Commissioner of Inland Revenue v Damien Grant and Steven Khov

• Jurisdiction: New Zealand
• Judge: Hugh Williams J.
• Judgment Date: 25 May 2010
• Neutral Citation: [2010] NZHC 755
• Docket Number: CIV-2009-404-7388
• Court: High Court
• Date: 25 May 2010

Under Companies Act 1993 Part 15A and High Court Rules Part 19

In the Matter of the voluntary administration of JONES UBLISHING LIMITED now JPU LIMITED (subject to Deed of Company Arrangement)

Between

Commissioner of Inland Revenue

Applicant

and

Damien Grant and Steven Khov

Respondents

[2010] NZHC 755

CIV-2009-404-7388

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

Application by the Commissioner of Inland Revenue under s239ACX(1) Companies Act 1993 that the Deed of Company Arrangement entered into by Grant and the other administrators of Jones Publishing Ltd was not entered in accordance with Part 15 Companies Act 1993 and was thus void — Application for an order under s232ADD(2) terminating the Deed of Company Arrangement on the grounds it was oppressive, unfairly prejudicial and discriminatory against the Commissioner — Grant, as chair of creditors exercised a casting vote to pass the Deed of Company Arrangement — whether Grant was entitled to exercise a casting vote — whether the Deed of Company Arrangement was void.

Counsel:

N H Malarao and J Blythe for Applicant

R M Dillon for Respondents

A. As a result of the analysis in this judgment as to what amounts to a “casting” vote Mr Grant, not being a Jones creditor and not holding proxy or postal votes in favour, was not entitled to vote at the Jones creditors' meeting on 21 January 2008 and the vote which he purported to cast under s 239AK(3) was not a “casting” vote in accordance with that section. The vote for the DOCA at the Jones watershed meeting on 21 January 2009 should have been declared lost, and the Jones DOCA is void.

B. Had the Jones DOCA not been declared void for non-compliance with s 239AK(3) the Court would have declared it invalid under s 239ADD as being oppressive or unfairly prejudicial against the Commissioner but not invalid on the other grounds in that section.

C. Further leave is reserved to the parties as set out in para [102] of this judgment and any applications for costs are to be dealt with in accordance with para [103].

RESERVED JUDGMENT OF Hugh Williams J.

Table of Contents

Paragraph

Introduction	[1]
Facts:
1. Up to 21 January 2009	[6]
2. Watershed Meeting: 21 January 2009	[17]
3. 23 January 2009 to 7 March 2009	[23]
4. Did Mr Grant's vote comply with s 239AK? What is a “Casting Vote”
(a) Statute	[29]
(b) Dictionaries	[33]
(c) Cases	[39]
(d) Discussion	[44]
(e) Texts: Australian approach	[63]
5. Result on application to invalidate DOCA	[72]
6. Was the Jones DOCA oppressive, unfairly prejudicial or unfairly discriminatory against the Commissioner – or was there sufficient other reason to terminate it?	[76]
7. Material contravention of the DOCA	[83]
8. Was there sufficient other reason to terminate the DOCA?	[87]
9. Estoppel	[92]
Result	[101]

Introduction

1 On 5 December 2008 the respondents, Messrs Grant and Khov, were appointed administrators of Jones Publishing Limited (“Jones”), 1 Dish Publishing Limited (“Dish”) and Top Gear NZ Limited (“Top Gear”). The applicant, the Commissioner of Inland Revenue (“Commissioner”) was a creditor of each company.

2 On 2 February 2009 a Deed of Company Arrangement (“DOCA”) was executed concerning administration of all three companies.

3 On 6 November 2009 the Commissioner filed an application to declare the DOCA void, or terminate it. The grounds on which relief was sought were:

• a) A ruling pursuant to s 239ACX(1) 2 of the Companies Act 1993 3 that the DOCA was not entered into in accordance with Part 15A and was accordingly void. That essentially centres around whether the voting to approve the DOCA was in accordance with s 239AK(3) because Mr Grant, as chair of a creditors' meeting, exercised what he claimed was his casting vote in favour;

• b) An order under s 239ADD(2) terminating the DOCA on the grounds there has been a material contravention of it by the respondents; that it is oppressive, unfairly prejudicial and unfairly discriminatory against the Commissioner; or that there is sufficient other reason to terminate the Deed. That essentially revolves around the terms of the

  DOCA and the actions taken by the respondents under it since 7 March 2009.

