Stewart v Fatupaito - [2022] NZCA 21

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA483/2021
[2022] NZCA 21

BETWEEN	EVAN KERRY STEWART Appellant
AND	VIVIAN JUDITH FATUPAITO AND ELIZABETH HELEN KEENE Respondents

Hearing:	10 November 2021
Court:	Collins, Duffy and Dunningham JJ
Counsel:	D K Quirk and K W Clay for Appellant M J Tingey and B Gambrill for Respondents
Judgment:	18 February 2022 at 2.30 pm

JUDGMENT OF THE COURT

AThe appeal is dismissed.
BThe appellant must pay the respondents costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Duffy J)

Eversons International Ltd (Eversons) is a company in liquidation. The respondents are its liquidators. The appellant, Mr Stewart, is the company’s sole director and shareholder.
The respondents have obtained a judgment from Associate Judge Paulsen granting orders under s 266(2)(a) and (b) of the Companies Act 1993 (Act) for Mr Stewart to:[1]
(a)attend the High Court and be examined on oath or affirmation before a Judge or Associate Judge of that Court by counsel for the liquidators on any matter relating to the business, accounts or affairs of Eversons; and
(b)produce to the liquidators any books, records or documents in his possession or under his control that relate to the company’s business, accounts or affairs.
[1]Fatupaito v Stewart [2021] NZHC 1679 at [97].
Mr Stewart appeals against this judgment on the grounds there are circumstances relevant to him and the company which place him outside the scope of the power to make such orders. In the alternative, he submits the Associate Judge has failed to lawfully exercise those powers. The relevant facts are helpfully set out in the judgment of Associate Judge Paulsen.

Background

Eversons was a profitable company importing and selling synthetic legal high products until these were banned on 7 May 2014, at which time it ceased trading.
In 2015, the Commissioner of Inland Revenue (the Commissioner) undertook an income tax audit for unpaid taxes and demanded payment of the assessed arrears, which were in excess of $3,700,000. Eversons could not pay the arrears; Mr Stewart placed the company in liquidation and appointed Andrew Oorschot as liquidator.[2] The Commissioner appears to be Eversons’ only creditor.
[2]The company was placed into liquidation by special resolution pursuant to s 241(2)(a) of the Companies Act 1993.
Eversons’ accounts include reference to “Overseas Investments totalling $6,592k”. Nothing else is said about those assets. Mr Oorschot subsequently identified 19 payments by cheque or transfer totalling $3,154,918 (the funds) from Eversons’ bank account to Bionutrient Customs Ltd (Bionutrient).
Mr Stewart is also a director of Bionutrient. Mr Oorschot wrote to Mr Stewart as director of Bionutrient demanding repayment of the funds, which was not forthcoming. Instead Mr Stewart advised that Bionutrient was used as a vehicle to facilitate transfer of funds to Australia, and he could not pay the demand. He did not explain why the funds were transferred.
Mr Oorschot subsequently resigned as liquidator and was replaced by the…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Stewart v Fatupaito

Details

AGLC: Stewart v Fatupaito [2022] NZCA 21
Case: [2022] NZCA 21
Decision Date: 18 February 2022 at 2.30 pm

CaseChat Overview and Summary

Evan Kerry Stewart, the sole director and shareholder of Eversons International Ltd, appeals against a judgment in the High Court of New Zealand. The respondents, the liquidators of Eversons, obtained a judgment under s 266(2)(a) and (b) of the Companies Act 1993, compelling Mr Stewart to attend the High Court for examination and to produce documents relating to the company's business, accounts, or affairs. Mr Stewart contests the judgment, claiming the circumstances place him outside the scope of the power to make such orders and that the Associate Judge failed to lawfully exercise those powers.

The legal issues at hand revolve around the jurisdiction and discretionary exercise of s 266 of the Companies Act 1993. Mr Stewart argues that the respondents’ prior legal actions against him preclude further orders under s 266. He also contends that the Associate Judge did not properly exercise the discretion afforded by s 266. The Court of Appeal examines whether the statutory powers are broad and untrammeled or if there are limits imposed by prior litigation. It also considers whether the Associate Judge correctly exercised the discretion given Mr Stewart's lack of cooperation and the sparse company records.

The Court of Appeal finds no jurisdictional bar to the orders under s 266 despite prior litigation. The court agrees with the Associate Judge that the wide inquisitorial nature of s 266 is not to be used oppressively, vexatiously, or unfairly, but in this case, the concerns are properly addressed by the exercise of the discretion. The Court notes Mr Stewart's lack of cooperation and the significant value of the company's assets in question. It concludes that the Associate Judge correctly exercised the discretion, as Mr Stewart, as the sole director, should have knowledge about the company's assets and their whereabouts. The Court dismisses the appeal and orders Mr Stewart to pay the respondents' costs for the appeal.

Orders