Wagner v B Property Group Limited

[2023] NZHC 3230

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2023-425-22

[2023] NZHC 3230

UNDER

the Companies Act 1993

BETWEEN

KURT BRADLEY WAGNER

Applicant

AND

B PROPERTY GROUP LIMITED

Respondent

Hearing:	8 November 2023
Appearances:	S P Pope and V V Kumar for Applicant (by VMR) P W G Ahern for Respondent (by VMR)
Judgment:	15 November 2023

JUDGMENT OF ASSOCIATE JUDGE LESTER

WAGNER v B PROPERTY GROUP LIMITED [2023] NZHC 3230 [15 November 2023]

[1]    On 20  July  2023,  Dunningham  J  made  orders  requiring  B Property Group Limited  (BPG)  to  provide  Mr  Wagner  with  a  range  of  information.1   Mr Wagner does not accept BPG has complied with those orders and is seeking by interlocutory application, further orders said to be necessary to ensure BPG meets its obligations under the existing orders.

[2]    As well as seeking what might be called compliance orders, further disclosure from BPG is sought, said to arise from BPG’s disclosure to date. Further disclosure is sought in reliance of leave reserved in the 20 July 2023 judgment.

[3]    The background to the present proceeding is set out in the 20 July 2023 judgment, but it is sufficient to say that in May 2022, Mr Wagner agreed to invest

$10,000,000.00 in BPG on the basis those funds would be used to develop a hotel in Wānaka.

[4]    Mr Wagner had concerns about the progress of the development in Wānaka and sought information as to how his funds had been applied to the project. That disclosure showed that his money had been disbursed to “related parties”, that is, to companies associated with Mr Andrew McIntosh, the director of BPG and the holder of the other 50 per cent of the shares, or to Mr McIntosh personally.

[5]    Accordingly, in terms of the first part of Mr Wagner’s application, the issue is whether the further documents sought are caught by the terms of the 20 July 2023 judgment; if they are, then the documents should have been disclosed and compliance orders are appropriate. As to the second aspect of the application, that is, the further disclosure, the issue is whether  the  principles  applying  to  s 178  of  the Companies Act 1993 (the Act) require further information be disclosed.

[6]    I note here that s 178 of the Act is not one of the sections listed in s 20(2) of the Senior Courts Act 2016 in relation to which Associate Judges have jurisdiction. However, the present application is by way of an interlocutory application for

1      Wagner v B Property Group Ltd [2023] NZHC 1898.

enforcement or pursuant to leave reserved. Prior to the hearing, Ms Pope, counsel for Mr Wagner, set out why she considered an Associate Judge had jurisdiction to hear this application. Mr Ahern, counsel for BPG, did not take issue with Ms Pope’s conclusion.2

Compliance disclosure

[7]    The orders made by Dunningham J required comprehensive disclosure of bank accounts and credit card statements of BPG from 31 May 2022 to the date of the order, copies of financial statements, BPG’s business plan, and comprehensive disclosure of documents that record the payment or use of money by BPG from 31 May 2022 again, to the date of the Court order. In particular:

documents recording the “related party loans” (whether loan agreements or otherwise);

documents recording the payments classified as “related party loans”;

the identity of the recipients of the payments and of the borrowers of the “related party” loans; and

all board minutes and resolutions relating to the “related party” loans.

[8]    Mr Wagner asserts that documents recording the related party loans and documents recording the payment of the loans have not been provided. BPG produced a document called “Registration of related party transactions” created as a result of the 20 July 2023 judgment. Documents are sought recording the terms of each of the loans said to have been as outlined in that document.

[9]    The notice of opposition states the above information has already been provided or that no further documents exist. Mr McIntosh’s evidence that there are no further documents, is hard to accept for the following reasons.

