Top Retail Limited (in receivership) v Johnstone

[2017] NZHC 2238

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-002096 [2017] NZHC 2238

IN THE MATTER

OF TOP RETAIL LIMITED (IN

RECEIVERSHIP)

AND

KARE  JOHNSTONE AND CONNOR JOHN MCELHINNEY RECEIVERS OF TOP RETAIL LIMITED (IN LIQUIDATION)

Applicants

Hearing:	(On the papers)
Counsel:	S S Cook and A L Harlowe for Applicants
Judgment:	15 September 2017

JUDGMENT OF WHATA J

Solicitors:

Buddle Findlay, Auckland for Applicants

TOP RETAIL LTD (IN R’SHIP) v JOHNSTONE & ANOR [2017] NZHC 2238 [15 September 2017]

[1]      I have before me a without notice originating application for orders granting an extension of time under s 32(3) of the Receiverships Act 1993.

[2]      Section 32(3) states the Court may, on application of receiver, extend the period within which notice of the termination of a contract is required to be given under paragraph (b) of subsection (1). The Court may extend that period on such terms and conditions as it thinks fit.

[3]      Section  32(1)(b)  states,  in  short,  that  a  receiver  is  personally  liable  for payment of wages or salary that, during a receivership, accrue under a contract of employment relating to the property of the receivership and entered into before the appointment of the receiver if notice of the termination of the contract is not lawfully given within 14 days after the date of appointment.

[4]      The application is supported by an affidavit of Kare Johnstone, one of the receivers.  Relevantly Ms Johnstone notes that:

On 7 September 2017, Bank of New Zealand (Bank) appointed Mr McElhinney and me as receivers of the Company under the terms of a General Security Agreement …

It is our objective to continue to trade the business while we seek a buyer for the business and assets as a going concern. This, in our view, will provide the best:

(a)       recovery possible for the Bank; and

(b)      opportunity for employees to secure employment on an on-going basis.

To date we have advertised the business for sale in the NZ Herald and on Trade  Me  and  we  have  communicated  with  several  potential  interested parties. Overall, it is early days in  the receivership and as a result we are still ascertaining the saleability of the business and its value.

Job security is an obvious concern for all employees and while assurances of continued employment in the short term have been given while the Receivers assess  the  financial  position  of  the  Company,  it  is  imperative  that  the business is sold as soon as possible to ensure job security. Overall, one of the Company’s key assets is its workforce, and as such, it is important that employees remain engaged by the Company in order to continue to trade the business from the stores and present the best sale package possible to prospective purchasers.

During the receivership period employees will continue to be paid their wages on their usual pay cycle until their employment terminates (whether as a result of the sale of the business or otherwise).

[5]      Ms Johnstone also notes that if the 14 day period is not granted then notice of termination will be given to every employee by 21 September 2017.  At the same time, formal offers of fixed term, full time, part time, and/or casual re-employment would have to be made to each person on standard receivers’ terms and conditions, and with necessary documentation being prepared, checked and executed by all parties.

[6]      In her view, this task, while achievable, would be a pointless and wasteful exercise where the company would in any event be required to terminate the employment agreements in a transfer of business scenario if the business is sold. She adds that given the number of employees it would be a timely and expensive process to terminate employees and enter into new employment agreements and obtain a copy of the agreements signed by each employee.  She is also mindful that these employees are concerned about their future and could terminate their employment at any time.   She believes that in the particular circumstances, the disruptions caused by those steps could prejudice ongoing trading from the stores and could risk the company losing further employees.

[7]      For that reason, extension of additional 40 days to Tuesday 31 October 2017 is sought.

Framework

[8]       In Re WGL Retail Holdings Ltd the Court helpfully identified the following factors as relevant to a determination under the equivalent of s 32(3), namely:1

(a)       Extension  was  more  likely  to  promote  continuity  of  employment relationships, which is likely to be in the best interests of creditors and

employees as a whole.

1      Re WGL Retail Holdings Ltd [2011] NZCCLR 22 at [32].

(b)Extension would allow the applicants to continue their “business as usual” approach.

(c)      The risks of not granting the extension were that the administrators may feel constrained to terminate employment, reducing the chances of a successful administration.

Assessment

[9]      I am in little doubt that the order as sought should be granted, for all of the reasons identified in Re WGL Retail Holdings Ltd.

[10]     Notification of the application is pointless, and in any event the orders are sought for the benefit of the affected persons and the company.

[11]     I also accept the submission made by Mr Cook and Mr Harlowe that the employees will not suffer any prejudice if service is dispensed with because:

(a)       they will be provided with a copy of the orders;

(b)      they will have the right to challenge the extension; and

(c)      the  company  will  continue  paying  employees  under  their  current terms and conditions of employment.

[12]     For these reasons I grant the orders as sought by the receivers extending the time for terminating employment by an additional 40 days over and above the 14 day period prescribed under the Act.  The period specified in s 32(1)(b) shall run from

7 September 2017 to 31 October 2017, instead of 7 September 2017 to 21 September

2017.