Yang v Busch
[2024] NZHC 675
•22 March 2024
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2023-441-35
[2024] NZHC 675
UNDER the Companies Act 1993 BETWEEN
LING YANG
Plaintiff
AND
REINHARD BUSCH
Defendant
Hearing: 19 February 2024 Appearances:
M A B Black for plaintiff No appearance for defendant
Judgment:
22 March 2024
JUDGMENT OF JOHNSTONE J
This judgment was delivered by me on 22 March 2024 at 4.30 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Willis Legal, Hastings
LING YANG v REINHARD BUSCH [2024] NZHC 675 [22 March 2024]
[1] Ling Yang and Reinhard Busch are directors and equal shareholders of Prometheus Care and Service Ltd, and of Prometheus Investments Ltd. Also, they were married for around 16 years.
[2] In October 2022, shortly after the sale of Prometheus Care’s motel business, Mr Busch unilaterally removed $450,000 from its bank account. He informed Ms Yang that their relationship was over, and the couple separated. Since then, Ms Yang has struggled, despite repeated attempts, to maintain contact with Mr Busch for the purposes of managing their companies. Their relationship property has not been formally divided.
[3] In this proceeding, Ms Yang seeks orders pursuant to s 174 of the Companies Act 1993 for:
(a)the removal of Mr Busch as a director of the companies;
(b)the transfer of Mr Busch’s shares;
(c)a declaration relating to the companies’ banking mandate; and
(d)costs.
[4] Mr Busch’s current whereabouts are unknown. Ms Yang’s application was served in accordance with substituted service orders. Mr Busch has not filed a defence. This judgment determines the proceeding following a formal proof hearing at which there was no appearance by or on behalf of Mr Busch.
Background
[5] Prometheus Care was incorporated in September 2014. Prometheus Investments was incorporated in November 2016.
[6] Prometheus Care operated a motel in Taupō, trading as Great Lake Motel. It was sold in October 2022 for $800,000. On 18 October 2022, after proceeds of the sale amounting to $770,971.94 were deposited into Prometheus Care’s bank account,
Mr Busch withdrew $450,000 under the narration “Share”. The withdrawal was made without Ms Yang’s consent. When Ms Yang inquired about it, Mr Busch told her their marriage was over and the withdrawal was his “share”. Following this, on 25 October 2022, Ms Yang withdrew $350,000 from the account.
[7] Ms Yang and Mr Busch commenced to live separately, in Hawke’s Bay. There was little discussion about business matters and the division of the relationship property. Ms Yang says Mr Busch was very reluctant to engage with her.
[8] Ms Yang engaged a solicitor in November 2022. Ms Yang’s solicitor sent a letter to Mr Busch addressing the unauthorised withdrawal and advising him that Ms Yang had removed the remaining $350,000 from the bank account to prevent him from removing further funds.
[9] By letter dated 19 December 2022, Mr Busch’s solicitor responded, stating Mr Busch’s view that the $450,000 was taken to recognise his relationship property. The letter refers to the $350,000 taken by Ms Yang as well as additional smaller withdrawals. It further outlines Mr Busch’s views and wishes regarding the division of their relationship property.
[10] In early 2023 Ms Yang engaged a different law firm in Auckland, which wrote to Mr Busch’s solicitor regarding the division of the relationship property. Mr Busch’s solicitor replied saying he would obtain instructions, but despite follow-ups, there was no further response.
[11] The further communication between Ms Yang and Mr Busch in 2023 is as follows:
(a)On 31 January, Ms Yang text messaged Mr Busch regarding his life insurance being deducted from her credit card. She received a response that same day.
(b)On 7 February, Ms Yang text messaged Mr Busch seeking confirmation as to whether he wished to repay a small business loan. She received no reply.
(c)On 15 April, Ms Yang text messaged Mr Busch about paying his half of the ACC levy to the business account. She received no reply.
(d)On 27 October, Ms Yang emailed Mr Busch about GST due on 30 October 2023, asking him what he wanted her to do. Mr Busch replied on 29 October 2023. This is the last communication Ms Yang says she received from Mr Busch.
[12] In June 2023, Ms Yang says she was advised by a friend that Mr Busch had left the country and was in Thailand. She produced a Facebook story posted by Mr Busch in January 2023, in which he appears to be in front of a temple. She has now been blocked by Mr Busch on all social media platforms and does not know where he is.
