Viaduct Quays Hotel Limited (in liq)
[2020] NZHC 1578
•6 July 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-1000
[2020] NZHC 1578
UNDER Part 19 of the High Court Rules and sections 286(4) and 280 of the Companies Act 1993 IN THE MATTER OF
the liquidation of VIADUCT QUAYS HOTEL LIMITED
EX PARTE
JARED WAIATA BOOTH and TONY LEONARD MAGINNESS
Applicants
Hearing: On the papers Judgment:
6 July 2020
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 6 July 2020 at 11.30am pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Meredith Connell, Auckland
Viaduct Quays Hotel (in liquidation) [2020] NZHC 1578 [6 July 2020]
[1] The applicants, who are experienced insolvency practitioners at Baker Tilly Staples Rodway (BTSR), apply without notice for orders under s 286(4) and 280 of the Companies Act 1993 (the Act) for orders that they be permitted to act as liquidators of Viaduct Quays Hotel Limited (the company). They also ask for an order under r
19.5 of the High Court Rules 2016 granting them permission to bring the application by way of originating application.
Without notice originating application
[2] First, I am satisfied that it is appropriate to make an order directing that the application be brought by way of without notice originating application. This Court has held previously that it is appropriate to determine an application under s 280 of the Act on a without notice basis, and for the application to be served on creditors at the same time and on the same basis as the liquidators were required to provide their first notice/report under the Act.1
[3] In this case, the applicants propose to inform creditors of any orders made by the Court on this application by providing copies of the sealed orders to all known creditors at the same time and in the same manner as any notice by the liquidators of a first creditors’ meeting would be served, which will be within five working days of their appointment.
[4] I accept that personal service of the originating application on all potential creditors in a liquidation would unnecessarily add expense, and unduly delay any liquidation. Creditors will not suffer prejudice if they are provided with copies of any orders made on the originating application within five working days after any order is made appointing the applicants’ liquidators, and they are given the right to challenge any appointment of the applicants at the first meeting of creditors.
[5] For all those reasons, I am satisfied that the application is properly made without notice, and that an order should be made permitting the application to be filed under Part 19 of the High Court Rules. There will be orders accordingly.
1 Icon Digital Entertainment Ltd v Westpac NZ Ltd HC Auckland CIV-2007-404-7124, 20 November 2007; Fisk v Fargher Construction Ltd [2018] NZHC 441.
The substantive applications under s 280 and 286(4) of the Act
[6]Section 280(1)(b), (ca) and (cb) of the Act provide:
280 Qualifications of liquidators
(1) Unless the court orders otherwise, none of the following persons may be appointed or act as a liquidator of a company:
…
(b) a creditor of the company in liquidation:
…
(ca) a person who has, or whose firm has, within the 2 years immediately before the commencement of the liquidation, provided professional services to the company, unless, within 20 working days before the appointment of the liquidator, the board of the company resolves that the company will, on the appointment of the liquidator, be able to pay its debts and a copy of the resolution is delivered to the Registrar for registration.
(cb) a person who has, or whose firm has, within the 2 years immediately before the commencement of the liquidation, had a continuing business relationship (other than through the provision of banking or financial services) with the company, its majority shareholder, any of its directors, or any of its secured creditors, unless, within 20 working days before the appointment of the liquidator, the board of the company resolves that the company will, on the appointment of the liquidator, be able to pay its debts and a copy of the resolution is delivered to the Registrar for registration.
…
[7] Section 286(4) (b) of the Act provides that the Court may, in relation to a person who is disqualified from becoming a liquidator by s 280, order that that person may be appointed liquidator notwithstanding s 280 of the Act.
[8] The company carries on business managing the Sofitel Viaduct Harbour Hotel (the hotel). The hotel property is a unit title development, and the company leases the various units in the development to various unit holders.
[9] A dispute arose between the company and certain unit owners, and that dispute was referred to arbitration. On 27 September 2018, the arbitrator issued an award which provided for the company to engage an auditor to audit certain financial statements provided by the company to the unit owners pursuant to the terms of their leases. The company and the unit holders agreed that BTSR should be appointed auditor, and BTSR’s audit team commenced work on that engagement in August 2019.
[10] By early 2020, the audit work had stalled, as BTSR had not been provided with certain further information it had required from the claimant unit holders and the company. The engagement was not completed. The Covid-19 pandemic then affected the company’s revenue, and the company’s sole shareholder has now decided to put the company into liquidation by shareholder resolution. He wishes to appoint the applicants as liquidators.
[11] BTSR has been fully paid for its work on the audit. It is not a creditor of the company.
[12] The applicants consider that they cannot accept appointment as liquidators without the approval of the Court, for two reasons. First, BTSR has provided professional services to the company (the audit assignment) within the last two years in terms of s 280(ca), and it also might be considered to have had a continuing business relationship with the company within the last two years on that account (s 280(cb) of the Act). Secondly, ASB Bank Ltd (ASB) has registered three financing statements in respect of the company, and the applicants have previously been appointed by ASB as receivers (of an unrelated company).
