Tomanovich Holdings Limited v Gibbston Water Services Limited (in liquidation)
[2015] NZHC 541
•24 March 2015
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2014-485-11545 [2015] NZHC 541
UNDER The Companies Act 1993 BETWEEN
TOMANOVICH HOLDINGS LIMITED Plaintiff
AND
GIBBSTON WATER SERVICES LIMITED (IN LIQUIDATION) Defendant
On the Papers Judgment:
24 March 2015
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The plaintiff filed an application to liquidate the defendant on
24 October 2014. The proceeding was served on the defendant on
19 November 2014.
[2] On 3 December 2014, the last day available to it under s 241AA(2) of the Companies Act 1993 (the Act), the defendant’s shareholder resolved to place the defendant in voluntary liquidation. Mr John Scutter was appointed liquidator.
[3] By originating application dated 11 December 2014, the plaintiff applied for orders terminating the liquidation of the defendant (i.e. the voluntary liquidation resulting from the 3 December 2014 resolution of the defendant’s shareholder) and appointing a provisional liquidator of the defendant. In the alternative, the plaintiff asked for an order reviewing the appointment of Mr Scutter as liquidator, and appointing an alternative liquidator. The plaintiff applied for costs not only against the defendant, but also against a company called RHG Holdings Ltd (RHG) and its
sole director and shareholder, Mr Richard Guthrey. The shares in the defendant had
TOMANOVICH HOLDINGS LIMITED v GIBBSTON WATER SERVICES LIMITED (IN LIQUIDATION) [2015] NZHC 541 [24 March 2015]
been transferred to RHG the day before the resolution was passed putting the defendant into liquidation.
[4] On the same day as that share transfer was effected, the plaintiff says that some or all of the defendant’s assets were sold to a company called Gibbston Community Water Company 2014 Ltd (GCW). GCW had been incorporated on the same day as RHG, with the same sole director and shareholder.
[5] The plaintiff alleged in its originating application that the purpose of incorporating GCW and RHG, transferring the shares in the defendant to RHG, voluntarily liquidating the defendant and appointing Mr Scutter, was to defeat the intention of the plaintiff and other creditors to appoint their own preferred liquidator who would sell the defendant’s assets for their true market value and sue to recover the defendant’s accounts receivable. The intention of the various share transfers and other steps was also said to be to obtain control of the defendant’s assets, which included potable water infrastructure, water deeds and water consents, in order to make a profit.
[6] The plaintiff sought an urgent hearing of its application, and the application was listed for hearing on 17 December 2014. I directed that the application and supporting affidavits were to be served on the defendant and on Mr Guthrey and RHG.
[7] The plaintiff ’s own application for an order liquidating the defendant, which had been superseded by the defendant’s voluntary liquidation on 3 December 2014, was adjourned for hearing on 17 December 2014 with the plaintiff’s originating application.
[8] In the course of the hearing on 17 December 2014, the plaintiff abandoned its applications for orders terminating the liquidation and appointing an interim liquidator. The hearing proceeded on the plaintiff’s application for orders under ss 241AA and 283(4) of the Act for orders replacing Mr Scutter as liquidator.
[9] In the course of the hearing, I indicated to counsel that, particularly in light of the abandonment of the applications for orders terminating the liquidation and appointing an interim liquidator, I could see no urgency in the originating application. I noted that there was no evidence before the Court suggesting any danger of imminent dissipation of the defendant’s assets, and indicated my view that the defendant and its shareholder should have a reasonable opportunity to properly consider the application to remove Mr Scutter as liquidator.
[10] On the same day as the plaintiff filed its originating application, it sent notice to Mr Scutter (who had earlier indicated his intention not to call a meeting of the defendant’s creditors) requiring that such a meeting be convened. (The plaintiff, as a creditor of the defendant, was entitled to call for a creditors’ meeting under s 245 of the Act.) I was advised by counsel at the hearing on 17 December 2014 that Mr Scutter had raised an issue over the form of the plaintiff ’s notice requiring him to call a creditors’ meeting.
[11] Counsel conferred during the morning adjournment on 17 December 2014, and agreed that the plaintiff’s application under ss 241AA and 283(4) of the Act should be adjourned to the list on 3 February 2015. In the meantime, the plaintiff would amend its notice requiring Mr Scutter to call a creditors’ meeting, and Mr Scutter would arrange for the meeting to take place. Counsel anticipated that the creditors’ meeting would take place in January 2015, so that the result of the voting on the confirmation or otherwise of Mr Scutter’s appointment would be known when the case was called again on 3 February 2015.
