40] The Court’s power to tailor the administration to the circumstances of the company is not confined to the contents of any DOCA which might be presented to creditors. Section 239ADO provides:
239ADO Court’s general power
(1)The court may make any order that it thinks appropriate about how this Part is to operate in relation to a particular company.
(2)For example, the court may terminate the administration under subsection (1) if the court is satisfied that the administration should end—
(a)because the company is solvent; or
(b)because the provisions of this Part are being abused; or
(c)for some other reason.
(3)The court’s order may be made subject to conditions.
(4)The court may make an order under this section on the application of—
(a)the company or a shareholder of the company; or
(b)a creditor of the company; or
(c)the administrator; or
(d)the deed administrator; or
13 Cargill International v Solid Energy, above n 6, at [26]. Footnotes omitted.
(da)the FMA (if the company is a financial markets participant); or
(e)the Registrar; or
(f)any other interested person.
[41] Section 239ADO mirrors s 447A of Australia’s Corporations Act 2001 (Cth). Its breadth and flexibility were discussed by the High Court of Australia in Australian Memory Pty Ltd v Brien.14 The High Court confirmed s 447A empowered the court to alter the way other provisions in Part 5.3A (the Australian equivalent of Part 15A) operate in a particular case. The Court observed:
[24] Whatever may be said of the relationship between s 1322 and the provisions of Pt 5.3A generally, or of the relationship between s 1322 and s 447A in particular, s 447A is not properly described as a general power standing apart from the scheme found in Pt 5.3A. Section 447A is an integral part of the legislative scheme provided for by Pt 5.3A. In its terms, it enables the making of orders which alter the way in which “this Part is to operate in relation to a particular company”. That is, it permits the making of orders which would alter how s 439A is to apply. It is not right to seek to characterise s 447A as some general source of power to which resort cannot be had because to do so would “circumvent” the statutory limitations upon the exercise of the power that is given by s 439A(6) to extend the convening period. So to characterise s 447A is to give to all of the other provisions of Pt 5.3A a fixed and unchanging operation in relation to all companies. Yet the evident legislative intention of s 447A is to permit alterations to the way in which Pt 5.3A is to operate.
[42] Like other procedures which govern companies that encounter financial difficulty, Part 15A is designed to secure the best available outcome for creditors, who may otherwise be at risk if no steps are taken to rescue a distressed company. But given the threshold for administration may be as low as an apprehension the company “may become insolvent”, it is clear the Act contemplates administrations where creditors are at no immediate risk. Administration may be a prudent step for a solvent company which risks insolvency in the foreseeable future unless something is done to put it on a more secure footing.
[43] In the case of a solvent company which is responsibly seeking to avoid insolvency in the future, the case for allowing decisions about its future to be made by creditors, rather than shareholders, is considerably weakened. In the present case, for
14 Australian Memory Pty Ltd v Brien (2000) 200 CLR 270.
example, WCT’s principal creditors are BNZ and MSD. Even if worst came to worst, and the company were placed in liquidation, the company’s strong asset base means there is no risk of creditors going unpaid in the long run. It follows that this voluntary administration is different from others that have been considered by the courts.
Termination of the administration
[44] The parties have responded in different ways to the fact WCT has a strong balance sheet but ongoing difficulties with cashflow. In recognition of the fact creditors are in no immediate jeopardy, the administrators seek orders designed to ensure the ultimate decision about the next steps for the company rests with WCT’s shareholders, rather than with the creditors.
[45] Mr Rahman, by contrast, argues that WCT’s strong net asset position demonstrates it should not have been placed in administration in the first place. Given creditors are not at risk, he seeks an order under s 239ADO(2)(a) terminating the administration on the basis the company is solvent.
[46] Mr Rahman’s application to terminate the administration led to a lengthy debate among counsel about the meaning of the word “solvent” in Part 15A. Section 239C of the Act provides that insolvent, in relation to a company, means that the company is unable to pay its debts. The parties disagreed as to whether a cashflow crisis in an asset-rich company, which might ultimately be remedied by selling or leveraging non-core assets, is sufficient to qualify.