Legal principles
[13] Section 174(1) of the Companies Act provides that shareholders may apply to the court if they consider the affairs of a company have been conducted in a manner that is oppressive, unfairly discriminatory, or unfairly prejudicial to them. Upon such an application, the court may make orders amongst other things:
(a)requiring the company or any other person to acquire the shareholder’s shares,1 or to pay compensation;2 or
(b)regulating the future conduct of the company’s affairs.3
1 Section 174(2)(a).
2 Section 174(2)(b).
3 Section 174(2)(c).
[14] Before the court makes an order, it must consider whether to do so would be “just and equitable”. Guidance on this question is provided by the Court of Appeal’s judgment in Thomas v H W Thomas Ltd, where Richardson J wrote:4
Taking the ordinary dictionary definition of the words from the Shorter Oxford English Dictionary: oppressive is "unjustly burdensome"; unfair is "not fair or equitable; unjust"; discriminate is "to make or constitute a difference in or between; to differentiate"; and prejudicial, "causing prejudice, detrimental, damaging (to rights, interests, etc)". I do not read the subsection as referring to three distinct alternatives which are to be considered separately in watertight compartments. The three expressions overlap, each in a sense helps to explain the other, and read together they reflect the underlying concern of the subsection that conduct of the company which is unjustly detrimental to any member of the company whatever form it takes and whether it adversely affects all members alike or discriminates against some only is a legitimate foundation for a complaint under s 209. … It follows that it is not necessary for a complainant to point to any actual irregularity or to an invasion of his legal rights or to a lack of probity or want of good faith towards him on the part of those in control of the company.
[15] The Court also referred to the words of Lord Wilberforce as to the “just and equitable” standard:5
It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.
Assessment
Unfairly prejudicial conduct
[16] The first task is to determine whether Ms Yang has established that Mr Busch conducted the companies’ affairs in a way that is unfairly prejudicial to her. Ms Yang says that Mr Busch’s conduct has departed from the standards of fair dealing and is an abuse of his powers as a director of the companies. She refers to the following conduct in support of this claim:
4 Thomas v H W Thomas Ltd [1984] 1 NZLR 686 (CA) at 693 per Richardson J. While Richardson J was discussing the interpretation of s 209 of the Companies Act 1955 (the previous provision), the guidance remains valuable.
5 At 693–694 citing Re Westbourne Galleries Ltd [1973] AC 360 at 379.
(a)The $450,000 withdrawal on 18 October 2022 out of Prometheus Care’s bank account, without Ms Yang’s consent. As the withdrawal involved more than half of that company’s assets, it constituted a major transaction that should have been the subject of prior special resolution.6
(b)Mr Busch has failed to maintain contact with Ms Yang, his co-director of the companies. The last communication from Mr Busch was on 29 October 2023. As a result, Prometheus Care’s draft financial report for the year ending 31 March 2023 has not been finalised.
(c)Mr Busch may be out of the country, but in any event his whereabouts are unknown.
(d)Mr Busch has not made arrangements for Prometheus Investments to pay its tax.
[17] Ms Yang further says that she has had to pay the following from her personal bank accounts to avoid the companies defaulting on liabilities:
(a)the GST return for Prometheus Care in the sum of $4,719.17 (7 July 2023);
(b)the GST return for Prometheus Investments in the sum of $3,298.67 (30 October 2023);
(c)the companies’ accounting fees in the sum of $1,748;
(d)Xero subscription fees in the sum of $81.65;
(e)an ACC levy for Prometheus Care in the sums $50.94 and $726.80; and
(f)bank overdraft fees.
6 Companies Act 1993, s 129 and the Constitution of Prometheus Care & Service Limited, cl 14.5.2.
[18] I consider Mr Busch’s behaviour has caused the affairs of the companies to be conducted in a manner unfairly prejudicial to Ms Yang.
[19] The withdrawal occurred prior to any formal division of relationship property, Mr Busch simply claiming it as his “share” in the separation. But in any event it weakened Prometheus Care’s position regarding its financial obligations and devalued the company, thus devaluing Ms Yang’s shares.
[20] The failure to communicate, particularly regarding the companies, has further unfairly prejudiced Ms Yang’s position. She wishes to wind up Prometheus Care but cannot do so. Nor can she alone decide upon any major business transactions by Prometheus Investments. It appears likely that Ms Yang will need to apply for new lending for Prometheus Investments, which she cannot currently do unilaterally.
[21] Ultimately, the companies are unable to operate without Mr Busch’s cooperation as co-director. It has now been just over four months since Ms Yang last had contact with Mr Busch. Notwithstanding these proceedings against him, Mr Busch has made it clear he does not want to engage with Ms Yang or have contact with her.7 The failure to communicate has meant that draft financial reports cannot be finalised and filed as required. There are fees payable for financial statements filed late under the Companies Act, and a failure to file also renders each director of the company liable to a $7,000 infringement penalty.
