Wagner v B Property Group Ltd
[2023] NZHC 1898
•20 July 2023
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE
CIV-2023-425-22
[2023] NZHC 1898
BETWEEN KURT BRADLEY WAGNER
Applicant
AND
B PROPERTY GROUP LIMITED
Respondent
Hearing: 17 July 2023 Appearances:
S P Pope and V V Kumar for Applicant P W G Ahern for Respondent
Judgment:
20 July 2023
JUDGMENT OF DUNNINGHAM J
This judgment was delivered by me on 20 July 2023 at 3 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
[1]On 31 May 2022, the applicant, Mr Kurt Bradley Wagner, invested
$10,000,000 in the respondent company, B Property Group Ltd (BPGL). The funds were invested on the understanding they would be used to develop a hotel in Wanaka.
[2] Mr Wagner subsequently became concerned about the lack of progress and, in March 2023, he made an information request under s 178 of the Companies Act 1993
WAGNER v B PROPERTY GROUP LIMITED [2023] NZHC 1898 [20 July 2023]
(the Act). Despite reminders of that request, and despite assurances that the requested information would be provided, no information was supplied.
[3] On 5 May 2023, this application for provision of information under s 178 of the Act was served on BPGL. However, that did not resolve matters. It was only on 11 July 2023 that some documents were supplied in response to the request. These were:
(a)a business plan for 2023;
(b)a profit and loss statement dated 31 March 2023; and
(c)a balance sheet dated 31 March 2023.
[4] However, Mr Wagner says these documents do not fulfil the request he has made under s 178 and contain insufficient detail and information to enable him to understand how the funds he has invested in BPGL have been applied. He therefore seeks orders requiring BPGL to supply the information he has requested.
[5]At issue is whether orders should be made in the terms sought by the applicant.
Background
[6] In February 2022, Mr Andrew McIntosh, the sole director of BPGL at the time, provided Mr Wagner with an Information Memorandum describing an opportunity to invest in the development of the Kitea Hotel in Wanaka. Mr Wagner entered into a Subscription Agreement with BPGL under which he invested $10,000,000 in BPGL and became a 50 per cent shareholder of that company. The Subscription Agreement explained that BPGL had been established to own and operate a hotel at 67 Brownstown Street, Wanaka, New Zealand.
[7] Following a visit to New Zealand in December 2022, Mr Wagner became concerned about the lack of apparent progress with the hotel and wanted to know how the funds he had invested in BPGL had been applied.
[8] On 16 March 2023, Mr Wagner requested the following information from BPGL under s 178 of the Act:
(a)BPGL’s balance sheet as at that date;
(b)any relevant bank statements since Mr Wagner’s investment in 2022;
(c)the last financial year’s financial statements/annual report;
(d)the current business plan; and
(e)any other document which evidenced how Mr Wagner’s investment had been used, including any company records held at the registered office.
[9] On 21 March 2023, Mr McIntosh said the information would be provided. When Mr Wagner’s lawyers asked for a timeframe, there was no response. The statutory timeframe passed, and no information was provided.
[10] On 18 April 2023, BPGL confirmed it had engaged counsel and, on 21 April 2023, counsel for BPGL confirmed that an update on the request for information would be provided “early next week”. No update was provided. On 5 May 2023, this proceeding was served on BPGL and, on 12 May 2023, a copy of the draft orders sought was provided to BPGL.
[11] BPGL filed a notice of opposition. The application was initially opposed on the grounds that the request for information lacked the specificity as required by s 178 of the Act. However, BPGL nevertheless agreed to provide the following categories of information:
(a)the last year’s financial statements of the respondent;
(b)relevant bank statements of the respondent since 31 May 2022 to the present; and
(c)the respondent’s balance sheet as at April 2023.
[12] By 2 June 2023, the concerns about the specificity of the request appeared to have been resolved with counsel for BPGL recording the following:
While the respondent had been seeking in its earlier memorandum that an amended notice of application be filed, it accepts that with the draft orders attached to the memorandum filed by the applicant this morning, those draft orders, coupled with the application, now provide sufficient details of exactly what orders are being applied for.
