Newman v Norrie as Liquidator of Pakiri Investments Ltd

• Jurisdiction: New Zealand
• Judge: Abbott
• Judgment Date: 02 April 2014
• Neutral Citation: [2014] NZHC 648
• Docket Number: CIV 2013-404-4378
• Court: High Court
• Date: 02 April 2014

IN THE MATTER of the Companies Act 1993

IN THE MATTER of the liquidation of Pakiri Investments Limited (In Liquidation)

BETWEEN

Larrie William Newman

Applicant

and

Mark Norrie as Liquidator of Pakiri Investments Limited

Respondent

[2014] NZHC 648

CIV 2013-404-4378

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Applications under s284 Companies Act 1993 (“CA”) (Court supervision of liquidation) and s286 CA (orders to enforce liquidator's duties) for removal of the respondent as liquidator on the grounds that he was not qualified for appointment because he was effectively in control of, and his firm had continuing business relationship with, one of the liquidated company's secured creditors — company in liquidation had entered into an agreement for the right to resell licences for the software of another company of which the liquidator was a director — payment made to software company had been set aside as voidable transaction — whether software company was a contingent creditor at the time of the liquidation — whether the definition of creditor should be interpreted widely so as to extend to liquidator by virtue of his effective control software company so that he was disqualified under s280(1)(b) CA (qualifications of liquidator — creditor of the company) — whether the court should exercise its discretion to permit him to continue as liquidator or remove him — whether emailed request to confirm time of creditors meeting was sufficient to put liquidator on notice of failure to comply under s286(3) CA (failure to comply).

Appearances:

R B Hucker / A P Prasad for applicant

B G Frowein / M C Kilham for respondent

JUDGMENT OF ASSOCIATE JUDGE Abbott

1 The applicant, Mr Newman, is a director of Pakiri Investments Ltd (in liquidation) (Pakiri). The respondent, Mr Norrie, was appointed liquidator of Pakiri by this Court on 15 February 2013.

2 Mr Newman has applied for removal of Mr Norrie as liquidator on the grounds that he was not qualified for appointment because he was effectively in control of, and his firm had continuing business relationship with, one of Pakiri's secured creditors, Ablaze Ltd. In the alternative, Mr Newman says that Mr Norrie is in breach of an obligation to call a creditor's meeting of Pakiri, and seeks an order directing him to do so.

3 Mr Norrie disputes that he was not qualified to accept appointment, but says that in any event the Court has a discretion in the matter, and should exercise that discretion in favour of confirming his appointment and against calling a meeting, in the circumstances of this case.

4 For the reasons I will give in this judgment, I decline Mr Newman's application and find that Mr Norrie can continue to act.

Background

5 The application needs to be considered in the context of matters leading up to Pakiri's liquidation, particularly relating to Pakiri's relationship with Ablaze, and steps taken in the liquidation.

The relationship between Pakiri and Ablaze

6 Pakiri was in the business of software development, either in its own right or through a number of related companies, operating under the general name Pakiri Group. A Mr Evan Read appears to have had a controlling interest in Pakiri through a family trust. Mr Read was a director of Pakiri at certain material times, but is now bankrupt.

7 Ablaze is the owner of warehouse management and other software which it markets through resellers. Mr Norrie is, and at all material times was, a director of Ablaze.

8 In 2009 entities within the Pakiri Group were engaged in developing software for a customer. Mr Read approached Ablaze about using its software in conjunction with or as part of the product that the Pakiri Group was developing. There appears to have been a difference between the parties as to how that was to occur, but it now seems to be common ground that they entered into an agreement under which Ablaze gave Pakiri the right to resell licences for Ablaze's software (called the reseller agreement):

• (a) Mr Norrie says that one of the Pakiri Group, ESP Software Ltd., entered into a reseller agreement with Ablaze (commencing on 15 October 2009) under which Ablaze gave ESP the right to re-sell licenses for its software, and that subsequently (in late November 2009) Pakiri was substituted for ESP in that agreement after ESP defaulted, to allow Pakiri to continue to resell Ablaze's software.

• (b) Mr Read has said in June 2010 (in an affidavit sworn in support of an application by Pakiri to set aside a statutory demand issued by Ablaze) that although ESP and Ablaze discussed a reseller agreement, the terms were never agreed and they came to a separate arrangement in relation to the use of Ablaze's software, and that there was never an agreement between Pakiri and Ablaze. Ablaze accepted that there was a dispute on the point, and withdrew its demand.