[47]In Madsen-Ries v Cooper (Debut Homes) the Supreme Court observed:15
[33] The importance of solvency is highlighted in the Companies Act itself, outside of the context of directors’ duties. The 1993 Act introduced an expanded solvency test, which the Law Commission in its 1989 report considered to be “one of the pivotal provisions in the Act…designed as a substantial protection for creditors”. The Act requires the solvency test to be met when certain transactions are entered by a company.
[34] The solvency test, detailed in s 4 of the Act, has two limbs that both must be satisfied: the liquidity limb (s 4(1)(a)) and the balance sheet limb (s 4(1)(b)). The focus of the liquidity limb is that the company is able to pay its debts as they fall due, in the normal course of business. The balance sheet
15 Madsen-Ries v Cooper [2020] NZSC 100, [2021] 1 NZLR 43. Footnotes omitted.
limb was introduced into New Zealand company legislation in 1993. This limb is satisfied if the value of a company’s assets is greater than the value of its liabilities, including contingent liabilities.
[48] While there can be no doubt WCT satisfies the balance sheet limb of the solvency test, the liquidity limb is more problematic. WCT has not defaulted on any of its obligations to date and, thanks to the headroom recently afforded by BNZ, currently has sufficient liquidity to continue paying its debts in the immediate future. That said, it is plain its ability to pay its debts as they fall due, in the normal course of business, is an increasingly close-run thing.
[49] Mr MacKenzie urged me to take a pragmatic approach to the question of WCT’s solvency. He drew my attention to the very recent decision of Nixon J in the Supreme Court of New South Wales in Keybridge Capital Ltd (No 2).16 Keybridge was a case under s 447A of the Corporations Act. Justice Nixon held that, for the purpose of a regime like the Part 15A (or its Australian equivalent) a broad inquiry into the company’s financial position is required. He observed:17
[35] Whether a company is able to pay its debts as and when they fall due and payable is a question of fact to be determined objectively and without hindsight in all the circumstances, including the nature of the company’s assets and business, and the Court will have regard to commercial realities in that regard…
[36] A company may at the same time be insolvent and wealthy; it may have its assets locked up in investments not presently realisable but not have the assets available to it to meet its current liabilities…
[37] In assessing a company’s capacity to pay its debts, the Court should have regard to all of the assets of the company as at the relevant time in order to determine the extent to which those assets were liquid or realisable within a timeframe that would allow each of the debts to be paid as and when they became due. Apart from an assessment of the company’s own assets, regard can also properly be had to funds which the company can borrow, on a secured or unsecured basis, or otherwise obtain from lenders or shareholders and which are, as a matter of commercial reality, available to the company to enable its debts to be paid. The case law recognises that, in determining a company’s solvency, the Court may have regard to the likelihood that it will have funds available to it from sources with which it has no formalised agreement or understanding, including loans from its directors or from third parties, at least if they are not repayable in the short term, and the company’s ability to borrow funds can also be taken into account…
16 Keybridge Capital Limited (No 2) [2025] NSWSC 354.
17 Internal citations omitted.
[38] In considering the company’s financial position as a whole, the Court must have regard to commercial realities. Commercial realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable:
…
[50] Adopting Nixon J’s approach, Mr MacKenzie argued WCT is not, and has never been, insolvent. He submitted the commercial reality of the present case is that WCT has assets available to secure further lending, and Mr van Heiningen’s offer to lend to company $1.5 million is waiting in the wings. He argued that a pragmatic analysis of the company’s position indicates it is at no risk of being unable to pay its debts and that the administration, which he characterised as ill-considered from the outset, should be brought to an immediate end.
[51] I do not accept that submission. Regardless of WCT’s history and the directors’ motivation for their decision to place the company in administration, s 239ADO requires me to determine whether (a) the company is solvent today and (b) whether, if so, I am satisfied the administration should end.
[52] I agree it is appropriate to undertake a broad inquiry into WCT’s financial position. The approach described by Nixon J in Keybridge is consistent with the way New Zealand courts have approached questions of solvency over the years. For example, in Blanchett v Joinery Direct Ltd, Associate Judge Faire observed:18
The issue of a company’s solvency requires a consideration of the company’s financial position in its entirety. A temporary lack of liquidity does not necessarily evidence insolvency. For that reason, a consideration of the debtor’s position over a period of time is required.
