Toilolo

Case [2019] NZHC 1090 17 May 2019

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-002328

[2019] NZHC 1090

IN THE MATTER OF A decision of the Registrar of Companies under s 385 of the Companies Act 1993

AND

IN THE MATTER OF

An appeal by Timothy Toilolo

Hearing: 27 March 2019

Appearances:

R B Hucker and D L Lang Siu for Appellant

S Connolly and T Witten-Sage for Registrar of Companies

Judgment:

17 May 2019

JUDGMENT OF WYLIE J

This judgment was delivered by Justice Wylie On 17 May 2019 at 11.30am
Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar

Date:…………………………

Solicitors/counsel:
Hucker & Associates, Auckland Crown Law, Wellington

TOILOLO v REGISTRAR OF COMPANIES [2019] NZHC [1090] [17 May 2019]

Introduction

[1] The appellant, Timothy Toilolo, appeals a decision given by Peter Barker, a Deputy Registrar of Companies (“the Deputy Registrar”), under s 385 of the Companies Act 1993 (“the Act”). The decision disqualified Mr Toilolo from being a director or promoter of a company, or from being concerned with, or taking part, whether directly or indirectly, in the management of a company, for a period of two years and six months.1

[2] The decision was made following the liquidation of a company controlled by Mr Toilolo – Toilolo & Co Accountants Ltd (“the company”). He was its sole director and shareholder.

[3] The Registrar of Companies (“the Registrar”) was initially named as the respondent to these proceedings. This was contrary to r 20.9(2) of the High Court Rules and, by minute dated 26 February 2019, Jagose J removed the Registrar as a respondent. The Judge recorded that the Registrar nevertheless wished to appear and be heard pursuant to r 20.17, and submissions were made to me on behalf of the Registrar to assist me in dealing with the matter. The Registrar did not take part in the hearing as a party and Mr Connolly, for the Registrar, was careful to take a neutral role.

Factual background

[4] Mr Toilolo was, at all relevant times, a chartered accountant. He incorporated the company on 25 November 2011.

[5] The company was incorporated one week after another company – Professional Accounting & Taxation Ltd – which was also owned and controlled by Mr Toilolo, was placed into liquidation by the Inland Revenue Department (the “IRD”) due to unpaid GST and PAYE. Professional Accounting & Taxation Ltd had carried on business as a provider of accountancy services. Mr Toilolo purchased the business

1 Final minute – Section 385 Companies Act 1993 – Salamasina Faleilua Timothy Toilolo – Minute of Deputy Registrar of Companies, dated 24 September 2018.

from Professional Accounting & Taxation Ltd with the consent of the liquidator of that company,2 and the business was transferred to the company.

[6] The company’s share capital was $100. I do not know whether it was called up but, in any event, the company needed additional funds. It obtained a $14,000 overdraft facility from Westpac Banking Corporation Ltd…

