Securities Management Limited v Registrar of Companies

[2017] NZHC 46

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2017-409-29 [2017] NZHC 46

UNDER

s 101 of the Limited Partnership Act 2008

and s 329 of the Companies Act 1993

IN THE MATTER OF

an application by the company known as SECURITIES MANAGEMENT LIMITED for an order that the limited partnerships known as ENERGY SECURITIES LP, NZ INVESTMENT SECURITIES LP, PEARSON SECURITIES LP, POWERSHARES LP and CARLYLE SECURITIES LP be restored to the New Zealand register of limited partnerships

BETWEEN

SECURITIES MANAGEMENT LIMITED

Applicant

AND

THE REGISTRAR OF COMPANIES Respondent

Hearing:	30 January 2016 (On the papers and Teleconference)
Appearances:	R K Smyth for Applicant B T Whimp (in person)
Judgment:	31 January 2017

JUDGMENT OF NICHOLAS DAVIDSON J

The application before the court

[1]      The applicant, Securities Management Ltd, has been the General Partner to what were a number of limited partnerships registered on the New Zealand Register

SECURITIES MANAGEMENT LTD v THE REGISTRAR OF COMPANIES [2017] NZHC 46 [31 January 2017]

(the Register).  On 1 August 2016, these limited partnerships1  were struck off the Register for non-compliance with reporting obligations. In particular, the applicant, in its role as General Partner, failed to file in time annual returns for those partnerships for the 2016 financial year.

[2]      On  25  January  2017,  the  applicant  filed  in  this  court  an  originating application  without  notice,  which  seeks  to  have  restored  to  the  Register  those limited partnerships.  The primary purpose of the application is to have the limited partnerships restored so that the applicant may commence proceedings against third parties alleging losses caused by wrongful failure to register share transfers.

[3]      Mr Bernard Whimp, the sole shareholder and director of the applicant, swore an  affidavit  in  support  dated  24  January 2017.    Following  a  teleconference  on

30 January 2017, Mr Whimp filed a further affidavit which describes in greater detail the circumstances in which this application is made, including the claims which the limited partnerships are said to have against the third parties.

[4]      An urgency in this application arises from the fact that the earliest of these claims is said to have arisen between 31 January 2011 to 2 February 2011. Accordingly, the six-year limitation period which is likely to apply to those claims will have run its course by the corresponding dates in 2017.

[5]      Mr  Whimp  deposes  that  the  failure  to  file  the  relevant  returns  was  an oversight, resulting from his pre-occupation with unspecified financial and property matters.  Previous experiences with filing documents with the Registrar had led him to believe that non-compliance here would not be fatal to continued registration. The limited partnerships have been registered since 2010, and this is the first incidence of non-compliance  with  reporting  obligations.   As  to  the  delay in  prosecuting  the outstanding claims, which has made an order today critical, Mr Whimp explains that in the past six years he has spent lengthy periods residing overseas which made

difficult his practical participation in proceedings here in New Zealand.

1      Energy Securities LP, NZ Investment Securities LP, Pearson Securities LP, Powershares LP, Carlyle Securities LP.

The legal framework

[6]      Restoration by court order of a limited partnership to the Register is governed by s 101 of the Limited Partnership Act 2008, which in turn directs that, for relevant purposes, s 329 of the Companies Act 1993 applies, with all necessary modifications. Therefore, principles arising from case law dealing with restoration of companies to the Companies Register are applicable.

[7]      Ultimately, the matter is one of discretion, although the case law provides guidance as to the principles relevant to its exercise.

[8]      The starting point is the court will seldom decline to restore a company to the register.  This is particularly so where other proceedings are at stake, except where the proposed claims are “nugatory” or without merit.2

[9]      However, legal commentary to s 329 records the author’s opinion that:3

The Court will not simply restore a company to the register because it is asked to, even if it is purportedly for the purpose of allowing the company to pursue litigation against a third party.

[10]     There have been cases where the court has considered whether or not to restore a company to the Register after it has  failed to file annual returns.    In Re Ghuznee Securities Ltd,4  restoration was not granted. In that case, the company had failed to file annual returns for a number of years, and there had been no adequate explanation given to the court about the reasons for the failure to file the relevant returns.  Significant default may be relevant to the exercise of the court’s discretion.

[11]     I consider the present case to be distinguishable.  There has been a failure to file in only one year, and an explanation, albeit one lacking in any particularity, has

been provided.

