Rapson Holdings Limited, re HC Auckland CIV 2010-404-2319
[2010] NZHC 548
•26 April 2010
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2010-404-002319
UNDER Part IVA of the High Court Rules and ss
80 and 286 of the Companies Act 1993
IN THE MATTER OF RAPSON HOLDINGS LIMITED AND
IN THE MATTER OF SHAUN NEIL ADAMS AND IAN
CHARLES THURSFIELD
Applicants
Hearing: on papers
Counsel: M J Tingey/N F Moffatt for applicants
Judgment: 26 April 2010 at 10:00am
JUDGMENT OF ASSOCIATE JUDGE ABBOTT
This judgment was delivered by me on 26 April at 10:00am,
pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Bell Gully, PO Box 4199, Auckland 1140 for applicants
RAPSON HOLDINGS V ADAMS AND THURSFIELD HC AK CIV 2010-404-002319 26 April 2010
[ 1 ] The applicants are insolvency practitioners within the accounting and
business advisory services firm KPMG New Zealand. They have applied without notice for orders under ss 239F and 286(4)(b) of the Companies Act 1993 (the Act) that they be permitted to act as either liquidators or administrators of Rapson Holdings Limited. They also seek directions as to service of this application and as to its costs.
The orders are sought because KPMG New Zealand provides services to MARAC Finance Limited, which is a secured creditor of Rapson, and is proposing to appoint them as administrators if the sole shareholder does not go ahead with a stated intention to put Rapson into liquidation. The services provided by KPMG New Zealand are a potentially disqualifying factor for either appointment, under s 280(1)(cb) of the Act.
The court has also been asked whether to grant leave to bring the application by way of originating application, and it must consider whether it is appropriate to determine these matters without notice to other potentially interested persons.
Background
The applicant, Shaun Neil Adams, is an insolvency practitioner with experience here and in the UK. He was a licensed insolvency practitioner in the UK for twelve years before moving to New Zealand in 2006. He was made a director of KPMG in May 2009, after having been involved with another large accounting firm from the time of his arrival in New Zealand. He specialises in restructuring, business recovery and insolvency.
The applicant, Ian Charles Thursfield, is a UK qualified chartered accountant and a partner of KPMG New Zealand. He works within the financial advisory services division of the firm, and acts as a concurring partner on all restructuring and insolvency appointments.
The applicants have been asked by Rapson’s sole director and shareholder Mr Russell Burling to accept appointment as liquidator. They have also been asked by MARAC to accept appointment as administrators if Mr Burling does not proceed to put Rapson into liquidation.
Since being approached, the applicants have made enquiries to determine whether they are qualified to accept the appointments. They have come to the view that they are potentially disqualified by reason only of the fact that KPMG provides auditing and advisory services to MARAC. They also advise that KPMG has undertaken investigating and advisory work to MARAC and its parent company.
Leave to bring under Part 19 by originating application
A proceeding may be brought under Part 19 of the High Court Rules if it is specifically authorised under rr 19.2 to 19.4 or by leave of the court under r 19.5. The applicant is required to seek leave to bring this proceeding because there is no express provision for it under rr 19.2 – 19.4.
The criterion for granting leave is whether it is in the interests of justice:
r 19.5(1). Rules 19.2 to 19.5 were introduced into the High Court Rules from
1 February 2009. There is ample precedent for granting leave for applications under
s 280 or s 286 of the Act, without notice in proceedings for appointment of a liquidator brought either under the previous rules (r 458D(1)(e) in particular)1 or under the present rules.2 There is also precedent for the application in respect of appointment as administrators.3
1 eg Re Mountain View Developments Ltd (in liq) HC Auckland M1730/00, 21 November 2000; Bridgecorp Holdings Ltd v Goodman Ltd HC Auckland CIV 2007-404-4866, 9 August 2007; Re Fatupaito HC Auckland CIV 2007-404-7330, 29 November 2007; Re D & F Contracting Ltd, HC Auckland CIV 2008-404-5443, 18 September 2008.