[13] However, despite this concession, no information was provided and, on 20 June 2023, counsel for Mr Wagner filed a memorandum seeking an urgent fixture for hearing the application. I set the matter down for hearing on 17 July 2023.
[14] By the time the applicant filed submissions on 11 July 2023, BPGL had still not provided Mr Wagner with any of the requested information. Some limited information, as set out at [3] above, was finally provided on 11 July 2023.
[15] In response, counsel for the applicant filed a further memorandum identifying various issues of concern arising from the documents provided, including that the funds invested appeared to have been advanced to unknown third parties. The applicant therefore sought amended orders for the provision of information which specified particular documents to be provided under several categories of requested information.
Legal principles
[16] Section 178 of the Act provides a framework for shareholders to request information from a company. The information must be provided within 10 working days unless there are good reasons for refusing the request.1
[17]Good reasons for refusing the request include if:2
(a)the disclosure of the information would or would be likely to prejudice the commercial position of the company;
1 Companies Act 1993, s 178(3).
2 Section 178(4).
(b)the disclosure of the information would or would be likely to prejudice the commercial position of any other person, whether or not that person supplied the information to the company; or
(c)the request for the information is frivolous or vexatious.
[18] The section also makes provision for the shareholder to seek court orders enforcing the request for information. Relevantly here, s 178(7) provides as follows:
The court may, on the application of a person who has made a request for information, if it is satisfied that–
(a)the company does not have sufficient reason to refuse to supply the information; or
(b)the company has sufficient reason to refuse to supply the information but that other reasons exist that outweigh the refusal,–
make an order requiring the company to supply that information.
[19] The purpose of s 178 was explained by Associate Judge Bell in Ayyildiz v Casablanca Sylvia Park Ltd as follows:3
The purpose of s 178 is to ensure that those in control of a company, the directors and management, are accountable to shareholders. Accountability is enhanced by allowing shareholders access to company information. Under s 178, there is a wide range of reasons for refusing disclosure of information to shareholders. Some of them are noted in subsection (4), but they are not the only ones. If the company does not co-operate or if it refuses to provide information, the shareholder can come to court to seek orders under s 178(7). On such an application, the court considers whether there are outweighing reasons to justify a refusal of information to a shareholder.
[20] As is pointed out in the applicant’s submissions, given the purpose of the section, which is to enhance accountability, the grounds for refusing to provide information are limited.
[21] In Johnson v Johnson, Associate Judge Lester, in granting an order requiring the company to supply information, noted:4
3 Ayyildiz v Casablanca Sylvia Park Ltd [2018] NZHC 2782 at [14].
4 Johnson v Johnson [2021] NZHC 2220.
(a)it is for the company to demonstrate sufficient reason to decline access to a shareholder or that the access is sought for an improper purpose;5 and
(b)a sufficient reason under s 178 of the Act must be linked to the interests of the company.6
[22] In the Johnson case, the applicant was, as here, a 50 per cent shareholder and the Court considered that he had no incentive to destroy the value of a company which he was a 50 per cent owner.7
The present application
[23] Despite it now being four months since Mr Wagner first formally sought information about BPGL’s financial position under s 178, he has still not been provided with anything more than the three documents listed at [3] above and those documents were only provided three working days before the hearing.
[24] The only formal reason given for failing to provide the information is that the information was not specified in sufficient detail to enable the Court to make such an order. However, while strictly speaking the application was for “an order requiring the respondent, [BPGL], to supply information”, the application also clearly identified the documents which the applicant had requested and the notice of opposition expressly stated that the respondent had already agreed to supply:
(a)the last year financial statements of the respondent;
(b)relevant bank statements of the respondent since 31 May 2022 to the present; and
(c)the respondent’s balance sheet as at April 2023.
