Sharrock v Wedd
[2017] NZHC 1739
•26 July 2017
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
CIV-2016-441-107 [2017] NZHC 1739
BETWEEN GERALD ERRINGTON SHARROCK
Plaintiff
AND
STEPHEN CHARLES WEDD First defendant
JOHN BRIAN KIPPING Second defendant
BRENTON JOHN HUNT Third defendant
AFFORDABLE RESIDENTIAL LIMITED
Fourth defendant
REGISTRAR OF COMPANIES Fifth defendant
Hearing: 10 March 2017 Appearances:
Mr Hucker and Ms Selby for the plaintiff
Mr Wedd in person
Mr Kipping in person
No appearances for the third, fourth or fifth defendantsJudgment:
26 July 2017
JUDGMENT OF ASSOCIATE JUDGE SMITH
Introduction
[1] In this proceeding the plaintiff (Mr Sharrock) seeks declarations that he is a shareholder in the fourth defendant (Affordable). He also seeks a declaration that the second defendant (Mr Kipping), who is recorded on the Companies Register as a
director of Affordable, has not been validly appointed as such, there having been no
SHARROCK v WEDD [2017] NZHC 1739 [26 July 2017]
shareholders’ meeting called or resolution of shareholders appointing Mr Kipping a director.
[2] Further relief is sought under the Companies Act 1993 (the Act) in respect of the purported appointment by the first defendant (Mr Wedd), without the knowledge or approval of Affordable, of the third defendant (Mr Hunt) as liquidator of Affordable. Mr Sharrock asks for an order rectifying the Companies Register in addition to the various declarations, together with an order for costs on an indemnity basis.
[3] Mr Sharrock has taken the view that the defendants have no defences to his claims, and he has applied for summary judgment on them.
[4] Mr Hunt has elected not to contest the application for an order under the Act declaring that he was not validly appointed liquidator. He has filed a consent to an order being made under s 284(1)(g) of the Act declaring that his appointment was not valid.
[5] The fifth defendant, the Registrar of Companies, abides the decision of the court, and did not participate in the hearing on 10 March 2017.
[6] I now give judgment on Mr Sharrock’s application for summary judgment.
Background
The Deed
[7] On 22 February 2013 Mr Sharrock, Affordable, Mr Wedd and a company called Just Steel Framing Ltd (Just Steel) entered into a deed (the Deed), under which Mr Sharrock was to acquire 50 per cent of the shares in Just Steel and Affordable. The sole shareholder at that time was Mr Wedd.
[8] The background to the execution of the deed is set out in some detail in a judgment I gave in a proceeding commenced by Mr Sharrock and Just Steel against
Mr Wedd (the Just Steel proceeding).1 In that judgment, I made a declaration that Mr Sharrock is, and has since 22 February 2013 been, a director of Just Steel. I also made a declaration that Mr Sharrock was entitled to be entered as a shareholder in the share register of Just Steel, or (in the event that such a share register already existed — as Mr Wedd had contended) to an order rectifying that register under s 91 of the Act by including Mr Sharrock’s name in the register in respect of (i) the shares acquired by him under the Deed and (ii) any other shares he may subsequently have validly acquired in Just Steel.
[9] Briefly, Mr Wedd had established Just Steel in March 2011. Just Steel purchased a roll forming machine, which was used to manufacture light gauge steel framing for houses. Affordable had a contract for building 16 houses, and Just Steel and Affordable required capital to grow Just Steel and to perform the contract to build the houses.
[10] Mr Webb consulted Mr Kevin Whitley, an experienced chartered accountant, and Mr Whitley introduced Mr Sharrock as a prospective investor in both Just Steel and Affordable.
[11] The Deed provided that the share capital of both Affordable and Just Steel would be increased. The shareholding in Just Steel was to increase from 1,000 shares to 2,000 shares, with the additional shares being allocated to Mr Sharrock upon payment of $124,999. Mr Sharrock was also to take an additional 100 shares which were to be issued in Affordable, for a consideration of $1.
[12] In addition to the $125,000 Mr Sharrock agreed to contribute by way of additional share capital in the two companies, Mr Sharrock agreed to provide a loan of $125,000 to Just Steel. Just Steel undertook that it would then lend $200,000 to Affordable to meet Affordable’s working capital requirements. All of those transactions were to be effected contemporaneously, and each was said to be essential to the overall agreement. The Deed recorded that, for the avoidance of
doubt, Mr Sharrock was to receive 50 per cent of the shares in both Just Steel and
1 Sharrock v Wedd [2016] NZHC 1477.
Affordable. The Deed further recorded that Mr Sharrock was to be appointed a director of Just Steel, and that Mr Wedd was to remain a director of both companies.
[13] Clause 1(i) of the Deed provided that the new shares to be issued by Affordable were “to be allocated to [Mr Sharrock] upon payment of $1”. The new shares in Just Steel were to be allocated to Mr Sharrock upon payment of $124,999. Under clause 15 of the Deed, Mr Sharrock was required to pay $40,000 to Just Steel on 1 March 2013. On that date, Just Steel and Affordable were to allocate the new shares in Just Steel and Affordable, and Mr Wedd was to provide signed company resolutions (and registered share certificates). Mr Sharrock was to pay the remaining
$210,000 within 14 days.