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 Toilolo

Details

AGLC: Toilolo [2019] NZHC 1090
Case: [2019] NZHC 1090
Decision Date: 17 May 2019

CaseChat Overview and Summary

Timothy Toilolo appeals a decision by the Deputy Registrar of Companies that he be prohibited from being a director of a company, or being involved in the management of a company, for a period of two years and six months. The decision was made under s 385 of the Companies Act 1993. The decision followed the liquidation of a company controlled by Mr Toilolo – Toilolo & Co Accountants Ltd. He was its sole director and shareholder. The Deputy Registrar found that there were multiple incidents of mismanagement by Mr Toilolo, which were at least a partial reason for the failure of the company. He exercised his discretion to disqualify Mr Toilolo. The appeal was brought pursuant to s 370 of the Act. The appeal was heard de novo. The Deputy Registrar had not failed to observe the rules of natural justice. He had given Mr Toilolo multiple opportunities to make submissions on the relevant materials and on the Deputy Registrar’s preliminary assessment. He took full advantage of those opportunities and the Deputy Registrar in his decision expressly took into account the submissions which Mr Toilolo had made throughout the process. The Deputy Registrar was satisfied that the company had been put into liquidation because of its inability to pay its debts as and when they became due. He was also satisfied that Mr Toilolo was a director of the company within the period of five years prior to the notice being given under s 385(5). The Deputy Registrar was required to be satisfied that the manner in which the affairs of the company were managed was wholly or partly responsible for the company being a company in relation to which this section applies. The Deputy Registrar found that the company entered into a cross-guarantee in favour of Westpac. Under the cross-guarantees Mr Toilolo personally guaranteed the debts of the company and the company guaranteed the personal debts of Mr Toilolo. The Deputy Registrar considered that the entry into the cross-guarantee by the company was not fair to it, and was in breach of ss 131 and 161. He considered that Mr Toilolo’s actions in causing the company to enter into the cross-guarantee constituted mismanagement. Further, he concluded that this mismanagement was directly linked to the company’s failure. The Deputy Registrar’s role was relatively straightforward. He was required to be satisfied, first, that the company had been put into liquidation because of its inability to pay its debts as and when they became due. Secondly, the Deputy Registrar was required to determine whether or not Mr Toilolo was a director or manager of the company within the five years preceding the notice given under s 385(5)(a). Thirdly, the Deputy Registrar was required to consider whether the way in which the company’s affairs were managed was a contributing cause to it being placed into liquidation. The Deputy Registrar did not confine his analysis only to the IRD. He did consider the company’s failure to pay GST and PAYE to the IRD but he went further and expressly took into account the company’s obligations to Westpac. The Deputy Registrar was entitled to conclude that Mr Toilolo did not sufficiently monitor and manage the company, that this was mismanagement and that this was a partial reason for the company’s failure. The Deputy Registrar’s discretion has to be exercised for the statutory purpose – namely to exclude from company management those who are unsuited to it. The Deputy Registrar’s consideration of the discretion was broken down into two parts – first, whether or not he should impose a prohibition at all, and secondly, what the term of any prohibition should be. In both contexts, the Deputy Registrar said that there was no limit to the factors he could take into account. The Deputy Registrar was not confined to the conduct that resulted in the company’s insolvency; he was entitled to take into account all of Mr Toilolo’s attributes and his conduct in office. The Deputy Registrar did not see any lack of timeliness in imposing the prohibition as being relevant. There was considerable delay in bringing the proposed prohibition before the Deputy Registrar for consideration. The company was placed into liquidation in September 2014. At that point the company qualified under s 385(1) and Mr Toilolo’s management of the company became open for investigation under s 385. The liquidator’s final report was released on 28 September 2015, and the company was removed from the register on 4 November 2015. This notwithstanding, nothing then happened for seven months. The liquidator delayed, but the Registrar then delayed further in signing and serving on Mr Toilolo the notice pursuant to s 385(5) of the Act. Only in January 2018 did the Registrar write to the Deputy Registrar seeking his decision. The Deputy Registrar responded promptly, but that does not cure the earlier delays. The final minute was only issued some four years after the company was placed into liquidation. There is no explanation for these delays, and to my mind, they tell against any argument that risk to the public, deterrence and standard setting were particularly important factors in this case. In my judgment, the Deputy Registrar should have taken into account the fact that most, if not all, of Mr Toilolo’s conduct occurred when the maximum permitted period of prohibition was five years, and he should have approached the exercise of his discretion as to term by reference to that five year limit. He did not so, and in my judgment, he erred in law in this regard. Taking these various matters into account, I am not persuaded that any further period of prohibition beyond that consequent on the bankruptcy was required. Mr Toilolo was prohibited from directing a company while he was bankrupt. His bankruptcy lasted for three years. The maximum permitted period when most, or if not all, of the acts of mismanagement occurred was one five years. The Registrar was guilty of considerable delay in putting the matter before the Deputy Registrar for decision, and to my mind, that undermines any argument that there was a risk to the public, that deterrence was required, or that further prohibition was relevant to standard setting in this case. The appeal is allowed in part. The period of prohibition of two and half years put in place by the Deputy Registrar is set aside. Issues as to costs do not arise. As noted above, the Registrar did not appear as a party. There is no order as to costs.

Orders