Tussock Valley Limited
[2019] NZHC 2281
•11 September 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1854
[2019] NZHC 2281
UNDER Part 15A of the Companies Act 1993 and Part 19 of the High Court Rules IN THE MATTER
of an application concerning the administration of WDG New Zealand Limited, Ice Cream Factory Limited and Waikato Ice Supplies Limited
IN THE MATTER
of an application by TUSSOCK VALLEY LIMITED
Applicant
Hearing: On the papers Appearances:
J Nolen for Applicant
Judgment:
11 September 2019
JUDGMENT OF LANG J
[on without notice originating application for orders relating to the validity of a Deed of Company Arrangement and appointment of a new Deed Administrator]
This judgment was delivered by me on 11 September 2019 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
In the matter of TUSSOCK VALLEY LIMITED [2019] NZHC 2281 [11 September 2019]
[1] This application arises from the tragic and unexpected death of the deed administrator of a group of related companies that are currently at a crucial stage of the process provided for under Part 15A of the Companies Act 1993 (the Act).
Background
[2] The applicant, Tussock Valley Limited (Tussock Valley), is a creditor of WDG New Zealand Limited, Ice Factory Limited and Waikato Ice Supplies (the WDG companies). The WDG companies, along with their holding company Cold Resources Ltd (In liquidation), were placed in voluntary administration on 24 June 2019 and Mark Norrie of Norrie & Daughters Limited (NDL) was appointed sole administrator.
[3] The first meeting of creditors was held on 4 July 2019. Mr Norrie’s appointment as sole administrator was confirmed at that meeting.
[4] On 29 July 2019 the watershed meeting of creditors of the WDG companies was held at NDL’s offices. A proposed Deed of Company Arrangement (DOCA) dated 22 July 2019 was tabled at that meeting. Mr Norrie had earlier circulated a report about the business and recommended that the best interests of the creditors would be served by the companies entering into a Deed of Company Arrangement under Part 15A of the Act. The proposed DOCA provided for Mr Norris to act as deed administrator.
[5] The creditors who attended the meeting voted unanimously in favour of the WDG companies executing the proposed DOCA. At the conclusion of the meeting Mr Warren Goudie, the sole director of the WDG companies, signed a board resolution authorising that to occur. Unfortunately, however, Mr Norrie unexpectedly passed away whilst overseas on 4 August 2019 before he could execute the DOCA in his capacity as deed administrator. Section 239ACO of the Act provides that a deed becomes a deed of company arrangement when it is signed by both the company and the deed administrator. As matters currently stand, that obviously cannot now occur because of Mr Norris’s death.
[6] Tussock Valley seeks the appointment of Mr Christopher Horton, an insolvency practitioner based in Auckland, as deed administrator to replace Mr Norrie.
Tussock Valley also seeks orders confirming that the Deed Administrator’s Costs and Liabilities, as defined in the DOCA, shall include the remuneration of NDL and the costs incurred by NDL (including legal costs) since Mr Norrie’s death. Finally, Tussock Valley seeks orders dispensing with service of the present proceeding on affected parties. It seeks an order that all known creditors be advised by way of post and email of the orders that the Court makes.
Decision
Validity of DOCA
[7] Neither the Act nor the DOCA provides for what is to occur if a deed administrator should die before executing a DOCA that has been approved by a company’s creditors. In that respect the position is different for a deed administrator than for an administrator. Section 239S(1)(b) provides that the appointor of an administrator may appoint a replacement to fill the vacancy that occurs if the administrator dies.
[8] The consequences of the DOCA not being signed by the company within 15 working days are that, if the company is not already in liquidation, the administrator is required to apply for a liquidator to be appointed.1 In the present case, however, the issue is not that the company has not signed the DOCA. It is that Mr Norrie as deed administrator has failed to sign it. No consequences are specified for any failure by the deed administrator to sign a DOCA within any specified period. That is understandable because the drafters of the legislation no doubt proceeded on the basis that the deed administrator has every incentive to sign the document whilst the company may not. If the company fails to abide by the creditors’ wishes it therefore faces the clear alternative of liquidation.
[9] In the present case it is obvious that an order placing the company in liquidation would be contrary to the intentions and interests of the creditors as expressed by their unanimous vote in favour of the DOCA at the watershed meeting. I therefore accept the applicant’s submission that, if possible, the Court should endeavour to find a means
1 Companies Act 1993, s 239ACR(a).
under Part 15A of the Act to give effect to the DOCA despite the unfortunate circumstances that have led to Mr Norrie failing to sign it before his death.
[10] The applicant contends that s 239ACX provides the Court with this ability. Section 239ACX provides as follows:
239ACX Court may rule on validity of deed
(1)The Court may rule on the validity of a deed of company arrangement if there is doubt, on a specific ground, whether a deed of company arrangement—
(a) was entered into in accordance with this Part; or
(b) complies with this Part.
(2)An application under this section may be made by—
(a) the deed administrator; or
(b) a shareholder or creditor of the company; or
(ba) the FMA (if the company is a financial markets participant); or
(c) the Registrar.
(3)On an application under this section,—
(a) the Court may declare the deed void or not void:
(b) if the deed is void for contravention of a provision of this Part, the Court may validate the deed, or any part of it, provided the Court is satisfied that—
(i)the provision was substantially complied with; and
(ii)no injustice will result for anyone bound by the deed if the contravention is disregarded.
(4)The Court may, if it declares that a provision of the deed is void, vary the deed, but only if the deed administrator consents.
[11] Tussock Valley is plainly entitled to seek an order under s 239ACX because it is one of the company’s creditors. The specific ground on which it asks the Court to rule on the validity of the deed is the fact that Mr Norrie failed to sign it as deed administrator. That fact also plainly means the DOCA was not entered into in compliance with Part 15A.