[14] A Just Steel director’s resolution dated 28 February 2013 was completed by Mr Wedd. It recorded a resolution to issue an additional 1,000 shares in Just Steel. On the same day, Mr Wedd signed a form of shareholder’s consent to the issue of the additional shares in Just Steel. The shareholder’s consent form referred expressly to the issue of the new shares to Mr Sharrock, and to the Just Steel director’s resolution which Mr Wedd had signed.
[15] Mr Sharrock also signed a formal subscription agreement for the shares he was to take in Just Steel, on 28 February 2013. The document was signed on behalf of Just Steel, apparently by Mr Wedd, under the heading “Acceptance of Subscription”.
[16] Mr Sharrock says that he paid the full amounts required of him under the Deed, either by capital introduced directly into Just Steel by a company associated with him called Tannenberg Limited (Tannenberg), or by payment to Just Steel’s creditors. Mr Sharrock says that he caused Tannenberg to pay amounts totalling
$47,638.75 to third party creditors of Just Steel and Affordable. In total he says that he paid $257,787.74 to Just Steel and to the creditors, which was more than sufficient to satisfy his obligations under the Deed.
Companies’ status
[17] Mr Sharrock and Mr Whitley say that Mr Wedd was removed as a director and shareholder of the companies on or about 12 April 2013, on the basis that he had allegedly misrepresented the position in respect of the extent of the companies’ creditors. Mr Whitely says in his evidence that he attended a number of meetings with Mr Wedd and Mr Sharrock, including a final meeting when it was resolved that Mr Wedd should depart as director and shareholder. He says that he recalls Mr Wedd signing resignations as director, and share transfer documentation, for both companies, and that he then arranged to register these changes at the Companies Office. The result of the changes was said to be that Mr Sharrock became the sole shareholder and the sole director.
[18] Mr Wedd and Mr Kipping deny these allegations. They contend that Mr Wedd was wrongfully ousted from Just Steel and Affordable, and that Mr Sharrock had no rights in either company as he had not fully paid for his shares.
[19] On 16 April 2013 Tannenberg appointed an Auckland solicitor, Mr Stephen Potter, as receiver of Affordable. Mr Sharrock says that Mr Potter was removed as receiver in January 2015, but a “Final Report” filed with the Companies Office by Mr Potter on 3 June 2016 says that the receivership “came to an end” on or about
20 May 2015. The report included the following:
(a) the accounts for Affordable record no money was received from Tannenberg for the purchase or acquisition of shares. Mr Wedd advised he had not received payment for the shares in Affordable.
(b) Tannenberg has not and did not pay for the shares it acquired in
Affordable.
(c) “it is now my opinion that [Affordable] ought never have been placed
in receivership”.
[20] On 28 June 2016, Mr Wedd and/ or Mr Kipping lodged with the Companies
Office a “Particulars of Shareholding” document for Affordable. The document
represented that Mr Sharrock had been removed as a shareholder. It recorded 100 shares as having either been forfeited and/ or transferred from Mr Sharrock to Mr Wedd personally. The registered office address of Affordable was also changed.
[21] Mr Sharrock says the filing of this document did not come to his attention until a few days after its lodgement.
[22] On 22 July 2016, Mr Josland, a solicitor for the Registrar of Companies, advised Mr Sharrock that the Registrar intended to provide notice to Affordable of the Registrar’s intention to rectify the Companies Register to show Mr Sharrock’s shareholding in Affordable.
[23] On or about 1 August 2016 Mr Wedd and/ or Mr Kipping lodged a “Consent and certificate of Director” document with the Companies Office. The document recorded that Mr Kipping had been appointed as a director of Affordable on
20 July 2016. It also recorded that Mr Kipping had granted his consent to be a director of Affordable and was not disqualified from being appointed or holding office as a director. The document was signed on 30 July 2016. The form records it was “completed by” Mr Wedd. A “Particulars of Director” document was also filed, recording Mr Wedd as the “Presenter” and Mr Kipping as a “New Director” appointed on 20 July 2016.
[24] On or about 1 August 2016 Mr Kipping, purporting to act as director of Affordable, lodged an objection to the Registrar proceeding to rectify the Companies Register.
[25] Mr Wedd, purporting to act as the sole shareholder in Affordable, then resolved to appoint Mr Hunt as liquidator of Affordable. Notification of Mr Hunt’s appointment was lodged with the Companies Office on 18 August 2016.
[26] On 19 August, Mr Josland advised Mr Sharrock that the Registrar now had no ability to rectify the Companies Register as proposed given the provisions of ss 360A(4) and 360B of the Act, and the objection received from Mr Kipping.
The Just Steel Proceeding
[27] On 1 December 2015 Mr Wedd had lodged an annual return with the Companies Office purporting to record that Mr Sharrock was no longer a shareholder in Just Steel. He also lodged particulars of directors of Just Steel which showed that Mr Sharrock had been removed as a director of Just Steel. Mr Sharrock alleged in the Just Steel proceeding that Mr Wedd had been removed as a shareholder in Just Steel on or about 12 April 2013, and that at no time thereafter had he transferred any shares in Just Steel to Mr Wedd. Nor had he resigned as a director of Just Steel.
