Walter v Hoole

[2021] NZHC 1167

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

COV-2021-419-103

[2021] NZHC 1167

UNDER

the Companies Act 1993

IN THE MATTER

of the liquidation of Online Education Ltd (in receivership)

BETWEEN

MICHAEL RICHARD WALTER WALMSLEY

First Applicant

LYNELL KAM LEE WALMSLEY
Second Applicant

NATALIE JOY WALMSLEY
Third Applicant

FIONA MAREE WALMSLEY
Fourth Applicant

RYAN DOUGLAS WALMSLEY
Fifth Applicant

HOLLY MAREE ODGERS
Sixth Applicant

JENNA LOUISE GRBIN
Seventh Applicant

AND

GARETH RUSSEL HOOLE as Receiver of Online Education Ltd (in receivership) Respondent

Hearing:	24 May 2021
Counsel:	A A Alipour for Applicants K A Lomas for Respondent
Judgment:	24 May 2021

WALMSLEY v HOOLE as Receiver of Online Education Ltd (in receivership) [2021] NZHC 1167 [24 May 2021]

JUDGMENT OF BREWER J

This judgment was delivered by me on 24 May 2021 at 4:30 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Norling Law Ltd (Auckland) for Applicants

Braun Bond & Lomas (Hamilton) for Respondent

Introduction

[1]        The respondent is the receiver of Online Education Ltd (“OEL”). The applicants are shareholders in OEL.

[2]The applicants have filed:

(a)Without notice interlocutory application for interim interim injunction;

(b)On notice interlocutory application for interim injunction;

(c)Without notice interlocutory application for appointment of interim liquidator.

[3]        In my Minute of 20 May 2021, I made an order by way of interim injunction requiring the respondent to take no steps to deal with, including but not limited to, realising, selling or recovering any assets of OEL, including real and personal property, debts and choses in action.

[4]        I stipulated the order would expire at 5 pm on Monday, 24 May 2021, unless extended by the Court.

[5]        I declined to grant the without notice interlocutory application for appointment of an interim liquidator. I directed the application to proceed on notice.

[6]        On Monday, 24 May 2021, I heard argument from counsel via telephone. This judgment determines:

(a)Whether my interim order will be extended; and

(b)Whether an interim liquidator will be appointed.

The applicants’ claim

[7]        For at least a year there has been discord between the shareholders of OEL. One of the shareholders, and OEL’s director, Mr Day, was granted a General Security

Agreement (“GSA”) on 16 September 2020 over OEL’s  assets.  On 10 May 2021, Mr Day appointed the respondent as receiver of OEL pursuant to the GSA.

[8]        The applicants question the validity of the GSA and say that a “shroud of secrecy” has been implemented by Mr Day and/or the respondent to the effect that multiple requests for documents pertaining to the appointment of the respondent as receiver have been unanswered.

[9]        The applicants understand that the respondent is trying to sell the assets of OEL and the purpose of the application for interim injunctive relief was to stop that process. Allegations are made to the effect that the appointment of the respondent as receiver could be invalid and:

3.23 The Shareholders are now left with a situation where they have no knowledge of how Mr Hoole was appointed, what is being sold (whether it is OEL’s assets or business), how it is being sold and when it is being sold. All they know is that Mr Hoole has control over all of OEL’s assets and the sale is to occur imminently.

[10]      Towards the end of the hearing before me, the applicants amended their position to permit the respondent to continue to market the assets of OEL, but under the “watchdog” eye of an interim liquidator.1

The respondent’s position

[11]      Mr Hoole filed an affidavit dated 24 May 2021. It is evident that he is an experienced and competent chartered accountant and licensed insolvency practitioner. He succinctly summarises his role:

4.I understand my duties as receiver are to produce the best return for the stakeholders of a company. The stakeholders include secured parties and preferential creditors.

5.The primary statutory general duty of a receiver is to exercise their powers in good faith and for a proper purpose and in a manner believed, on reasonable grounds, to be in the best interests of the appointer.

