STUART JOHN WOOD AND SIMON PAUL ROGAN HI BUILD LIMITED (in liquidation)
[2024] NZHC 807
•16 December 2024
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2024-470-137
[2024] NZHC 807
BETWEEN STUART JOHN WOOD
Applicant
AND
SIMON PAUL ROGAN
First Respondent
HI BUILD LIMITED (in liquidation) Second Respondent
Hearing: 11 December 2024 Counsel:
R L Scott / DS Howell for the Applicant
M D Branch / K F Shaw for the First and Second Respondents
Judgment:
16 December 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was issued by me on 16 December 2024 at 3 pm Pursuant to Rule 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors/Counsel:
Holland Beckett, Tauranga Harkness Henry, Hamilton
WOOD v ROGAN [2024] NZHC 807 [16 December 2024]
Introduction
[1] The first respondent, Simon Rogan (the liquidator), is the liquidator of the second respondent, Hi Build Ltd (in liquidation) (Hi Build). The applicant, Stuart Wood (Mr Wood), is a shareholder and was a director of Hi Build.
[2] In 2023, the liquidator commenced a proceeding against Mr Wood in this Court, alleging that Mr Wood authorised Hi Build to enter into two transactions in 2018, in breach of Mr Wood’s duties as a director (the liquidator’s claim):
(a)the first transaction is alleged to have occurred on 18 March 2018, and the liquidator pleads that Hi Build was insolvent at the time; and
(b)the second transaction is alleged to have occurred after the shareholders placed Hi Build into voluntary liquidation on 15 August 2018.
[3] Mr Wood is defending the liquidator’s claim, which is set down for a five-day trial fixture commencing on 4 August 2025. In the meantime, Mr Wood is endeavouring to establish that it is a solvent liquidation, which would then defeat the purpose of the liquidator’s claim, which is to recover funds for creditors. That is the genesis of this proceeding.
[4] Hi Build was a construction company. Prior to liquidation, Hi Build completed construction work for Mr and Mrs Malkhasian. Mr and Mrs Malkhasian maintain that Hi Build breached the construction contract. They filed a creditors’ claim in the liquidation which was accepted by the liquidator under s 307 of the Companies Act 1993 (the Act), for an estimated amount of $317,390 (the liquidator’s decision).
[5] Mr Wood does not agree with the liquidator’s decision and seeks to challenge it under s 284 of the Act. To do so, Mr Wood requires the leave of the Court to make an application under s 284. Mr Wood’s application for leave is determined in this judgment.
[6]The application for leave raises two issues:
(a)Does Mr Wood have standing to seek leave under s 284 (1) of the Act?
(b)If so, should the Court grant leave?
Does Mr Wood have standing to seek leave under s 284 (1) of the Act?
[7]Section 284 (1)(b) of the Act relevantly provides:
284 Court supervision of liquidation
(1)On the application of the liquidator, a liquidation committee, or, with the leave of the court, a creditor, shareholder, other entitled person, or director of a company in liquidation, the court may—
…
(b)confirm, reverse, or modify an act or decision of the liquidator:
[8]Section 2 of the Act defines “entitled person” to include a shareholder.
[9] Section 307 of the Act provides prescribes an express procedure for the liquidator, or an unsecured creditor who has their claim estimated by the liquidator, to apply to the Court to determine the amount of the claim:
307 Claim not of an ascertained amount
(1)If a claim is subject to a contingency, or is for damages, or, if for some other reason, the amount of the claim is not certain, the liquidator may—
(a)make an estimate of the amount of the claim; or
(b)refer the matter to the court for a decision on the amount of the claim.
(2)On the application of the liquidator, or of a claimant who is aggrieved by an estimate made by the liquidator, the court shall determine the amount of the claim as it sees fit.
[10] Counsel for the liquidator, Mr Branch, submits that a challenge to a liquidator’s decision on an estimate of a creditor’s claim under s 307(2) can only be brought by the creditor that made the claim, or another creditor.
[11] Section 307(2) provides that an application may be made by any person aggrieved by the liquidator’s decision — not just the creditor whose claim is subject to the estimate. In Re Taylor (a bankrupt), ex parte Dalgety and Co Ltd, Smith J held that a person aggrieved can include any creditor who has filed a proof of debt.1
[12] However, shareholders of a company in liquidation can also be prejudiced by a liquidator’s decision estimating a creditor’s claim. Section s 307 does not preclude the Court’s general supervisory jurisdiction under s 284 of the Act to reverse or modify a decision of a liquidator estimating a creditor’s claim. I consider that a shareholder has standing to seek leave to challenge a liquidator’s decision under s 307 of the Act, relying on s 284(1) of the Act or the Court’s inherent jurisdiction.2
[13]Mr Wood has standing to bring his application for leave.