2 eg Re Inglis & Co Ltd HC Wellington CIV 2009-485-1336, 16 July 2009
3 eg Re Icon Digital Entertainment Ltd v Westpac Ltd HC Auckland CV2007-404-7124, 20 November 2007; Re VCOMMS Ltd HC Wellington, CIV 2009-485-1336, 16 July 2009.
[ 10] I am satisfied that it is appropriate to deal with the application for leave without notice, and that leave ought to be granted given the nature of the application (an application for directions). I take into account that MARAC, as the first ranking secured creditor, can be taken to support the application, and that the applicants are aware of only one other creditor, a company having common directorship with Rapson. Further creditors (the parties most likely to have an interest in the application) will receive notice of the application at the same time as notice of the first creditors’ meeting. The matters advanced for proceeding without notice on the substantive application (which I will now address) have also been taken into account.
Substantive proceeding without notice
[ 11 ] The applicant asks that the substantive application be determined without notice on the grounds set out in r 7.46(3)(a) and (e) of the High Court Rules:
7.46 Determination of application without notice
(3) The Judge may determine that an application can properly be dealt
with without notice only if the Judge is satisfied that
(a) requiring the applicant to proceed on notice would cause
undue delay or prejudice to the applicant; or
...
(e) the interests of justice require the application to be
determined without serving notice of the application.
[ 12] I accept that it is appropriate to proceed on the substantive application, without notice, on the ground that it is in the interests of justice to do so. In keeping with what I said in Re Kensington Construction Limited ,4 I do not see that r 7.46(3)(a) applies as it requires undue delay or prejudice to the applicant (as distinct from others such as creditors) and a case for that has not been made out.
[13] The factors which, in my view, warrant the matter being dealt with without notice are:
4 Re Kensington Construction Ltd HC Auckland CIV 2008-404-006554, 10 October 2008.
a)Rapson appears to be insolvent, and needing to be put into liquidation or administration urgently;
b)The principal creditor, MARAC, can be taken to be aware of, and to support the application; the only other known potential creditor is an Australian-based company with common directorship, which can be taken to be aware of the background;
c)The financial position of the company may deteriorate further while service is being effected on the potential Australian creditor;
d)There is no obvious reason to oppose the appointment of the applicants;
e)Creditors’ positions will not be prejudiced by deferring service of the application and any orders until notice of the liquidators’ first reports or the call of a first creditors’ meeting in any administration;
f)Creditors retain their right to apply to set aside the applicants’ appointments, and can also vote to have them removed at the creditors’ meeting.
The substantive application
[14] The need for the present application arises under s 280(1)(cb) of the Act, which sets limits on who may be appointed as liquidator. The material part reads:
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 ....
Section 239F(2) applies this limitation to administrators by providing that:
(2) Unless the court orders otherwise a person is disqualified from
appointment as an administrator if that person
(a) is disqualified under section 280(1) from being appointed or acting
as a liquidator of the company.
The opening words of both sections (“Unless the Court orders otherwise”) give the court power to allow a person to act notwithstanding the limits in ss 280(1) and 239F. Section 286(4) of the Act also empowers the court to allow a person to continue to act as a liquidator notwithstanding that that may breach s 280 of the Act. Section 286(4)(b) provides:
286 Orders to enforce liquidator's duties
(4) A Court may, in relation to a person who ... is or becomes
disqualified under section 280 of this Act to become or remain a liquidator,—
...
(b) Order that the person may be appointed and act, or may
continue to act, as liquidator, notwithstanding the provisions of section 280 of this Act.
[ 17] The applicants have considered whether any matters would disqualify them from appointment. They have established that KPMG provides auditing and advisory services to MARAC, and that it has provided advice to MARAC’s parent company concerning the MARAC’s internal management procedures in relation to the facility with Rapson. The former, in particular, raises a potential conflict of interest as “a continuing business relationship”.
