Jacomb and Others v Wikeley

JurisdictionNew Zealand
CourtHigh Court
JudgeKOS
Judgment Date10 Apr 2013
Neutral Citation[2013] NZHC 707
Docket NumberCIV 2010-485-0997

[2013] NZHC 707

IN THE COURT OF APPEAL OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2010-485-0997

Between
Michael John Jacomb, Trene Kathleen Jacomb And Peter Reginald Richardson
Plaintiffs
and
Kenneth David Wikeley
Defendant
Counsel:

G J Toebes with J W G Grant for Plaintiffs

M J W Lenihan for Defendant

Application by plaintiff to enforce a guarantee given by the defendant for a failed mining venture in Chile — defendant alleged plaintiff's advances to company were subscriptions for capital in the mining company and that if they were loans, they were unlawful and unenforceable because they were major transactions under s129 Companies Act 1993 (“CA”) (major transactions) and were made without special resolutions — advance was initially structured as a loan but once the company was listed, the plaintiff was to receive shares — none of the share capital had been paid — documentation did not refer to lending or use the word “loan” — whether the advances were loans or subscriptions for capital — if loans, whether they were unenforceable under s129 CA — whether the definition of assets in s129(2) CA referred to a gross or net asset approach — whether the shareholders resolutions ratified loans — if defendant was liable in full or in part under the guarantee, whether the equitable doctrine of marshalling applied, reducing the plaintiff's claim by the value of the shares the plaintiff held.

The issue were: whether the advances were loans or subscriptions for capital and if they were loans whether they were unenforceable under s129 Companies Act 1993 (major transactions); whether the definition of assets in s129(2) referred to a gross or net asset approach; whether the shareholders resolutions were valid and ratified any loans; and, if W was liable in full or in part under the guarantee, whether the equitable doctrine of marshalling applied.

Held: It was clear from the communications that what was being provided for was a loan. J's contribution could have been structured as payment of share capital, but that would have been inconsistent with the other shareholders who were making no such contributions to Edel. The effect of the documentary evidence was that a loan was made by J to Edel and a personal guarantee was given by W as to 50 per cent of capital and interest repayable. The use of the word “paying” rather than “lending” in some of the documents was not probative of a payment by way of capital rather than loan, especially when the emails were read in context rather than in isolation. The absence of the word “loan” in such isolated instances, given the other documents, was not relevant.

To constitute a major transaction for the purposes of s129 CA, the transaction would need to involve Edel incurring a liability (including a contingent liability) the value of which was more than half the company's assets before the transaction. A loan incurred by the company would be a major transaction if the liability to repay exceeded half the value of the assets of the company.

“Assets” were defined in s129(2) CA as “property of any kind, whether tangible or intangible”. Although not made clear, this would appear to refer to the gross assets of the company, as a gross asset approach seemed to achieve a better balance between governance and shareholder interests. If EMG had no assets, then even a $10 loan would appear to be a major transaction requiring shareholder approval. None of the share capital had been paid. The unpaid capital of NZ$100 million represented a contingent asset of Edel (just as the liability to be called on to pay represented a contingent liability on the part of the shareholders).

The unpaid share capital could be viewed as property for the purposes of s129 CA. Section 129 CA should be given a reasonably inclusive interpretation when it came to the meaning of “assets”. The expansive wording in s129(2) CA suggested that. By parity of reasoning, to the extent that contingent liabilities were part of the evaluation provided for under s129(2)(c) CA, the contingent assets might logically form part of the very broadly defined “assets” against which such liabilities were weighed.

In this particular case, shareholders had subscribed for shares on the basis that they were liable contingently to pay up capital when called on to do so by directors. Where, as here, no capital payments had been made at all and the company had no other assets to fall back on, it followed necessarily that to operate, it would need to borrow. If contingent assets, such as uncalled capital, were excluded from “assets” for s129 CA purposes, the result would be that directors would have to go to shareholders on every occasion they wished to borrow even the meanest sum. That would be nonsensical given the structure the shareholders had established and mandated in the first place.

For s129 CA purposes, the gross assets of Edel in November 2008 were at least NZ$100 million. It followed, also, that Edel's liability under the loan arrangement for US$1.5 million (for up to 18 months, and at an interest rate of 6.7 per cent per annum) did not require shareholder approval. The directors of Edel could have called on the shareholders to meet its ultimate liability to repay J's loan. In the event share capital was called up in full, J would have been liable to pay considerably more to the company than they would have received from it. J's lending was not a major transaction for the purposes of s129 CA.

W submitted that J could not rely on the subsequent resolutions relating to some of the payments made, as J knew that the consent of individuals behind Geier Ltd had been required for the signing of the resolutions. It was clear on the evidence that G (as director of Geier Ltd, and signatory to the shareholders' resolutions in that capacity) took his instructions from W (who as far as J was concerned, was representing the Chileans' interest) and that G and J had executed the shareholders' resolutions in good faith. The later resolutions were not invalid because the individuals behind Geier Ltd had not signed them. The later shareholder resolutions had ratified the entire extent of the lending by J under s177 CA (ratification of certain actions of directors). Each referred to the current lending level, and approved an increase of it.