[13] Counsel for the applicants referred to a number of authorities on applications such as the present, in support of the following propositions:2
(1)The critical issue is whether there is a risk that the liquidators’ independence and ability to carry out their tasks professionally and effectively might be compromised in the particular circumstances; and
(2)The Court must have regard to the attitude of the creditors and “stand back” and take into account advantages to the company, it shareholders, creditors and other interested parties when considering the approval of the appointment of a liquidator and the exercise of the Court’s discretion.
2 Including Re Joeleen Enterprises Ltd HC New Plymouth CIV-2008-443-0485, 3 October 2008; Re Huntleigh Downs Ltd HC Wellington CIV-2009-485-1498, 11 August 2009, and Fisk v Fargher Construction Ltd, above n 1.
[14]In Re Joeleen Enterprises Ltd, Associate Judge Abbott said:3
I remain of the view expressed in Icon Digital Entertainment Ltd that the critical issue in considering whether the danger of conflict of interest exists due to a continuing business relationship (however that might be defined) is whether there is a risk that the applicant’s independence and ability to carry out his or her task professionally and effectively could be compromised in the particular circumstances of the case.
[15] Counsel referred to two authorities where the Court has held that a relationship with a company arising out of an investigating accounting role does not prevent the investigating accountant being appointed as a liquidator.4 A prospective liquidator’s prior knowledge of a company may also provide efficiency advantages, which will be of benefit to the company’s creditors. In Rapson Holdings Ltd, Associate Judge Abbott appointed investigating accountants as liquidators or administrators. His Honour noted:5
b) Using the investigations undertaken to date is an efficient springboard for the investigations to be undertaken in any liquidation or administration, and thereby the most efficient way of maximising return for creditors;
…
[16] Addressing first the relationship between the applicants and ASB, Mr Booth’s affidavit confirms that, while ASB has a financing statement registered in respect of the company, the company’s solicitors have advised that the financing statement relates to an unused overdraft facility, and that no monies are in fact owing to ASB by the company. The ASB financing statements are to be discharged. Further, Mr Booth says that the receivership of the related company is currently being concluded: he and Mr Maginness have realised the assets, paid distributions to ASB, and are in the process of completing the receivership.
[17] Mr Booth’s evidence is that neither he or Mr Maginness nor BTSR has ever previously undertaken any work for ASB in respect of the company, its directors, or its shareholder. He says that any professional relationship with ASB would not influence the applicants’ ability to comply with their statutory obligations if they are
3 Re Joeleen Enterprises Ltd, above n 2, at [18]. This statement was approved by the Court in Fisk v Fargher Construction Ltd, above n 1, at [24].
4 Icon Digital Entertainment Ltd v Westpac NZ Ltd, above n 1, at [19], and Re Madagascar (No.1) 2013 Ltd [2014] NZHC 385 at [27].
5 Re Rapson Holdings Ltd, HC Auckland, CIV-2010-404-2319, 26 April 2010 at [20(b)].
appointed liquidators. He confirmed that, apart from BTSR’s engagement to complete the audit work on the claims between the company and its unit holders, and the previous appointment by ASB of himself and Mr Maginness as receivers, there is no other reason that would disqualify the applicants from being liquidators of the company.
[18] I am satisfied that the ASB relationship does not provide any basis to decline to make the orders sought. It appears that ASB is not a creditor of the company, and accordingly it does not come within the expression “secured creditors” in s 280(cb) of the Act.
[19] Turning to the engagement by BTSR as auditors on the claims between the company and the unit holders, I accept that the engagement comes within s 280(1)(ca). However I am satisfied that there is no risk that the engagement would or might compromise the applicants’ independence and ability to carry out their tasks as liquidators professionally and effectively if they were appointed. I also accept the submission that there may be substantial advantages for the company and its creditors in having the applicants appointed liquidators, as they will start with substantial knowledge of the company and its business, and they will thus have the “efficient springboard” referred to by Associate Judge Abbott in Re Rapson Holdings Ltd.
[20] Also, the applicants are members of a large firm of chartered accountants with seven locations in New Zealand and over 450 staff. If appointed, they can be expected to conduct their duties as liquidators with independence and objectivity.
[21] Having regard to all of those factors, I am satisfied that the orders sought by the applicants are appropriate.
Result
[22]I make the following orders:
1.Pursuant to r 19.5 of the High Court Rules 2016, granting the applicants permission to commence this proceeding by way of originating application.
2.Pursuant to s 286(4) and 280 of the Act, permitting the applicants to accept appointment and act as joint and several liquidators of the company (if so appointed by the shareholder).
3.Directing that the applicants’ fees and expenses, including solicitor/client costs of the application, shall be an expense incurred by the applicants in carrying out their duties as liquidators of the company; and
4.Directing that copies of the originating application and the sealed orders on it are to be served on all known creditors of the company at the same time and in the same manner as any notice by the liquidators of a first creditors’ meeting would be served.
5.Granting leave to any creditor of the company to apply to the Court within 10 working days of such service, to vary or set aside these orders.
Associate Judge Smith
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