Should the Court grant leave?
Legal principles
[14] To be granted leave under s 284(1) of the Act to challenge the acts or decisions of a liquidator, a shareholder must establish:3
(a)that the claim has a credible factual basis; and
(b)that there is a reasonable likelihood that, if the claim is established, the Court will disturb the act or decision in question.
[15] The latter requires elements of either fraud, lack of good faith in the exercise of a discretion or unreasonableness by the liquidator.4 Unreasonableness means acting in a way that no reasonable liquidator would have acted.5 Serious and obvious lapses in judgment must be shown before the Court will interfere.6
1 Re Taylor (a bankrupt) ex parte Dalgety and Co Ltd [1934] NZLR 117 (SC).
2 Lynne Taylor The Law of Insolvency in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [28.5].
3 Trinity Foundation (Services No 1) Ltd v Downey (2006) 3 NZCCLR 401 (CA) at [23] and [31].
4 Consolidated Technologies Development (NZ) Ltd v McCullagh (2006) 3 NZCCLR 424 (HC) at [15].
5 Re Callis (1996) 7 NZCLC 261,211 (CA) at 215.
6 Young & Associates Ltd v Ruscoe [2012] NZHC 1438, [2012] NZCCLR 23 at [8].
The challenged decision
[16] Mr Wood has provided an affidavit dated 25 July 2024 in support of his application for leave. The liquidator has not adduced any evidence. The document that records the liquidator’s decision to accept and estimate Mr and Mrs Malkhasian’s claim is not in evidence. However, the liquidator acknowledges that he made a decision under s 307 of the Act accepting Mr and Mrs Malkhasian’s claim for the estimated amount of $317,390.
[17] I accept that Mr Wood has a legitimate interest in the quantum of the creditor’s claim by Mr and Mrs Malkhasian. If the liquidator is successful with the claim against Mr Wood for breach of director’s duties, then the proceeds will be applied according to the usual priorities in the Act, with any surplus to be returned to the shareholders. The quantum of Mr and Mrs Malkhasian’s claim is reflected in Mr Wood’s exposure to the liquidator’s claim.
[18]There are two difficulties in assessing Mr Wood’s application for leave:
(a)Mr Wood’s challenge is based solely on a judgment of Judge A S Menzies in the District Court, dated 21 February 2023, in a claim by Mr and Mrs Malkhasian against Mr Wood (the District Court judgment);7 and
(b)the liquidator intends to revise the estimate of Mr and Mrs Malkhasian’s claim, which will be a decision open to review under s 284 of the Act, potentially rendering the current application pointless.
The District Court judgment
[19] In 2017, Mr and Mrs Malkhasian filed a claim in the District Court against Hi Build and Mr Wood, together with other defendants, seeking to recover the losses that they alleged they suffered related to their construction project.
7 Malkhasian v Home Builders BOP Ltd (in liq) [2023] NZDC 2999.
[20] Mr and Mrs Malkhasian’s claim against Hi Build was stayed pursuant to s 248(1)(c)(i) of the Act when Hi Build was placed into liquidation. This included a claim for breach of the construction contract.
[21] Mr and Mrs Malkhasian’s claim against Mr Wood proceeded to trial in August 2022, and was determined by the District Court judgment. Judge Menzies recorded that the claims against Hi Build were stayed,8 and then determined the claims against Mr Wood.
[22] Mr and Mrs Malkhasian claimed $247,547.96 from Mr Wood, pleading causes of action in negligence, deceit, and for misleading or deceptive conduct in breach of s 9 of the Fair Trading Act 1986 (FTA). Mr and Mrs Malkhasian had claimed the same amount against Hi Build.
[23] The District Court rejected the majority of Mr and Mrs Malkhasian’s claims against Mr Wood, upholding some of the claims with a total award of damages of
$35,273.51.9
[24] Mr and Mrs Malkhasian appealed to the High Court, and Mr Wood cross-appealed. Both appeals were rejected.10
Mr Wood’s argument in this proceeding
[25] Mr Wood’s argument is that the quantum of Mr and Mrs Malkhasian’s creditor’s claim was determined by the District Court judgment to be $35,273.51, and the liquidator’s decision to estimate the creditor’s claim to be $317,390 was an unlawful “reassessment” and an abuse of process. This is the only ground raised in Mr Wood’s notice of application.
