Perpetual Trustee Company Ltd v Kerryn Mark Downey and William Guy Black Hc

JurisdictionNew Zealand
CourtHigh Court
Judgment Date25 October 2011
Neutral Citation[2012] NZHC 1987
Docket NumberCIV-2001-404-4096

[2012] NZHC 1987



UNDER the Companies Act 1993


Perpetual Trustee Company Limited
Kerryn Mark Downey and William Guy Black

A R Galbraith QC with G Blanchard and J McGuigan for Perpetual Trustee Co Ltd

J A Farmer QC with M V Robinson for the liquidators



Perpetual Trustee Company Ltd filed a proof of debt with the liquidators of HIH Holdings (New Zealand) Ltd (In Liquidation) for NZD$277,304,142.50. On 11 July 2011 the liquidators rejected the proof of debt in full.


Perpetual Trustee Company Ltd has filed two applications. The first seeks leave under s 284 of the Companies Act 1993 to apply under s 284(1)(b) to reverse the liquidators' decision, and a further order to reverse the decision of 11 July 2011. That application also sought an extension of time for filing evidence as to New South Wales law. I dealt with that in my minute of 18 August 2011.


Perpetual has also filed an application for an order staying its application to reverse the liquidators' decision pending the outcome of a proceeding it has brought against the liquidators in the Supreme Court of New South Wales. This decision is mainly about that stay application.


HIH Holdings (NZ) Ltd, (HIH NZ), was ordered to be put into liquidation on 19 July 2001. The liquidators are Kerryn Mark Downey and William Guy Black. They are senior partners in McGrath Nicol (NZ), the New Zealand arm of a trans-Tasman insolvency practice. They are also liquidators of HIH Casualty and General Insurance (NZ) Ltd, FAI (New Zealand) General Insurance Company Ltd and HIH Insurance Holdings (NZ) Ltd. These were all New Zealand companies within the HIH group of insurance companies which carried on business in Australia, New Zealand, the United States, the United Kingdom and Hong Kong. The ultimate holding company of the group is HIH Insurance Ltd, an insurance corporation (called HIH Australia). HIH Australia went into liquidation in Australia. Its liquidators are insolvency practitioners of McGrath Nicol (Australia).


HIH Holdings (NZ) Ltd is a New Zealand subsidiary within the HIH group of companies. It is the sole shareholder of HIH Insurance Holdings (NZ) Ltd which itself is the sole shareholder of HIH Casualty and General Insurance Co Ltd.


The liquidation of HIH Casualty and General Insurance (NZ) Ltd is likely to take another year. All the creditors of Casualty and General will be paid and there will be a surplus available for the shareholder. The liquidators' report for Casualty and General of 19 August 2011 gives a best-case estimate of the surplus for the shareholder of $84,610,564 and a worst-case estimate of $71,713,603.00. This Court has directed the liquidators of Casualty and General not to conclude the liquidation without leave of the court.

Claim by Perpetual Trustee Company Ltd

By a prospectus dated 26 October 1998, HIH NZ sought to raise AUD$155,000,000 by the issue of converting notes. On the same day HIH Australia, the ultimate holding company, HIH NZ and Perpetual signed a trust deed. Under the deed, Perpetual was appointed to act as trustee of the HIH NZ Converting Notes 1998 Trust for the benefit of holders of notes issued under the deed. HIH Australia executed a deed poll on the same day: it is called Terms of Conversion, Guarantee and Subordination of Guarantee of Converting Notes 1998 (in this judgment the deed of guarantee) in favour of Perpetual as trustee and the noteholders. Under this deed HIH Australia undertook to guarantee and indemnify the noteholders for the obligations of HIH NZ under the trust deed.


Under clause 2 of the trust deed the directors of HIH NZ could create and issue notes to persons they nominated. Schedule 1 of the trust deed, called “Conditions of Issue of the 1998 Notes”, sets out conditions for issue of the notes, interest payments to noteholders and the conversion of the notes into ordinary shares in the capital of HIH Australia. Notes were subscribed for and allotted. The allotment of notes resulted in notes contracts between each of the noteholders and HIH NZ. The notes contracts incorporated the terms of the trust deed and the deed of guarantee, and included terms as to conversion. These terms included:

  • (a) The notes have a face value of AUD$5.00, are issued at the face price and are convertible as provided in condition 4 and subject to conditions 7 and 12 into ordinary shares of HIH Australia, determined under condition 6.5 of the conditions of issue;

  • (b) Notes are convertible in the circumstances provided in condition 12;

