Somerville

[2019] NZHC 1189

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2019-409-275

[2019] NZHC 1189

UNDER

sections 280 and 286 of the Companies Act 1993 and Part 19 of the High Court Rules

IN THE MATTER

of an application pursuant to sections 280 and 286 of the Companies Act 1993 for an order that Wendy Ann Somerville and

Malcolm Grant Hollis be permitted to act as liquidators of Peter Fletcher Transport

Limited

BETWEEN

WENDY ANN SOMERVILLE AND MALCOLM GRANT HOLLIS

Applicants

Hearing:	On the papers
Counsel:	C R Vinnell for Applicants
Judgment:	28 May 2019

JUDGMENT OF COOKE J

(Without Notice Application by way of Originating Application for Order that Applicants may be appointed Liquidators pursuant to s 280 and s 286(4) Companies Act 1993)

[1]        By interlocutory application dated 23 May 2019 the applicants apply for the following orders:

(a)Granting permission to commence these proceedings by way of an originating application without notice.

SOMERVILLE AND HOLLIS [2019] NZHC 1189 [28 May 2019]

(b)Dispensing with service of this application and supporting affidavit prior to the order being made.

(c)Granting permission to the Applicants to act as Liquidators of Peter Fletcher Transport Limited (“the Company”).

(d)Directing that copies of the originating application, supporting affidavit and sealed orders be served on all known creditors of the Company at the same time and in the same manner as the Liquidator’s notice of the first creditor’s meeting called in accordance with section 243 of the Companies Act 1993.

(e)Directing that any creditor of the Company is granted leave to apply to the Court within five working days of such service to set aside the Applicants’ appointment as Liquidators.

(f)Directing that the Applicants’ solicitor/client costs of this application be an expense incurred by the Applicants in carrying out their duties as Liquidators of the Company.

(g)That in the event of their appointment as liquidators, the prospective liquidators remuneration be fixed by the Court (in accordance with the consent to act annexed to the affidavit of Mr Hollis as exhibit “E”), and that they are permitted to exercise our powers jointly and severally.

[2]        The application is supported by the memorandum of counsel dated 23 May 2019 and an affidavit of Malcolm Grant Hollis of 22 May 2019.

Originating application without service

[3]        I accept that it is appropriate that this application be brought by originating application under Part 19 of the High Court Rules 2016 as has been the case with other applications of this kind.1

1      Re Mountainview Developments Ltd (in liquidation) HC Auckland M1730/00, 21 November 2000; and Re Joleen Enterprises Ltd HC New Plymouth CIV-2008-443-485, 3 October 2008,

[4]        In addition I accept that it is appropriate for the application to proceed without service on the creditors. Again that approach has been applied in other similar cases.2 The affidavit from Mr Malcolm Hollis confirms that there are over 120 creditors. Requiring each of those creditors to be served would be unduly onerous. Moreover the position of those creditors is appropriately dealt with in other ways, including by giving such creditors leave to apply to set aside the appointments. The affidavit of Mr Hollis also indicates that the Company is in a deteriorating financial position, such that the early appointment of liquidators is desirable. I note that liquidation proceedings have already been commenced by at least one creditor, although that has been resolved. The making of the orders in question will expedite the prompt determination of a liquidation order.

Substantive application

[5]        Under s 280 of the Companies Act 1993, certain identified persons may not be appointed to act as a liquidator of a company. The following section is relevant:

280    Qualifications of liquidators

(1)Unless the court orders otherwise, none of the following persons may be appointed or act as a liquidator of a company:

…

(ca) a person who has, or whose firm has, within the 2 years immediately before the commencement of the liquidation, provided professional services to the company, unless, within 20 working days before the appointment of the liquidator, the board of the company resolves that the company will, on the appointment of the liquidator, be able to pay its debts and a copy of the resolution is delivered to the Registrar for registration:

(cb) a person who has, or whose firm has, within the 2 years immediately before the commencement of the liquidation, had a continuing business relationship (other than through the provision of banking or financial services) with the company, its majority shareholder, any of its directors, or any of its secured creditors, unless, within 20 working days before the appointment of the liquidator, the board of the company resolves that the company will, on the appointment of the liquidator, be able to pay its debts and a copy of the resolution is delivered to the Registrar for registration:

…

2      Re Joleen Enterprises Ltd, above n 1.

[6]A similar provision exists under s 286(4).

[7]        In the present case such a potential disqualification arises because the two applicants are partners of PricewaterhouseCoopers (PWC). That firm had provided professional services to creditors of the Company described in the following way in Mr Hollis’ affidavit:

(a)   TR Group Limited (“TR”) who has collateral security interests over specific goods supplied to the Company, specific security over motor vehicles, and also a security over present and after acquired personal property, being proceeds of the goods supplied. PWC currently provides tax services and business advice to TR. Neither myself nor Ms Somerville have been involved in the provision of such services;

(b)   South Island Forklifts Limited (“SIF”) who has collateral security over specified goods supplied to the Company (being vehicles). PWC provides advisory services to SIF. Neither myself nor Ms Somerville have been involved in the provision of such services;

(c)   Sika (NZ) Limited (“Sika”) who has collateral security interests over specific goods supplied to the Company, and also a security over present and after acquired personal property, being proceeds of the goods supplied. PWC provides taxation services to Sika. Neither myself nor Ms Somerville have been involved in the provision of such services;

