Reynolds v Finnigan - [2023] NZHC 48

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-002717

[2023] NZHC 48

BETWEEN
GRANT BRUCE REYNOLDS

First Plaintiff

JOANNE LEE YOUNG
Second Plaintiff

THE LEARNING LADDER LIMITED (IN LIQUIDATION)

Third Plaintiff

AND

PERI MICHAELA FINNIGAN and BORIS VAN DELDEN

First Defendants

RED 9 LIMITED
Second Defendant

THE LEARNING LADDER (2018) LIMITED

Third Defendant

PEAT JOHNSON MURRAY LIMITED

Fourth Defendant

Hearing: 30 November – 2 December 2021; 5-6 December 2022

Appearances:

K Robinson for the Plaintiffs

V Wethey and R Anderson for the First Defendants

MJ Fisher and JT Toon for the Second and Third Defendants S Pasley for the Fourth Defendant

Judgment:

1 February 2023

Reissued:

12 April 2023

JUDGMENT OF WALKER J

[Reissued as to calculation of range of best price reasonably obtainable to reflect variable commission rates and to correct witness name at para 107 pursuant to HCR 11.10]

This judgment was delivered by me on 1 February 2023 at 12.30 pm Pursuant to Rule 11.5 High Court Rules - Registrar/Deputy Registrar

REYNOLDS v FINNIGAN [2023] NZHC 48 [1 February 2023]

[1] This case concerns a sale by the receivers of an early childhood education (ECE) centre in Auckland known as The Learning Ladder (the Centre). The first plaintiff is an insolvency practitioner. He was appointed liquidator of the third plaintiff, The Learning Ladder Limited (in liquidation) (TLL).1 TLL operated the Centre until appointment of Peri Finnigan and Boris van Delden, the first defendants, as receivers (the Receivers) on 9 March 2018. The second plaintiff, Joanne Young, is a director and shareholder of TLL.

[2] The other shareholder and director of TLL is Dayle Walker. She is also a director and shareholder of the second defendant, Red 9 Limited (Red 9). Red 9 is the secured creditor which appointed the Receivers.

[3] The third defendant, The Learning Ladder (2018) Ltd (TLL (2018)), was incorporated on 8 March 2018, the day before Receivers were appointed to TLL. Ms Walker is its sole director and shareholder.

[4] The fourth defendant, Peat Johnson Murray Limited (PJML), is a firm of accountants who at one time were the accountants for TLL. Ms Walker’s husband is a partner in the firm.2

[5] The plaintiffs allege that the Receivers sold the business to TLL (2018) at an undervalue causing loss to TLL and its shareholders. They allege that Red 9 was not entitled to serve notice of default. The legitimacy of the events that followed service of the notice is an integral part of the dispute however those substantive issues are for another day. Presently before this Court are two preliminary questions formulated by Associate Judge Bell:3

(a)What was the market value for the business of TLL at the time it was sold on 9 March 2018?

1 Mr Reynolds was appointed by the High Court on 24 July 2018.
2 One of the disputes in the substantive proceeding is whether or not Mr Walker was acting in his capacity as a principal of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2023] NZHC 48
Decision Date: 1 February 2023

CaseChat Overview and Summary

In Reynolds v Finnigan, the High Court of New Zealand addressed two preliminary questions concerning the sale of an early childhood education centre in Auckland by receivers appointed by a secured creditor. The first question was the market value of the business at the time of its sale in March 2018. The second was the best price reasonably obtainable by the receivers in March–April 2018. The court found that the market value of the business was between $696,000 and $714,000, significantly higher than the sale price of $470,000. The court also found that the receivers did not achieve the best price reasonably obtainable, as the sale process was limited and hasty, and the steps taken by the receivers to ascertain value were inadequate. The court concluded that the best price reasonably obtainable was between $625,000 and $643,000, after taking into account various costs associated with an alternative sales process.

The court's decision hinged on the differing expert evidence presented by the parties, with the plaintiffs' expert adopting a pro forma budget approach to valuing the business, while the receivers' expert relied on historical financial performance. The court accepted the plaintiffs' approach, finding that the relatively high staff costs were not a factor of the regulatory environment, the configuration of the premises, or any marketing or business imperative. The court also found that the receivers' sale process was not authentically competitive, and that the rushed nature of the receivers' appraisal of the business value led to errors and an undervaluation. The court concluded that the receivers should have undertaken a more thorough and confidential marketing process to achieve the best price reasonably obtainable.

Orders