Grant and Khov (as Liquidators of West Harbour Holdings Ltd) v Waipareira Investments Ltd

JurisdictionNew Zealand
JudgeWhite J
Judgment Date11 December 2014
Neutral Citation[2014] NZCA 607
Docket NumberCA60/2014
CourtCourt of Appeal
Date11 December 2014
BETWEEN
Damien Grant and Steven Khov (as Liquidators of West Harbour Holdings Ltd)
Appellants
and
Waipareira Investments Ltd
Respondent

[2014] NZCA 607

Court:

Randerson, White and Courtney JJ

CA60/2014

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal by liquidators against the judgment of the High Court (“HC”) which held that the respondent had not surrendered its security in the liquidation of a company by voting at a creditors' meeting — West Harbour's debts to the respondent were secured in large part by mortgages over a number of properties — respondent's lawyer had voted at a creditor's meeting to replace the current liquidators — whether in terms of reg 22(2) Companies Act 1993 Liquidation Regulations (if a secured creditor votes in respect of the creditor's whole debt, the creditor shall be taken to have surrendered his or her charge) the respondent had surrendered its charges.

Counsel:

K P Sullivan and B J Norling for Appellants

B D Gray QC and T J G Allan for Respondents

  • A By consent, Steven Khov replaces Kirsten Smith as the second named appellant.

  • B The appeal is dismissed.

  • C The appellants are to pay the respondent's costs for a standard appeal on a band A basis with usual disbursements. We certify for second counsel.

JUDGMENT OF THE COURT
REASONS OF THE COURT

(Given by White J)

Introduction
1

The appellants, in their capacity as the current liquidators (the Liquidators) of West Harbour Holdings Ltd (West Harbour) appeal against the judgment of Allan J in the High Court holding that the respondent, Waipareira Investments Ltd (Waipareira), did not surrender its security in the liquidation of West Harbour by voting at a creditors' meeting held on 5 April 2013. 1

2

The issue is whether, in terms of reg 22(2) of the Companies Act 1993 Liquidation Regulations 1994 (the Regulations), Waipareira, as a secured creditor in the liquidation, is to be taken as having surrendered its security because it in fact voted at the meeting in respect of its whole debt.

Factual background
3

The relevant factual background, set out in the judgment under appeal, 2 is not disputed. It may be summarised as follows.

4

Waipareira was a creditor of West Harbour for debts totalling $4,610,745.55, secured at least in large part by mortgages over a number of properties owned by West Harbour (the loans in relation to the mortgages were known as “the Apartment Loan” and “the Townhouse Loan”).

5

On 6 March 2014, two days after West Harbour went into liquidation, Waipareira's lawyer, Mr Morrison of Grove Darlow & Partners, advised the Liquidators that, under the terms of its mortgages, Waipareira had taken possession of three townhouses and two apartments mortgaged to Waipareira. The Liquidators acknowledged the advice and confirmed that they would send letters to the tenants of the townhouses requiring them to pay their rent to Waipareira.

6

By letter dated 11 March 2013 the Liquidators formally notified Waipareira of their appointment and asked Waipareira, if it was a creditor, to complete an enclosed “proof of debt” form and to return the form with the necessary

documentation to support its claim. The enclosed form was not in the form of either of the forms prescribed by the schedule to the Regulations
7

The Liquidators' letter of 11 March 2013 also advised Waipareira that, if it was a secured creditor, it was required by s 305(1) of the Companies Act 1993 (the Act) to exercise one of the three rights conferred under that section, namely to:

  • (a) Realise property subject to a charge, if entitled to do so; or

  • (b) Value the property subject to the charge and claim in the liquidation as an unsecured creditor for the balance due, if any; or

  • (c) Surrender the charge to the liquidator for the general benefit of creditors and claim in the liquidation as an unsecured creditor for the whole debt.

8

Finally, the Liquidators' letter of 11 March 2013 noted that it constituted written notice for the purposes of s 305(8) of the Act and that failure to exercise one of the three options within 20 working days would “result in the surrender of your charge to the liquidator for the general benefit of creditors”.

9

Without considering whether Waipareira was a creditor for the purposes of the creditors' meeting provisions of the Act, Mr Morrison wrote to the Liquidators on 14 March 2013 requesting a creditors' meeting for the purpose of replacing the Liquidators. The liquidators scheduled a creditors' meeting.

10

On or about 15 March 2013 Mr Morrison completed two proof of debt forms in the form received from the Liquidators: one for $1,311,997 and the other for

$3,298,748.55. Both forms referred to Waipareira's mortgage security.

11

On 3 April 2013, two days before the creditors' meeting, Mr Morrison received from the Liquidators two letters confirming receipt of the proof of debt forms. In each case the letters recorded Waipareira as being wholly secured for the debt owed by West Harbour.

12

At the creditors' meeting on 5 April 2013, chaired by the first named appellant, Mr Grant,he was voting for the full amount of Waipareira's claim of $4,500,000 (the transcript records the vote would pass based on a dollar value of debts owed) and that he considered Waipareira was entitled to vote at an unsecured creditors' meeting.