5 At [39].
6 At [42]–[43].
7 At [42].
[25] I do not accept, therefore, that the application was so vague that the respondent was justified in providing no documents. Indeed, it is entirely unclear why these documents listed in [24] above, were not immediately supplied, nor why, when the respondent was given a draft order identifying the five groups of documents sought (which BPGL acknowledged had the requisite specificity), BPGL did not provide these documents.
[26] At the hearing, there was still no explanation for why the request for information had not been complied with. While Mr Ahern for BPGL indicated there were other disputes between Mr McIntosh and Mr Wagner (which Mr Wagner had acknowledged in his original affidavit), that did not explain why the requested information was withheld. Instead, Mr Ahern’s submissions focused on the wording of the draft orders, with him noting he was working with “limited instructions”.
The orders
[27] Accordingly, I discussed the draft orders (which are not actively opposed) with counsel taking into account the submissions that were made on them.
[28]The proposed wording at the beginning of the orders reads as follows:
That the respondent, B Property Group Ltd (“BPGL”) supply the following information to the applicant, Kurt Bradley Wagner, to the extent it exists as at the date of this order, within 5 working days of these orders: …
[29] Mr Ahern suggested that an additional phrase be added to those words which reads “and to the extent the document is within the power and control of the respondent”. He said this would provide a level of protection that the respondent was not being required to provide something that was not within its power or control to supply.
[30] I am not prepared to make such an addition to the order. All the documents requested are documents which would have been generated by BPGL or its accountant, or are documents which BPGL should have access to. There is no evidence before me to suggest any of the documents requested are not within BPGL’s power and control to supply. The documents requested include BPGL’s bank statements, its financial
reports and its business plan. It is difficult to conceive of a circumstance where BPGL would not have control of or access to those documents.
[31] The second submission on the terms of the draft orders was that, instead of five working days to provide the documents, 15 working days be allowed. Mr Ahern said there were a large number of documents requested and he wanted a realistic timeframe for his client to comply with the orders.
[32] That extension was firmly opposed by the applicant, with Ms Pope saying, first, there were genuine concerns about where the applicant’s investment had gone. Furthermore, BPGL had already had ample time to get the information to get the information together and, in fact, had promised to do so at various points. In her view, it was appropriate to shorten the statutory timeframe of 10 working days in those circumstances.
[33] In any event, even if the Court was minded to impose the 10 working day timeframe, she submitted that five working days should be sufficient to obtain and provide the following information:
(a)bank statements and credit card statements;
(b)the identity of the recipients of the payments and of the borrowers of the “related party” loans;
(c)all board minutes and resolutions relating to the “related party” loans;
(d)how BPGL’s accounting records are kept (including for example, whether they are maintained through software such as Xero); and
(e)the interests register of BPGL.
[34] I do not consider it is appropriate to give BPGL 15 working days to comply with the orders. The company has been on notice for months now that this information was required and, while the orders now have more specificity, I see no reason to give BPGL more than the statutory timeframe for provision of these documents.
Furthermore, most of the documents are likely to be readily obtained from the bank or BPGL’s accountant, noting BPGL has advised it has an accountant which prepares its financial records. I consider 10 working days is ample to comply with the orders.
[35] However, I am also sympathetic to the applicant’s concerns about the failure to provide information to date and the fact it has recently discovered that the funds he has invested appear to have been advanced to third parties without his knowledge. I am satisfied that the categories of information listed at [33] above should be provided within five working days, and the orders I make will reflect this.
[36] Finally, it was submitted that the orders should be limited to the documents specified to be provided at [38] [1](e) with leave for the applicant to apply for further documents should the need for such be identified from the information provided. I accepted that this would provide useful specificity to the request and the orders I make will reflect this.
[37] In summary, I am satisfied that no proper reasons exist for refusing to comply with the request for information under s 178 and the orders sought by the applicant should be made, albeit with minor adjustments as set out above.
