Ruscoe

[2023] NZHC 2326

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-1803

[2023] NZHC 2326

UNDER

Part 19 of the High Court Rules and Part 16 of the Companies Act 1993

IN THE MATTER

of DIGITAL ASSET EXCHANGE

LIMITED (in liquidation)

AND

IN THE MATTER

of an application by DAVID IAN RUSCOE and MALCOLM RUSSELL MOORE as

liquidators of DIGITAL ASSET

EXCHANGE LIMITED for orders under the Companies Act 1993

Applicants

Hearing:	23 August 2023
Counsel:	S C D A Gollin and A E Simkiss for Applicants
Judgment:	24 August 2023

JUDGMENT OF ISAC J

[1]            David Ruscoe and Malcolm Moore were appointed liquidators of Digital Asset Exchange Ltd (which traded under the name “Dasset”) on 14 August 2023 by shareholder resolution.

[2]            On 18 August 2023 the liquidators applied without notice for leave to commence proceedings by way of originating application under r 19.5 of the High Court Rules 2016. The application was supported by an affidavit of Mr Moore dated the same day. The substantive application sought orders in the following terms:

RUSCOE [2023] NZHC 2326 [24 August 2023]

1.The Applicants, as joint liquidators of Digital Asset Exchange Limited (Dasset) apply for orders under sections 284, 255(4) and 257(2) of the Companies Act 1993 (the Act):

(a)modifying the requirement of section 255(2)(c)(ii)(A) of the Act and regulation 6(2)(a) of the Companies (Reporting by Insolvency Practitioners) Regulations 2020 so that the liquidators’ initial report will not include email addresses of creditors;

(b)modifying the method by which the liquidators will send a notice, statement, report, accounts, or other document to be sent to a shareholder or creditor as required by s 255(2)(c)(ii) and 257(1) as follows:

(i)all statutory reports of the liquidators will be uploaded to the Companies Register page for Dasset;

(ii)all statutory reports and all other communications with creditors or shareholders as a group and updates of the liquidators will be uploaded to grantthornton.co.nz/DASSET/;

(iii)for any notice, statement, report, accounts, or other document required to be sent to shareholders or creditors, the liquidators will send an email to all known creditors and shareholders containing a link to the document hosted at grantthornton.co.nz/DASSET/; and

(iv)for any creditors for whom no email address is held, the documents will be posted to the last postal address provided by that person (if any);

(c)extending the period for circulating the liquidators’ initial report until close of business on Monday 28 August 2023;

(d)that this application may be made by originating application; and

(e)that the orders sought are made on the papers and without notice to any other person;

(f)that this application and the sealed orders of the Court will be sent to all creditors and shareholders in the manner set out at 1(b) above;

(g)that any creditor or shareholder may apply to modify the orders of the Court by applying to the Court within 10 working days of the sealed orders being sent to that creditor or shareholder in accordance with 1(b) above;

(h)that leave is reserved for the applicants to apply further in respect of any ancillary orders; and

(i)the solicitor-client costs of this application are an expense incurred by the applicants in carrying out their duties as liquidators.

Without notice application for leave to commence by way of originating application

[3]            I am satisfied that it is in the interests of justice to permit the proceeding to be commenced by originating application under r 19.5. The nature of the application is

straightforward and non-contentious. An answer is required by the applicant urgently. The Part 19 procedure is designed to afford litigants access to the Court using a short cause process in these circumstances.

Substantive application for orders under the Companies Act 1993

[4]            Sections 255 and 257 of the Companies Act 1993 set out requirements in relation to the liquidators’ notification of appointment, initial report, ongoing six monthly reports, and final report. Sections 255(4) and 257(2) provide that the court may exempt a liquidator from compliance with certain of those requirements, or modify the application of those requirements in relation to a liquidator, “on such terms and conditions as the court thinks fit”.

[5]            Under s 255(2)(c)(ii)(A), the liquidators are required to send their initial report to every known creditor, every shareholder, and the Registrar for registration within five working days (in this case, on or before 21 August 2023. The initial report must contain the “prescribed information”, which includes “a list of every known creditor of the company and, if known, each creditor’s address for communications (which may be an electronic address)”.1

[6]            The first order is sought out of a concern that publishing the company’s customer’s email addresses creates a risk that the information will be used by “bad actors” for the purposes of scams, phishing attacks, and hacking. Mr Moore deposes that he has encountered this type of fraudulent behaviour in relation to the liquidation of a different cryptocurrency trading platform in which he was a liquidator.

[7]            Section 391 requires that documents must be either personally delivered to shareholders and creditors, or sent by post or facsimile. Generally, the Act does not allow documents to be sent electronically unless the recipient has opted into that method of communication.2

1. Companies (Reporting by Insolvency Practitioners) Regulations 2020, reg 6(2)(a).

2. Sections 391(3A) and (3C).

[8]            The reason advanced for the second order is that Dasset has about 5,800 customers who are likely to be creditors and that the cost of posting hard copy reports to them is estimated to be $25,000 per report (a cost which will be incurred every six months).

[9]            The remaining orders, it is submitted, are routine, or of a mechanical or procedural nature. In support of the application the liquidators refer to several decisions in which similar applications have been granted.3

Consideration

[10]        Having considered the evidence, submissions and authorities cited, I am satisfied that it is in the interests of justice to grant the orders sought without service of the notice of application. I am satisfied that there is no risk of prejudice to the creditors or shareholders, and that the orders are in their best interests. Their interests are protected in that the orders sought require that all creditors and shareholders must be notified of the orders and have an opportunity to apply to modify them.

Result

[11]Orders accordingly.

Isac J

Solicitors:

MinterEllisonRuddWatts, Auckland

1. Re Jackson [2018] NZHC 2583; Perpetual Trust Ltd v Strategic Finance Ltd (In Receivership) HC Wellington CIV-2010-485-1085, 27 July 2010; Re FCS Loans Ltd (In Liquidation) [2013] NZHC 1190; Re Dominion Finance Holdings  Ltd (In Liquidation) HC Auckland CIV-2009-404-6606,   1 October 2009; and Re Pumpkin Patch Ltd (In Receivership and Administrator Appointed) [2016] NZHC 2771.