[53] Similarly, in David Browne Contractors v Petterson the Supreme Court observed:19
[90] … As was said in Re Cheyne Finance Plc (No 2), the issue of “how far into the future the inquiry as to present solvency is to go ... is a fact sensitive question depending upon the nature of the company’s business and if known, of its future liabilities.”20 Concentrating only on debts due at the relevant time could fail to distinguish between those companies suffering a
18 Blanchett v Joinery Direct Ltd HC Hamilton CIV-29007-419-1690, 23 December 2008 at [27](f).
19 David Browne Contractors v Petterson [2017] NZSC 116, [2018] 1 NZLR 112.
20 Re Cheyne Finance Plc (No 2) [2007] EWCA 2402, [2008] 2 All ER 987 (Ch) at [50].
temporary liquidity problem and those that are, on any commercial view, insolvent even though able to continue to pay their debts “for the next few days, weeks or even months before an inevitable failure”.21
[54] I do not agree that WCT is a fundamentally solvent company beset by temporary cashflow difficulties. That submission may have been sustainable if the deterioration in the company’s position had been sudden, or could be attributed to identifiable factors which a change in management could correct over time.
[55] I make no comment about the subject-matter of the derivative action, except to note that the differential levy policy was intensely controversial when it was adopted. As Associate Judge Skelton observed, it is reasonably arguable that in implementing that policy the directors breached a number of duties to which they were subject.22 That policy undoubtedly contributed to the decline in WCT’s revenue since 2020. At the same time, I am also satisfied that the causes of WCT’s current distress run far deeper.
[56] The fundamental difficulty WCT faces is the steady decline in demand for its services. In 2019, despite the growth of ride-sharing apps, WCT had an “overall job count” of 1,220,012. In 2024, that number had fallen to 591,788. The differential levy policy, as controversial as it was, would have been unnecessary if all the company’s shares were operational. While the way the directors responded to the growth in non-operational shareholdings has exposed them to the derivative action, the fact around a third of its shares lie dormant is itself a symptom of the company’s decline.
[57] Ms Kellow was cross examined about whether a change to WCT’s levy policy might address its cashflow difficulties. She said, and I accept, that an increase in shareholder levies would not necessarily be reflected in a sustainable increase in cashflow for the company. For active drivers, a material increase may make it even harder to earn a decent living from driving a taxi.
[58] For shareholders whose shares are not active, and who therefore earn no income from them, a reintroduction of large levies may well result in their walking
21 At [51].
22 Roe v Wellington Combined, above n 2, at [84], [111], [118] and [124].
away from WCT. The shares themselves are no longer especially valuable, having fallen in value from $50,000 a share in 2016 to only $2,000 a share in 2020, before the worst of the company’s current difficulties.
[59] Mr MacKenzie accused BDO of offering “ill-considered advice”, and “swallow[ing] whole” the advice it received from the board. I have carefully reviewed his criticisms. While I make no comment about the timing of the decision to place WCT in administration, I am satisfied, regardless of the immediate catalyst for the decision, that the company’s operations were not sustainable in the medium-term without significant changes. It has incurred substantial losses over several years and continues to threaten its overdraft limit.
[60] It follows I am satisfied administration was inevitable sooner or later. Moreover, it is difficult to criticise WCT for seeking specialist independent advice before it found itself unable to meet its liabilities as they fell due. Administration is designed to prevent insolvency, as well as to provide a mechanism to protect creditors when companies are unable to pay their debts. Considering WCT’s financial position as a whole, I am not satisfied, for the purposes of s 239ADO, that the company can satisfy the liquidity limb of the solvency test. In any event I am not satisfied the administration should end. Mr Rahman’s application for an order terminating the administration is dismissed.
How should the watershed meeting be conducted?
[61] The remaining questions concern the conduct of the watershed meeting. First, and to accommodate preparation of this judgment and the necessary communications and arrangements that will flow from it, I extend the convening period by three weeks. The convening period will now end on 27 June 2025.
