Wirecard NZ Limited
[2020] NZHC 1804
•24 July 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-001187
[2020] NZHC 1804
UNDER Part 19 of the High Court Rules and Part 15A of the Companies Act 1993 IN THE MATTER OF
WIRECARD NZ LIMITED
AND
CONOR JOHN McELHINNEY and ANDREW JOHN GRENFELL
Applicants
Hearing: On the papers Counsel:
K E Cornegé and S M Jass for Applicants
Judgment:
24 July 2020
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 24 July 2020 at 10.30 am.
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date………………………
RE WIRECARD NZ LTD [2020] NZHC 1804 [24 July 2020]
Introduction
[1] The applicants, who are insolvency practitioners, have been appointed as administrators of Wirecard NZ Ltd (Wirecard NZ) under Part 15A of the Companies Act 1993 (the Act).
[2]The applicants seek orders and directions under Part 15A of the Act as follows:
(a)That the convening period in the administration of Wirecard NZ as defined in s 239AT(2) of the Act, be extended to 5 October 2020 (extension of 40 working days) under s 239AT(3); and
(b)that the statutory termination period for employees be extended under s 239Y(4) of the Act to an end date of 12 October 2020, instead of 27 July 2020.
[3] The applicants say that the extension of time is necessary to allow them to investigate the options for disposal of the company’s business and to put those into effect. Further, they say if they can achieve a sale of the company’s business, then this would offer a real prospect of continuation of employment for employees, and ongoing trade for creditors.
Factual background
[4] Wirecard NZ is a developer and licensor of proprietary software products utilised in the financial services industry.
[5] Wirecard NZ is wholly owned by Wirecard Technologies GmbH, which has filed for insolvency proceedings. Wirecard NZ’s business is largely independent from the wider group. Wirecard Australia Pty Ltd is a wholly owned subsidiary of Wirecard NZ and is also in administration.
[6]On their appointment as administrators, on 13 July 2020, Wirecard NZ had:
(a)Three branches, respectively located in Auckland, Santa Domingo (Dominican Republic), and Athens (Greece), with leased premises in each of those locations;
(b)121 employees (29 in Auckland, 18 in the Dominican Republic, and 74 in Greece);
(c)168 known unsecured creditors (including employees); and
(d)Two secured creditors of registered purchase money security interests.
[7] The administrators are in the process of investigating options for a sale of some or all of Wirecard NZ’s business. Currently, the administrators are proposing that indicative offers are made by 31 July 2020 and final offers by 21 August 2020. If a buyer is found, it is estimated that approximately one month will be required for due diligence and then a further month to complete settlement. There will also be a period of transition to the new purchasers.
[8] The administrators’ objective for the company is to continue trading in a stable manner in order to achieve a sale; or restructure all or part of the business as a going concern; or, failing that, recover maximum value for its assets in the most efficient way possible.
Relevant legal principles
(a) Voluntary administration
[9] The voluntary administration provisions are set out in Part 15A of the Act. The objects of voluntary administration are explained in s 239A as follows:
239A Objects of this Part
The objects of this Part are to provide for the business, property, and affairs of an insolvent company, or a company that may in the future become insolvent, to be administered in a way that –
(a)maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b)if it is not possible for the company or its business to continue in existence, results in a better return for the company's creditors and shareholders than would result from an immediate liquidation of the company.
(b) Watershed meeting
[10] Under s 239AT of the Act, the administrators are required to convene a watershed meeting. The watershed meeting is a meeting of creditors to decide the future of the company, and in particular, whether the company and the deed administrators should execute a deed of company arrangement.
[11]Under ss 239AS and 239ABA, at the watershed meeting, the creditors may:
(a)Resolve that the company execute a deed of company arrangement specified in the resolution; or
(b)Resolve that the administration should end (i.e. hand back control of the company to its directors); or
(c)By resolution, appoint a liquidator (unless the company is already in liquidation).
[12] Under s 239AT(2) of the Act, the administrators have 20 working days following their appointment to convene the meeting, unless the Court extends the convening period under s 239AT(3), which it may do upon the administrators’ application. Under s 239AV, the meeting must then be held within five days of the end of the convening period or extended convening period.
(c) Employment contracts – termination and extension
[13] Under s 239Y(3) of the Act, the administrators are personally liable for wages and salary that accrue under a contract of employment, unless the administrators lawfully give notice of termination within 14 days of appointment.
[14] Under s 239Y(4) of the Act, the administrators may apply to the Court to have the 14 day period extended, on any terms and conditions that the Court deems appropriate.
Analysis and decision
[15]I address in turn each of the orders sought in the application.
(a) Without notice application
[16] I accept the applicants’ submission that it is appropriate for the applications to be determined on a without notice basis under r 7.46(3)(a) and (e) of the High Court Rules 2016 (HCR).
