Needham v Nayacakalou
| Jurisdiction | New Zealand |
| Judge | P J Andrew |
| Judgment Date | 05 March 2021 |
| Neutral Citation | [2021] NZHC 398 |
| Court | High Court |
| Docket Number | CIV-2020-419-000209 |
| Date | 05 March 2021 |
UNDER The Companies Act 1993
IN THE MATTER OF PAUANUI MOUNTAIN ESTATE LIMITED (IN LIQUIDATION)
[2021] NZHC 398
JUDGE P J Andrew
CIV-2020-419-000209
IN THE HIGH COURT OF NEW ZEALAND
HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA
KIRIKIRIROA ROHE
Companies, Insolvency — application for leave to apply for relief under the Companies Act 1993 for a declaration that the respondent was not validly appointed as liquidator or if she was, the office became vacant when she ceased acting due to incapacity — two-step test for granting leave — delegation of duties — Companies Act 1993 Liquidation Regulations 1994
S McAnally for Plaintiff
D Hayes for Defendant
The plaintiff was the former sole director of Pauanui Mountain Estate Ltd (in liquidation) (PMEL). He makes application for leave to apply for the following relief under s 284 of the Companies Act 1993 ( Companies Act):
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(a) A declaration that the defendant, Kelera Nayacakalou, was not validly appointed as liquidator of PMEL, or if she was, the office of liquidator became vacant in May 2018 when the defendant ceased acting as liquidator due to incapacity;
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(b) A declaration that the actions the defendant has purported to take as liquidator are of no effect;
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(c) An order that the decision of the defendant, purportedly as liquidator of PMEL, to retain $100,000 for her own remuneration and expenses, be reversed;
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(d) An order that Mr Simon Dalton and Mr Matthew Kemp, insolvency practitioners of Auckland, be appointed to act jointly and severally as liquidators of PMEL;
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(e) In the event that the Court declines to make the orders at [a]–[c] above, an order fixing the remuneration of the defendant, as liquidator, to a reasonable amount.
PMEL was incorporated on 18 July 1990. Mr Needham has been the sole director since 2006. At the time of liquidation in 2014, the shares of PMEL were owned by Mr Needham's wife (as to 50 per cent) and the trustees of the Pecunia In Posterum Institutum Trust (being at that time, Mr and Mrs Needham, and Mr Anthony Banbrook, who has since died) (PIT Trust).
PMEL owned a large piece of land at Pauanui. In 2012, that land was transferred to a new company, Pauanui Dream Estate Ltd (PDEL). That transfer was a consequence of an arrangement entered into by PMEL with a company called Samy Trustee Ltd.
PDEL is owned as to 60 per cent by Samy Trustee Ltd. Its sole director is Mr John Samy. That position was only established after litigation in this Court. Immediately after incorporation of PDEL, Mr Needham registered a transfer of 550 shares to himself so as to become the majority shareholder. He then caused himself to be appointed as the director and later (in May 2015) to have a relative, Mr Richard Needham, likewise appointed. 1
Both the transfer and the appointments were challenged in proceedings in this Court in 2016. In Samy Trustee Ltd v Pauanui Dream Estate Ltd, 2 Fogarty J held that the merits were overwhelmingly “in favour of the plaintiff, Samy Trustee Ltd” and that the defendant's argument “was hopeless”. Fogarty J ordered Samy Trustee Ltd had legal title to the 550 shares concerned and that Mr Richard Needham had not been validly appointed as director and that Mr Gregory Needham was validly removed as a director in September 2015. In the result, Samy Trustee Ltd was confirmed as PDEL's 60 per cent shareholder with the balance of the shares held by the Needhams.
Having transferred the land to PDEL, in early 2014 the shareholders of PMEL decided to place it into liquidation. Mr Needham contacted Mr Nicholas Hayes at Liquidateit, Liquidations and Accountancy services. Mr Nicholas Hayes provided Mr Needham with a quote of $5,000 to act as liquidator of the company.
On 9 April 2014, the defendant signed a consent to act as liquidator.
A first liquidator's report prepared in the name of the defendant was dated 23 April 2014.
On 3 December 2014, in the High Court at Hamilton, Mr Nicholas Hayes was adjudicated bankrupt.
The defendant formed the opinion that the transfer of land from PMEL to PDEL had been at under-value and for that reason, in December 2017, she commenced proceedings against PDEL, Samy Trustee Ltd and the trustees of the PPI Trust (CIV-2017-404-2938).