[10]Mr McIntosh provided his counsel with a memorandum dated 26 July 2023 in

2      Section 22 of the Senior Courts Act 2016 and Rule 2.1 of the High Court Rules 2016, provides an Associate Judge has the jurisdiction and powers of a High Court Judge in Chambers. This application is a chambers matter by virtue of High Court rule 7.34(1).

which he says he was pleased to confirm the recipients of the related party loans. He says:

The loans listed under the supplied loan agreements were not made in one lump sum. The loans constitute expenses paid by B Property Group (the trading company at the time) on behalf of the listed borrowers.

…

It is important to note the borrowers will repay the amounts borrowed on or before the required payment date and as required to develop the Wanaka property.

[11]   There is then a list of the borrowers with, in each case, the use of funds being described as “property development and related costs”.

[12]   From the balance sheet of BPG as at 31 March 2023, and leaving to one side the smaller amounts said to be related party loans, there is a loan to Haven Point Limited in the sum of $1,324,937.95; Mr McIntosh’s shareholder current account in the sum of $2,325,132.62; and to a company called Waimario Property Limited in the sum of $5,275,966.25.

[13]   It is simply not credible that BPG paid expenses for the above companies without any documentary record. BPG must have been provided with payment claims, invoices, settlement statements, or the like relating to debts for those entities which it met. How else would PBG have known where to pay the expenses it says it met on behalf of each borrower? How did BPG keep track of the amounts it had paid in order to arrive at the precise sums recorded in the accounts if there are no records of the amounts that it paid out? During the hearing, Mr Ahern, counsel for BPG, accepted this reasoning meant there must be material recording how the totals in the accounts were calculated and that material relating to the expenses paid must exist.

[14]   Mr Ahern’s concession was appropriate as, in my view, Mr McIntosh’s bare assertion that there are no further documents, is not credible.

[15]   Mr McIntosh is to provide a further affidavit identifying each and every expense met by BPG on behalf of each of the borrowers, when the expense was paid and what that expense related to.

[16]   Section 178 of the Act, entitles a shareholder to seek information. Section 178 is not restricted to the provision of documents. While Mr Wagner’s application has been focused on documents, no doubt that was because he did not expect sums of the size described in paragraph [12] to have been dealt with orally during the course of the hearing.

[17]   Mr McIntosh is to provide a full narrative in respect of each of the advances in the balance sheet as at 31 March 2023. He is to explain on what basis it was appropriate for BPG to make a personal advance to him of something like

$2,500,000.00.  Such would  not  seem  to  be within the explanation provided by  Mr McIntosh in his 26 July 2023 memorandum that the advances were not made as lump sums. Nor does that explanation tally with the narration in the bank statement of the $5,275,000.00 transferred to Waimario Property where the transfer is referred to as “settlement”.

[18]   The second part of the compliance application seeks details of what are recorded in the accounts as a list of sundry creditors of $70,302.00. Ms Pope did not pursue orders on this issue.

[19]   The next section of the compliance order sought is disclosure of all information provided to BPG’s “external accredited accounting firm” including correspondence in relation to the preparation of those documents. This information is squarely caught by the order at [38][1](e)(ii) of the 20 July 2023 judgment.

[20]I agree with the submission on behalf of Mr Wagner that:

The documents accessed by or howsoever provided to the accountants in order to prepare [BPG’s] “balance sheet” and “profit and loss” as at 31 March 2023 clearly fell within the order requiring [BPG] to supply the information “provided” to its external accounting firm.

[21]   The “balance sheet” and “profit and loss” contains significant detail. That information must have come from BPG in some form.

[22]   BPG’s  accounting  file  is  information   within   its   power   and   control. Mr McIntosh is to obtain a full copy of BPG’s accountant’s file in relation to the

preparation of the “balance sheet” and “profit and loss” as at 31 March 2023. That file is not to be edited in any way by Mr McIntosh. During the hearing, Mr Ahern accepted having considered the wider meaning of  ‘information’ for the purposes of  s 178 of the Act, that the accountant’s file was most likely caught by the order albeit he did not concede BPG had not complied with the order in not producing the file.