8 At [22].
9 At [230].
10 Malkhasian v Wood [2024] NZHC 1252.
Analysis
[26]Mr Wood’s argument is flawed for the following reasons:
(a)the District Court judgment was limited to a determination of Mr Wood’s liability in tort, which is not coextensive with Hi Build’s liability in contract;
(b)if the claim against Hi Build had proceeded, it would have been open to the District Court to find against Mr Wood in tort for $35,273.51 and against Hi Build in contract for $247,547.96;
(c)Judge Menzies expressly recorded that the claim against Hi Build was stayed and made no findings on the claim for breach of contract;
(d)Judge Menzies rejected many of the component claims against Mr Wood personally, on the grounds that a particular component of the claim was a contractual claim against Hi Build, and not a claim for which Mr Wood could be held liable in negligence;11
(e)there is no basis for any form of issue estoppel or res judicata; and
(f)the High Court’s judgment declining the appeals did not disturb Judge Menzies’ findings and focused on the issue of Mr Wood’s liability for deceit.
[27] Mr Wood has not advanced any other factual basis to challenge the liquidator’s decision estimating Mr and Mrs Malkashian’s creditor’s claim to be $317,390. There is no evidential basis for a finding of either fraud, lack of good faith in the exercise of a discretion or unreasonableness by the liquidator. Mr Wood has failed to discharge the onus on him.
11 For example, see [83], [88], [95], [102], [119], [113], [139] and [140].
The liquidator’s intention to revise the estimate of Mr and Mrs Malkashian’s claim
[28] The liquidator elected not to file any evidence in support of his opposition to Mr Wood’s application, because the application rests solely on a legal argument as to the effect of the District Court judgment.
[29] Counsel for the liquidator confirmed that the liquidator’s estimation of Mr and Mrs Malkashian’s claim of $317,390 was made after the liquidator had the District Court judgment but before the appeal was determined.
[30] Mr Branch produced a spreadsheet recording counsel’s detailed analysis of the findings in the District Court judgment, drawing conclusions on the liability of Hi Build to Mr and Mrs Malkashian for breach of the construction contract. The spreadsheet records Hi Build’s liability to be assessed to be at least $226,409.04.
[31] Mr Branch confirmed that the liquidator intends to make a formal decision revising the estimate of Mr and Mrs Malkashian’s claim, by 24 December 2024. Mr Wood will have the right to apply for leave under s 284(1)(b) of the Act to challenge the liquidator’s reassessment decision.
[32] The sensible course is for the liquidator to consult with Mr Wood before deciding to revise Mr and Mrs Malkashian’s claim. Once the reassessment decision is made, it would be sensible for the liquidator to provide Mr Wood with sufficient information regarding the liquidator’s decision-making process, so that Mr Wood can make an informed decision regarding whether it is worthwhile applying for leave under s 284(1) in respect of the reassessment decision. Ultimately, these are matters for the liquidator, but the liquidator’s approach may have costs consequences.
[33] Any application by Mr Wood for leave in respect of the reassessment decision, and if leave is granted, the resulting substantive application under s 284, can be dealt with on an urgent basis to ensure that the value of Mr and Mrs Malkashian’s claim is determined before the trial of the liquidator’s claim.
[34] If the liquidator does not make a decision to revise Mr and Mrs Malkashian’s claim, then the Court will accept a second application by Mr Wood for leave to
challenge the decision accepting the debt to be $317,390 if it is advanced by Mr Wood on different grounds.
Costs
[35] This current application for leave by Mr Woods has been unsuccessful, and costs should follow the event on a 2B basis.
Orders
[36] Mr Wood’s application for leave to apply under s 284(1) of the Companies Act 1993, for an order reversing or modifying the liquidator’s decision to accept the creditor’s claim by Mr and Mrs Malkashian and to estimate the value of the claim to be $317,390, is declined.
[37] The applicant shall pay the respondent’s costs on a 2B basis together with disbursements as fixed by the Court. If the parties cannot agree on quantum:
(a)the respondents may file a memorandum setting out their calculation of costs by 31 January 2025;
(b)the applicant may file a memorandum in reply by 14 February 2025; and
(c)I will then fix costs on the papers.
Associate Judge Brittain
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