Maria Catherine Young v Remarkable Exquisite Design Ltd

• Jurisdiction: New Zealand
• Judge: Associate Judge Lester
• Judgment Date: 31 March 2022
• Neutral Citation: [2022] NZHC 635
• Docket Number: CIV-2021-425-102
• Court: High Court

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

[2022] NZHC 635

Lester

CIV-2021-425-102

IN THE HIGH COURT OF NEW ZEALAND

INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA

WAIHŌPAI ROHE

Companies. Insolvency — application for an order for the respondent company to be liquidated on just and equitable grounds — the plaintiff was a shareholder and director — breakdown in relationship between the directors — deadlock — unauthorised use of company funds by the majority shareholders — Companies Act 1993

Appearances:

K McDonald for Plaintiff (M Young observing)

B Gresson for Defendant

JUDGMENT OF Associate Judge Lester

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

9 There was some delay in Ms Young being provided with access to the Xero accounting system operated by RED. Access was not given until January 2021. The majority shareholders also declined to provide Ms Young with access to the on-line booking platforms used by RED. Mr Short says the reason for declining Ms Young access is:

These were created under my and Kat's personal names, prior to Maria purchasing shares in the company. They are linked to other properties we own which Maria has no interest in. At no stage was it agreed or contemplated she would have access to those platforms.

10 The history of reservation/bookings of RED's apartment is company information to which the directors are entitled. Ms Young explained in her first affidavit that it would be possible for her to be added as a co-host of RED's property without her being able to access any other property information owned by the majority shareholders. Mr Short's reply affidavit does not claim this is not possible nor provide anything from the online booking company to counter Ms Young's evidence.

11 Ms Young then takes issue with the majority shareholders' personal use of the apartment. Ms Young says the agreement was that they would each be entitled to one week's use of the apartment per year. Mr Short says that he and his co-shareholder are entitled to use the apartment at any time provided such use did not conflict with a paying customer's booking. Even accepting Mr Short's evidence, the unanswered evidence from Ms Young is that the majority shareholders have not kept to their own version of the personal use agreement.

12 The uncontradicted evidence from Ms Young is that, at a time when she has evidence the apartment was occupied by the majority shareholders (a report from a private investigator), when she checked the online booking platform, it showed the apartment as being unable to be booked by the public. Further, it seems that, when the majority shareholders used the apartment for their own use, they used the cleaning company engaged by the company to service the apartment. The use of the cleaning company was at the company's expense, meaning Ms Young was paying for one-third of the cleaning service engaged for the private use of the majority shareholders.

13 Ms Young notes that one of the booking platforms used by the company, Booking.com, in an invoice dated 3 September 2021, reported room sales of $11,450 for August 2021 and invoiced the company $1,717.50 for commission. The evidence shows that the company paid the commission invoice but did not receive the $11,450. Ms Young's suspicion is that the rental was received directly by the majority shareholders and not deposited into the company's account.

14 Mr Short's explanation at para [10] of his reply affidavit is as follows, and is frankly hard to understand:

Regarding her claims as to Booking.com, there were three occasions where payments made on Booking.com, rather than going direct to Booking.com and then being paid into the company bank account (as is usually the case) did not get paid from Booking.com into the company account. We have contacted Booking.com to recover payments identified by Maria and which have inadvertently been paid to Booking.com.

15 The short point is why would the majority shareholders not query the company account being subject to a direct debit for commission when it never received the rental?

16 It seems Ms Young, who at the time had access to the company's bank account, paid the private investigator, referred to in [12] above, from company funds. This was seen as an unauthorised use of company funds by the majority shareholders who then removed some $3,600 from the company's bank account into their own account. Since that time they have directed all income from the apartment to their own account. It was only when such was disclosed by the majority shareholders in this proceeding that details of those transactions have been provided to Ms Young.

17 Ms Young also refers to the company paying cleaning bills that could not be matched to guest stays at the apartment. Ms Young identifies nine instances of that occurring. Mr Short only provides an explanation as to two of those bills. It may be that some of those costs relate to private use by the majority shareholders or it may be that they relate to bookings where the money was not banked into the company account.

Where does the true position lie?

18 The majority shareholders deny any wrongdoing. However, Mr Short's affidavit does not deal with all of the matters raised by Ms Young in her evidence. In particular: the majority shareholders' apparent breach of their own claimed terms for private use of the apartment; having the company pay cleaning costs for the majority shareholders' private use of the apartment; an incomplete explanation of the cleaning costs that did not correspond to guest bookings or at least payments; and the failure to justify declining Ms Young's access to the online booking platforms.

19 I will come back to the significance of these matters not being resolved when I deal with the submissions of Mr Gresson, counsel for the majority shareholders. The position of the majority shareholders is that Ms Young was responsible for the breakdown in the relationship between the parties.

Legal principles

20 The relevant principles were summarised by Associate Judge Andrew in his recent decision, McGehan v Te Hoe Dairies Ltd: 1

[15] The words “just and equitable” are words of “the widest significance”. 2 They do not limit the jurisdiction of the Court to any case. 3 Each case must be considered on its facts.

[16] As Bell AJ held in Sea Management...