6.In addition, and to the extent it is not inconsistent with the primary duty set out in para 5 above, a receiver must exercise their powers

1      After the hearing, Mr Norling for the applicants filed a memorandum setting out the terms proposed to limit the respondent’s powers, including holding sale proceeds in trust.

with reasonable regard to the interests of the granter of the security underpinning their appointment, persons claiming, through the granter, interests in the property in receivership, unsecured creditors of the granter and sureties who may be called upon to fulfil obligations of the granter.

[12]      Mr Hoole makes it clear OEL is insolvent and has been kept going only by advances from Mr Day. Mr Hoole deposes that the GSA secures an initial advance of

$600,000 by Mr Day to OEL on 16 September 2000. The GSA and the associated loan agreement are exhibited to the affidavit. Mr Hoole deposes he has reviewed OEL’s accounts and has identified the advance to OEL.

[13]      Ms Alipour for the applicants criticised Mr Hoole for not giving more details and suggested Mr Hoole might have an ulterior motive for not showing the accounts in question. I reject that submission. Mr Hoole is an experienced professional.

[14]      Mr Hoole says he is marketing OEL as a going concern. He has prepared an information memorandum for prospective buyers which is available subject to the prospective buyer entering into a non-disclosure agreement. He has offered to make the information memorandum available to the applicants if they will sign the non- disclosure agreement. Two of the applicants have association with one of OEL’s direct competitors and the respondent considers it only prudent that the non-disclosure agreement be signed by them. The applicants have refused to sign the non-disclosure agreement.

[15]Mr Hoole concludes his affidavit as follows:

31.It would appear to me that the applicants have attempted to challenge my appointment as Receiver of OEL as a means to conflate an underlying shareholder dispute with a perfectly ordinary company receivership.

32.Unfortunately, their actions are jeopardising the interests of the stakeholders, who they themselves are as well as the 16 employees of OEL, many of whom are also minority shareholders. As a result of these applications, I have already been told by two potentially interested parties that they are withdrawing their interest.

The law in relation to this case

[16]      As I have said, Ms Alipour, towards the end of the hearing before me, conceded that the respondent should continue to market the assets of the company but on the basis that there would be oversight by an interim liquidator. Nevertheless, I will address the legal requirements for the continuation of my order by way of interim injunction.

[17]      First, there has to be a serious question to be tried. The serious question proposed is the validity of the GSA. I no longer see the evidence put forward by the applicants2 as establishing a serious question to be tried. The affidavit of Mr Hoole goes a very long way to answering the suspicions raised by the applicants. It is always possible that Mr Hoole has been deceived, but there is nothing on the material now before me to give substance to such speculation.

[18]      Second, the balance of convenience between the parties favours the respondent, as Ms Alipour concedes. OEL is insolvent. It employs 16 staff. The fortnightly payroll is $44,000, with the next payment being due on 26 May 2021. The applicants accept Mr Hoole’s evidence that the company is insolvent. If the interim injunction were to be extended, OEL would at once cease trading and could not be sold as a going concern.

[19]      Third, damages are an appropriate remedy for the applicants. There is force in Mr Lomas’s submission that this is really a dispute between shareholders over the running of a company.   The applicants  allege oppressive conduct on the part of    Mr Day. This extends to their suspicion that the GSA is invalid. Those are matters going to damages if proved.

[20]      In the circumstances I have outlined, the interests of justice favour permitting the interim injunction to lapse.

2      The affidavit of Michael Richard Walter Walmsley sworn on 19 May 2021.

Interim liquidator

[21]      I accept Mr Lomas’s submission that there is no point, and only unnecessary cost, in appointing an interim liquidator. OEL is insolvent, and the respondent is doing his professional best to sell it as a going concern. If he succeeds, then he will apply the proceeds of the sale as required by law. If he does not succeed, then liquidation is inevitable, anyway.

[22]      If the suspicions of the applicants are realised then they have redress under company law.

[23]I decline to appoint an interim liquidator.

Decision

[24]The order by way of interim injunction lapses.

[25]The application for the appointment of an interim liquidator is declined.

Costs

[26]      If the respondent seeks costs he must file his memorandum within five working days of the date of this judgment.

[27]The applicants will have five working days to reply.

Brewer