[28] At the hearing of the summary judgment application in the Just Steel application, Mr Webb abandoned any contention that Mr Sharrock had not become a shareholder in, and director of, Just Steel. However he maintained the position that Mr Sharrock had ceased to hold those offices when he lodged the annual return and particulars of directors for Just Steel with the Companies Office in December 2015.
[29] I was satisfied on the evidence in the Just Steel proceeding that Mr Sharrock had shown that he was entitled to be entered on the share register for Just Steel as the holder of shares in that company. While he had not paid the $40,000 due on
1 March 2013 in accordance with clause 15 of the Deed, there was no evidence of Mr Wedd or Just Steel cancelling the Deed for late payment by Mr Sharrock, and Mr Wedd conceded at the hearing that Mr Sharrock had become a shareholder at that time. I also concluded that Mr Sharrock was validly appointed a director of Just Steel, and made a declaration accordingly.
[30] Mr Wedd applied for an order recalling my judgment given in the Just Steel proceeding. I dismissed the recall application on the basis that Mr Wedd had provided no sworn evidence of special circumstances sufficient to justify recall, and that there was no basis for the recall application.2
[31] In my judgment on the recall application in the Just Steel proceeding, I noted that the judgment was only concerned with Mr Sharrock’s claimed shareholding in
2 Sharrock v Wedd (No. 2) [2016] NZHC 1802.
Just Steel, and his directorship of that company. It was not concerned at all with the shares he was to take in Affordable.3
The evidence
Defendants’ evidence
[32] Mr Kipping filed an affidavit on 10 November 2016.4 Mr Wedd filed an affidavit, in very similar wording, the same day. The main assertions from those affidavits are:
(a) Mr Sharrock’s affidavit is false. In particular, he did not purportedly
acquire a 50% shareholding in Affordable until 28 February 2013, not
22 February 2013, as stated in Mr Sharrock’s affidavit.
(b)Reliance is placed on Stratus Construction Ltd v Affordable Residential Ltd (in rec),5 where Mr Sharrock allegedly issued a statutory demand in the name of Affordable to Stratus Construction Ltd, which was set aside. Mr Kipping and Mr Wedd say Mr Sharrock had no authority to issue the demand as he was not a director of Affordable.
(c) Mr Sharrock was never the sole shareholder of Affordable, nor a director.
(d)The Final Receivers Report filed by Mr Potter on 3 June 2016 makes it clear that neither Mr Sharrock, nor any other party, paid for any shares in Affordable.
(e) The “Particulars of Shareholding” lodged on 28 June 2016 shows the
true position, this being done by resolution of Mr Wedd, the sole director of Affordable until 1 August 2016.
3 At [18].
4 This was amended accordingly following a minute I issued on 10 November 2016.
5 Stratus Construction Ltd v Affordable Residential Ltd (in rec) [2013] NZHC 2842.
(f) Mr Kipping and Mr Wedd do not want Mr Sharrock involved with
Affordable.
[33] On Mr Sharrock’s (allegedly false) contention that he acquired his shareholding in Affordable on 22 February 2013, Mr Kipping produced a Companies Office record of filings for Affordable, which records the filing of “Update Shares”, “Director Certificate”, and “Particulars of Shareholding” on 28 February 2013.
[34] Mr Kipping and Mr Wedd refer to a lack of evidence from Mr Sharrock that he paid for the shares. They say there is no evidence of payment, nor could Mr Potter find any evidence of payment.
[35] Mr Potter provided an affirmation supporting the notices of opposition filed by Mr Wedd and Mr Kipping. He affirmed that during his involvement with Affordable he discovered no money had passed from Tannenberg, or from anywhere else including Mr Sharrock, for the purchase of shares in Affordable. He stated that he put this to Mr Sharrock, who replied that he had paid for the shares but was both unwilling and unable to provide any supporting evidence. Mr Potter confirmed the truthfulness of the contents of the Final Receivers Report, including the statement that neither Tannenberg nor Mr Sharrock have paid for shares in Affordable.
Affidavits in reply
[36] There were two affidavits in reply.
[37] Mr Whitley filed an affidavit providing background to the execution of the Deed. He said that in December 2012 Mr Wedd was referred to him as a potential client who was operating a steel framing business. At the time, it was obvious to Mr Whitley that Mr Wedd was severely undercapitalised. He then introduced Mr Sharrock as an investor.
[38] Mr Whitley stated that Mr Wedd received independent advice on the Deed, and that a number of changes were made to the original draft. He confirmed that Mr Wedd and Mr Sharrock executed all the necessary documents, including shareholder’s and director’s resolutions appointing Mr Sharrock as a director of
Just Steel and providing for the allocation of shares to Mr Sharrock in Just Steel and Affordable. Mr Whitley said that it was agreed that he was to be an authorised person to lodge documents on behalf of Just Steel at the Companies Office.
[39] Mr Whitley’s evidence was that it was his understanding that Mr Sharrock’s funds would be applied to clear known existing creditors of Affordable and Just Steel. But it emerged that Mr Wedd had misrepresented the extent of the indebtedness of the two companies.