[62] Subject to my direction that Mr Rahman and his associates must be given until 13 June to present any alternative DOCA to the administrators, the watershed meeting may be “convened” (by giving written notice of the meeting and placing advertisements in the Gazette and The Post) any time within the convening period.23
23 Companies Act, s 239AU(1).
The meeting must be held within five working days of the end of the convening period.24
[63] The parties disagree fundamentally about how the watershed meeting should be structured. By the time it is convened, it is likely that two competing DOCAs will be available for consideration. The first, advocated by the administrators, will involve the sale of the company’s assets to ACT. The administrators have already negotiated that sale, though the agreement is conditional upon the sale being ratified at the watershed meeting.
[64] Mr Rahman and his colleagues are strongly opposed to the company’s assets being sold. As already discussed, it appears ACT has offered some drivers the opportunity to continue driving in WCT-branded taxis as franchisees. Not all existing drivers have received offers from ACT; Mr Rahman deposes that he has not.
[65] The second DOCA is under preparation by Mr Rahman and his group. It will essentially involve WCT being returned to its shareholders and the election of a new board. Mr van Heiningen’s loan will be used to clear the company’s existing debts and to make the necessary investments in IT and other infrastructure. Mr Rahman envisages a modest increase in driver levies to increase revenue. He also expects a new board will end the differential levy policy; he deposes that “if the approximately 150 non-driver shareholders are charged an additional $460 per month, to bring them up to the current driver levy, that will generate additional monthly revenue of
$69,000”.
[66] Mr Rahman suggests WCT could seek to pursue monthly levy payments as a debt owed to the company if any shareholders try to walk away from their obligations. Mr Rahman’s proposal would see the company continue as a co-operative, owned by its current shareholders.
[67] The administrators propose an innovative amendment to the usual way a watershed meeting is conducted. Rather than leaving WCT’s fate in the hands of its creditors, who have no particular affinity with the company and are not at immediate
24 Section 239AV.
risk of going unpaid, the administrators seek a direction that the watershed meeting include votes on the proposed DOCAs by creditors and shareholders.
[68] The administrators seek a direction that any resolution of creditors at the watershed meeting must also be approved by a majority of WCT’s shareholders. Although Mr Rahman represents a large group of driver-shareholders, he is strongly opposed to that course, which would give the holders of operational and non-operational shares an equal say.
[69] I discussed the practicalities of the proposal with Mr Kalderimis KC, for the administrators. He agreed his proposal would effectively treat creditors and shareholders as two houses of Parliament. He was content that shareholders should vote first and that no resolution should be presented to creditors unless it has first received the approval of a majority of the company’s shareholders.
[70] Mr Kalderimis also argued that existing proxy votes Mr Rahman and his group have gathered, authorising Mr Rahman to vote on their behalf at shareholder meetings in the next twelve months, should be treated as invalid for the purpose of the shareholder vote at the watershed meeting.
[71] Mr Kalderimis submitted that if existing proxies are treated as valid, Mr Rahman will be in a position to cast a large number of votes without shareholders knowing how their votes will be cast, and without any opportunity to make an informed decision about the respective proposals. Mr Kalderimis noted that many drivers have signed provisional franchise agreements with ACT, indicating at least some support the new structure the administrators propose. Yet it appears many of the same drivers have given their proxies to Mr Rahman, who is implacably opposed to the sale.
[72] Mr MacKenzie proposes an entirely different approach. He does not agree shareholders should have any discrete role at the watershed meeting. He argues Part 15A contemplates watershed meetings as meetings only of creditors, and that it would be unprincipled to allow shareholders to have a say.
[73] At the same time, Mr MacKenzie contends that driver-shareholders like Mr Rahman and his colleagues should be recognised as creditors for the purposes of the watershed meeting. The basis of that submission is his contention that at the time the companies went into administration most, if not all, were owed small sums by CFL arising from their day-to-day use of Taxicharge services. Mr MacKenzie submitted it is immaterial that all pre-administration Taxicharge debts were paid many months ago, as they fell due.
