Satara Co-operative Group Limited v Fus Limited (Formerly Apollo Fruit Limited) HC Napier CIV 2008-441-856
[2010] NZHC 166
•28 January 2010
IN THE HIGH COURT OF NEW ZEALAND
NAPIER REGISTRY
CIV-2008-441-856
BETWEEN SATARA CO-OPERATIVE GROUP
LIMITED Plaintiff
ANDFUS LIMITED (FORMERLY APOLLO FRUIT LIMITED)
Defendant
Hearing: 28 January 2010
Appearances: R.E. Kettelwell - Counsel for Plaintiff
J.G. Krebs - Counsel for Defendant
Reasons for Decision: 28 January 2010
REASONS FOR DECISION OF ASSOCIATE JUDGE D.I. GENDALL
Solicitors: Sharp Tudhope, Lawyers, Private Bag 12020, Tauranga
Langley Twigg, Solicitors, PO Box 446, Napier
SATARA CO-OPERATIVE GROUP LIMITED V FUS LIMITED (FORMERLY APOLLO FRUIT LIMITED)
HC NAP CIV-2008-441-856 28 January 2010
[1] Before the Court today was an oral application made under r 1.7 High Court Rules on behalf of the plaintiff pursuant to s. 248(1) Companies Act 1993. This application sought an order of the Court granting leave to the plaintiff to continue this proceeding against the first defendant company FUS Limited (in liquidation) which is a company in liquidation (“the company”).
[2] Earlier today, having heard argument and submissions from counsel for the plaintiff and counsel for the defendants I granted the application and made the order granting leave to the plaintiff to continue this proceeding against the first defendant company.
[3] In doing so I indicated that my reasons for this decision would follow. I now set out those reasons.
[4] Section 248(1)(c) Companies Act 1993 (“the Act”) states:
“(1) With effect from the commencement of the liquidation of a company –
....
(c) Unless the liquidator agrees or the Court orders otherwise, a person must not –
(i) commence or continue legal proceedings against the company or in relation to its property; or
(ii) exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property of the company ...”.
[5] Addressing this provision, Brookers Company & Securities Law at para. CA248.03(2) states:
“(2) Leave to proceed
The factors relevant to the exercise of the Court's discretion under s 248
turn on whether:
(1)Any circumstances exist which render it necessary that the legal proceedings should continue; or
(2)The plaintiff’s claim is not one that can easily be dealt with in the liquidation.
For examples, see: Body Corporate 81381 v Trebe NZ Ltd (in liq) 13/5/03, Master Gendall, HC Wellington CIV-2003-485-332; Century Mercantile Co v Auckland Provincial Fruitgrowers’ Co-op Soc Ltd [1921] NZLR 272; and Loyal Ltd v Standard Tobacco Co Ltd (in liq) [1935] NZLR 83.
For examples of the application of this principle in different circumstances, see: Re Ahead Group Ltd 11/8/00, Williams J, HC Auckland M2027- SW99; Pacific Produce Co Ltd v Franklin Co-op Growers Ltd (in liq) [69] NZLR 65; Re Mitchell Ltd (1914) 16 GLR 541; and Hall v OldTalargoch Lead Mining Co (1876) 3 Ch D 749.
The leading recent authority concerning the granting of leave under s 248
is Fisher v Isbey (1999) 13 PRNZ 182, where Master Faire summarised the factors that have weighed with the Court in other cases concerning the exercise of the discretion to allow proceedings to continue. His Honour’s conclusions on the relevant principles to be applied were as follows:
(a)The Court has a discretion whether to grant leave. It is a cardinal principle that there must be equality among various creditors, and the bringing of proceedings should not produce a comparative advantage to any particular creditor: Steel & Tube Co of NZ Ltd v JBL Construction Ltd [1973] 2
NZLR 30; Langley Constructions (Brixham) Ltd v Wells [1969] 1 WLR
503; [1969] 2 All ER 46.
(b) The assets of a company should not be dissipated in wasteful litigation, particularly if there is a more convenient method for determining the
claim. The onus is on the party seeking leave to satisfy the Court that leave should be given: McPhail v Durbridge Developments Ltd (in liq) (1998) 8
NZCLC 261,610.
(c) The Court must determine whether it is appropriate for the creditor’s
claims to be proved in the liquidation, or whether leave should be given to allow the claims to be established by way of civil proceedings: Pacific Produce Co Ltd v Franklin Co-op Growers Ltd (in liq) [1969] NZLR 65; Loyal Ltd v Standard Tobacco Co Ltd (in liq) [1935] NZLR 83.