• (c) It may be inferred however, from Pakiri's argument in this case that Ablaze is a secured creditor of Pakiri by reason of terms in the reseller agreement, that Pakiri now accepts that it did enter into the reseller agreement.

9 Mr Norrie says that Ablaze terminated the arrangement when Pakiri defaulted, in early 2010. He says that this was on about 1 February 2010, but in anyevent the relationship ended on 16 February 2010 when Pakiri commenced a claim against Ablaze in the District Court, and Ablaze counterclaimed. Ablaze eventually was successful in defending Pakiri's claim and in prosecuting its counterclaim. It obtained judgment on its counterclaim on 4 July 2011 for $130,410.10.

10 Ablaze and Pakiri then negotiated terms for settlement, under which Pakiri agreed to pay Ablaze $27,000 by 20 August 2011. The payment was made and the proceeding between them, and a related proceeding between Ablaze and ESP, were discontinued on or about 22 August 2011.

11 The reseller agreement contained two clauses of particular relevance to the present application:

• (a) Under clause 8.6(a) Pakiri gave Ablaze security over software and other materials provided by Ablaze under the agreement:

  • (a) The Reseller grants Ablaze a security interest in the Software and materials supplied under this Agreement and any proceeds of the licensing and on-supply of the Software as security for costs for all the Reseller's obligations to Ablaze pursuant to this Agreement. Ablaze may register a financing statement on the PPSR to perfect its security interest in the Software and materials, delivered or to be delivered to the Reseller, in accordance with the provisions of the PPSA.

• (b) Clause 14.3 set out the consequences of termination, including that Ablaze obtained the rights to Pakiri's database and clients acquiring its software under the agreement, together with any goodwill in relation to them, and provided that certain obligations, including the provision of security and the entitlement to the customer database, continued to apply notwithstanding termination;

• 14.3 On termination of this agreement

• …

• (c) The reseller's obligations under clauses 8, 10, 11 and 13 will survive termination

• …

• (g) The Reseller's customers will become Ablaze's Customers and all licence fees received in advance by the Reseller from Customers will become payable without deduction by the Reseller to Ablaze and all future revenue from the Reseller's Customers will belong to Ablaze.

• …

• (j) Ablaze will not be liable for any payments relating to goodwill.

12 On the evidence before the Court, it seems that Ablaze had security over the software and other materials provided under the agreement (including Ablaze's intellectual property) and the revenue from the sales of new software, but not for the judgment obtained in July 2011. Mr Norrie also says that he waived any security when Pakiri ceased to be a reseller, saying that he made this clear in an e-mail sent to the solicitors for the creditor on whose application Pakiri was liquidated (Adroit People Ltd) when asked to act as liquidator. 1

The relationship between Mr Norrie and Ablaze

13 Mr Norrie acknowledges that he was a director of Ablaze at all material times. He says, however, that he was a non-executive director only (he attended board meetings and undertook specific administrative tasks as requested), and never had any involvement in the day to day running of Ablaze. He was never employed by Ablaze. He also said that he became a shareholder in Ablaze in August 2012, but says that was at the same time he became a director of CAM Trust Management Ltd, a corporate trustee company representing two family trusts that were the ultimate equal shareholders of Ablaze.

14 Mr Norrie also acknowledges that his firm (Norrie and Daughters) is Ablaze's tax agent.

The claim leading to liquidation

15 As previously mentioned, Pakiri was put into liquidation by the Court on the application of Adroit. Adroit obtained a judgment against Pakiri in November 2012 for $75,682.60. It filed its application for liquidation on 14 December 2012, after Pakiri failed to comply with a statutory demand for payment of the judgment sum. The application was listed for hearing on 15 February 2013.

16 On 31 January 2013, Pakiri's directors effected a restructuring of companies in the Pakiri Group, under which assets (primarily intellectual property), were transferred from Pakiri to Time 3 Global Ltd, and shareholdings in Pakiri were transferred to the Read Family Trust, with other former shareholders in Pakiri being given shares in Time 3 Global Ltd or another related company (One Global Ltd).

17 In early February 2013, Adroit's solicitors asked Mr Norrie if he would act as liquidator. Mr Norrie wrote to the solicitors setting out his association with Ablaze and the prior relationship between Ablaze and Pakiri. He expressed the...