Stake Property Limited v Stake Property Rentals Limited
[2021] NZHC 1879
•23 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-001464
[2021] NZHC 1879
UNDER Section 154 of the Companies Act 1993 IN THE MATTER
of an application to appoint a director
BETWEEN
STAKE PROPERTY LIMITED
Applicant
AND
STAKE PROPERTY RENTALS LIMITED
Respondent
Hearing: On the papers Counsel:
J A MacGillivray and S M Jass for Applicant No appearance by or behalf of Respondent
Judgment:
23 July 2021
JUDGMENT OF WOOLFORD J
This judgment was delivered by me on Friday, 23 July 2021 at 3:00 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors: Tompkins Wake (J A MacGillivray and S Jass), Auckland
STAKE PROPERTY LIMITED v STAKE PROPERTY RENTALS LIMITED [2021] NZHC 1879 [23 July 2021]
[1]Stake Property Limited (Stake Property) applies without notice for:
(a)An order permitting this proceeding to be commenced by originating application; and
(b)An order appointing Karen Edwards as director of Stake Property Rentals Limited (SP Rentals).
[2] Shaun Thompson, the sole director and 0.5 per cent shareholder of SP Rentals, died on 6 July 2021 leaving SP Rentals without a director and unable to function. The objective of this application is for Karen Edwards, who is another 0.5 per cent shareholder of SP Rentals and the sole director of its 99 per cent shareholder (Stake Property), to be appointed as a director of SP Rentals.
[3] The application is being made under urgency because SP Rentals has entered into an unconditional agreement for the sale and purchase of its business, which is due to settle on 2 August 2021. While the usual process would be to appoint a new director by resolution of shareholders, either at a meeting or in lieu of meeting, neither is a viable option for appointing a director before the 2 August 2021 settlement date.
Background
[4] SP Rentals operates a residential property management business. The sole director was Shaun Thompson, who died on 6 July 2021. The shareholders are –
(i)Stake Property, which owns 99 per cent of the shares as trustee for the Stake Property Trust.
(ii)Ms Edwards, who holds 0.5 per cent of the shares (that is, one of the remaining two shares); and
(iii)The deceased, who held 0.5 per cent of the shares (that is, one share), which will now pass to his estate.
[5] Stake Property, which owns 99 per cent of the shares in SP Rentals, is the sole trustee of the Stake Property Trust of which the final 50-50 beneficiaries are the Karen Edwards Family Trust and the Shaun Thompson Family Trust. The directors of Stake Property were Ms Edwards and Mr Thompson, meaning that following Mr Thompson’s death, Ms Edwards is the sole director of Stake Property.
[6] In or around 2014, Ms Edwards and Mr Thompson decided to develop a residential property management business together. They were both business and life partners. From the outset, Ms Edwards’ role was dealing with administration, financial matters, corresponding with tenants and undertaking inspections. Mr Thompson’s role was marketing and dealing with landlords and new business opportunities. Ms Edwards and Mr Thompson’s life relationship came to an end approximately three years ago, but their business relationship continued. Since then, Mr Thompson’s deteriorating health also meant that he had to significantly reduce his role in SP Rentals, at least over the past year or so. These changes led to Ms Edwards and Mr Thompson making a decision in late 2019 to sell the rental property management business of SP Rentals.
[7] A sale and purchase agreement was entered into on 18 May 2021. The original settlement date for the sale of the business was 1 July 2021, which would have been before Mr Thompson passed away. However, the purchaser asked for settlement to be delayed a month, to 2 August 2021, because the purchaser did not have a property manager lined up to take over on 1 July 2021. This was agreed, but Mr Thompson passed away in intervening period, necessitating this application. SP Rentals requires a director for settlement of the sale.
[8] Mr Thompson’s last known will appoints Ms Edwards as executor. The Court is advised that some members of Mr Thompson’s family appear to be of the view that the will does not reflect Mr Thompson’s intention at the time of his death and there may be a challenge to it.
[9] Mr Thompson’s estate holds only 0.5 per cent of the shares in SP Rentals. It remains to be seen whether there is going to be an issue regarding implementing the terms of the 2011 will but such issues will be resolved in a different context. They are
not relevant to this application other than to highlight uncertainty regarding the will and when probate may be granted.
[10] The substantive application to appoint Ms Edwards as director of SP Rentals is made pursuant to s 154 of the Companies Act 1993 (the Act). It provides:
154 Court may appoint directors
(1)If—
(a)there are no directors of a company, or the number of directors is less than the quorum required for a meeting of the board; and
(b)it is not possible or practicable to appoint directors in accordance with the company’s constitution,—
a shareholder or creditor of the company may apply to the court to appoint 1 or more persons as directors of the company, and the court may make an appointment if it considers that it is in the interests of the company to do so.
(2)An appointment may be made on such terms and conditions as the court thinks fit.
[11]Stake Property is entitled to make this application because:
(a)SP Rentals has no directors;
(b)SP Rentals does not have a constitution; and
(c)Stake Property is a shareholder of SP Rentals.
[12] The sole issue is therefore whether, pursuant to s 154(1), it is in the interests of SP Rentals to appoint Ms Edwards as its director.