[40] Mr Whitley referred to the final meeting with Mr Wedd and Mr Sharrock in April 2013, when it was resolved that Mr Wedd should depart as director and shareholder. Mr Whitley named the location of the meeting, and referred to certain other matters that were agreed, including the transfer of a company jeep and Mr Sharrock funding a trip by Mr Wedd to China.
[41] Mr Whitley referred to Mr Sharrock and Mr Potter having a falling out, saying that “many of the documents evidencing Mr Wedd’s resignation have been retained by Mr Potter”. He also contended that Mr Potter remained in default of a direction given by Justice Thomas’ to hand over company records.
[42] In his affidavit in reply, Mr Sharrock produced copies of the director’s resolution for Affordable, an authority given to Mr Whitley to act as tax agent, the Affordable “Subscription Agreement”, and a banking mandate in relation to Affordable. The director’s resolution signed by Mr Wedd as director of Affordable on 28 February 2013 resolved to issue 100 additional shares in Affordable. By the subscription agreement (also dated 28 February 2013) Mr Sharrock agreed to subscribe for those additional shares, for a consideration of $1. The subscription agreement was signed by Mr Wedd on behalf of Affordable. The ANZ Master Account Mandate form showed Mr Wedd, Mr Sharrock and Mr Whitley as authorised signatories.
[43] Mr Sharrock stated that the funds for the share subscriptions came largely from Tannenberg. Tannenberg also funded the advances Mr Sharrock was required to make under the Deed.
[44] Mr Sharrock attached to his affidavit bank statements and a summary of the payments that he caused to be made to the bank account of Just Steel in partial satisfaction of his obligations under the Deed. The payments totalled $210,148.98. He stated that, given the financial circumstances of the companies as he found them to be, money also had to be paid to third party creditors of both Affordable and Just Steel. He provided a schedule detailing these payments, and extracts from the bank statements of Tannenberg showing that they were made.
[45] Mr Sharrock’s evidence was that when he discovered Mr Wedd’s alleged misrepresentations he estimated that there was a three hundred thousand dollar plus shortfall in the companies. He then arranged for Mr Potter to complete the necessary documentation to forfeit the remaining shares held by Mr Wedd.
[46] Like Mr Whitley, Mr Sharrock referred to an agreement under which Mr Wedd delivered the company jeep to Mr Sharrock, while Mr Sharrock paid for Mr Wedd’s trip to China. Mr Sharrock stated that Mr Wedd did not challenge the forfeiture of his shares.
[47] Mr Sharrock stated that he has not seen any resolutions evidencing
Mr Kipping’s appointment as director.
[48] A second affidavit in reply from Mr Whitley responded to Mr Potter’s affirmation. Mr Whitley said his firm had obtained the bank statements for Just Steel. He attached copies of those bank statements, demonstrating that the
$210,148.98 referred to by Mr Sharrock was indeed paid into Just Steel’s bank
account.
The law
[49] Rule 12.2 of the High Court Rules materially provides:
12.2 Judgment when there is no defence…
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[50] The proper approach to be taken to such applications was considered by the
Court of Appeal in Krukziener v Hanover Finance Ltd, where the Court said:6
The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11
PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept
uncritically evidence that is inherently lacking in credibility, as for example
where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Young v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
[51] For present purposes, the law required Mr Sharrock to comply with the formalities of r 12 and put forward sufficient evidence for the Court to be confident there is no defence. It was then for Mr Wedd and Mr Kipping to provide some evidential foundation for a bona fide defence. Absent such a foundation,
Mr Sharrock’s verified claim must be accepted, unless it is patently wrong.7
[52] The statutory jurisdiction Mr Sharrock invokes is the Declaratory Judgments Act 1908, which enables anyone whose conduct or rights depend on the effect or meaning of an instrument, including an agreement, to obtain an authoritative ruling.8
Questions concerning the interpretation of “any deed” or “articles of association of any company”, are expressly included in s 3 of the Declaratory Judgments Act as meeting the threshold for applying for a declaration.
[53] The court also has an inherent jurisdiction to grant declaratory relief.9
[54] A declaratory order is binding “on the person making the application and on
all persons on whom the summons has been served, and on all other persons who
6 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26].
7 Doyles Trading Co Ltd v West End Services Ltd [1989] 1 NZLR 38 (CA) at 41; Australian
Guarantee Corporation (NZ) Ltd v McBeth [1992] 3 NZLR 54 (CA) at 58.
8 Declaratory Judgments Act 1908, s 3 and Mandic v The Cornwall Park Trust Board [2011] NZSC 135, [2012] 2 NZLR 194 at [9].
9 Re Chase [1989] 1 NZLR 325 (CA) at 333.
would have been bound by the said declaration if the proceedings wherein the declaration is made had been an action.”10 A Court will only make a declaration if it serves some necessary purpose.11
[55] The Court has jurisdiction to make a declaration on a summary judgment application.12
Issues
[56] There are four issues to be determined:
(1) is Mr Sharrock a shareholder in Affordable?
(2) was the appointment of Mr Kipping as a director of Affordable valid? (3) should an order be made rectifying the Companies Register pursuant
to s 360B of the Act?
(4) should an order be made under s 284(1)(g) of the Act declaring that
Mr Hunt’s appointment as liquidator was not valid?
Issue 1: is Mr Sharrock a shareholder in Affordable?