4 The administrators' amended Notice of Opposition challenges the issues raised by the Commissioner; asserts the DOCA was validly approved with the use of the casting vote; challenges the way the Commissioner has acted in relation to the debt owing by Jones; raises what was called an estoppel arising out of the Commissioner's email of 2 February 2009; and generally rebutted the Commissioner's contentions.

5 Counsel were agreed that with Part 15A only enacted with effect from 1 November 2007, this may be the first occasion when its provisions — especially the casting vote provision in s 239AK – has come under judicial scrutiny.

Facts:

1. Up to 21 January 2009

6 Jones first defaulted in its obligations to the Commissioner in March 2007 with further defaults continuing fairly regularly thereafter. There are evidential differences arising out of the dates of imposition of penalties and interest concerning the level of the Jones debt to the Commissioner but by the watershed 4 meeting held on 21 January 2009 the three companies owed the Commissioner the following sums:

Jones:	$349,315.90 total of which $290,249.18 was claimed to be preferential debt.
Dish:	$7,941.77 total of which $4,730.96 was claimed to be preferential.
Top Gear:	$4,886.83 total of which $3,980.27 was claimed to be preferential.

7 There was a dispute as to whether the amounts asserted to be preferential were properly so called at that stage, but no dispute as to the totals.

8 The Jones Group consisted of the three companies mentioned. Top Gear and Dish were subsidiaries incorporated to publish magazines of the same name with Jones printing them and other titles. Both magazines were making losses, though Dish was near break even. With one exception, there was a common ownership and directorship of the three companies.

9 Two days prior to the administrators being appointed all three companies licensed the use of their intellectual property and sold their book debts and physical assets to a company called Tangible Media Limited (“TML”) for $1.00. The licences gave TML the right to publish on payment of a fee. TML is owned by Image Centre Holdings Limited, the holding company for the Image Centre Group.

10 Messrs Grant and Khov were appointed joint administrators of the three companies on 5 December 2008 by the shareholders pursuant to s 239I, and on 8 December 2008 public notice was given of a first meeting of creditors of the companies to be held on 16 December 2008. One agenda item was to consider removing the administrators from office and appointing alternatives. Agenda items for the 16 December 2008 meeting were to review the administrators' report, decide whether each company should execute a DOCA or, alternatively, whether administration should end and the companies be put into liquidation. The watershed meeting was advertised for 18 December 2008.

11 The administrators' report for the watershed meeting reviewed the history of the Jones Group and advised that the companies' debtors amounted to $323,559.00, most of which was forecast to be collected by the end of December 2008. A substantial amount of the collection was to be used for an initial distribution to creditors if the DOCA was voted for. The administrators' fees were to be $20,000 plus GST.

12 The companies' creditors totalled $973,311.91 (Jones), $459,813.10 (Top Gear) and $525,484.39 (Dish), a total of $1,958,609.40. The largest sums apart from the debts to the Commissioner were owing to Image Centre but there were a number of other substantial debts. The Commissioner was shown as being owed $243,204.00 by Jones, $13,425.00 by Dish and nothing by Top Gear.

13 The report discussed voidable and other transactions and administrators' powers, saying the respondents had “discovered some payments to creditors that we consider to be voidable transactions” but even if recovery action was successful it would not provide a “better outcome” for creditors than the proposed DOCA.

14 The report also discussed alternatives open to creditors at the watershed meeting including that “if the DOCA is not accepted the company automatically falls into liquidation and the current administrators become liquidators”, though alternative liquidators could be appointed. Alternatively, creditors could vote to accept the DOCA whereupon the directors had 10 days to accept it, with liquidation in default. Profit forecasts were included for each company. The administrators recommended acceptance of the DOCA including acceptance of the sales of the businesses, an initial distribution on a pro rata basis, with a 36 month repayment plan of 100 per cent of the profits from TML also being distributed pro rata. Image Centre was to be excluded from the initial distribution.

15 At the 16 December 2008 meeting Messrs Grant and Khov were confirmed as administrators for Dish and Top Gear but not for Jones, for lack of the required support by value. In relation to that last, 10 creditors holding $461,000.00 in value voted for confirmation with three, including the Commissioner, holding $585,000.00 of debts, voted against. That notwithstanding, after taking legal advice, the administrators advised that the failure to confirm their Jones' appointment did not remove them from office. They continued to act.

16 The watershed meeting was postponed from 18 December 2008 to 15 January 2009 and...