The security was given by W as guarantor, rather than by Edel as principal debtor. It followed that the whole (rather than half) of the benefit of that security must be accounted for against W's debt. There was no need to consider the authorities on marshalling and subrogation. J accepted that the value of shares transferred by way of security had to be accounted for and W was entitled to be subrogated to J's security. J could not enforce the secured debt and keep the security.

Given the uncertainty as to the value of the shares, the practical solution was that J must account for the sales proceeds of any of the security already sold, in reduction of the judgment debt. On satisfaction of the judgment debt by W, J had to transfer to him the remaining Orion shares held by way of security.

Judgment for J subject to J accounting for the sales proceeds of any of the security already sold and transferring to W, the remaining shares.

JUDGMENT OF THE HON JUSTICE KOS
1

An economic misadventure in Chile by two former friends, now plaintiff and defendant in these proceedings.

2

The defendant induced the plaintiffs to advance moneys to a New Zealand company with plans to mine molybdenum, copper and other minerals in Chile. The advances were characterised as loans, but not documented formally. The defendant provided personal guarantees as to 50 per cent of the plaintiffs' exposure. The venture failed to prosper. The company failed to repay the advances. The plaintiffs now look to the defendant under his guarantees.

3

The defendant says that, contrary to the correspondence at the time, the plaintiffs' advances were subscriptions for capital in the mining company. Not loans. And he says that if they were loans after all, then most or all of the loans were unlawful and unenforceable. That is because they were major transactions in terms of s 129 of the Companies Act 1993. Most of the lending was made without special resolutions in advance. The defendant says that subsequent resolutions approving the balance of the loans did not ratify the earlier lending.

Background
4

The plaintiffs are trustees of the Genset Trust, settled in 1993. The trust had substantial cash reserves following the sale in 2004 of its 100 per cent interest in a large electrical engineering business. The trustee principally involved in the events leading up to this litigation was Mr Michael Jacomb.

5

The defendant Mr Kenneth Wikeley is a businessman now resident in Melbourne. By his own admission he has had a chequered career. He was at one stage a one-third shareholder in the plaintiffs' electrical engineering business. It was one among many interests in which he was involved in the 1980s and 90s. In 1990 he was in “severe financial trouble”, following the 1987 share market crash. He resold his shareholding to the plaintiffs (albeit for three or four times what he paid for it four years earlier).

6

In 2006 Mr Wikeley induced Mr Jacomb to invest with him in a listed company called Plus SMS Limited. The investment initially appeared to prosper. However as Mr Wikeley put in evidence:

Unfortunately the company subsequently foundered. [Mr Jacomb] lost quite a lot of money as he had bought a significant number of shares in his own right aside from our deal.

Investment in OMG
7

In September 2008 Mr Wikeley induced Mr Jacomb to invest in another venture. Orion Minerals Group Limited (OMG) was to be back-listed on the New Zealand Exchange through a company called RLV-3 Limited. OMG's mining interests were in Chile. Mr Wikeley was in Chile at that time. Mr Jacomb agreed on the trust's behalf to invest...

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4 cases
  • Jacomb v Wikeley
    • New Zealand
    • High Court
    • 13 Dicembre 2013
    ...telephone conference I raised with Mr Sorrell whether Mr Wikeley would disclose his current address. In this 13 14 Jacomb v Wikeley [2013] NZHC 707 at [5]-[6], Hope affidavit, paragraph Jacomb v Wikeley [2013] NZHC 707 at [13]. hearing, Mr Sorrell did disclose it: 369 West Vine Street, Lexi......
  • Wikeley v Jacomb CA836/2013
    • New Zealand
    • Court of Appeal
    • 16 Aprile 2014
    ...On 16 April 2013 Mr Wikeley as director signed a notice to the shareholders advising that the Board had resolved to: 2 Jacomb v Wikeley [2013] NZHC 707. (i) issue 200 million new shares to a new investor for $0.01 share in order to provide the company with working capital and satisfy the so......
  • Jacomb & ORS v Wikeley HC
    • New Zealand
    • High Court
    • 10 Aprile 2013
    ...HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV 2010-485-0997 [2013] NZHC 707 BETWEEN MICHAEL JOHN JACOMB, TRENE KATHLEEN JACOMB AND PETER REGINALD RICHARDSON Plaintiffs AND KENNETH DAVID WIKELEY Defendant Hearing: 12-14 November 2012 Counsel: G J Toebes with J W G Grant for Plaintiffs M ......
  • Edel Metals Group Limited v Geier Limited
    • New Zealand
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    • 22 Febbraio 2017
    ...At the time the company was incorporated, the directors were Mr Jacomb and Mr Wikeley's accountant, a Mr Gibson. 2 3 Jacomb v Wikeley [2013] NZHC 707 per Kόs J; Jacomb v Wikeley [2013] NZHC 3034 per AJ; Jacomb v Wikeley [2013] NZHC 3368 per Bell AJ; and Wikeley v Jacomb [2014] NZCA 146. Wik......

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