[17] To require the company to proceed with the application on notice would, in the circumstances here, cause undue delay or prejudice to the applicants and would, therefore, not be in the interests of justice. That is so for the following reasons:
(a)Personal service of the application and other documents would be a substantial added expense to the administration.
(b)Personal service would likely make it impossible to resolve these issues within the relevant statutory time periods.
(c)The company’s employees and creditors will not suffer any real prejudice if service is dispensed with. In this regard, I note that the orders will be advertised, the creditors will have the right to challenge the extension, and the company will continue to pay the extension employees under their current terms and conditions of employment. Furthermore, the employees will still be able to make a claim as unsecured creditors for unpaid wages and salaries.
(b) Convening period be extended for 40 days
[18] In Re Grenfell, this Court confirmed that the appropriateness of an extension under s 239AT(3) of the Act is a “fact specific determination”.1 The Court endorsed the non-exhaustive list of factors in Re Riviera Group Pty Ltd, which included, amongst other things:2
(a)The size and scope of the business;
(b)That the company had substantial off-shore activities;
(c)The large number of employees with complex entitlements;
(d)The complex corporate group structure and intercompany loans;
(e)The complex transactions entered into by the company (for example, securities lending or derivative transaction);
(f)The time needed to execute an orderly process of disposal of assets;
(g)The time needed for a thorough assessment of a proposal for a deed of company arrangement; and
(h)The possibility the extension would allow a sale of the business as a going concern.
[19] In Re Jackson, a two-month extension was granted to allow the administrators to be better informed of the business, of the prospects of achieving further recoveries from sales of stock and assets, and as to whether to recommend that the company execute a deed of company arrangement.3
[20] In Re M Webster Holdings (NZ) Ltd, a six-month extension was granted having regard (amongst other things) to the size and complexity of the group (approximately
1 Re Grenfell [2016] NZHC 36 at [14].
2 Re Riviera Group Pty Ltd [2009] NSWC 585, (2009) 72 ACSR 352 (SCSW).
3 Re Jackson [2018] NZHC 477 at [21].
1,300 staff over 212 locations), and the fact that further investigations needed to be completed before the administrators could provide a report and opinion to the creditors at the watershed meeting. There was also an inter-connectedness between the company and the Australian companies which had administrators appointed.4
[21] In applying these principles and having regard to the statutory scheme of the voluntary administration regime, I find that a 40-day extension is appropriate in the circumstances here. That is because:
(a)The extension of time is necessary, as Mr Grenfell has testified, to allow for the administrators to investigate the options for disposal of the company’s business and to put those into effect.
(b)If the administrators are able to achieve a sale of the company’s business then this would offer a real prospect of continuation of employment for employees and ongoing trade for creditors. The company’s operations are international and prospective purchasers may be off-shore-based, adding to the complexity and need for sufficient time to explore sale options.
(c)Due to the size, scale, and complexity of the administration (including the relationships with other Wirecard companies that are based off- shore, some of which have filed for insolvency or are in administration), the administrators will require the extension to complete investigations and finalise their report to creditors.
(d)It is unlikely (as deposed by Mr Grenfell) that any of the company’s employees or other creditors would be adversely affected by the extension of time sought.
[22] Accordingly, I grant the application pursuant to s 239AT(3) of the Act, and extend the convening period to 5 October 2020.
4 Re M Webster Holdings (NZ) Ltd [2017] NZHC 297 at [17]–[18].
(c) Employments contracts – termination and extension
[23] The applicants seek, at paragraphs 1(c) and (d) of their application, the following orders:
(c)That if, prior to 27 July 2020, being the end of the default ‘statutory termination period’ under s 239Y(3) of the Act, or any extended period as ordered by the Court, notices of termination in the format set out in Schedule A (along with translations into Greek/Spanish as appropriate) are given to any of the company’s employees, that those employees would have been given a lawful notice of termination for the purposes of s 239Y(3) of the Act and the administrators will have no personal liability for payment of wages or salary under that section.
(d)That the statutory termination period be extended under s 239Y(4) of the Act to an end date of 12 October 2020, instead of 27 July 2020 (an extension of 77 days) as follows: –
(i)If order (c) is granted, in respect of the extension employees only;
(ii)If order (c) is not granted, in respect of all of the company’s employees (being the extension employees and the overseas terminating employees).
[24] The applicants contend that s 239Y(3) (which covers personal liability of administrators for salaries) is in very similar terms to s 32(1)(b) of the Receiverships Act 1993. The latter provision requires that a notice of termination be lawfully given by the receiver within 14 days of the date of the receiver’s appointment if personal liability is to be avoided in respect of subsisting employment contracts between the company and its employees.