[74] The effect of recognising driver-shareholders as creditors, for the purpose of the watershed meeting, is that they could comfortably outvote the other creditors. Section 239AK(2) of the Act provides that a resolution may be adopted “if a majority in number representing 75% in value of the creditors … vote in favour of the resolution”. While the debts owed to the driver-shareholders were miniscule compared with those owed to BNZ and MSD (and their pre-administration debts are now zero), the presence of driver-shareholders would ensure they could block other creditors from achieving a majority in number.
[75] Mr MacKenzie submitted that if the creditors — including driver-shareholders in their capacity as trade creditors — reject the DOCAs, there should be no further role for shareholders of the watershed meeting. Rather, if that occurs the administration will end and the company will return to the shareholders, enabling a special meeting to be called and a new board to be elected. Alternatively, if creditors reject the administrators’ DOCA but adopt the DOCA proposed by Mr Rahman, the new arrangement, supported by the offer of finance from Mr van Heiningen, will take effect.
[76] Mr MacKenzie also submitted that allowing a simple majority of shareholders to ratify the sale of the company’s assets would cut across the safeguards the Act affords to minority shareholders. But for the administration, the proposed sale would constitute a major transaction for the purposes of s 129 of the Act, meaning a special resolution of shareholders would be required. Section 2 defines a special resolution
as “a resolution approved by a majority of 75% … of the votes of those shareholders entitled to vote and voting on the question.”25
[77] Mr MacKenzie submitted that allowing the sale to be approved by a simple majority would circumvent s 129, which is designed to ensure decisions that profoundly affect the future of a company may be made only if they attract support from a substantial super-majority of shareholders.
[78] Mr Kalderimis responded by noting that the administrators are seeking to provide greater recognition for shareholders than is contemplated in a “normal” administration. Without provision for shareholder approval, the proposed sale to ACT would be a decision for creditors alone. The directions the administrators seek will expand shareholders’ rights, not reduce them. While a 75 per cent majority might be appropriate in normal times, the fact WCT is in administration and financial distress means it is more appropriate to ensure decisions reflect the wishes of a majority of shareholders. Driver-shareholders, like Mr Rahman, still account for around two-thirds of WCT’s shareholdings.
Should shareholders have a say at the watershed meeting?
[79] As already discussed, WCT’s shareholders are divided into highly polarised camps; while there is a major fault line separating the holders of operational and non-operational shares, it is clear that is not the only division. I am satisfied that requiring either side to achieve a super-majority will ensure the sale to ACT fails, even if it has the support of most shareholders.
[80] At the same time, I agree it would be wrong to allow the future of WCT to be determined by its creditors. Their debts will be paid in full whichever DOCA is adopted and it is highly likely they will be paid without delay even if both proposed DOCAs are defeated. And even if the company could not pay its debts in full immediately, there is no long-term risk of default given WCT’s strong asset base.
25 The statutory definition also provides that if the company’s constitution requires a higher majority than 75 per cent, a special resolution must attract that higher majority.
[81] There is no moral or practical case for handing effective control of the company to BNZ and MSD. The administrators’ proposal to give the decision to shareholders reflects the fact the outcome of the meeting will affect shareholders and their livelihoods far more than anyone else.
[82] It is well-recognised that the interest of creditors assume prominence when a company is insolvent or when their interests are otherwise directly engaged. But as long as creditors are not at immediate risk, it is appropriate to treat the interests of shareholders as the interests of the company.26 As Lord Briggs observed in BTI 2014 LLC v Sequana SA, “creditors are not to be treated as having the main economic stake in the company at least while a company is solvent or, if insolvent, while there is still light at the end of the tunnel”.27
[83] I am satisfied the Court’s general power in s 239ADO(1), to determine the way the administration regime should operate for this particular company, affords sufficient flexibility to allow me to direct that shareholders be given the right to adopt or reject the proposed DOCAs, alongside creditors, at the watershed meeting.
[84] Indeed, given they are in no imminent peril, I consider it appropriate to design a watershed meeting that de-powers creditors and effectively hands the decision to shareholders. That outcome can be achieved by ordering that no DOCA should be presented to creditors unless it has first been approved by a majority of shareholders. If approved by shareholders, WCT’s large creditors, BNZ and MSD, have no reason to reject either proposal. They will be promptly paid in full whichever is adopted.