[22] On a similar note, and related to the lack of communication, Mr Busch’s failure to engage with the payment of Prometheus Investments’ tax establishes an additional head of unfair prejudice.
[23] Also tied to the lack of communication and engagement from Mr Busch is the fact that his whereabouts are unknown, and indeed, that he may be overseas.
7 An application for substituted service was required as Mr Busch was uncontactable.
Just and equitable — removal as director
[24] Next, I must consider whether it would be just and equitable to grant the orders sought.
[25] On the topic of Ms Yang’s withdrawal of $350,000 from Prometheus Care’s bank account following Mr Busch’s withdrawal, I accept her counsel’s submission that this does not mean she comes to this Court with “unclean hands”.
[26] In Aspinall (NZ) Ltd v Thomas, the Court granted relief notwithstanding the applicant arguably having been involved in similar conduct to that which gave rise to the claim.8 In this case, while Ms Yang’s withdrawal was unauthorised in the same way Mr Busch’s withdrawal was unauthorised, I acknowledge it was likely to have been made for the appropriate purpose in the circumstances of preventing any further withdrawals by him, not some ulterior motive. In any event, considering all the other circumstances, including Mr Busch’s other unfairly prejudicial conduct, it would still be just and equitable to grant the orders, notwithstanding the unauthorised withdrawal.
[27] More importantly, the lack of communication from Mr Busch prevents proper future management and governance of the companies. It leaves them and Ms Yang in an extremely difficult position. She cannot ensure the companies meet their obligations without Mr Busch’s involvement.
[28] In my view, it is entirely just and equitable that he be removed as a director of both companies. This should permit Ms Yang to wind up Prometheus Care and to ensure both companies meet their financial reporting obligations so as not to incur further penalties.
Just and equitable — further remedies
[29] As stated above, Ms Yang also seeks for Mr Busch’s shares in the companies to be transferred. She outlines potential options as follows:
8 Aspinall (NZ) Ltd v Thomas HC Christchurch CIV-2003-409-2891, 23 January 2004.
(a)Mr Busch’s shares in Prometheus Investments are transferred to a professional trustee.
(b)Mr Busch’s shares in Prometheus Care are transferred either to her, or to a professional trustee.
(c)Mr Busch’s shares remain vested in him personally, and she files an application in the Family Court for the transfer of his shares to her.
[30] In light of the difficulties Ms Yang faces in continuing to operate the companies with Mr Busch as a non-cooperative shareholder, I am minded to make an order transferring Mr Busch’s shares in both Prometheus Investments and Prometheus Care, to a professional trustee. This option provides Ms Yang relief in that she would be able to seek the trustee’s consent if the companies are required to enter into a major transaction, and to do so will be in the best interests of all shareholders. As a fiduciary, the trustee would be required to act in Mr Busch’s interests, thereby protecting his position as a shareholder in the companies.
[31] I do not consider the option of transferring Mr Busch’s shares in Prometheus Care to Ms Yang to be appropriate. Although it appears that company is unlikely to be solvent, the modest possibility of Mr Busch’s shareholding retaining some residual value cannot be discounted. And to order a simple transfer to Ms Yang would involve the absolute transfer of property rights. The appropriate forum for the division of their relationship property is the Family Court, which Ms Yang indicates is likely soon to be approached.
[32] The option of leaving the shares vested in Mr Busch personally would continue to cause practical difficulties for Ms Yang. While Ms Yang may be able to file an application in the Family Court seeking the transfer of his shares to her, and the Family Court may do so under s 33 of the Property (Relationships) Act 1976, that will present further delay in the companies’ abilities to enter any necessary major transaction.
Orders
[33]I make the following orders:
(a)Reinhard Busch is to be removed as a director of Prometheus Investments Limited and of Prometheus Care & Service Limited, with the Companies Office register amended accordingly.
(b)Reinhard Busch’s shares in both Prometheus Investments and in Prometheus Care & Service are to be transferred to an appropriate professional trustee to be identified by Ms Yang and approved by the Court, the shares then to be held on bare trust for Mr Busch, and voted in accordance with the trustee’s own view of the best interests of all shareholders, and not disposed of except upon further Court order or the liquidation of the company.
(c)Counsel has leave to file a memorandum within 10 working days of this judgment proposing a suitable trustee. The fees for the professional trustee’s services are to be met in the first instance from any residual value in Mr Busch’s shares.
(d)Ms Yang shall have authority to have the companies’ banking mandates amended so that she as sole director may operate, alone, the companies’ bank accounts, strictly in accordance with her reasonably held view of the best interests of all shareholders.
(e)Mr Busch is to meet Ms Yang’s costs in this proceeding, calculated upon a scale 2B basis and approved by a registrar of this Court.
Johnstone J
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