Rolleston v Christchurch Residential Care Limited

[2012] NZHC 1122

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2011-409-001301 [2012] NZHC 1122

BETWEEN  TE TUMU ROLLESTON Plaintiff

ANDCHRISTCHURCH RESIDENTIAL CARE LIMITED

First Defendant

ANDDONNA CELIA ROLLESTON Second Defendant

Hearing:         17 May 2012

Appearances: K W Clay for Plaintiff

No Appearance for First Defendant
S Rollo for Second Defendant

Judgment:      17 May 2012

ORAL JUDGMENT OF CHISHOLM J

[1]      This proceeding came before Fogarty J on 28 November 2011. At that time a partial solution was reached.  Although Ms Rolleston resigned as a director of the first defendant, Fogarty J directed that she was to still receive information relating to the company, and it is my understanding that this requirement has been honoured until now.

[2]      That left two issues:  first whether Mr Rolleston’s application for a transfer of

25% of Ms Rolleston’s shares to the company should be granted; and, secondly, whether  Ms  Rolleston  should  continue  to  receive  the  remuneration  from  the company that she had previously received.

[3]      Fogarty J made an interim order pursuant to s 174(2) of the Companies Act

1993 that she was to continue to receive the same remuneration that she had been

ROLLESTON V CHRISTCHURCH RESIDENTIAL CARE LIMITED HC CHCH CIV-2011-409-001301 [17

May 2012]

receiving previously.  His judgment indicates that she had previously been receiving

$1994.53 gross per fortnight (with PAYE deducted at source) and a further $494.10 by way of drawings per fortnight (not necessarily PAYE earnings).  Those payments have continued.

[4]      Fogarty J declined to make any orders in relation to the transfer of shares because of the pending Family Court litigation.  At that time the parties understood that the Family Court litigation between the plaintiff and second defendant was likely to reach the Family Court ready list early this year.  That has not happened. The position seems to be that Ms Rolleston has requested an  audit of the first defendant and it is therefore likely that a Family Court hearing will be some way off.

[5]      Today  I  have  been  hearing  an  application  for  two  orders.    First,  that Ms Rolleston transfer 25% of her shareholding to the company.   The underlying rationale behind that application is that Ms Rolleston is no longer involved in the operation of the company and the 50% shareholding already held by Mr Rolleston plus the 25% transferred to the company would provide Mr Rolleston with the necessary voting power to pass special resolutions.

[6]      The second component of the application is that the remuneration presently being received by Ms Rolleston be terminated, or at least reduced.  This is advanced on  the  basis  that  the  payments  being  made  to  Ms  Rolleston  are  crippling  the company.

[7]      Voluminous affidavit evidence has been filed on both sides.

[8]      As far as the application for a transfer of the 25% shareholding is concerned, a solution emerged during the course of the hearing.  I am now in a position to make orders that will resolve that matter.  By way of background I record that during the hearing I expressed concern about this Court transferring shares in the company when the Family Court litigation between the parties remains unresolved.  I therefore floated the idea of some sort of power of attorney arrangement.

[9]      As a result of discussions the parties have agreed to the following:

(a)      Ms Rolleston will give Mr Rolleston a general power of attorney in relation to her 25% shareholding in the first defendant.  That power of attorney is to be provided within seven days from today.

(b)Mr Rolleston will give Ms Rolleston 48 hours notice by email to [email protected] of his intention to use the power of attorney.

(c)      If Ms Rolleston objects to his so doing, Ms Rolleston will notify Mr Rolleston   at   his   email   address    [email protected]   of   her objection, in which case Mr Rolleston will not use the power of attorney.

(d)Leave is reserved to either party to apply on 48 hours notice for directions in the event that (b) and (c) arise.

[10]     There is also agreement about the annual accounts.   For some years those accounts have not been signed by Ms Rolleston, apparently because she does not agree with the contents.   However, the accounts need to be signed so that various matters  (probably  including  finalisation  of  taxation  returns)  can  be  completed. Ms Rolleston has agreed to sign the accounts but without prejudice to her position in relation to the pending Family Court proceedings.

[11]     It  needs  to  be  added  that  these  orders  are  on  the  basis:     first,  that Ms Rolleston  will  not  be  actively  involved  in  the  day  to  day  operation  of  the company; secondly, that Mr Rolleston will ensure that the company continues to provide  Ms Rolleston  with  information  in  accordance  with  the  directions  given earlier by Fogarty J.

[12]     Unfortunately,  the  other  component  of  the  application  (whether  or  not payment to Ms Rolleston should continue) has not been resolved.   Without going into  detail  the  case  for  the  plaintiff  is  that  the  payments  to  Ms Rolleston  are oppressive in terms of s 174 and that it would be just and equitable for an order to be made for those payments to be terminated at this stage or, at the very least, reduced.