2      John Hammonds & Co Ltd v Registrar of Companies [1999] 3 NZLR 690 (HC) at [57]-[59].

3      Company Law – A to Z of New Zealand Law (online ed, Thomson Reuters) at CA329.08.

4      Re Ghuznee Securities Ltd (1983) 1 NZCLC 98-097 (HC).

[12]     The judgment in Re Saxpack Foods Ltd5  discussed principles relevant to restoration under the 1955 Act.6 Some of those principles are pertinent to the present case, and are engaged by the affidavits provided. These include:

(a)      The court must be provided with “full and frank disclosure” as to the

circumstances leading up to the striking off.

(b)Personal  circumstances  of the  applicant  may be considered  (these include illness and ignorance of the striking off).

(c)       If   there   are   countervailing   public/private   considerations   to   be weighed, these should be identified and assessed.

[13]     As well as an overall discretion whether to make the order sought, the court has a discretion in terms of what it can require prior to granting an application to have the body restored to the relevant register.   Section 329(3) of the Companies Act 1993 provides:

(3)       Before  the  court  makes  an  order  restoring  a  company  to  the New Zealand register under this section, it may require any provisions of this Act or any regulations made under this Act, being provisions with which the company had failed to comply before it was removed from the register, to be complied with.

References to “provisions of this Act” are to references of the Limited Partnerships

Act 2008, which include those provisions requiring the filing of annual returns.

[14]     In his affidavit of 24 January 2017, Mr Whimp has undertaken on behalf of the applicant to  file the overdue returns for 2016, and to  continue to  meet the obligation to file annual returns in the future.  Compliance is a necessary incident of any order.  The legislation leaves it to discretion as to whether compliance must be

achieved before or after the fact.

5      Re Saxpack Foods Ltd [1994] 1 NZLR 605 (HC).

6      These provisions, barring some differences as to time periods for application and the ability to require payment for costs, are similar to those under the 1993 Act.

[15]     Under s 329(4) of the Companies Act, the court:

…may give such directions or make such orders as may be necessary or desirable for the purpose of placing the company and any other persons as nearly as possible in the same position as if the company had not been removed from the New Zealand register.

[16]     These directions and orders can include “winding back the clock” provisions, which affect when limitation periods run/start/stop.  Most of the time these are used to protect the interests of creditors who have claims against the company but who, because of the company’s de-registration, are unable to sue the company.

[17]     In cases where pending claims have been considered a relevant factor, they have usually related to claims by creditors against the company which has been struck off.   The justice of the case directs that the company should be restored to protect such claims.

[18]     The position here is the reverse.  It is the limited partnership which purport to have claims against third parties, and the considerations of the interests of justice are arguably different.  The claims against third parties are not related in any way to the striking off of the limited partnerships.  Mr Whimp has largely been the architect of the problems which the applicant and the affected limited partnerships now face.  His omission  led to  the limited partnerships  being  deregistered,  and  he delayed  the prosecution of any claims he says he has against third parties.  This is very different to a case where, through no fault of their own, creditors have been unable to pursue their claims, or where a company has been struck off for other reasons, but has real and legitimate claims which have not been delayed by its own conduct.

[19]     I have some detail about the nature of the intended proceedings.   They are based  on  the non-registration  of share  ownership  by Mr Whimp’s  interests,  for various reasons.  These share transactions stem from the so-called “low ball” offers to shareholders to purchase shares below market price.  It is, however, not for this Court to embark on any extensive inquiry into the merits of those proceedings.  They appear to be tenable, or, as the case law demonstrates, not “nugatory”.

[20]     There is clearly an issue of enforceability of such contracts but this is not the forum for determination.

[21]     Considering all the circumstances, including the factual background leading to the limited partnerships being struck off the Register, and the claims which may now become statute-barred, the application should be granted.   I might have seen fit to decline the application sought without evidence that the overdue financial reports are now completed, however, the ramifications of now delaying such an order just tip the balance in favour of granting the order sought.

[22]     I  therefore  intend   to   make   an   order   restoring   the  specified   limited partnerships to the Register.  However, the applicant’s administration, in this respect, has  been  poor,  and  a condition  of the order will be swift  compliance with  the outstanding reporting requirements.

The Order

[23]     Accordingly,  this  Court  orders that  the following limited partnerships  be restored to the Register, effectively immediately:

·    Energy Securities LP

·    NZ Investment Securities LP

·    Pearson Securities LP

·    Powershares LP

·    Carlyle Securities LP

[24]     This Order is conditional on the applicant, through its officer, Mr Whimp, filing the overdue 2016 returns by Friday 3 January 2017, and providing the court with evidence to that effect.  Failing that, the Order will be set aside.

[25]     This Order is further conditional on the applicant serving The Registrar of

Companies today (31  January  2017)  and  the  Registrar  may  refer  any  matter  of concern to the Court which extends to any issue which might be relevant to the Order made.

…………………………………

Nicholas Davidson J

Solicitors:

Currie Lawyers Ltd, Christchurch

Mr B T Whimp, Christchurch