Submissions
[57] Mr Hucker submits that Mr Sharrock validly became a shareholder in Affordable, and there is no evidence that he has ever transferred his shares or that they have been forfeited. Given the steps taken by Mr Wedd and Mr Kipping in lodging false documents at the Companies Office, and ongoing representations to third parties that Mr Sharrock is not a shareholder in Affordable, a formal declaration of the Court is necessary to correct the position.
[58] Mr Hucker submits that the evidence of Mr Sharrock’s status as a shareholder
in Affordable is “overwhelmingly conclusive”. There was consideration paid for the
10 Declaratory Judgments Act 1908, s 4.
11 Erceg v Erceg [2014] NZHC 155 at [13].
12 Towers v R & W Hellaby Ltd (1987) 3 NZCLC 100,064 (HC).
shares in the company. He relies on my previous judgments in the Just Steel proceeding, submitting that Mr Sharrock became a shareholder in Affordable when he became a shareholder in Just Steel. Mr Hucker notes that there is no evidence of Affordable having a share register, and that Affordable does not have a constitution.
[59] In his submissions, which were adopted by Mr Wedd, Mr Kipping acknowledged the terms of the Deed, but submitted that cl 1 of the Deed was not fulfilled, and Mr Sharrock has failed to show that it was. Mr Sharrock did not invest the $250,000, and $200,000 was never advanced by Just Steel to Affordable. Mr Kipping submits that the payments should show in accounts for the companies, but they do not as they do not exist.
[60] Mr Kipping submits that Mr Wedd’s shares were “stolen”, and he should not have been dismissed as a director. He refers to cl 3(x) of the Deed which states “[Mr Wedd] shall remain a director for both companies”. Mr Kipping says that Affordable never received any money from Mr Sharrock, and that Mr Whitley has failed to provide accounts for either company.
[61] Mr Kipping refers to cl 15 of the Deed in respect of Mr Sharrock’s allegedly late and deficient payments, submitting that examination of the bank accounts for Just Steel shows that Mr Sharrock put in $210,148.98, not $257,787.84 as claimed. Mr Kipping then refers to the following amounts which are said to have been taken out of the Just Steel account by Mr Sharrock:
(a) $50,000 on 9 April 2013;
(b) $26,000 on 12 April 2013; and
(c) $26,000 (by way of GST refund) in May 2013.
[62] Mr Kipping says Just Steel’s bank statement covering the period 25 March
2013 to 24 April 2013 shows the first $76,000 being transferred out, without authority. (Mr Whitley is alleged to have omitted from his affidavit the page of Just Steel’s bank statements, which shows the removal of those funds).
[63] Mr Kipping submits that the one GST return actually completed by
Mr Whitley for Just Steel, for the six months up to the end of March 2013, claimed a
$26,000 refund. The refund was received, and it went to Advantage Management Systems Ltd (of which Mr Hucker is a joint 50% shareholder, together with Mr Whitley). Mr Kipping submits that the $26,000 refund implied that there was an excess of expenditure over income of $175,000, a figure which is not supported by the bank statements produced by Mr Sharrock. This is a matter which requires explanation at a future hearing.
[64] Mr Kipping submits that the net amount Mr Sharrock actually paid to Just Steel was around $108,000 (the $210,148.98, minus the withdrawals referred to in para [58] of this judgment). He submits that there was a “straightforward breach of contract”, and Mr Sharrock has attempted to mislead the court by omitting reference to the documents showing that $102,000 was removed from Just Steel’s account and paid to Mr Sharrock.
[65] Mr Kipping and Mr Wedd then allege that Mr Sharrock tried to defraud Affordable out of $209,000. They refer to Stratus Construction Ltd v Affordable Residential Ltd (in rec),13 a case in which the applicant (Stratus) successfully applied for an order setting aside a statutory demand which Affordable had issued. Mr Sharrock is said to have put Affordable into a “scam receivership” on
16 April 2013 (“scam” because Affordable did not owe any money). Mr Sharrock is then alleged to have wrongfully appointed himself as instructing solicitor for Affordable in the Stratus Construction Ltd case, and wrongfully deposed in an affidavit of 26 June 2013 in that proceeding that he was the “sole shareholder” of Affordable. Mr Sharrock is alleged to have been trying to “unjustly enrich” himself, by taking $209,000 from Stratus and diverting it to Just Steel because of the “scam receivership” (and claiming it all, having “dismissed” Mr Wedd as director). They contend that Mr Sharrock would have avoided paying any other creditors of Affordable.
[66] Mr Kipping and Mr Wedd also contend that on 20 March 2013 Mr Sharrock applied for a portable building on behalf of Affordable, and signed the application
13 Stratus Construction Ltd v Affordable Residential Ltd (in rec), above n 5.
“G Sharrock, Director”. Mr Sharrock was never a director of Affordable, and the
supplier’s invoice has never been paid by Mr Sharrock.
[67] In sum, Mr Wedd and Mr Kipping say that the Deed has been incurably breached for failure to meet its payment obligations. The result is that Mr Sharrock never acquired any shares in Affordable. They submit that this view is backed up by the Final Receivers Report and the affidavit of Mr Potter.