(d)   Orix New Zealand Limited (“Orix”) who has a collateral security interest over specific goods (being a motor vehicle) and the proceeds of the goods secured. PWC provides tax services to Orix. Neither myself nor Ms Somerville have been involved in the provision of such services;

(e)   HP Financial Services (New Zealand) Limited (“HP”) who has collateral security interests over specific goods supplied to the Company, and also a security over present and after acquired personal property, being proceeds of goods supplied. PWC provides audit services to HP. Neither myself nor Ms Somerville have been involved in the provision of such services; and

(f)   UDC Finance Limited (“UDC”) who has collateral security interests over specified goods of the Company (being vehicles and trailers). PWC does not currently provide any professional services to UDC, however PWC does provide non-audit services to UDC’s parent company, ANZ Bank New Zealand Limited. Neither myself nor Ms Somerville have been involved in the provision of such services;

[8]        The relevant disqualification here would be that set out in s 280(cb) arising from PWC being in a “continuing business relationship (other than through the provision of banking or financial services)” with the identified secured creditors of the Company. I note that there appears to be a distinction between the provision of professional services covered by (ca) and a continuing business relationship covered by (cb). It could be argued that the section is not intended to bite simply because professional services have been provided to a secured creditor of the Company. There is certainly ambiguity as to where the dividing lines are to be drawn when identifying disqualifying previous involvement. Such disqualification could arise for reasonably technical reasons. I nevertheless proceed on the basis that the prima facie disqualification applies.

[9]        In terms of the approach the Court should adopt when making an order permitting a person to be a liquidator notwithstanding prima facie disqualification, it is a matter of applying the text of the enactment in light of its purpose. This involves identifying why Parliament decided that such persons would be subject to the presumption that they are disqualified. It is apparent from s 280(1) that Parliament concluded that such a person could nevertheless act as liquidator if the Court so ordered. So the Court needs to ascertain whether the reasons for the prima facie disqualification are present in the particular case.

[10]      The role of liquidator is a statutory role which requires independence. That independence is important as all the creditors and other interested parties should be treated impartially by the liquidator in the exercise of the significant statutory powers and functions. Subsections (ca) and (cb) were inserted within s 280 by amendment in 2006.3 The provisions were reviewed during the Select Committee process, and changes were made to the wording of the proposed provisions. The Select Committee commented that “these new provisions are intended to prevent a perception that the liquidator may be partial towards either the Company’s creditors or its debtors”.4 A person from a firm who has had a continuing business relationship with a secured creditor could potentially be seen to favour that creditor.

3      By s 24(1) of the Companies Amendment Act 2006.

4      Insolvency Law Reform Bill 2005 (14-2) (explanatory note) at 13.

[11]      I agree with the test to be applied set out by Grice J in Fisk & McMillan v Fargher Construction Limited:5

[24] It is an important safeguard that applicants who are conflicted are not appointed as liquidators without leave of the Court. The question is, whether a conflict of interest due to a continuing business relationship presents a risk that the applicants independence and ability to carry out their tasks professionally and effectively could be compromised in the particular circumstances of the case. This was the approach taken by Associate Judge Abbott in Re Joeleen Enterprises Ltd.⁶

[12]      Applying that test, for a number of reasons I am satisfied that the Court should order that the applicants are entitled to be appointed liquidators in the present case:

(a)The relationships PWC has with secured creditors arises solely as a consequence of the provision  of  professional  services.  Moreover Mr Hollis confirms that none of the professional services related to the affairs of the Company itself. For that reason it seems to me that any risk of a conflict of interest, or a perception of favouritism, is remote.

(b)The disqualifying relationships arise as a consequence of PWC’s broad practice as a leading accounting firm. The major accounting firms regularly encounter such conflict of interest issues and are accustomed to dealing with them within their practice, including because of auditing or liquidation functions that the firm performs. The two applicants are properly qualified to act as liquidators of this Company and should not be disqualified simply because they are partners of one of the major firms.

(c)Mr Hollis has confirmed in his affidavit that the parts of PWC that have provided services to the secured creditors will not be involved in the liquidation. My expectation is that the firm’s normal policies would apply to ensure there is no communication about the Company between those involved in the liquidation and any of those who have provided professional services to the relevant secured creditors.

5      Fisk & McMillan v Fargher Construction Ltd [2018] NZHC 441.

6      Re Joleen Enterprises Ltd, above n 1.

[13]      For these reasons I am satisfied that there is no risk of lack of independence, or concern about the applicants’ ability to carry out their task professionally and effectively.

[14]      In terms of the application that the costs of the present application be an expense incurred by the applicants’ carrying out their duties, I am also prepared to make that order. That has previously been ordered by the Court.7 In terms of the terms of that order, I alter the proposed wording set out in paragraph [1](f) above and make the order in the following terms:

The applicants’ reasonable solicitor/client costs of this application to be an expense incurred by the applicants in carrying out their duties as liquidators of the Company in the event of their appointment as liquidators.

[15]      In terms of the order set out in [1](g) above I am presently unclear why that order would be necessary on the present application. It seems to me to be something that would be dealt with in the liquidation application itself. I accordingly decline that application, but reserve leave to apply in the event there is some reason for that order to be made on the present application.

[16]      Accordingly subject to [14]–[15] above, I make the orders referred to in [1] above.

Cooke J

Solicitors:
Anthony Harper, Christchurch

7      Fisk & McMillan, above n 5, at [31]–[32].