Drivers as trade creditors
[85] The next question is whether shareholder-drivers, who may have been owed small sums by CFL on the date the company was placed in administration, should be regarded as creditors for the purposes of the watershed meeting.
26 See, for example Nicholson v Permakraft (NZ) Ltd [1985] 1 NZLR 242 (CA) at 254–255 per Richardson J. Yan v Mainzeal Property and Construction (in liq) [2023] NZSC 113, [2023] 1 NZLR 296 at [179] citing BTI 2014 LLC v Sequana SA [2022] UKSC 25, [2022] 3 WLR 709.
27 BTI 2014 LLC v Sequana SA, above n 26, at [164].
[86] The starting point is that s 239C of the Act defines “creditor”, albeit non-exhaustively, as including “a person who, in a liquidation, would be entitled to claim in accordance with s 303…”. Section 303, in turn, sets out which debts are admissible in a liquidation. That section is subject to s 306(1), which provides that the amount of a claim “must be ascertained as at the date and time of commencement of the liquidation”.
[87] It follows that any debts, of whatever nature, that are incurred after a company is placed in administration are not debts that can be pursued through the administration process; rather, post-administration debts are treated as expenses of the administration. A combination of reg 4 of the Companies (Voluntary Administration) Regulations 2007 and ss 312, 313 and sch 7 of the Act provides that post-administration debts are among the first to be discharged when a DOCA is executed. Nonetheless, it is clear that post-administration creditors do not qualify as creditors for the purposes of the watershed meeting.
[88] As for pre-administration creditors, it would be artificial to construe trade creditors, who were owed small sums in September 2024 and who were paid in full in the normal course of business, as creditors for the purposes of the administration. Most obviously, none of them is owed any money. Collectively, the value of their outstanding debts is zero. As Katz J observed in Solid Energy v Gibson:28
[41] … there is no commercial rationale for allowing “former” creditors to vote on a variation to a deed. Providing former creditors (whose debts have been fully paid and discharged) with a voting right would be inconsistent with the very purpose of the voting rights in Part 15A, which is to give a decision- making power to those whose economic interests are affected (subject to the majority thresholds and protections against prejudice and abuse). Creditors as at the “cut-off day” whose claims have subsequently been paid and extinguished no longer have any remaining economic interest in the company.
…
[42] Further, as I have noted above, the natural and ordinary meaning of the term “creditor” generally requires that a debt is currently owed. The definition of “creditor” in s 239C of the Act defines is linked to a claim that a debt “is owing” by the company, not that a debt “was owing”.
28 Gibson v Solid Energy New Zealand Ltd [2016] NZHC 2939 at [41].
[89] Moreover, if driver-shareholders were regarded as creditors then so, by definition, should other trade creditors, like suppliers, utilities, insurance companies and any of the other myriad small creditors owed money by WCT on the date it was placed in administration.
[90] I asked Mr MacKenzie why some trade creditors — his clients — should qualify as creditors for the watershed meeting, while others do not. He replied it was because driver-shareholders are “the lifeblood of the company”. That may be the case, but that fact alone does not confer any special status upon them. It cannot transform them into creditors for the purposes of the watershed meeting.
[91] There appears little doubt Mr MacKenzie’s reason for seeking to characterise his clients as creditors is to ensure they can defeat the DOCA the administrators propose. They will have that opportunity in any event, though to do so they will have to persuade a majority of their fellow shareholders to vote it down. I conclude that driver-shareholders are not creditors for the purposes of the watershed meeting.
Proxies
[92] The final question is whether signed proxy forms Mr Rahman and his team have gathered, and which authorise him to act on each signatory’s behalf at shareholder meetings, should be regarded as valid for the purposes of the shareholders’ vote at the watershed meeting. I am satisfied they should.
[93] While Mr Kalderimis is correct to note that shareholders who have given proxies will not necessarily have considered the detail of the votes Mr Rahman will cast on their behalf, that is common when proxies are assigned. The proxies Mr Rahman has obtained are in the terms set out in WCT’s constitution. They authorise the proxy-holder to vote on the signatory’s behalf at any shareholder meeting in the next twelve months.