[68] They submit that Mr Sharrock’s claims and the other evidence cannot be reconciled, and that Mr Sharrock’s affidavit should be rejected in full. In the alternative, they have an arguable defence to Mr Sharrock’s claim for shares in Affordable, on the issues of irrevocable breach of the Deed, whether Mr Sharrock paid for the shares (and if so how much), and whether a partial payment by Mr Sharrock would have entitled him to the shares.
Discussion and conclusions
[69] In the Just Steel proceeding, I held that Mr Sharrock became entitled to the shares in Just Steel on 22 March 2013 at the latest, following payment of $170,000. The Deed relevantly provided that the Just Steel shares were to be allocated upon payment of $124,999 under cl 1(ii), and I considered that the documents executed in February 2013 (resolution to increase shares in Just Steel, subscription agreement signed by Mr Sharrock and Mr Wedd, and banking form signed by both parties) with Mr Wedd’s concession that Mr Sharrock had indeed become a shareholder in Just Steel, were sufficient to demonstrate Mr Sharrock’s entitlements as shareholder.
[70] The Deed provided that Mr Sharrock was to take an additional 100
Affordable shares for a consideration of $1. On my analysis in the Just Steel proceeding, Mr Sharrock would have become a shareholder in Affordable following payment of the same consideration. However Mr Wedd conceded the Just Steel shareholding in that case, and no similar concession has been made here. Further, it is accordingly necessary in this case for Mr Sharrock to prove that the total $250,000 was paid, to entitle him to a 50% shareholding interest in Affordable. Clause 1(v) of the Deed made it clear that the various obligations on Mr Sharrock to inject funds into the companies were not severable, and Mr Kipping cannot be bound by the
concession made by Mr Wedd in the Just Steel proceeding (Mr Kipping was not a party).
[71] As was the case with Mr Sharrock’s shareholding in Just Steel, Affordable has not kept a share register for the purposes of s 87 of the Act. However, under s 89 of the Act, entry in a company’s share register is only prima facie evidence of title to shares.
[72] The documents executed on 28 February 2013 all tend to support Mr Sharrock’s claim that he validly became a shareholder in Affordable. The “Director’s Resolution” resolved to issue 100 shares in the Affordable, and it was signed by Mr Wedd. The “Subscription Agreement” recorded that Mr Sharrock agreed to pay the “total Subscription price for each Share” of $1.00. It was signed by both Mr Sharrock and Mr Wedd.
[73] Mr Kipping and Mr Wedd accept that the bank accounts show that Mr Sharrock paid $210,148.98 into Just Steel. Mr Sharrock then gave evidence of additional payments made direct to third parties on behalf of Just Steel and/ or Affordable, amounting to $47,638.75. Each of those payments corresponds to entries in the Tannenberg bank account statements during the period of 28 February
2013 to 25 March 2013. The first and second payments, each of $9,999.00, are said to have been made in respect of a Nissan Navara used by an employee that otherwise would have been repossessed. And the “consent fees” to which Mr Sharrock referred in his affidavit are consistent with the references in the bank statements to “Auckland Council”. The remaining payments (to a building assessment firm AIQP, and various payments required by Mr Potter) are sufficiently supported by the Tannenberg bank statements.
[74] Mr Wedd and Mr Kipping have not produced any evidence showing that the payments totalling $47,638.75 were not made for the benefit of Just Steel and/or Affordable. While the information about the third party payments was provided in reply affidavits, those affidavits were filed over three and a half months before the hearing, and Mr Wedd was still involved in the companies in the period 28 February to 25 March 2013 He would have known if any of these payments were not made
for the benefit of Just Steel or Affordable, but neither he nor Mr Kipping sought to file any further affidavit challenging Mr Sharrock’s evidence that the Tannenberg payments were made to creditors of Just Steel and/or Affordable.
[75] I do not think the removal of funds from the Just Steel bank account assists Mr Wedd and Mr Kipping on the question of whether Mr Sharrock acquired a 50 per cent shareholding in Affordable. Mr Sharrock was entitled to have the Affordable shares on payment of the total $250,000 he was required to pay under the Deed, and the evidence shows that the payments were completed by 25 March 2013. The first alleged wrongful removal of funds was not until 9 April 2013, and it could not have affected Mr Sharrock’s entitlement to the shares, in accordance with cl 1 of the Deed, when he had completed the payments required of him under the Deed.
[76] Although Mr Kipping and Mr Wedd say that Mr Whitley should have provided the pages in the bank statements showing the removal of the three payments totalling $102,000, those pages were not required to show the payments going in to the bank account, to meet Mr Sharrock’s obligations under the Deed. If there was a wrongful removal of funds from the Just Steel account after Mr Sharrock became a shareholder (an allegation on which I express no opinion), that might have provided a basis for a claim by Just Steel against Mr Sharrock. But it would not have affected his position as a shareholder, and that is the issue with which I am presently concerned.
[77] Mr Sharrock made it clear in his evidence that he never once agreed to any arrangement to transfer his share to Mr Wedd. He said:
I have not agreed to transfer my shareholding nor have I signed any share transfer transferring any shares to Mr Wedd. I have received no notice from [Affordable] seeking to forfeit my shares nor to my knowledge would there be grounds for [Affordable] to do so.