Orders
[38]I make the following orders:
[1] That the respondent, B Property Group Ltd (BPGL) supply the following information to the applicant, Kurt Bradley Wagner, to the extent it exists as at the date of these orders, within 10 working days of these orders, except where otherwise specified:
(a)all statements for bank accounts operated by BPGL between 31 May 2022 and the date of this order, including credit card statements for the card(s) identified as forming a liability of $10,668 in the document referred to by the respondent as its "balance sheet" as at 31 March 2023 (and such information is to be provided within five working days of these orders);
(b)any financial statements (including profit and loss statement, cash flow statement and balance sheets) for BPGL prepared between 31 May 2022 and the date of this order on a monthly basis and/or in respect of the financial year ending 31 March 2023;
(c)BPGL's statement of financial performance and statement of financial position for the financial year ended 31 March 2023;
(d)BPGL's business plan for 2022 and 2023;
(e)the following documents which record the payment or use of money by BPGL between 31 May 2022 and the date of this order, including any company records held at the registered office of BPGL:
(i)with reference to the document referred to by the respondent as its “balance sheet” as at 31 March 2023:
1. documents recording the “related party loans” (whether loan agreements or otherwise);
2. documents recording the payments classified as “related party loans”;
3. the identity of the recipients of the payments and of the borrowers of the “related party loans” (and such information is to be provided within five working days of these orders);
4. all board minutes and resolutions relating to the “related party loans” (and such information is to be provided within five working days of these orders);
5. details of what the “land development costs” said to be an asset of $2,409,319 relate to;
6. the valuation forming the basis of the “Land Development Revaluation” of $1,165,681;
7. the source of the “Retained Earnings” of $821,132;
8. a list of the “Sundry Creditors” of $70,302; and
9. a current list of creditors (with balances);
(ii)with reference to the documents referred to by the respondent as its “balance sheet” and “profit and loss” as at 31 March 2023:
1. the information (including emails and any other documents) provided to the “external accredited accounting firm” which is said to have prepared those documents;
2. correspondence with that firm in relation to the preparation of those documents; and
3. how BPGL's accounting records are kept (including, for example, whether they are maintained through software such as Xero) (and such information is to be provided within five working days of these orders);
(iii)with reference to the document referred to by the respondent as its “business plan for 2023”, details of the “other projects” identified at page 16 of that document, and the costs said to have been used on those other projects; and
(iv)the interests register of BPGL (and such information is to be provided within five working days of these orders).
[2]The applicant has leave to apply for further information.
Costs
[39] The applicant will also seek an order for costs against Mr McIntosh personally. Ms Pope acknowledges that such an order requires service on the non-party so they are given the opportunity to respond and be heard.8 For that reason, the applicant seeks the following directions:
(a)the applicant file and serve any interlocutory application as to non-party costs in respect of Mr McIntosh, together with any additional evidence in support, within 10 days of the Court’s judgment in respect of the current application;
(b)Mr McIntosh, as respondent to any non-party costs application, file and serve any notice of opposition, together with any evidence, within five working days of receipt of the applicant’s application;
(c)the application for non-party costs (and the entitlement to costs in the current application) be set down for the first available hearing thereafter;
(d)the applicant is to file its synopsis of submissions at least two working days before the hearing; and
(e)Mr McIntosh and BPGL are to file their synopsis of submissions at least one working day before the hearing.
[40] In the circumstances where no proper reason has been identified for failing to comply with the s 178 request and where the applicant was put to the expense of applying to the court and attending a hearing, I am readily satisfied that costs should be awarded in the applicant’s favour. However, issues of quantum, and whether the costs should be met in whole or in part by Mr McIntosh, can only be determined after hearing from the parties.
8 Easton Agriculture Ltd v Manawatu-Wanganui Regional Council HC Palmerston North CIV- 2008-454-31, 22 December 2011 at [50]; and Bassett-Burr v BPE Trustees (No 1) Ltd [2020] NZCA 457, (2020) 25 PRNZ 509 at [10] and [12].
[41] Accordingly, the directions proposed by the applicant are appropriate and I make directions accordingly.
Solicitors:
Russell McVeagh, Auckland Morrison Kent, Auckland
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