Richard Ciliang Yan v Mainzeal Property and Construction Ltd ((in Receivership) and (in Liquidation)), Richina Global Real Estate Ltd ((in Liquidation))

• Jurisdiction: New Zealand
• Judge: Ellen France,French,Cooper JJ
• Judgment Date: 21 March 2014
• Neutral Citation: [2014] NZCA 86
• Docket Number: CA105/2014
• Court: Court of Appeal
• Date: 21 March 2014

BETWEEN

Richard Ciliang Yan

Appellant

and

Mainzeal Property and Construction Limited (in Receivership and in Liquidation)

First Respondent

Richina Global Real Estate Limited (in Liquidation)

First Respondent

[2014] NZCA 86

court:

Ellen France, French and Cooper JJ

CA105/2014

IN THE COURT OF APPEAL OF NEW ZEALAND

Application for an interim order staying an order for liquidation pending an appeal — High Court had refused relief saying that there was no jurisdiction to stay an order for liquidation because it would be inconsistent with the statutory scheme under the Companies Act 1993 (CA) for a court to make an order halting the liquidation process — appellant said that there was jurisdiction to grant a stay under r12(3)(a) (stay pending determination of an application for leave to appeal) or alternatively r12(3)(b) (interim relief pending determination of an application for leave to appeal) Court of Appeal (Civil) Rules 2005 (CACR) — liquidators of Mainzeal group of companies obtained orders against appellant's company for contribution to Mainzeal liquidation — had also issued statutory demand to company following investigation of intercompany borrowing in the group — whether there was jurisdiction under r12(3) CACR to grant a stay order for liquidation — whether the appeal rights would be rendered nugatory as the liquidators were also liquidators of companies involved in contribution dispute — whether on balance the stay should be granted.

counsel:

D J Chisholm QC and T P Mullins for Appellant

Z G Kennedy and M D Pascariu for Respondents

• A The application for an interim order under r 12(3) of the Court of Appeal (Civil) Rules 2005 is dismissed.

• B The appellant must pay the respondents costs calculated as for a standard application on a band A basis and usual disbursements.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Ellen France J)

Introduction

1 The appellant seeks a stay pending appeal to this Court of a judgment of Brown J in which the Judge ordered that Richina Global Real Estate Ltd (RGREL) be put into liquidation and that Andrew Bethell, Brian Mayo-Smith and Stephen Tubbs (BDO liquidators) be appointed as RGREL's liquidators. 1 The application for a stay to this Court follows an unsuccessful application to the High Court for a stay of the liquidation order. 2

2 The respondents oppose the grant of a stay. The application raises issues about the jurisdiction to grant a stay or other interim relief following the making of an order for liquidation as well as the question of whether the balance of convenience and other relevant factors favour a stay. We deal with these issues after setting out the background and discussing the approach taken in the High Court.

Background

3 In February 2013 receivers were appointed for Mainzeal Property and Construction Ltd (Mainzeal). Later that month liquidators were appointed for Mainzeal and other related companies. The liquidators made an application to the High Court to enable them to conduct the liquidation of 13 companies in the Mainzeal group “as if they were one company” and to require contribution to the liquidation from another company, Isola Vineyards Ltd (Isola) and from RGREL. The liquidators obtained, on formal proof, the order sought as to the conduct of the liquidation and orders requiring Isola and RGREL to contribute certain sums to the liquidation of the “pooled” company. 3 RGREL was to contribute $15,150,847 to the liquidation of Mainzeal and $5,786,606.77 to the liquidation of another company within the group, King Facade Ltd (in liq) (King Facade). An application has been made by RGREL to set that judgment aside.

4 The material before us records that the investigations of the receivers and then those of the liquidators showed a “high level of intercompany borrowing and other transactions” within the Mainzeal group. 4 The receivers set in train processes to recover the debts. Their actions included the service of statutory demands on RGREL and Isola. In terms of RGREL, on 28 March 2013, a statutory demand was served for $136,862. There was a further statutory demand for $579,847 served on RGREL by the receivers on 8 July 2013. Brown J referred to Mr Yan's explanation for the latter sum (reflecting foreign exchange losses) in respect of which RGREL became liable to the Bank of New Zealand (BNZ). Brown J stated that Mr Yan “explained that the contracts were in RGREL's name but were in respect of loans for Mainzeal's benefit. Mainzeal as guarantor was required to make payment to the BNZ … of $579,847 and in turn the receivers … sought to recover that amount from RGREL.” 5