In June 2019, PDEL and PMEL signed a deed of settlement of that litigation whereby PDEL would pay PMEL $100,000. Samy Trustee Ltd subsequently made arrangements to borrow $100,000 from the ASB Bank to on-lend to PDEL for it to be able to make the settlement payment to PMEL and the defendant.
On 29 July 2020, the defendant filed a final liquidator's report. The report noted that the settlement sum of $100,000, a liquidation fee of $5,000 paid by Mr Needham and a council refund was applied to liquidation and legal fees of $50,182.02 and $57,560.53 respectively.
Mr Needham has objected to the removal of PMEL from the Register.
In Trinity Foundation (Services No 1) Ltd v Downey, 3 the Court of Appeal approved the approach of Lang AJ, as he then was, in this Court who held that an applicant for leave to proceed under s 284 of the Companies Act must show that it has an arguable case. 4 The two aspects of that test are that the case must have both a credible factual basis and there must be a reasonable likelihood that, if the claim is established, the Court will disturb the act or decision in question. 5
It is clear from Trinity that s 284 provides a filtering mechanism designed to ensure that leave to challenge the acts and decisions of liquidators is only given in appropriate cases. 6
In a recent decision 100 Investments Ltd v Walker, 7 Johnson AJ held:
[65] It appears to me that of s 284, as explained in the cases and commentary, is generally applied so as to give creditors who, when the outcome of the liquidation is known, have a legitimate grievance as to the way in which it has been conducted and can demonstrate that if it had been conducted otherwise the outcome may have been more advantageous for them an opportunity to examine whether their concerns are well founded. In such circumstances, creditors are entitled to insist on a retrospective review in the form of an audit of the company's affairs and the liquidator's actions. The leading authorities such as Re Ocean Shipping Ltd (in liq) all involve applications after the liquidator or liquidators have filed
their final reports and such information is available to the Court and interested parties.(emphasis added; citations omitted)
There are two critical issues to address:
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(a) Does the application have a credible factual basis; and, if so,
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(b) Is there a reasonable likelihood, that if the claim was established, the Court will disturb the acts or decisions in question?
In a further affidavit sworn and filed shortly before the hearing the defendant has attached a consent to act as liquidator dated 9 April 2014. On the face of it, the mandatory requirement of s 282 of the Companies Act (there must be consent in writing) has been established.
The principal submission for Mr Needham is that despite having signed a consent to act, the defendant's appointment was invalid because it was always intended that it was to be Mr Nicholas Hayes and not the defendant who would in fact be the actual liquidator. It is argued that this “sham” is borne out by the fact that the defendant herself took no steps as a liquidator from the time of liquidation in April 2014 until at least December 2015.
In contending for a sham, Mr McAnally, for Mr Needham, submitted that there was a sham (an arguable sham) in the colloquial sense, although perhaps not in the legal sense. For that proposition, he relied upon the following passage in Ah Toy v Registrar of Companies (NT), a decision of the full Federal Court of Australia: 8
In relation to the description “deceptive sham”, it is fair to say that what was done, in respect of both the provisional liquidation and the liquidation, was a sham in the colloquial sense although perhaps not in the legal sense … Mr Ah Toy held the offices of provisional liquidator and liquidator but he did not act in those offices. Instead he allowed others to act, making decisions and fulfilling functions which he ought to have undertaken himself.
The Court held that under the Companies Act (NT) a liquidator may delegate specific tasks which for one reason or another he is not able to undertake but neither that provision nor any other part of the legislation permitted the type of “wholesale” delegation of the liquidator's functions as occurred in that case with the agent performing most of the work of the liquidation. 9
Mr Needham contends that there was unauthorised “wholesale” delegation in this case, with the defendant essentially playing no role in the liquidation until at least December 2015.
It is apparent from the evidence before me that the arrangements relating to the defendant's appointment (and for which she is responsible) were far from satisfactory. They were arguably very loose and arguably, did not meet professional standards. It is arguable that the defendant did not intend in fact to assume the office of liquidator other than in name only and that the real intention was that the liquidation would be conducted in substance by Mr Nicholas Hayes. That finding is supported by the following evidence:
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(a) The email from Mr Nicholas Hayes to Mr Needham dated 17 April 2014, in which he notes:
I will be handling the liquidation for you, however my associate Kelera [the defendant] will have her...
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