[12] Under s 239ACX(3)(a) the Court may declare the Deed void or not void. In the present case the Deed must be void because it has not been signed by Mr Norrie as the deed administrator named in the Deed approved by creditors. I consider this means the Court has the power under s 239ACX(b) to validate the Deed if it is satisfied the provisions of Part 15A have been substantially complied with and no injustice will result for anyone bound by the Deed if the contravention is disregarded.
[13] I reach that view notwithstanding the fact that, on one reading, the subsection can be construed as requiring substantial compliance with the section that has been contravened. If the subsection is construed in that way there could not be substantial compliance in the present case because Mr Norrie took no steps to sign the DOCA. I consider, however, that this construction would be too narrow and would not be in accordance with the objects of the legislation.
[14] In Cargill International Sarah v Solid Energy New Zealand Ltd Katz J observed (albeit in a different factual context):2
Part 15A fills a gap that previously existed in New Zealand’s corporate insolvency framework. It provides broader protection and greater flexibility to companies wishing to consider corporate rescue as an alternative to immediate liquidation. Voluntary administration is a different concept to liquidation under Part 16 of the Act, which is designed simply to realise and distribute a company’s assets. As Sir Roy Good explains:
“The primary objective of administration is not to bury the company forthwith but to restore it to profitable trading where possible and, in the event that liquidation becomes unavoidable (as is usually the case), to deal with the business or assets in such a way as to produce better dividends for creditors than if the company had gone into winding up from the outset.”
[15] It seems to me that a narrow construction of the wording used in s239ACX(3)(b)(i) would not assist to achieve these objectives. Rather, the Court must have regard to the whole of the process that has been undertaken in order to determine whether, viewed overall, there has been substantial compliance with the requirements of Part 15A. In some cases the nature and significance of the irregularity that has occurred may prevent the Court from finding there has been substantial compliance for the purposes of the subsection.
2 Cargill International S.A. v Solid Energy New Zealand Ltd [2016] NZHC 1817 at [19].
[16] In the present case all of the remaining requirements under Part 15A have been complied with. Mr Norrie was validly appointed as administrator by the WDG companies and he then followed all of the procedures set out in the Act. Most importantly, the creditors unanimously voted in favour of the companies entering into the DOCA that had been circulated prior to the watershed meeting. There is nothing to suggest Mr Norrie would have refused to sign the deed because he recommended that creditors go down that path. The only thing that prevented Mr Norrie from taking the final step of signing the DOCA was his untimely death. I am therefore satisfied in terms of s 239ACX(3)(a)(ii) that all but one of the provisions under Part 15A have been fully complied with.
[17] Furthermore, no injustice will result for any person bound by the DOCA if the requirement that the deed administrator sign the Deed is disregarded. This results from the fact that creditors have unanimously voted in favour of the DOCA being executed. Rather, an injustice for those parties, and the companies, is likely to occur if the company is placed in liquidation. That was the outcome the creditors sought to avoid by voting in favour of the DOCA.
[18] I therefore declare the DOCA void, but make an order validating it under s 239ACX(3)(b) of the Act.
Application for appointment of Mr Horton as replacement Deed Administrator
[19]Section 239ACJ of the Act provides as follows:
239ACJ Removal of deed administrator
(1)The Court may—
(a) remove the deed administrator, and appoint a person in his or her place; or
(b) appoint a new deed administrator, if the deed of company arrangement has not yet terminated but for some reason no deed administrator is acting.
(2)The Court may make an order under subsection (1) on the application of a creditor of the company, a shareholder, the liquidator (if the company is in liquidation), the FMA (if the company is a financial markets participant),or the Registrar.
[20] The DOCA does not provide for what should occur if Mr Norrie should die whilst his appointment as sole Deed Administrator remains in force. Plainly, however, s 239ACJ(1)(b) contemplates the Court appointing a new deed administrator in cases where, for whatever reason, a deed of company arrangement remains in force but no deed administrator is acting. I therefore accept the applicant’s submission that an order under s 239ACJ is both necessary and appropriate given Mr Norrie’s death.
[21] I am also satisfied that Mr Horton has the appropriate independence, qualifications and relevant business experience to undertake the role of replacement deed administrator. I therefore make an order under s 239ACJ(1)(b) appointing Mr Horton as a new deed administrator.
Deed Administrator’s Costs
[22] Tussock Valley seeks this order because NDL has necessarily and understandably incurred further costs since Mr Norrie’s death. These have been incurred not only to continue the administration of the WDG companies but also to advance the present application. The fact that Mr Norrie was the sole administrator and sole deed administrator may create an issue as to whether these costs can be claimed under the DOCA following Mr Norrie’s death.
[23] I accept without reservation that the costs have been incurred in the best interests of the stakeholders of the WDG companies. I therefore make an order that the Deed Administrator’s Costs and Liabilities, as defined in the DOCA, shall include the remuneration of NDL and reimbursement of all costs reasonably incurred by NDL (including legal costs) since Mr Norrie’s death on 4 August 2019.
Directions as to service
[24] The circumstances of the present case mean the Court has been required to act urgently to prevent the WDG companies being placed in liquidation. Service of the present application on all stakeholders would inevitably compromise this objective. Furthermore, I cannot see any rational basis on which WDG’s stakeholders would oppose the orders that Tussock Valley seeks, or that they would wish to be heard on the application.
[25] I therefore dispense with service of the present application on any affected party. I direct, however, that Mr Horton shall forthwith advise all known creditors of the WDG companies of the orders the Court has made by forwarding them a copy of this judgment via post or email.
Lang J
Solicitors:
K3 Legal Ltd, Auckland
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