Vijayakumar v Vasanthan - [2021] NZHC 1827

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-602

[2021] NZHC 1827

UNDER the Companies Act 1993, section 165

BETWEEN

SOTHILINGIN VIJAYAKUMAR

Plaintiff

AND

SIVA VASANTHAN

First Defendant

MANUKAU FAMILY DOCTORS LIMITED

Second Defendant

Hearing: 12 July 2021

Appearances:

Kalev Crossland for the plaintiff

Dr Vasanthan, the First Defendant in person No appearance for the Second Defendant

Judgment:

19 July 2021

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on 19 July 2021 at 4:00pm
pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:
Shieff Angland (Kalev Crossland), Auckland, for the Plaintiff

Copy for:
Dr Siva Vasanthan, Manukau, Auckland 2241

VIJAYAKUMAR v VASANTHAN [2021] NZHC 1827 [19 July 2021]

[1] Manukau Family Doctors Ltd has two shareholders, Dr Siva Vasanthan (180 shares) and Dr Sothilingin Vijayakumar (120 shares). Dr Vasanthan is the sole director. The company is the commercial landlord of premises at Great South Road, Manukau. Dr Vijayakumar says that Dr Vasanthan has breached his duties as director of Manukau Family Doctors Ltd. He has applied under s 165 of the Companies Act 1993 to bring a derivative proceeding against Dr Vasanthan. I decline the application because Dr Vijayakumar has a more effective alternative remedy under s 174 of the Companies Act 1993.

Background

[2] Manukau Family Doctors Ltd was incorporated in 2004. It completed the purchase of the premises in June 2005. Originally, three doctors planned to practise there, Dr Vijayakumar, Dr Vasanthan and Dr Pillai, but Dr Pillai pulled out in 2004. Dr Vijayakumar says that Dr Vasanthan proposed to join his medical practice with another called “The Doctors”, but Dr Vijayakumar did not want to be involved with “The Doctors”. The premises were fitted out for a three-man practice (including an x-ray room) but only Dr Vasanthan practised there. As matters turned out, not all the space was used. The front part of the premises is used for a medical practice run by Manukau Family Accident and Medical Ltd. Dr Vasanthan is the sole director of that company and he and his wife are the only shareholders.

[3] Manukau Family Doctors Ltd’s financial statements show that the fitout is an asset of the company. Dr Vasanthan claims that he paid for the fitout. That may have been the case, but I assume that that would be reflected in his shareholder’s current account.

[4] Dr Vijayakumar moved to Australia in 2006 and has lived there ever since. He resigned as director in August 2012. Dr Vasanthan contests that. He says that Dr Vijayakumar has remained a director ever since, because Dr Vijayakumar never

tendered a written resignation. It is clear, however, from the records in evidence that Dr Vijayakumar has not been a director since August 2012. The Companies Office records show that he ceased to be a director then. The financial statements prepared since then do not show him as a director. There are annual resolutions…

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 Vijayakumar v Vasanthan

Details

AGLC: Vijayakumar v Vasanthan [2021] NZHC 1827
Case: [2021] NZHC 1827
Decision Date: 19 July 2021

CaseChat Overview and Summary

The case of Vijayakumar v Vasanthan before the High Court of New Zealand Auckland Registry involved Dr Sothilingin Vijayakumar, a shareholder of Manukau Family Doctors Ltd, seeking leave under s 165 of the Companies Act 1993 to bring a derivative proceeding against Dr Siva Vasanthan, the sole director and majority shareholder of the company. Dr Vijayakumar alleged that Dr Vasanthan had breached his duties as director by undercharging rent for the company’s premises and mismanaging the company. The court was required to determine whether to grant leave for Dr Vijayakumar to bring a derivative proceeding against Dr Vasanthan and whether there were alternative remedies that Dr Vijayakumar could pursue.

The court found that while some claims for breach of duty were time-barred, there were arguable grounds for a claim of breach of director’s duty based on Dr Vasanthan's use of company funds to meet his personal legal expenses instead of paying creditors. The court also found that Dr Vasanthan had let himself down by not keeping an interests register, leaving himself open to attack for benefits he had received from the company. However, the court declined to grant leave for a derivative proceeding because Dr Vijayakumar had a more effective alternative remedy under s 174 of the Companies Act 1993. A proceeding under s 174 could address all the matters required to separate the interests of the disputing shareholders, including ordering compensation for breaches of duty, rectifying accounts, and directing a purchase of shares after valuation. The court found that it was more cost-efficient to deal with all matters together under s 174 than to bring a piecemeal claim under s 165.

The court declined to give leave under s 165 of the Companies Act 1993 and costs followed the event. Dr Vasanthan was entitled to costs for those steps where he had legal representation. The case was a category 2 proceeding for costs, and the parties were directed to confer on costs to be calculated on a category 2 basis. If they were unable to agree, memoranda might be filed.

Orders