NZ Natural Therapy Ltd (in Liquidation) v Little
| Jurisdiction | New Zealand |
| Judge | Brewer J |
| Judgment Date | 29 November 2019 |
| Neutral Citation | [2019] NZHC 3132 |
| Court | High Court |
| Date | 29 November 2019 |
| Docket Number | CIV-2013-404-4866 |
[2019] NZHC 3132
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2013-404-4866
Under the Companies Act 1993
In The matter of the liquidation of NZ Natural Therapy Ltd (In Liquidation)
K Morrison and H Hui for Plaintiffs P J Dale QC for First Defendant
Companies, Insolvency — entitlement of liquidators to reasonable costs — duties of liquidators — Companies Act 1993
On 22 August 2018 I gave judgment against Mr Little on most of the causes of action brought against him by the plaintiffs. 1 Of particular significance was my finding that Mr Little owes the first plaintiff (the Company) $323,148 because of an overdrawn current account.
The second plaintiffs are the liquidators of the Company. Mr Little is unhappy with the way they discharged their duties. He expressed this in an affirmative defence which I summarised:
[142] Mr Little says the liquidators are not entitled to recover the costs of the liquidation because they have not acted in the best interests of the Company and have acted inconsistently with their obligations. This is framed as an affirmative defence. He says:
(a) They failed to make any, or any adequate, inquiries at the outset of the litigation as to the status of the Company as corporate trustee for the Trust.
(b) They failed to identify that the only creditors of the Company and Trust were the BNZ and Advanced Lifestyles Limited [the company's actual name appears to be “Advanced Lifestyle International Retail Pty Ltd”].
(c) They made excessive and unjustified demands and in particular by letter dated 11 November 2013 demanded the sum of $1,059,590.49, thereby reducing any possibility of a commercial or reasonable settlement.
(d) They commenced proceedings without having ascertained the correct status of the Company as corporate trustee for the Trust, and in particular making reasonable inquiries of Mr Little and his advisers.
(e) They incurred costs including liquidators' and legal fees disproportionate to the amount in issue and to the detriment of the Company, the creditors and the Trust, and because even if there is any liability on the part of Mr Little (which is denied) there would be insufficient funds available to make any payment to any creditors and so that the only beneficiaries
from this proceeding would be the liquidators and their solicitors.
I did not decide this affirmative defence. The sum I held Mr Little owes the first plaintiff exceeds the debts proved in the liquidation. The second plaintiffs are entitled only to their reasonable costs, as assessed by the Court at the end of the liquidation. 2 I thought it premature, and likely unnecessary, for me to rule on the affirmative defence. I reserved that point and also reserved my decision on whether compensation should be paid to the Company and the liquidators under the third and fourth causes of action. 3
Mr Little appealed my finding that he owes the first plaintiff $323,148. However, at the commencement of the appeal hearing Mr Dale QC announced that Mr Little no longer contests that decision. 4 Instead, he wished to argue that he should not be required to pay the full amount of that debt where it exceeded the extent of creditors' claims against the company, and that a lack of proportionality in the liquidators' conduct ought to disentitle them to recovery of substantially more than is required to satisfy creditors' claims. 5
The Court of Appeal adjourned the hearing and referred the affirmative defence back to the High Court for determination in the light of the concession made by Mr Little. 6
By joint memorandum dated 1 November 2019, counsel asked me to also determine an issue of whether a particular sum is within my reservation of compensation.
This judgment decides those issues.
The relevant pleadings in the amended statement of defence dated 2 March 2018 are:
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102. The second plaintiffs are not entitled to recover the costs of the liquidation including liquidators' fees and disbursements because:
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(a) They failed to make any or any adequate inquiries at the outset of the litigation as to the status of the Company as corporate trustee for the Trust.
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(b) They failed to identify that the only creditors of the Company and Trust were the BNZ and Advanced Lifestyles Limited.
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(c) They made excessive and unjustified demands and in particular by letter dated 11 November 2013 demanded the sum of $1,059,590.49, thereby precluding any possibility of a commercial or reasonable settlement.