  • (c) On conversion of a note, HIH NZ must redeem the note for an amount equal to its face value, and the noteholder directs HIH NZ to apply the whole of the moneys payable to subscribing for that number of ordinary shares according to a formula;

  • (d) HIH NZ can redeem all of the notes for cash, on given events in condition 12.2, and on notice given before the expiry of a conversion period;

  • (e) If HIH NZ elects not to redeem all the notes for cash under condition 12.2, all notes not converted by 12 June 2003 must be automatically converted into ordinary shares in HIH Australia, the number to be fixed under clause 6.5 of the conditions;

  • (f) The period when noteholders were entitled to convert ran from 12 June 2001 to 12 June 2003;

  • (g) Subject to certain conditions, HIH NZ was entitled to redeem some of the noteholders' notes (but in fact they did not do so);

  • (h) If HIH NZ had not elected to redeem notes earlier, then all notes outstanding at the end of the conversion period must be automatically converted into HIH Australia ordinary shares.


The important provisions are:

Clause 2A.1(b) of the trust deed:

The company … must, subject to any obligation of the company to convert the Notes into Ordinary Shares in accordance with the Conditions of Issue, pay to the Trustee … the Principal Moneys represented by the Notes … and will … until the whole of the Notes have been redeemed or converted into Ordinary Shares in accordance with the Conditions of Issue, pay to the Trustee interest on the Principal Moneys in accordance with the Conditions of Issue.

Condition 6.5 of the notes conditions:

On conversion of a Note:

  • (a) the Company must redeem that Note for an amount equal to its Face Value; and

  • (b) the holder of that Note, by operation of this clause, hereby directs the Company to apply the whole of the moneys payable by it on redemption in subscribing for that number of Ordinary Shares: [ here follows various provisions on how to calculate the number of shares].

Condition 12.3 of the notes conditions:

[A]ll Notes outstanding and not converted at the End of the Conversion Period must be automatically converted into the number of Ordinary Shares in HIH determined in accordance with Condition 6.5.

Clause 15 of the trust deed and condition 13 of the deed of guarantee are choice of law and choice of forum provisions:

This Deed is governed by and is to be construed in accordance with the laws of New South Wales. Each party irrevocably and unconditionally submits to the exclusive jurisdiction of the courts of the New South Wales and Courts entitled to hear appeals from these Courts.


The conversion period started on 12 June 2001. The liquidation of HIH NZ started on 19 July 2001. On that date 42,620,000 notes remained outstanding, not converted into ordinary shares of HIH Australia. Their face value was AUD$213,100,000.


At 12 June 2003, the end of the conversion period, HIH NZ had not redeemed the notes for cash under condition 12.2. There were outstanding notes requiring conversion under 12.3. HIH NZ was insolvent and in liquidation; and HIH NZ could not redeem the outstanding notes and apply the money payable on redemption to subscribe for ordinary shares in HIH Australia. HIH Australia was itself in insolvent liquidation, and the liquidators of HIH NZ say that the ordinary shares would have had no more than a nominal value.


On 15 November 2007 Perpetual served a termination notice on HIH NZ terminating each of the notes contracts.

The Federal Court Proceeding

In 2007 the liquidators of HIH Australia brought a declaratory proceeding in the Federal Court at Sydney against Perpetual. They sought declarations that:

  • (a) The notes issued under the trust deed had been converted into ordinary shares in HIH Australia; and

  • (b) The liquidators of HIH Australia were justified and entitled to allot shares in HIH Australia for the notes.


Perpetual cross-claimed for declarations that:

  • (a) For the notes to convert, they had to be redeemed for cash by HIH NZ and then applied in subscription for shares in HIH Australia;

  • (b) HIH NZ did not redeem the notes; and

  • (c) Perpetual had validly terminated the notes contracts.


HIH NZ was joined as a defendant. In his judgment Graham J recorded HIH NZ's position on joinder: 1

HIH NZ, a company incorporated under the laws of New Zealand, is not opposing becoming a party to these proceedings strictly on the condition that the declaratory relief sought in the Plaintiffs' Further Amended Originating Process and Further Amended Points of Claim are not amended and any Cross-Claim is not filed by the First Defendant without the written consent of HIH NZ. That condition is sought so that the proceedings remain limited to the interpretation of documents governed by the law of New South Wales. Matters pertaining to the liquidation of HIH NZ, including the entitlement of any party to prove in the estate of HIH NZ, is a matter for the supervision of the Courts of New Zealand and any orders made by this Court in these proceedings do not seek to affect or limit in any way the discretion of the liquidators of HIH NZ in...

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