[78] Mr Wedd and Mr Kipping have failed to put forward any evidence to suggest that the Deed was somehow breached or altered, in such a way as to deny Mr Sharrock his shareholding interest. On the other hand, Mr Sharrock and Mr Whitley referred to a share transfer agreement whereby Mr Wedd agreed to transfer his shareholding interest to Mr Sharrock. Mr Wedd has said very little about
that claimed transfer, and has not explained why he delayed taking any steps to rectify the position if he believed he was wrongly ousted from the company. But it is not necessary for me to decide the rights or wrongs of the events on or about
12 April 2013, when Mr Wedd’s shares are alleged to have been forfeited. That is because I am satisfied that Mr Sharrock did acquire 50 per cent of the shares in Affordable, and that 50 per cent holding was sufficient for him to effectively prevent the appointment of Mr Kipping as a director and (later) Mr Hunt as liquidator.
[79] Stratus Construction Ltd v Affordable Residential Ltd14 has no bearing on the
defendants’ case. Affordable had made demand for payment of $208,993.94 on
21 May 2013. At the hearing, it was accepted Stratus had an arguable case, and Affordable elected to withdraw its opposition to Stratus’ application to set aside the statutory demand. All of these events occurred subsequent to the time Mr Sharrock met his obligations under the Deed. The result of that case has no effect on the issue of whether Mr Sharrock had met his payment obligations under the Deed, which is the issue with which I am presently concerned.
[80] Nor am I assisted by Mr Potter’s evidence. As I understand it, he was only appointed receiver of Affordable, and he would not necessarily have been aware of payments made to or for the benefit of Just Steel. And clause 15 of the Deed made it clear that the shares in both companies were to be allocated on payment of the first
$40,000, with the remaining $210,000 to be paid a fortnight later. The consideration for the Affordable shares was only $1, and it is understandable in those circumstances that the parties were content for that payment obligation to be “merged” with Mr Sharrock’s obligation to inject funds into Just Steel.
[81] Overall, I am satisfied Mr Sharrock met his payment obligations under the Deed, in paying $257,787.74 to Just Steel and various creditors. He was therefore entitled to 50 per cent of the shares in Affordable. I accordingly find in favour of
Mr Sharrock on issue 1.
14 Stratus Construction Ltd v Affordable Residential Ltd, above n 5.
Issue 2: was the appointment of Mr Kipping as a director of Affordable valid?
Submissions
[82] Mr Hucker notes that Affordable has no constitution, and that the Deed did not contain provision for the appointment of directors of Affordable by individual classes of shareholder. He submits that the only means by which Mr Kipping could have been appointed as a director of Affordable was by ordinary resolution of shareholders, approved by a simple majority of the votes of shareholders entitled to vote, in accordance with s 153(2) of the Act.
[83] Mr Hucker then submits that Mr Wedd and Mr Kipping have not produced any evidence demonstrating that a majority of Affordable’s shareholders have voted in favour of the appointment of Mr Kipping as a director of Affordable. No shareholders’ meeting has been called under s 121 of the Act, and there is no evidence of a resolution being passed under s 122 of the Act, in lieu of a shareholders’ meeting.
[84] Mr Hucker submits that Mr Kipping’s purported use of the office of director is an aggravating feature of this case. He has purported to assist in the appointment of a liquidator, and has represented to the High Court that he is a director, in order to obtain records to which he would not otherwise have been entitled. Mr Kipping has refused to produce documentation supporting his purported appointment, and he has conducted himself in a manner calculated to obtain a “collateral advantage” in certain court proceedings in Christchurch brought by Just Steel against a company with which Mr Kipping is involved.
[85] Mr Kipping and Mr Wedd submit that Mr Wedd, as sole shareholder of Affordable, had authority to appoint Mr Kipping as a director if Mr Kipping consented. They say Mr Kipping became a director of Affordable, by request of Mr Wedd, in August 2016.
[86] Mr Kipping and Mr Wedd also refer to a minute of Associate Judge Bell dated 26 October 2016 in proceedings between Stratus Construction Ltd and Affordable, in which the Associate Judge said:
[4] The records of the Companies Office show Mr Kipping as a director of [Affordable]. That status should be accepted until a court rules otherwise.
[87] Mr Kipping and Mr Wedd rely on the Companies Office documents, which in their submission validly refer to Mr Kipping as director.
Discussion and conclusions
[88] Section 153 of the Act provides for the appointment of directors to a company:
153 Appointment of first and subsequent directors
(1) A person named as director in an application for registration or in an amalgamation proposal holds office as a director from the date of registration or the date the amalgamation proposal is effective, as the case may be, until that person ceases to hold office as a director in accordance with this Act.
(2) All subsequent directors of a company must, unless the constitution of the company otherwise provides, be appointed by ordinary resolution.
[89] Section 121 of the Act provides that a special meeting of shareholders entitled to vote on an issue may be called by a person authorised by the constitution to call the meeting.15 Alternatively, a resolution in lieu of a meeting may be executed by 75 per cent of the shareholders (if not provided for by way of a constitution) under s 122 of the Act.
[90] My finding that Mr Sharrock validly acquired 50 per cent of the shares in Affordable means that Mr Kipping could not have been appointed by a resolution signed by the requisite number of shareholders: Mr Sharrock has not signed any such resolution.