5 When payment was not made within the statutory timeframes of the statutory demands, two proceedings were issued. The first of these was against Isola. Subsequently a further plaintiff, King Facade, was added to that proceeding. The second proceeding was that against RGREL. Brown J dealt with the two proceedings together. 6 As we have foreshadowed, Brown J made an order for liquidation of RGREL under's 241(4) of the Companies Act 1993 on the ground that it was unable to pay its debts. The liquidators of Mainzeal were appointed as the liquidators of RGREL. The Judge declined to make an order for the liquidation of Isola.

6 After the judgment was delivered, and following an unopposed application made by Mr Yan as RGREL's director, the Court recalled the judgment and joined Mr Yan as a defendant.

7 For present purposes we need say nothing further about Isola or King Facade as the focus is on RGREL. However, to complete the narrative of the background,

we note that Brown J described Mainzeal, King Facade, Isola and RGREL as “all part of a wider group of companies, ultimately controlled by Mr Richard Yan, who was a director of most of the companies in the group”. 7 We reproduce as an appendix a diagram showing the relationship between the various entities which was attached to the judgment of Brown J placing RGREL in liquidation. We turn now to discuss that judgment

Orders for the liquidation of RGREL

8 The key issue was whether RGREL had proved that it was able to pay its debts. There was some initial discussion about the threshold to be met to discharge the presumption under's 287 of the Companies Act that a company is unable to pay its debts if it has failed to comply with a statutory demand. Brown J considered it was not sufficient merely to show that there was a genuine and substantial dispute about the debt. 8

9 The debt that was the subject of the second statutory demand (the foreign exchange losses) was not disputed. The argument was that the debt could be satisfied from funds that had been recovered from the sale of a property held by the receivers' solicitors allegedly in trust on behalf of Isola. On this Brown J stated: 9

[T]he fact that another entity (whether or not a related entity) is prepared to assume the responsibility to discharge a debt does not establish that the party legally liable for the debt is able to pay its debts. Indeed the fact that there is a need for RGREL to seek to have Isola pay the debt on RGREL's behalf points to the conclusion that RGREL is unable to pay its debt. The same point applies in relation to other companies in the wider group.

10 The Judge was not satisfied in these circumstances that RGREL had discharged the burden of proving that it was able to repay its debts so as to rebut the presumption which arose consequent upon the non-compliance with the first statutory demand.

11 Brown J did not consider there were any factors operating to exercise the discretion to decline an order for liquidation.

12 After Mr Yan filed his appeal against the liquidation order in this Court, the matter came back before Brown J as an application for stay.

Stay application in the High Court

13 Brown J concluded that there was no jurisdiction to stay an order for liquidation. That was because it would be inconsistent with the statutory scheme for a court to make an order halting the liquidation process. Any holding steps could be achieved “within the context of the liquidation process itself” by orders under's 284 (court supervision of liquidation) or s 246(3) (ability of the court to limit the powers of an interim liquidator) of the Companies Act. 10 This approach was consistent with the distinction made between executory and executed orders in the context of stays of proceedings. The Judge did make an order under's 284 of the Companies Act that, pending the determination of the appeal against his judgment, the liquidators of RGREL were not to abandon or compromise the extant application to set aside the pooling orders.

14 The Judge stated that, if there was jurisdiction to grant a stay, he would have granted a stay on the condition that Mr Yan provide an undertaking on his and RGREL's behalf that no assets, funds or choses in action of RGREL would be disposed of, dealt with or any step taken to diminish their value, pending determination of the appeal.

The application for a stay

15 Rule 12(3) of the Court of Appeal (Civil) Rules 2005 deals with the stay of proceedings and execution. Rule 12(3) states that “[p]ending the determination of … an appeal, the court appealed from or the Court may, on application” do the following:

• (a) order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or

• (b) grant any interim relief.

16 Rule 12(4) provides that an order or a grant under r 12(3) may:

• (a) relate to execution of the whole or part of the decision or to a particular form of execution:

• (b) be subject to any conditions that the court appealed from or the Court thinks fit, including conditions relating to security for costs.

17 The appellant seeks an order under r 12(3)(a) preventing the liquidators from taking steps in the liquidation of RGREL or, alternatively, an order under r 12(3)(b)...