Further application

[23]   Dunningham J set out the principles that apply to a s 178 application in her  20 July 2023 judgment. I adopt her statement of the principles and I highlight only two points. First it is for BPG to demonstrate sufficient reason to decline access to Mr Wagner or, that the access is sought for an improper purpose; and second, the reason for declining access must be linked to the interests of the company.3

[24]   Accordingly, in a practical sense, the onus is on BPG to explain why the disclosure is not in its interests. The present context is relevant. Mr Wagner’s funds were deposited into BPG’s bank account on 16 June 2022. Within a matter of weeks all of those funds had been distributed. Mr McIntosh has not explained how the application of those funds is linked to the hotel development in Wānaka. Mr Wagner is a 50 per cent shareholder in BPG. Circumstances relevant to the financial viability of BPG, in which Mr Wagner has made a substantial investment, are plainly relevant to him.

[25] The first new category of documents sought are all bank statements of BPG from 19 February 2016, the date of its incorporation, to 30 April 2022. The opposition asserts this information is not reasonably or properly required to be disclosed. I disagree. Mr McIntosh’s memorandum, noted at [10] above, states that the loans made by BPG to related companies by paying their expenses, occurred over an extended period; the memorandum referring to trading going back to 2016. There are loans to and from a number of entities.

[26]   Mr McIntosh has provided a document already referred to, called “Registration of related party transactions”. That document purports to record the aggregate

3      Wagner v B Property Group Ltd above n 1 at [21].

amounts borrowed by and lent to Mr McIntosh and his related entities including BPG between 2017 and 2023. BPG is an aggregate borrower of $11,643,548.27 and a lender of $18,051,798.20 without further details of the advances.

[27]   Mr Wagner asserts there are no contemporaneous loan documents  leading  Ms Pope to submit that Mr Wagner requires the bank statements as sought in order to understand the amounts BPG is said to have loaned and/or to have borrowed from the entities recorded in the register of related party transactions.

[28]   I agree. I order that BPG is to provide the statements sought. The starting position is that Mr Wagner is a 50 per cent shareholder in BPG. The records of BPG are sub-standard; one need only repeat that the loans recorded in the “Registration of related party transactions” are not in writing albeit there has been an attempt to summarise their terms in a document created after the 20 July 2023 orders.

[29]The next category of further disclosure sought is:

all documents which identify and record each amount loaned by [BPG] to any other person or entity (which remains unpaid), and the date of each loan.

[30]   In my view, this is intended to extend the scope of the disclosure from related party loans to any other party. Similarly, documents are sought of any amount borrowed by BPG from any other person or entity.   Mr McIntosh, in the affidavit     I have ordered, is to confirm there are no such loans as his existing affidavit suggests, he assumed this category added nothing to the related party loan request.

[31]   No non-party loans or borrowings are recorded in the balance sheet of BPG. Accordingly, it is not going to be an onerous matter for Mr McIntosh to address.     If, however, there were non-party advances either to or by BPG, Mr McIntosh’s affidavit is to provide full details of each transaction and what the money was used for if BPG was the borrower.

[32]   The next category of disclosure sought is of the identity of payers to BPG or recipients of funds from BPG with an aggregate value of greater than $20,000.00. In addition, the identities of holders of specified bank accounts is sought. As to providing the names of specified bank accounts, an order that this information be provided was

not resisted by Mr Ahern. As to providing invoices or other documents that support payments greater than $20,000.00, Ms Pope annexed to her submissions, a schedule of the transactions for which that information was sought. Given that focus of the application, Mr Ahern did not oppose an order in relation to the items in that schedule.

