Ross v Virtual Floors Limited HC Wellington CIV 2007 485 1393

[2007] NZHC 1973

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2007 485 1393

UNDER  The Companies Act 1993

IN THE MATTER OF     The Liquidation of Virtual Floors Limited

BETWEEN  D E ROSS, P W ROSS, L L TURNER, L M DOBBS, B J POPE, M HOULIHAN, J

M HOULIHAN AND S R GRATKOWSKI Plaintiffs

ANDVIRTUAL FLOORS LIMITED Defendant

Hearing:         6 August 2007

Counsel:         J Haig for the Plaintiffs

No appearance for the Defendant
No appearance for Mr Matthew Nash

Judgment:      6 August 2007

ORAL JUDGMENT OF ASSOCIATE JUDGE GENDALL

[1]      Before the Court is an application to place the defendant company Virtual

Floors Limited into liquidation.

[2]      The application is made by eight shareholders of the defendant.

[3]      The ninth shareholder, a Mr Matthew Paul Nash (Mr Nash) does not join in bringing this application.

[4]      Mr Nash holds fractionally over 50% of the share capital in the defendant company.  The plaintiffs who are the remaining shareholders hold together just under

50% of that share capital.

D E ROSS & ORS V VIRTUAL FLOORS LIMITED HC WN CIV 2007 485 1393  6 August 2007

[5]      The present application is brought pursuant to s 241(4)(a) and (d) Companies

Act 1993.  Section 241(4) states:

The Court may appoint a liquidator if it is satisfied that – (a)  The company is unable to pay its debts; or

(b) The company or the board has persistently or seriously failed to comply with this Act; or

(c)  The Company does not comply with section 10 of this Act; or

(d) It is just and equitable that the company be put into liquidation.

[6]      The  grounds  advanced  in  support  of  this  application  are,  first,  that  the Company is unable to pay its debts, and, secondly, that it is just and equitable that the Company be placed into liquidation.

[7]      This proceeding was served on the Company on 4 July 2007.

[8]      Advertisement of the liquidation application was placed in both the Dominion

Post newspaper at Wellington and in the New Zealand Gazette on 26 July 2007.

[9]      In addition, a copy of the proceedings was served upon Mr Nash through his solicitor, who accepted service on 11 July 2007.

[10]     The application to place the Company into liquidation is unopposed by the defendant.  Further, there has been no opposition or application to intervene brought by Mr Nash.

[11]     Effectively, therefore, the application and both grounds advanced before me are unopposed.

[12]     Turning now to those grounds, the first mentioned, in terms of s241(4)(a) is that the Company is unable to pay its debts.  As to this, Delia Elizabeth Ross has filed an affidavit sworn 28 June 2007 in support of the present application.   This exhibits as Exhibit Note “DER-9” an estimated statement of financial position prepared for the defendant Company by independent accountants skilled as insolvency practitioners.  This statement shows unsecured creditors of the Company

totalling $73,322, including a debt owing to the bank of $25,000, trade creditors of

$15,459 and a shareholder’s advance from Ms Ross of $32,863.

[13]     In addition to this, the statement of financial position shows contributions made to the Company from shareholders’ current accounts totalling $90,000.

[14]     So far as assets of the Company are concerned, the statement indicates that the Company has accounts receivable totalling $3,000 and patents which are estimated to have a value of $50,000.

[15]     On this basis there is a significant shortfall of assets when the total liability position of the Company is taken into account.

[16]     In addition, before me Mr Haig, who appeared for the plaintiffs, advised the Court that in response to the advertisement of the liquidation application a number of creditors of the defendant company had made contact to confirm that their debts remained outstanding.

[17]     On this basis I am satisfied that the reality for the defendant Company is that it is unable to pay its debts in terms of the requirements of the Companies Act 1993.

[18]     An order for liquidation is appropriate on this ground alone.

[19]     I turn however to consider the second ground advanced by counsel for the plaintiffs.  This is to the effect that in terms of s241(4)(d) it is just and equitable that the Company be placed into liquidation.

[20]     The  authorities  on  this  subsection  as  noted  in  Ebrahimi  v  Westbourne Galleries Ltd [1973] AC 360 confirmed that a company is effectively more than a legal entity and that the rights, expectations and obligations of individuals within the company should be recognised – see Brooker’s Companies and Securities Law para CA241.03(4).

[21]     In Jenkins v Subscaf Ltd HC AK CIV 2005 404 5222 26 April 2006 Heath J, in the context of a small joint venture company where one party had lost trust and

confidence in the other, noted that s241(4)(d) places no fetter upon the discretion of the Court, either in relation to the factors justifying an order or in relation to the circumstances where an order must be refused.  The Court is required to balance all relevant factors available for consideration at the time an order is sought.

[22]     The authorities also establish that if a breakdown in trust or  a  deadlock between shareholders is caused by the conduct of the applicant seeking an order winding up the company he or she will not be able to rely on s241(4)(d) – Vujnovich v Vujnovich [1989] 3 NZLR 513.

[23]     In  the  present  case  the  only  evidence  before  the  Court  concerning  the defendant Company and its activities is provided in the affidavit of Ms Ross filed in support of the application.  This is a detailed affidavit which sets out the position of the relevant parties, both in establishing the defendant Company and its operation up to the present when it has ceased to trade.

[24]     Having considered all matters raised in this affidavit and in the supporting exhibits, I am satisfied that there has been a breakdown in trust and confidence between the plaintiffs and the majority shareholder in this Company, Mr Nash, and that it is just and equitable in these circumstances for an order to be made placing the defendant Company into liquidation.

[25]     As I see it, I am reinforced in this view in part by what is clearly a complete absence of action or opposition on the part of Mr Nash or indeed the defendant company to the present proceedings before the Court.

[26]     As I have noted, these proceedings were served upon Mr Nash through his solicitor, who indicated that was appropriate and they would accept service.   Mr Nash is likely then to have legal advice available to him, but he has chosen to provide no opposition to the present application.

[27]     Under all the circumstances here, I am satisfied therefore that in terms of s241(4)(d) Companies Act 1993 it is also just and equitable that the Company be placed into liquidation.

[28]     That said, the following orders are now made:

a)        An order is made that the defendant Company Virtual Floors Limited is placed into liquidation.

b)Ian Bruce Shephard and Christine Margaret Dunphy are appointed liquidators.

c)        Costs are awarded to the plaintiffs on a category 2 B basis, together with disbursements as fixed by the Registrar.

d)       This order is timed at 12.07 p.m.

Solicitors:

Gibson Sheat, Wellington for the Plaintiffs