[12] The plaintiff’s originating application and its application for a liquidation order were accordingly adjourned to 3 February 2015.
[13] Following the 17 December 2014 hearing, Mr Scutter elected to step down voluntarily from his position as liquidator. He has been replaced as liquidator by Mr Ian Shephard and Mr Heath Gair.
[14] By the date the applications were called again on 3 February 2015, all outstanding matters had been resolved apart from questions of costs. In accordance
with counsel’s agreement, I advised that I would deal with claims for costs on the papers. I gave directions for the filing of any further affidavit or affidavits, and for the filing of written submissions. Those submissions, together with an affidavit sworn by Mr Guthrey, have been received, and I now give judgment on the parties’ respective applications for costs.
Application by the plaintiff for costs on its liquidation claim
[15] The liquidators of the defendant have indicated that they will abide the decision of the Court on questions of costs. They advise that it appears that there will be insufficient funds in the liquidation to meet the payment of costs in any event, so that any award against the defendant would likely be meaningless.
[16] I do not see that as a sufficient reason to decline to award the costs to which the plaintiff would otherwise be entitled. The plaintiff commenced a liquidation claim which, through no fault of its own, was rendered unnecessary when the defendant’s shareholder resolved to place the defendant in liquidation. The plaintiff is entitled to costs on a 2B basis in respect of the filing of its liquidation claim, and any other steps referred to in sch 3 to the High Court Rules up to the date on which the defendant’s shareholder resolved to place the defendant in liquidation (3
December 2014). It is also entitled to costs on a 2B basis for one appearance on the first call of the liquidation claim. In addition, the plaintiff is entitled to its disbursements incurred in the filing of its liquidation claim. I make orders accordingly.
Application by the plaintiff for costs on its originating application, and application by RHG and Mr Guthrey for costs on that application
[17] The plaintiff seeks costs against the defendant and/or RHG and Mr Guthrey. In his written submissions for the plaintiff, Mr Moss suggests that this application was substantially successful, in that it resulted in the removal (by voluntary retirement after the hearing) of Mr Scutter as liquidator. Mr Moss submits that the plaintiff was the “clear winner” on its originating application, and that it should be entitled to costs accordingly.
[18] In respect of the application for costs against Mr Guthrey and RHG, Mr Moss submits that, ultimately, it was the actions of those parties which were the real subject of the plaintiff’s complaints. Costs orders can be made against non-parties, particularly where they choose to appear in opposition to an application. The plaintiff asks for costs awards against Mr Guthrey and RHG, essentially because it says they were involved in a scheme to defeat the defendant’s creditors by selling the defendant’s main assets at an undervalue, and liquidating the defendant just minutes before the expiry of the last available date on which that course was open to them. Mr Moss also submits that Mr Guthrey and RHG were involved in the selling of the defendant’s assets to a phoenix company controlled by a former director of the defendant, and the divestment of the defendant’s assets.
[19] In response to the costs claims now made by RHG and Mr Guthrey, Mr Moss submits that those parties did not need to take an active role in the proceeding, let alone actively oppose it. He submits that it is no answer to say that the plaintiff sought costs against Mr Guthrey, submitting that the Court would not have ordered costs against Mr Guthrey if he had chosen to take no role in the proceeding without at least giving him a chance (on the papers) to respond on the costs issue.
[20] More generally, Mr Moss submits that Mr Guthrey and RHG were instrumental in bringing about the situation which made it necessary for the plaintiff to file its originating application.
[21] RHG and Mr Guthrey reject those submissions. They say that the plaintiff failed in its application, and that the usual consequence should follow – the plaintiff should pay costs to them. They submit that the originating application was misconceived, and the request for non-urgency unnecessary, and that they have been put to unnecessary costs.
[22] RHG and Mr Guthrey say that agreeing to the appointment of an alternative liquidator saved the costs of holding a creditors’ meeting and the plaintiff’s abandonment of its urgent applications allowed time to progress discussions towards that end. However, the wide-ranging relief sought in the originating application has caused substantial waste of assets which would otherwise have been available to the
defendant’s creditors. The costs of Mr Scutter and his lawyers having to respond to an urgent court application have resulted in few funds now remaining. All creditors have been disadvantaged by the plaintiff ’s application.