(d) The appropriate test is that the Court be satisfied that the proposed claim is not clearly unsustainable. The Court should not examine the merits of the case: Bristol & West BS v Trustee [1998] 1 BCLC 485. See also Body Corporate 81381 v Trebe NZ Ltd (in liq) 13/5/03, Master Gendall, HC Wellington CIV-2003-485-332; Sieradzki v Kahitatea Mfg Ltd (in liq)
15/3/00, Potter J, HC Auckland M54-SW/00; Hook v Gulf Harbour Development Ltd (in liq) 23/11/05, Associate Judge Doogue, HC Auckland CIV-2002-404-1931.
However, in Birchall v Project Works Construction Ltd (in liq) (2004) 9 NZCLC
263,547, the Court noted that the principles in Fisher v Isbey are not exhaustive. In Birchall, Frater J accepted that the following two factors are also relevant to an exercise of discretion under s 248(1)(c), namely:
(e) Leave under s 248(1)(c) will usually be declined if the proceedings sought
to be commenced, even if successful, are likely to be fruitless: Johnson v CBD Real Estate Ltd (in liq) (1999) 14 PRNZ 320, at p 322. See also IH Wedding & Sons Ltd v Buy-Sell Realty NZ Ltd 27/11/08, Allan J, HC Auckland CIV-2008-404-5502.
(f) Delay by the applicant: McPhail v Durbridge Developments Ltd (in liq)
(1998) 8 NZCLC 261,610.”
[6] In the present case, Mr. Krebs for the second defendants who are the liquidators of the company (“the liquidators”) confirmed that they do not oppose the present application for leave.
[7] Mr. Krebs confirmed that the liquidators do not wish to stand in the way of the plaintiff proceeding with this application and here they take what he described as
a neutral and conservative approach. Although not opposing the present application
for leave, the liquidators take the view however that the application should be considered by the Court on its merits.
[8] In the present case the liquidators have declined to accept the plaintiff’s proof
of debt form and its claim to be a creditor of the company. This original rejection of the plaintiff’s claim was made, as I understand the position, on the basis that the liquidators said they were not in a position to decide the correctness or otherwise of the claim. Significantly, in an affidavit in support provided by the liquidators it has been deposed that:
“It was our view that it would be wrong to pre-empt the decision of the Court as to liability and quantum.”
[9] That said, and given that the liquidators, although not formally agreeing to the plaintiff continuing this proceeding against the company clearly do not oppose such an application, I am satisfied here that it is appropriate for the Court to exercise
its discretion to grant leave for several reasons. First, as I see it, there is no other more convenient method in this case to determine the plaintiff’s claim to be an unsecured creditor of the company.
[10] Next, it is clear here that the second defendant liquidators have refused to consider the merits of the plaintiff’s present claim.
[11] It appears too that the assets of the company in liquidation would not be dissipated if these proceedings are allowed to continue as I understand the liquidators have confirmed that the proceedings will either be undefended and will progress to formal proof or alternatively the shareholders of the first defendant company will personally fund the company’s defence – McPhail v Durbridge Developments Limited (in liq).
[12] Counsel for both parties also confirmed before me that at present the only other creditor of the company is represented by a claim by a related company or group of companies. Under the circumstances here, to provide equality amongst all genuine creditors of the company, the plaintiff’s claim needs first to be properly determined. I am satisfied that allowing the present proceedings to continue would
not produce any particular advantage or disadvantage to the other creditor of the company as the proceedings will simply prove or disprove the plaintiff’s unsecured creditor claim – Steel & Tube Co v JBL Construction Limited. To deny the present application would be to prevent the plaintiff from establishing its claim against the company by way of civil proceedings and effectively to confirm without hearing the decision of the liquidators to disallow the claim – Pacific Produce Co Limited v Franklin Co Op Growers Limited (in liq).
[13] In terms of the tests outlined in Fisher v Isbey, the plaintiff’s claim here would appear to be not clearly unsustainable and should have the opportunity to be established in the present proceedings where issues of liability and quantum can be properly considered and determined – Saimei v McKay High Court Auckland, Patterson J. CP643/96, 1 October 1998.
[14] Finally, in terms of the additional requirements out lined in Birchall v Project Works Construction Limited (in liq) as I see it, there has not been undue delay by the plaintiff applicant here, nor can it be said that the present proceedings even if successful are likely to be fruitless. On this last aspect, before me today, Mr. Krebs volunteered that if successful the plaintiff along with the related company creditor of the company would be likely to receive not less than 10 cents in the dollar of its claimed debt.
[15] For all these reasons I am satisfied that the Court should exercise its discretion here to grant leave to enable the plaintiff which claims to be an unsecured creditor of the company, to pursue its rights of recourse against that company.
[16] The order made earlier today granting leave to proceed and noted at para. [2]
above is confirmed.
‘Associate Judge D.I. Gendall’
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