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(d) Commencing proceedings without having ascertained the correct status of the Company as corporate trustee for the Trust, and in particular making reasonable inquiries of Mr Little and his advisers.
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(e) Incurring costs including liquidators' and legal fees disproportionate to the amount in issue and to the detriment of the Company, the creditors and the Trust, and because even if there is any liability on the part of Mr Little (which is denied) there were (sic) be insufficient funds available to make any payment to any creditors and so that the only beneficiaries from this proceeding would be the liquidators and their solicitors.
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103. That if the second plaintiffs had acted in the best interests of the Company and consistent with their obligations as liquidators they would have:
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(a) Identified at the outset that the Company was a corporate trustee for the Trust.
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(b) Identified that there were only two outstanding creditors.
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(c) Invited Mr Little to explain why:
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(i) the Company ceased trading;
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(ii) Advanced Lifestyles Limited had not been paid;
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(iii) the BNZ had not been paid.
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(d) Invited Mr Little to endeavour to enter into a settlement with the outstanding creditors.
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(e) Not incurred fees of more than $20,000 plus GST.
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(f) Not issued proceedings against Mr Little until the steps taken in the preceding subparagraphs had been satisfied, and in any event ensured that the proceedings were focused on the best interests of the Company, the creditors and the Trust.
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The plaintiffs pleaded in reply:
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50. In respect of paragraphs 102 to 103 of the statement of defence, the plaintiffs deny the positive allegations contained in those paragraphs and say further that:
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(a) The second plaintiffs have duties as prescribed by the Companies Act 1993.
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(b) The second plaintiffs have not acted in breach of their duties.
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(c) The positive allegations contained in paragraphs 102 to 103 of the statement of defence are not a defence to the claims pleaded in the fifth amended statement of claim.
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In my Minute of 30 August 2019, I recorded the agreed position as to how I should determine the issues:
[3] Counsel are agreed that my task now is to determine Mr Little's second affirmative defence. Save for one matter, I am to do that as I could have done at the conclusion of the trial. That is to say, I will apply the submissions of counsel made at the time to the evidence I heard. Counsel are agreed also that I should have regard to the submissions made by them to the Court of Appeal. The saved matter is the issue of whether the pleading in the second affirmative defence can found the remedy Mr Dale QC seeks on behalf of Mr Little. It is agreed that submissions can be made.
[4] The parties are agreed there is no need for a further hearing. Once the further submissions are received I will make my decision as I could have at the end of the trial. Costs overall will be considered once I have delivered my judgment.
I will begin with the issue of whether the affirmative defence can found the remedy sought by Mr Little. Put plainly, if I were to find for Mr Little on his allegations against the liquidators, would that reduce his liability to pay the $323,148 which he owes to the first plaintiff?
In my view it would not. The issue of whether Mr Little owes a current account debt to the Company and the issue of whether the liquidators are entitled to their costs are separate and distinct.
In the first cause of action the Company sued Mr Little for his current account debt. It is no answer to that claim for Mr Little to say, in effect, “I accept I owe the debt, but because of the disproportionate actions of the liquidators in pursuing it I do not have to pay it, or at least not all of it”.
The commencement of liquidation vests custody and control of a company's assets in the appointed liquidator. 7 The liquidator's principal duty is to take possession of, protect, realise and distribute the company's assets or their proceeds of realisation to its creditors in a reasonable and efficient manner. 8 Liquidators have the powers necessary to carry out their functions and duties. 9 In sum, liquidators are entitled to call in debts on the company's behalf. A debtor's complaints regarding the liquidators' conduct will not alter the fact of the debt they owe to the company.
Further, as the pleadings I have quoted above make clear, the affirmative defence does not relate to the Company's first cause of action. The pleading is that “[t]he second plaintiffs are not entitled to recover the costs of the liquidation including the liquidators' fees and disbursements..
The Company's and the liquidators' claim for “the costs of the liquidation (including the liquidators' fees and disbursements)” are contained in the third cause of action. The...
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