13

The resolution was ultimately lost and the then liquidators remained the liquidators of West Harbour.

14

On 26 April 2013 the Liquidators advised Waipareira that, in view of the provisions of reg 22 of the Regulations, it had, by voting at the meeting its entire debt, “vacated [its] security”. The Liquidators asked Waipareira to discharge its mortgages and relinquish its rights as mortgagee in possession of the three townhouses.

15

The three townhouses have subsequently been unconditionally sold by Waipareira with arrangements made for the eventual sale proceeds to be held pending the outcome of this proceeding.

16

As the High Court Judge found, until the creditors' meeting of 5 April 2013, the Liquidators had at all times accepted that Waipareira was a secured creditor which intended to and did exercise its power of sale under its mortgage securities by selling the townhouses. 3 Mr Sullivan, counsel for the Liquidators on the appeal, confirmed that this remained the Liquidators' position.

Statutory and regulatory background
17

For ease of reference, the relevant statutory and regulatory provisions are included in an appendix to this judgment.

The issue
18

Although other arguments were advanced in the High Court and on appeal, which we address later, the fact that the Liquidators accept that Waipareira remained a secured creditor until the creditors' meeting means that the only real issue is whether Waipareira surrendered its security by voting its whole debt in favour of the

resolution for the replacement of the Liquidators. This issue involves the interpretation and application of reg 22(2) of the Regulations which provides:

Subject to the Act, if a secured creditor votes in respect of the creditor's whole debt, the creditor shall be taken to have surrendered his or her charge.

19

As Mr Morrison in fact voted at the creditors' meeting on behalf of Waipareira, which was a secured creditor, in respect of its whole debt, the narrow issue is whether there is any provision in the Act or any other reason why his “vote” should not be taken as having resulted in the surrender by Waipareira of its charge.

The High Court judgment
20

In the High Court Allan J, after considering the relevant interlocking provisions of the Act and Regulations and the arguments for the parties, 4 concluded that Waipareira had not surrendered its security by operation of law. His reasons were: 5

  • (a) It made no difference that Mr Morrison erroneously believed he was entitled to vote Waipareira's debt at the creditors' meeting.

  • (b) By virtue of s 240 of the Act, Waipareira was not a “creditor” for the purposes of pt 16 of the Act and in particular for the purposes of the creditors' meeting.

  • (c) The proof of debt forms completed by Waipareira did not meet the legal requirements for a valid proof and, accordingly, Waipareira had made no election to become a s 305(1)(b) creditor which would have triggered reg 22(2).

21

The Judge made the following declarations: 6

  • (a) Waipareira was not a creditor of West Harbour for the purposes of pt 16 of the Act, by virtue of the operation of s 240 of the Act.

  • (b) Waipareira was not entitled to vote at the creditors' meeting of 5 April 2013.

  • (c) Any vote cast on Waipareira's behalf at that meeting was of no legal effect.

Liquidators' submissions
22

In summary Mr Sullivan submits that the Judge erred because:

  • (a) In terms of the plain meaning of reg 22(2), when a secured creditor votes in respect of its whole debt, the creditor is to be taken to have surrendered its charge.

  • (b) The definition of “creditor” in s 240 of the Act does not limit the application of reg 22(2).

  • (c) Alternatively, a creditor who elects under s 305(1)(a) or (b) of the Act, is a creditor under s 240.

  • (d) The words “Subject to the Act” in reg 22(2) enable a secured creditor, who is taken to have surrendered his or her charge, to seek leave to have the security reinstated under s 305(10) of the Act.

  • (e) This interpretation of reg 22(2) is supported by the comparable Australian statutory provisions and authorities relating to those provisions.

  • (f) Here the unequivocal conduct of Mr Morrison at the creditors' meeting meant that Waipareira had surrendered its charge.

The interpretation of reg 22(2)
Relevant principles of interpretation
23

The meaning of reg 22(2) is to be ascertained from its text and in the light of its purpose. 7 It is well-established that this will include consideration of the scheme of the legislation and the regulations. 8

24

It is also important to bear in mind that as a general...

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2 cases
  • Walker and Scutter and Others v Forbes and Others
    • New Zealand
    • High Court
    • 28 Julio 2015
    ...14 Goldsmith v Sperrings Ltd, above n 9, at 586. 15 See the definition of “creditor” in s 240(1). 16 Grant v Waipareira Investments Ltd [2014] NZCA 607, [2015] 2 NZLR 725 at [27]–[28]. 17 Section 305(9). 18 Liesle Theron “The Liquidation Process” in Paul Heath and Michael Whale (eds) Heath......
  • J H R Fisk and Ct McCloy v Attorney-General on Behalf of The Comptroller of Customs
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    ...at [701]. 32 Dunphy v Sleepyhead Manufacturing Co Ltd [2007] NZCA 241, [2007] 3 NZLR 602 at [43]. 33 Grant v Waipareira Investments Ltd [2014] NZCA 607, [2015] 2 NZLR 34 C&E Act, s 97(3). 35 See [46] above. 36 Subject to s 97(3). 37 At [39] above. 38 See [44] and [71] above. 39 At [22] abo......

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