[ 18] I considered the approach the court takes to the expression “continuing business relationship” in Re Joeleen Enterprises Ltd.5 I summarised the position as follows:
5 Re Joeleen Enterprises Ltd HC New Plymouth CIV2008-443-485, 3 October 2008.
[15] There is no definition of “a continuing business relationship” in the Act.
The cases I have just reviewed indicate that the Court will decide on the circumstances of each case whether there is such a relationship, and whether it is of such a nature and degree that a person should not be appointed. The Court will have particular regard to whether the person or persons seeking appointment (or continuation of an appointment) have a direct relationship or whether it is merely by virtue of their involvement in a firm. It will clearly be a relevant consideration whether or not any other member of the firm could have a role in the decisions or administration of the liquidation.
....
[18] I remain of the view expressed in Icon Digital Entertainment Limited that
the critical issue in considering whether the damage of conflict of interest exits due to a continuing business relationship (however that might be defined) is whether there is a risk that the applicant’s independence and ability to carry out his or her task professionally and effectively could be compromised in the particular circumstances of the case. I come to the view on the facts of the present case that the provision of services to secured creditors by other members of the firm will not have this effect if those providing the services are not involved in the liquidation.
[ 19] I accept that the matters identified by the applicants raise a theoretical conflict of interest, but that there is no real conflict for the reasons advanced by the applicants:
a)KPMG is a large firm providing auditing and advisory services to many companies in New Zealand;
b)The applicants have not been in any way involved in the provision of services to MARAC other than in relation to their prospective appointment as liquidators or administrators of RHL;
c)The primary area of potential conflict would be the quantification of MARAC’s claim, but the quantum of the claim is not disputed by the sole director and shareholder of RHL, and even appears to be overstated in the financial statements; and
d)The applicants are experienced practitioners and will carry out the role of liquidators or administrators in an appropriately professional and independent manner.
[20] I also accept that there are advantages to creditors generally in their appointment:
a)The knowledge of issues surrounding MARAC’s lending to Rapson gained by KPMG’s employees in advising MARAC’s parent company on the internal management of this facility will be available to and will benefit the applicants, whether as liquidators or administrators;
b)Using the investigations undertaken to date is an efficient springboard for the investigations to be undertaken in any liquidation or administration, and thereby the most efficient way of maximising return for creditors; and
c)MARAC is unwilling to fund another liquidators or administrators to pursue investigations, as to do so will duplicate costs.
[21 ] The applicants are satisfied that there is no other reason for them to be disqualified.
I accept, on the facts of this case, that the ongoing provision of services by KPMG to MARAC will not compromise the applicants’ independence, or their ability to carry out their task either as liquidators or as administrators of Rapson professionally and effectively. Their ability to access the knowledge of other members of the firm in relation to the internal investigation for MARAC cannot be characterised a continuing relationship (I understand it is complete), but in any event I see it as of benefit rather than prejudice to creditors.
In weighing up whether or not to exercise my discretion, I have also taken into account the applicants’ experience and professional standing, and the fact that their firm is subject to rules of professional conduct.
In summary, I do not see that appointment of the applicants will cause risk to creditors or any other third parties, but accept that they should be given the
opportunity to challenge the appointment if they consider they have grounds for doing so. The directions as to service proposed by the applicant are appropriate.
Decision
[25] I make the following orders (as sought):
a)Granting leave to commence this proceeding by way of originating application without notice;
b)Granting permission pursuant to s 280 and/or s 286(4)(b) of the Companies Act 1993 (the Act) to Shaun Neil Adams and Ian Charles Thursfield to act either as liquidators or administrators of Rapson Holdings Limited (the company);
c)Directing that the originating application and orders be served on all known creditors of the company at the same time and in the same manner as the liquidators’ first reports under s 255 of the Act or the notification of a first creditors’ meeting under s 239AN of the Act;
d)Granting leave to the creditors of the company to apply to the Court within ten working days of such service to set aside the applicants’ appointment as liquidators and administrators; and
e)Directing that the applicants’ solicitor/client costs of this application be an expense incurred by the applicants in carrying out their duties as liquidators or administrators of the company.
Associate Judge Abbott
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