[13] I am of the view that it is in the interests of SP Rentals for the Court to appoint Ms Edwards as director for the following reasons:
(a)SP Rentals is legally bound to complete the sale of its business, which was a transaction entered into under the direction of the deceased and with the approval of all its shareholders.
(b)SP Rentals requires a director to be appointed so that the company can take the necessary advice and actions ahead of settlement of the sale on 2 August 2021.
(c)Stake Property is best placed to make the application and to nominate a director, given that it holds 99 per cent of the shares in SP Rentals.
(d)Ms Edwards is intimately familiar with the workings of SP Rentals and with the sale arrangements. There are no other employees of the company.
(e)Ms Edwards consents to the appointment.
[14] There is no alternative way to appoint a director in advance of the due date for settlement on 2 August 2021.
[15] The Act reserves the appointment of directors to shareholders (and the Court).1 Given SP Rentals does not have a constitution, the powers reserved to SP Rentals’ shareholders can only be exercised at a meeting or by resolution.2
[16] A meeting to appoint a director of SP Rentals cannot presently be called (and will not be able to be called in sufficient time to ensure the sale of the business to proceed). Section 121 of the Act allows for a special meeting, but one cannot be called. Special meetings can only be called by the board (which is defined by s 127 to mean the company’s director or directors, of which there are none) or a person who is authorised by the constitution (and there is no constitution). Section 120 refers to an annual meeting, which does not apply, but which in any event can also only be called by the board and there is no board. Section 123 enables the Court to call a meeting of shareholders, but given the current circumstances, Stake Property’s preference is to have the Court make an order appointing a director directly. Even if there were a meeting, the attendee would in practice be Ms Edwards – she is the sole director of Stake Property and a shareholder in her personal capacity. In the absence of a grant
1 Companies Act 1993, ss 36 and 154.
2 Companies Act, s 104.
of probate, no one would be able to attend to exercise voting rights relying on Mr Thompson’s single share.
[17] The only alternative for appointing a director outside of a meeting of shareholders would be by resolution in lieu of a meeting pursuant to s 122. This is not a viable option, however, because of the need to have at least 75 per cent of shareholders by number sign the resolution. While Mr Thompson’s estate only has a
0.5 per cent shareholding in SP Rentals, until the uncertainty with his will is resolved and probate granted, only two of the three SP Rentals’ shareholders can sign a resolution, meaning that 75 per cent of shareholders by number cannot be obtained. Given the absence of probate and uncertainty regarding Mr Thompson’s will, the potential registration of Ms Edwards or anyone else as the holder of Mr Thompson’s share as his personal representative is neither a realistic nor a desirable option prior to 2 August 2021.
[18] In summary, I am of the view that there are good grounds for the appointment of Ms Edwards as director of SP Rentals. It is necessary for the company to continue functioning and it is not currently possible to call a shareholders’ meeting of pass a resolution in lieu of meeting.
Result
[19] It is sensible to allow Stake Property to commence this proceeding by originating application, which will secure the just, speedy and inexpensive determination of the proceeding. It is unlikely that anyone with an interest could or would contest or would have grounds for contesting the application to have Ms Edwards appointed as director. Proceeding in any other way would also likely extend the Court timetable beyond the settlement date of 2 August 2021, rendering the application nugatory.
[20] Stake Property also seeks orders that the application to commence this proceeding by originating application and the originating application itself can both proceed without notice. Leave to proceed without notice in the unique circumstances of this case is necessary for the reasons set out above, in particular, the settlement of the sale on 2 August 2021. However, to safeguard the interests of Mr Thompson’s
family, this proceeding and the orders to be made should be brought to the attention of the trustees of the Shaun Thompson Family Trust and his parents as potential claimants under his estate in case they have any issue with the appointment of Ms Edwards or settlement of the sale.
[21] Finally, there will be an order that Ms Edwards be appointed a director of SP Rentals. There is no other means of ensuring settlement of the sale of the business on 2 August 2021.
Result
[22]Therefore, the following orders are made:
(a)The interlocutory application for an order permitting this proceeding to commence by originating application is determined on a without notice basis;
(b)This proceeding is permitted to be commenced by originating application;
(c)The originating application for an order appointing Karen Edwards as director of SP Rentals is determined on a without notice basis;
(d)Karen Edwards is appointed as director of SP Rentals;
(e)Leave is granted to any person who can demonstrate sufficient interest to apply to modify or discharge the above order (d);
(f)Within no later than two working days of the Court orders, a copy of the orders, applications (being the application to appoint director and application to commence proceedings by way of originating application), affidavit in support of the applications and memorandum of counsel are to be served on:
(i)SP Rentals by email to Karen Edwards at the email address specified in the application.
(ii)Peter Ernest Thompson and Anne Catherine Silva Thompson by email at the email address specified in the application; and
(iii)Cornwall Trustees 48 Limited, as trustee of the Shaun Thompson Family Trust, at its address for service of Gilligan Rowe & Associates Limited, Level 6, 135 Broadway, Newmarket, Auckland 1023.
Woolford J
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