[23] RHG and Mr Guthrey submit that it was entirely appropriate for them to be represented at the 17 December 2014 hearing: the plaintiff chose to seek urgent substantive orders with potentially serious cost and reputation implications for them, and they were entitled to respond. They seek costs against the plaintiff on a 2B basis, but on a reduced scale to reflect the short time frame between the application and the hearing. They seek total costs on the originating application of $6,080, which includes a $110 filing fee on filing a notice of appearance.
Discussion and conclusions
[24] With one qualification, to which I refer below, I accept the submissions of
RHG and Mr Guthrey.
[25] At the hearing on 17 December 2014 Mr Moss was unable to point to any circumstances which might have justified the termination of the 3 December 2014 liquidation and the immediate appointment of a provisional liquidator. There was no evidence of imminent dissipation of the defendant’s assets, and any claim against third parties based on an alleged sale of the defendant’s assets at an undervalue would remain available to the defendant’s liquidator.
[26] In the end, the only real issue turned out to be whether or not Mr Scutter should or should not be replaced as liquidator. As I pointed out at the 17 December
2014 hearing, that was a matter which did not justify the allocation of an urgent fixture, particularly in circumstances where the plaintiff had not first pursued its right to require Mr Scutter to convene a creditors’ meeting, at which the question of his continuing in office as liquidator could be put to the vote.
[27] In no sense did the plaintiff “win” its case on the originating application. On the contrary, it abandoned the only parts of the application which might have justified the urgency with which the other parties were obliged to treat it. The fact that Mr Scutter subsequently resigned as liquidator does not in my view prove that
grounds existed for his removal – that question has not been determined, and in view of the apparent absence of funds in the defendant it is entirely possible that Mr Scutter elected to stand aside simply to avoid incurring further costs that the defendant could ill afford.
[28] For those reasons, the plaintiff’s application for costs on its originating
application is dismissed.
[29] I turn to consider the application for costs by RHG and Mr Guthrey against the plaintiff. I agree that RHG and Mr Guthrey had little option but to participate in the urgent hearing scheduled for 17 December 2014. The plaintiff had sought costs against them, and raised matters which might have had the effect of adversely affecting their reputations. They were fully entitled to participate, and, given the nature of the allegations and the claims made against them for costs, it was almost inevitable that they would do so.
[30] In the event, no relief was obtained against RHG or Mr Guthrey by the plaintiff, and I am satisfied that they were put to unnecessary expense in answering an application which (insofar as it sought termination of the liquidation and the appointment of a provisional liquidator) appears to have been wholly unnecessary. In my view, the filing and prosecution of the application for those two orders is sufficient in and of itself to justify a modest costs order in favour of RHG and Mr Guthrey. Whether the application to remove Mr Scutter as liquidator would have been resolved in favour of RHG and Mr Guthrey is another matter, however, and I think the costs to which RHG and Mr Guthrey are entitled should be reduced to the extent that that issue (which I regard as having been effectively settled between the parties) might not necessarily have been resolved in their favour.
[31] In the circumstances, I think that the justice of the case will be met by an award of costs to RHG and Mr Guthrey, payable by the plaintiff, in the sum of
$2,000, inclusive of any disbursements. As RHG and Mr Guthrey were represented by the same counsel, there is no need to apportion those costs between them.
Defendant’s costs on the plaintiff ’s originating application
[32] Mr Scutter incurred costs in providing an affidavit and retaining counsel to represent him on the plaintiff’s originating application. I am satisfied that some costs should be awarded to the defendant on that application, reflecting the fact that substantial parts of the application were withdrawn in the course of the hearing, but reduced to reflect the fact that the application to remove Mr Scutter as liquidator was not in the end determined by the Court. There will be an order for costs to the defendant on the originating application of $1,000, inclusive of any disbursements. That sum may be set off against the costs I have awarded to the plaintiff in paragraph [16] of this judgment.
[33] Having addressed the outstanding costs issues, the plaintiff’s originating application filed on 11 December 2014 can now be formally dismissed, as can its application for an order putting the defendant into liquidation. I make orders accordingly.
Associate Judge Smith
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