The  plaintiff  contends  that  the  company  is  insolvent  and  that  the  payments  to

Ms Rolleston can no longer continue.

[13]     There is an issue about the payments actually being made at the current time. On the information provided by Mr Trewin, the company’s accountant, the payments to Ms Rolleston by way of salary and drawing from 1 April 2011 to 31 January 2012 total $57,569.70.   If that is extrapolated to a full year the payments would total around  $69,000  which  seems  to  be  at  variance  with  the  payments  recorded  in directed by Fogarty J’s  decision.   The payments  to  Ms  Rolleston  should  be in accordance with the figures mentioned in paragraph [2] of Fogarty J’s judgment.  If there is a discrepancy it needs to be corrected.

[14]     For her part, Ms Rolleston claims that there is no reason to depart from the arrangement recorded in the interim orders of Fogarty J.   Her position is that the company has not deteriorated and that it can  continue to meet those payments. Through Mr Rollo, Ms Rolleston also questions the information that is currently before the Court.

[15]     It is this last point that has persuaded me that it is impossible to give proper consideration to the application today. Although I have annual accounts to 31 March

2010 which record a trading loss of $26,210, I do not have annual accounts for 31

March 2011.  All I have is an assertion that the company is in financial difficulty, notwithstanding that financial projections from  1 April 2011 to 31 March 2012 indicated a profit of $94,155.  I am told that the loss for the year ended 31 March

2012 is $66,473.

[16]     Without the annual accounts for 31 March 2011 and more information about the  loss  of  $66,473  I  am  not  in  a  position  to  decide  whether  Ms Rolleston’s remuneration should continue.   I am therefore obliged to adjourn the application. Given the history I am not prepared to dismiss it.

[17]     The plaintiff is to file and serve the accounts for 31 March 2011 within 14 working days.  Meaningful information as to the projected loss to 31 March 2012 is also to be provided by that time.   If draft accounts to that date are available they

should be before the Court.  There is also to be an outline of Mr Rolleston’s income

position.  My understanding is that he was receiving $50,000 for the year ended 31

March 2010 and is now receiving $80,000.  I am told that he does not receive any director’s  fees.    I  need  sufficient  information  to  understand  the  movements  in Mr Rolleston’s salary.

[18]     Any response from Ms Rolleston is to be filed and served within 21 working days of receiving the plaintiff’s material.  Ms Rolleston is also to verify by affidavit the information concerning her financial situation that was conveyed by Mr Rollo from the bar.  However, given that there might be legal aid issues, leave is reserved for that time to be extended should the need arise.   If the parties agree upon an extension, time will be automatically extended in accordance with the agreement.  If there is any dispute it will have to be referred back to the Court for resolution.

[19]     Once that material has been assembled I think it would be appropriate for there to be a telephone conference to determine whether a further hearing is required. I hope that will be unnecessary.

[20]     To the extent that it might assist the parties, my current impression is that if the company is currently operating at a loss of around $66,000 it is likely that the amount being paid to Ms Rolleston will be reduced.   On the other hand, given Ms Rolleston’s financial position I think it is highly unlikely that the payments will cease altogether.  If it turns out that Mr Rolleston’s remuneration has gone up during the period that the parties have been in dispute, that may well be a relevant consideration.

[21]     At the end of the day I suspect that the issue will have to be revisited in the Family Court.   I hope that once the position of the company has been verified it might be possible for the parties to themselves sort out a workable solution somewhere between the current payments and zero.   Given that we have resolved some matters today that should not be beyond you.  Put your daggers away and try and resolve this in a sensible way.  Keep in mind that I am unlikely to condone a situation where the company continues to trade on an insolvent basis if that is the

case.  And both of you need to realise that one way or other the fate of the company will almost certainly impact on both of you.

[22]     I need to adjourn the proceeding to a finite date.  The timeframe that I have given involves two weeks plus another three weeks, that is five weeks.   I will adjourn it for six weeks to 25 July 2012 (nominal date).

[23]     Costs are reserved.

[24]     A final matter.   I understand that there is a counter claim by Ms Rolleston seeking removal of Mr Rolleston as a director and the vesting of his shares in her. The counter claim to have Mr Rolleston removed as a director is dismissed and the counter claim to have Mr Rolleston’s shares vested in Ms Rolleston is adjourned to

25 July 2012 (nominal date).  However, I doubt that this Court is going to have any further role in relation to that issue.   It will probably be a matter for the Family Court.

Solicitors:

K W Clay, Christchurch  [email protected]

S W Rollo, P O Box 28001, Beckenham, Christchurch