Young v Remarkable Exquisite Design Limited - [2022] NZHC 635

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2021-425-102

[2022] NZHC 635

UNDER the Companies Act 1993

IN THE MATTER

of an application for liquidation of

a company under section 241 of the Act

BETWEEN

MARIA CATHERINE YOUNG

Plaintiff

AND

REMARKABLE EXQUISITE DESIGN LIMITED

Defendant

Hearing: 1 March 2022

Appearances:

K McDonald for Plaintiff (M Young observing) B Gresson for Defendant

Judgment:

31 March 2022

JUDGMENT OF ASSOCIATE JUDGE LESTER

YOUNG v REMARKABLE EXQUISITE DESIGN LIMITED [2022] NZHC 635 [31 March 2022]

[1] The plaintiff, Ms Young, has applied under s 241(4)(d) of the Companies Act 1993 (the Act) for an order that the defendant, Remarkable Exquisite Design Limited (RED), be liquidated on just and equitable grounds.

[2] Ms Young is a 33 per cent shareholder in RED. Mr Geoffrey Short and Ms Katrina Wardill hold the remaining 67 per cent shareholding between them. The three shareholders are also directors. Ms Young lives in Hamilton, while the remaining shareholders live in Queenstown.

[3] RED was incorporated on 8 August 2019 and, on 28 August 2019, purchased a high-end apartment in Queenstown for $2,175,000 (the apartment). Each of the shareholders introduced cash, with the balance met by a bank loan.

[4] RED was the third such venture between the three former friends. Two other companies were incorporated, one called Takitimu Pounamu Limited, which purchased a property in the Pounamu Apartments in September 2018. The second was Short Kat Mouse Limited which purchased a property at Beacon, Queenstown on 28 June 2019. The properties owned by those other companies have now been sold, albeit, as I will refer to below, there is a dispute as to the division of the proceeds of sale from Short Kat Mouse Ltd. The proceeds of sale are still held on trust by the company’s solicitors pending resolution.

[5] Opposition to the order was advanced by Mr Short and Ms Wardill. There is no shareholder agreement or any other contractual documentation governing the relationship between the parties.

[6] The statement of claim pleads that the relationship between the three shareholders has irrevocably broken down and that the three of them have come to a deadlock. The defendants admit such is the case.

[7] The relationship appears to have broken down over the plaintiff’s concerns that Mr Short and Ms Wardill have failed to account for rental income for the apartment and have used the apartment for their own purposes without accounting to the

company for rent and have failed to provide all relevant company information to Ms Young.

[8] While there are disputes between the affidavit evidence of Ms Young and Mr Short, neither party sought to cross-examine. However, there are matters in Ms Young’s affidavit not responded to by Mr Short. I now touch briefly on those matters. The starting position is it is common ground the parties’ relationship is effectively at an end and they cannot work together.

Financial information

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2022] NZHC 635
Decision Date: 31 March 2022

CaseChat Overview and Summary

Maria Catherine Young, a 33% shareholder of Remarkable Exquisite Design Limited (RED), sought an order for the liquidation of the company on just and equitable grounds under section 241(4)(d) of the Companies Act 1993. The remaining shares of the company are held by Geoffrey Short and Katrina Wardill, who also live in Queenstown, whereas Ms Young resides in Hamilton. RED was incorporated on 8 August 2019 and purchased a high-end apartment in Queenstown on 28 August 2019. The breakdown of the relationship between the shareholders occurred due to Ms Young's concerns about Mr Short and Ms Wardill's failure to account for rental income and their use of the apartment for their own purposes without accounting for rent to the company. The court was required to decide whether there was a serious deadlock between the shareholders that imperilled the continued operation of the company and whether there were realistic alternatives to the impasse other than liquidation.

The court found that the relationship between the shareholders had deteriorated to the point of serious deadlock and that the company's affairs were in disarray. The court rejected the argument that Ms Young bore a significant part of the responsibility for the falling out and noted that some of her concerns were not answered by Mr Short's evidence. The court found no realistic alternative to the impasse other than liquidation, as there was no offer on the table that could address Ms Young's concerns. The court considered the liquidation of the company to be the most appropriate course of action, as it would allow the liquidator to address matters of concern to Ms Young.

The court made the following orders and directions:

(i) The defendant company, Remarkable Exquisite Design Limited, is placed into liquidation pursuant to s 241(4)(d) of the Companies Act 1993. It is just and equitable to do so.

(ii) The court appoints Mr Dennis Clifford Parsons, licensed insolvency practitioner, as the liquidator.

(iii) Costs are to be awarded to Ms Young on a 2B basis against the defendant company.

Orders