[94] Shareholders who entrusted their proxies to Mr Rahman were plainly content to allow him to exercise his judgement on their behalf no matter how important the decision under consideration. A proxy of that nature does not contemplate the holder being instructed on a vote-by-vote or meeting-by-meeting basis. If
driver-shareholders entrusted Mr Rahman with their vote for twelve months, there is no reason to invalidate proxies for a meeting of shareholders that happens to occur as part of a watershed meeting.
[95] Mr Kalderimis is concerned that some shareholders who have given proxies may now support the administrators’ proposed DOCA. That concern can be addressed in the communications shareholders receive about the watershed meeting. All shareholders will be given written notice of the meeting, and I direct that WCT’s shareholders must be provided with the same information that is given to creditors.
[96] Shareholders should be advised that if they have signed a proxy, that proxy will be valid for the purpose of the shareholders’ vote. They should also be advised that if they no longer wish their proxy-holder to vote on their behalf, they have the option of either revoking their proxy or attending the meeting in person.29
[97] The fact shareholders will have the option to maintain or withdraw their existing proxy is sufficient to ensure their votes are not cast in a manner that conflicts with their current views. Accordingly, I direct that existing proxies, provided they remain current at the time of the watershed meeting and the shareholder does not attend in person, are valid for the purposes of the shareholders’ votes.
Conclusion
[98] It is impossible to avoid the intensity of feeling on both sides of the debate about WCT’s future. That is understandable. WCT is a staple of Wellington life and it would be a great loss for the region if it were to fail.
[99] The administrators will be obliged to give their opinion about “whether it would be in the creditors’ interests for [WCT] to execute a [DOCA]”.30 That said, in this case it is likely both DOCAs will suit creditors equally well. The critical question for the watershed meeting is which of the competing visions for WCT is in the best interests of shareholders.
29 There would be no obstacle to including both new proxy forms and revocation forms among the material shareholders receive.
30 Companies Act, s 239AU(3)(b)(i).
[100] I have sought to resolve these applications in a way that will ensure shareholders can consider and determine the future of their company without the administrators or the Court putting a finger on either side of the scale. It will be incumbent upon the administrators to chair the watershed meeting in the same manner. Supporters of both proposals should have an equal opportunity to state their case. Both DOCAs should be presented to shareholders at the same time, with responses recorded on a single voting form. It would not be fair if the proposed sale to ACT were determined separately and first, meaning it might be adopted before the alternative, championed by Mr Rahman and his colleagues, can be considered. It will be part of the administrators’ job, in chairing the meeting, to design a system for recording votes which is neutral and even-handed.
[101] That course raises the possibility that both proposals will attract more than 50 per cent support. If that occurs, it will be the administrators’ responsibility to ensure the proposal with the greater level of support is put to creditors.
[102] As for the contested matters arising in the -146 and -629 applications, I make the following orders:
(a)Mr Rahman’s application for the administration to be terminated is dismissed.
(b)As to the conduct of the watershed meeting, I have determined that driver-shareholders are not to be treated as creditors. In addition, I direct:
(i)The watershed meetings of WCT, CFL and WCP are to be held as a single watershed meeting. Decisions of WCT’s shareholders are binding on WCT’s subsidiaries.
(ii)If any party, other than the administrators, wishes a DOCA to be considered by the watershed meeting, that party must present its proposed DOCA to the administrators no later than 13 June 2025. Subject to that deadline, the administrators may
convene the watershed meeting any time within the convening period.
(iii)No DOCA may be put to creditors for approval unless it has first received the support of a majority of WCT’s shareholders.
(iv)Existing proxies, provided they have not been revoked and the relevant shareholder does not attend the meeting in person, are valid for the shareholders’ vote at the watershed meeting.
(v)The convening period is extended, and now expires on 27 June 2025.
[103] For the avoidance of doubt, I direct that the administrators must execute any DOCA adopted by the watershed meeting on the company’s behalf if for any reason the company itself declines to do so.
Costs
[104] Costs are reserved. I will receive memoranda if a costs determination is required. The administrators are to file a memorandum on the question of costs of no more than five pages within 15 working days after delivery of this judgment; the other parties are to file memoranda in response, also of no more than five pages, within a further ten working days.
Boldt J
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