[25] In Re Weddell NZ Ltd (in rec and liq), the Court of Appeal upheld the High Court’s interpretation of the term “lawfully” under s 32(1)(b) of the Receiverships Act 1993 and held:5
(a)In order for a notice of termination to have effect, a receiver must state unequivocally that the employment contract is terminated and effectively communicate this to the employee;
(b)When giving such a notice a receiver must be acting in accordance with his or her duties in terms of appointment; and
(c)A notice of termination does not need to comply with the terms of an employment contract/legislation. Such a requirement would be
5 Re Weddell NZ Ltd (in rec and liq) [1998] 1 NZLR 30 (CA).
impractical for numerous reasons and would result in a receiver being unable to avoid personal liability.
[26] The administrators say they have determined that the continued employment of all current employees is not necessary for the company to keep trading in a business- as-usual manner, and intend to terminate the employment of:
(a)53 of the 74 employees in Greece, with some further employees already having resigned following the administrators’ appointment;
(b)8 of the 18 employees in the Dominican Republic (together, referred to as the “overseas terminating employees”).
[27] The administrators seek a direction under s 239ADR to confirm their understanding of the application of s 239Y(3) to employees of Wirecard NZ.
[28] The employees in Greece and the Dominican Republic have employment contracts which are subject to the local law in each jurisdiction. The administrators are naturally concerned about the potential impact of local law in each jurisdiction on their obligations and liability under the Act. They say that they require certainty as to their possible exposure to personal liability in New Zealand under the Act, so that they can make decisions about the conduct of the administration and their ongoing involvement.
[29] The administrators request, therefore, a direction from the Court under s 239ADR confirming that the position under s 239Y is the same for overseas employees as it would be for New Zealand-based employees (and that in both cases, the approach that applies under the Receiverships Act 1993 applies equally to s 239Y). That is, giving the notice to the employees in the form proposed prior to the expiry of the statutory termination period or any extended period as ordered by the Court, constitutes a lawful notice under s 239Y(3).
[30] I accept that there is considerable force in the submissions of the applicants that the same interpretation adopted by the Court of Appeal in respect of the Receiverships Act 1993 should also be adopted in relation to the interpretation of
s 239Y of the Act. However, I do not consider it appropriate to reach a conclusion on that matter in the context of a without notice application. The preferable approach, as the applicants have apprehended, is to extend the statutory termination period in respect of the overseas terminating employees.
[31] I therefore turn to address the issue of the extension of the statutory termination period (the order sought at paragraph 1(d) of the originating application).
[32] I accept that it is common practice for the Court to grant an application for extensions under both ss 239Y(4) and 239AT(2).6 It is clear that the principles to be applied in considering an extension of a 14-day period notice of termination of employees are closely related to an extension of the convening period.
[33] For the reasons set out in the applicants’ submissions, I am satisfied that the grounds have been made out for an extension of the statutory termination period under s 239Y(4), and in relation to all of Wirecard NZ’s employees (being the extension employees and the overseas terminating employees).
[34] If an extension to the statutory termination period were not granted in respect of the extension employees, the alternative would be to terminate all employment contracts and offer to re-hire the extension employees after the default statutory termination period. However, as Mr Grenfell notes, an extension will likely yield more favourable results, for the following reasons:
(a)Termination and re-hiring would be unduly disruptive and would risk the potential loss of key software programmers who may elect not to sign the administrators’ contract;
(b)The key assets of Wirecard NZ are its employees and customer contracts, and the loss of employees who will have familiarity with software design and customers will limit the ability of the administrators to continue to trade the business as a going concern during the voluntary administration period.
6 See Re WGL Retail Holdings Ltd (2011) NZCCLR 22 (HC); and Re Postie Plus Group Ltd [2014] NZHC 1337.
Result
[35] I grant the applicants’ originating application without notice for orders and the directions dated 20 July 2020 on the following terms:
(a)That service of the application be dispensed with.
(b)That the convening period in the administration of Wirecard NZ Ltd as defined in s 239AT(2) of the Act is extended to 5 October 2020, under s 239AT(3).
(c)That the statutory termination period is extended under s 239Y(4) to an end date of 12 October 2020 (instead of 27 July 2020) in respect of all of the company’s employees (being the extension employees and the overseas terminating employees).
On the basis that the extensions are granted:
(i)The applicants may convene a watershed meeting in respect of the company at any time within the period for which the extension has been granted;
(ii)Leave is granted to any person who can demonstrate a sufficient interest to apply to modify or discharge the above orders, upon appropriate notice being given to the administrators; and
(iii)Within seven days of these orders, the administrators must:
1. Advertise the orders at least once in the New Zealand Herald;
2. Make available a copy of the orders on McGrathNicol’s website; and
3. Provide a copy of the orders to the employees of the company through ordinary communication channels (including a translation of the orders in the appropriate language(s)).
[36] The costs of this application on a solicitor/client basis are to be paid out of the assets of Wirecard NZ, subject to the approval of the Court. A memorandum with an itemised invoice (including hourly charge-out rates) is to be submitted to the Court for approval within 14 days.
Associate Judge P J Andrew
2
3
0