[91] Affordable has no constitution. Therefore any appointment of Mr Kipping had to be by way of ordinary resolution under s 153(2) of the Act. An ordinary resolution is a resolution that is approved by a simple majority of the votes of the
shareholders entitled to vote and voting on the resolution. There is no evidence of
15 Companies Act 1993, s 121(a)(ii).
any resolution appointing Mr Kipping, and Mr Sharrock has confirmed that he never authorised or signed any such resolution.
[92] I accordingly find in favour of Mr Sharrock on issue 2. Mr Kipping could not act as a director of Affordable in the absence of a valid resolution appointing him as such, and there has been no such valid resolution.
[93] I agree that a declaration that he is not a director of Affordable is necessary, to ensure the invalidity of his appointment is appropriately notified and that he does not purport to act in future as a director of Affordable.
Issue 3: Should an order be made rectifying the Companies Register pursuant to s 360B of the Act?
Discussion and conclusions
[94] Section 360B of the Act allows the court to make an order that the Companies Register be rectified, if it is satisfied that any information has been wrongly entered in, or omitted from the Register, following the lodging of an objection to a rectification proposed by the Registrar has proposed. In this case, the Registrar did propose to rectify the Register, on Mr Sharrock’s request, but Mr Kipping lodged an objection under s 360A(3) of the Act.
[95] For the reasons I have already given I am satisfied that Mr Sharrock is a shareholder in Affordable, and that Mr Kipping has not been validly appointed as a director of Affordable. I am therefore satisfied for the purposes of s 360B(3) of the Act that information has been wrongly entered in, or omitted from the New Zealand Companies Register. I accept Mr Hucker’s submission that the rectification orders sought are necessary, so that the registrar can fulfil her duties in ensuring that the register is correct. I accordingly make an order that the Register be rectified as follows:
(a) the Particulars of Shareholding notifying that Mr Wedd is the sole shareholder of Affordable is to be removed from the Register, and the notification(s) that that Mr Kipping is a director of Affordable, and
that Mr Sharrock is not a shareholder in Affordable, are also to be removed from the Register
Issue 4: Should an order be made under s 284(1)(g) of the Act declaring that
Mr Hunt’s appointment as liquidator was not valid?
[96] Mr Hunt has consented to an order being made under s 284(1)(g) of the Act declaring his appointment was not valid.
[97] Mr Wedd and/ or Mr Kipping had no ability to appoint Mr Hunt as liquidator. A liquidator may be appointed by special resolution of shareholders,16 but Mr Sharrock was not involved in the decision to appoint Mr Hunt as liquidator, and the purported appointment of Mr Hunt as liquidator without Mr Sharrock’s concurrence was invalid.
[98] I accordingly declare under s 284(1)(g) of the Act that Mr Hunt was not validly appointed as liquidator of Affordable.
Costs
[99] Mr Sharrock seeks indemnity costs and/or increased costs.
[100] There are specific provisions in the High Court Rules which empower the court to award costs at a level higher than that prescribed by Schedules 2 and 3 to the Rules, if that is warranted in the circumstances of the particular case.17 In this case, however, Mr Sharrock did not elaborate in his submissions on why indemnity costs and/ or increased costs are warranted.
[101] Unlike the Just Steel proceeding, there has been no purported filing of a notice of discontinuance of Mr Sharrock’s claim (an aggravating feature in the Just Steel costs decision),18 and since the hearing Mr Wedd has been adjudicated
bankrupt. Also, I accept that Mr Kipping genuinely believed in the arguments
16 Companies Act 1993, s 241(2)(a) and 106(1)(d).
17 Rule 14.6.
18 Sharrock v Wedd [2016] NZHC 3121.
advanced on behalf of Mr Wedd and himself. Neither he nor Mr Wedd had legal representation.
[102] In those circumstances my present inclination is that costs should be awarded against Mr Kipping on a 2B basis, with disbursements to be fixed by the Registrar. However I did not hear full argument on costs at the hearing, and I will allow time for written submission on costs if the parties cannot agree. Any costs submissions for Mr Sharrock are to be filed and served within 20 working days of the date of this judgment, and any submissions in opposition are to be filed and served within
15 working days after service of Mr Sharrock’s submissions.
Result
[103] Summary judgment is entered in favour of Mr Sharrock as follows: (a) I declare that Mr Sharrock is a shareholder in Affordable;
(b)I declare that Mr Kipping has not been validly appointed as a director of Affordable and is not a director of Affordable;
(c) I order that the Companies Register be rectified by:
(i)the Particulars of Shareholding document notifying that Mr Wedd is the sole shareholder of Affordable is to be removed from the Register, and the notification(s) that Mr Kipping is a director of Affordable, and that Mr Sharrock is not a shareholder in Affordable, are also to be removed from the Register.
(d) I declare that Mr Hunt was not validly appointed liquidator of
Affordable.
(e) Mr Sharrock may file a memorandum on costs within 20 working days of the date of this judgment. Any opposing memorandum is to
be filed and served within 15 working days of service of
Mr Sharrock’s memorandum.
Solicitors:
Hucker & Associates, Auckland for the plaintiff
Associate Judge Smith
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