[33]   The next category is that read only access to BPG’s accounts and records as hosted on Xero is sought. This is opposed on the basis that it would provide access to information pre-dating Mr Wagner’s  acquisition  of  shares.  Mr  Ahern  submits  Mr Wagner would have to show a very clear basis as to why the provision of such information was necessary, and  none  has  been  demonstrated.  I  do  not  accept  Mr Ahern’s submission is consistent with where the onus lies in respect of resisting the disclosure of material. It is for BPG to explain why the disclosure of the material is not in its interests. There is no suggestion that access to Xero would prejudice the commercial position of the company,4 prejudice the commercial position of any other person,5 or that it is a frivolous or vexatious request.6 Of course, the list of grounds for objecting under s 178(4) is not exhaustive but the fact remains it is for BPG to raise a proper ground for not supplying the information rather than for Mr Wagner to show “a very clear basis” as to why the information is necessary. Even if that had been the test it would have been met here given the circumstances I have described.

[34]   Mr McIntosh’s resistance to disclosure required Mr Wagner to bring an application under s 178. Mr McIntosh’s then piecemeal disclosure along with bare assertions, that cannot be correct, he has no records in relation to transactions, entirely justifies Mr Wagner wanting access to as many hard records as possible. It is no answer to say that disclosure to the Xero information will provide Mr Wagner with information that pre-dates him becoming a shareholder because Xero contains transactions that pre-date Mr Wagner becoming a shareholder. Those transactions may materially impact on the value of his shareholding, particularly given that his

$10,000,000.00 has not remained intact. I order Mr Wagner is to be given the read only access to Xero sought.

4      Companies Act 1993, s 178(4)(a).

5      Section 178(4)(b).

6      Section 178(4)(c).

[35]   The next category of disclosure Mr Wagner seeks is all Inland Revenue Department statements, returns and filings for BPG relating to Income tax, Goods and Services tax, PAYE and/or Fringe Benefit tax. Mr Wagner is entitled to this information for the reasons already given. Given the paucity of written material, the value of such written records as there is, is enhanced. I order that Mr Wagner is to be provided with this material.

[36]   The final category concerns BPG’s credit card statements which have already been provided in hard copy but which are now requested in Excel format. Ms Pope understood that such can be requested from BPG’s banker. Mr Ahern agreed to enquire if it was possible for BPG’s bank to satisfy this request. If the material cannot be provided by the bank in Excel format then this aspect of the application cannot be advanced further as I do not consider it is incumbent upon a company to convert material already provided in hard copy to an electronic format. If BPG’s bank wishes to charge for this service then that is to be a cost for Mr Wagner.

[37]   The second aspect of the request in relation to credit cards seeks an explanation of the relationship between each credit card holder and BPG. Mr Ahern did not dispute that Mr Wagner was entitled to know who held company credit cards and that person’s role. Again, that was an appropriate acknowledgment from Mr Ahern.

[38]   Accordingly, I am satisfied that all of the information sought by Mr Wagner in his application dated 4 September 2023 is required to  be given and indeed, given  Mr McIntosh’s position that there are no documents relating to much of that information, he is to provide the explanations set out above in a sworn affidavit. There are orders accordingly.

[39]   Mr Ahern submitted the issues between Mr Wagner and Mr McIntosh were much wider than just Mr Wagner’s introduction of funds to BPG. Mr Ahern suggested Mr Wagner was seeking documents from BPG for an ulterior purpose. That there are issues between Mr Wagner and Mr McIntosh does not of itself limit Mr Wagner’s rights under s 178 to obtain information from BPG unless such a request would harm BPG’s interests. No such harm is suggested here.

Costs

[40]   Mr Wagner is entitled to costs. Mr Wagner has an existing application that the costs arising from the 20 July 2023 judgment be paid by Mr McIntosh and not BPG. The costs in respect of this application are to be dealt with alongside that application for costs.

[41]   Mr McIntosh is to provide the affidavit and other material covered by this judgment within 10 working days.

Associate Judge Lester

Solicitors:

Russell McVeagh, Auckland (for Applicant) Morrison Kent, Auckland (for Respondent)