Madagascar (no 1) 2013 Ltd [2014] NZHC 385 (6 March 2014)

Last Updated: 9 April 2014

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2014-409-000120 [2014] NZHC 385

UNDER Part 19 of the High Court Rules and sections 239F and 280 of the Companies Act 1993

IN THE MATTER OF an application pursuant to section 239F of the Companies Act 1993 for an order that Stephen John Tubbs and Colin Anthony Latham Gower not be disqualified from appointment as administrators of MADAGASCAR (NO.1) 2013 LIMITED and MADAGASCAR (NO.2) 2013

LIMITED

EX PARTE STEPHEN JOHN TUBBS and COLIN ANTHONY LATHAM GOWER Applicants

Submissions: 5 March 2014

Appearances: G Garter for Applicants

Judgment: 6 March 2014

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

_{as to qualification of administrators}

The application

[1] Stephen Tubbs and Colin Gower apply for an order under s 239F(2) Companies Act 1993 that they may be appointed administrators of two companies. The companies are Madagascar (No 1) Limited 2013 Limited (“Madagascar (No 1)”)

_{and Madagascar (No 2) 2013 Limited (“Madagascar (No 2)”).}

MADAGASCAR (NO.1) 2013 LTD and MADAGASCAR (NO.2) 2013 LTD EX P TUBBS [2014] NZHC 385 [6 March 2014]

[2] The sole director of Madagascar (No 1) and Madagascar (No 2) intends to resolve today to appoint Messrs Tubb and Latham as administrators of the two companies.

[3] The director prefers administration because it is likely to result in a better return for creditors as a whole than a liquidation would.

[4] In the absence of the orders sought, Messrs Tubb and Gower would be prevented from acting as administrators of the two companies by s 280(1)(ca) of the Act and arguably by s 280(1)(cb) of the Act. This is because, within two years

_{immediately before the administrations would commence:}

BDO Christchurch Ltd and Mr Gower provided professional services to

_{the companies as investigating accountants; and}

Messrs Tubbs and Gower may have had a “continuing business

_{relationship” with the companies’ bank, ANZ National Bank Ltd (ANZ).}

[5] The Court has also been asked to grant leave to bring the application by way of an originating application.

The relevant law

[6] Section 280 of the Act provides:

Qualifications of liquidators

(1) Unless the Court orders otherwise, none of the following persons may be appointed or act as a liquidator of a company:

...

(ca) a person who has, or whose firm has, within the 2 years immediately before the commencement of the liquidation, provided professional services to the company, unless, within 20 working days before the appointment of the liquidator, the board of the company resolves that the company will, on the appointment of the liquidator, be able to pay its debts and a copy of the resolution is delivered to the Registrar for registration:

(cb) a person who has, or whose firm has, within the 2 years immediately before the commencement of the liquidation, had a continuing business relationship (other than through the provision of banking or financial services) with the company, its majority shareholder, any of its directors, or any of its secured creditors, unless, within 20 working days before the appointment of the liquidator, the board of the company resolves that the company will, on the appointment of the liquidator, be able to pay its debts and a copy of the resolution is delivered to the Registrar for registration:

...

[7] Section 239F of the Act provides who may be appointed as administrator and who may not, in these terms:

239F Who may be appointed administrator

(1) A natural person who is not disqualified under subsection (2) may be appointed an administrator of a company.

(2) Unless the Court orders otherwise, a person is disqualified from appointment as an administrator if that person—

(a) is disqualified under section 280(1) from being appointed or acting as a liquidator of the company; or

(b) is prohibited from being an administrator by an order made under section 239ADV.

[8] I respectfully adopt as helpful guidance in relation to these applications the judgment of Associate Judge Abbott in Icon Digital Entertainment Ltd v Westpac New Zealand Ltd.¹

[9] In Icon Digital, the administrators were appointed despite potential disqualifications under s 280 of the Act. Those resulted from their past provision of professional services to the company being placed in administration and arguably from a continuing business relationship with one of the company’s major secured creditors. Associate Judge Abbott accepted² that the applicants’ knowledge of the company, built up through their role as investigating accountants, would assist them

_{to carry out the administration more quickly and efficiently.}

¹ Icon Digital Entertainment Ltd v Westpac New Zealand Ltd HC Auckland CIV-2007-404-

_{007124, 20 November 2007.}

² At [19].

[10] For the applicants in this case, Mr Carter has referred me to Icon Digital and to other decisions in similar situations.³

[11] As Mr Carter submitted, there are key principles which emerge from those cases as follows:

(a) It is appropriate to make an application under s 280 of the Act as an originating application under Part 19 High Court Rules;

(b) An important issue is whether there is a risk that the proposed administrators’ independence and ability to carry out their task professionally and effectively might be compromised in the particular circumstances;

(c) Without notice applications will be permitted where the interests of justice require urgency and the creditors’ interests can fairly be protected in other ways, having regard also to the undue delay or prejudice to applicants as potential administrators;

(d) Where an order is made on a without notice basis, the Court might appropriately direct the order and application be served on any creditors and the Court might properly reserve leave to creditors to apply to vary or set aside the orders made within a specified period;

(e) The solicitor/client costs of the proposed administrators in respect of an application are usually ordered to be an expense in the administration.

The nature of voluntary administration

_{[12] The nature of voluntary administration is relevant.}

³ Reference was made in addition to Icon Digital to Re Rapson Holdings Limited HC Auckland,

26 April 2010, (Associate Judge Abbot), CIV-2010-404-2319; Re Joeleen Enterprises Limited HC New Plymouth CIV-2008-443-485, 3 October 2008 (Associate Judge Abbott), Re Huntleigh Downs Limited HC Wellington CIV-2009-485-1498, 11 August 2009, (Associate Judge Gendall) and Re Southbury Insurance Limited [2012] NZHC 1316.

[13] The objects of the voluntary administration regime contained in part 15A of the Act are identified by s 239A as being –

... to provide for the business, property, and affairs of an insolvent company, or a company that may in the future become insolvent, to be administered in a way that—

(a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or

(b) if it is not possible for the company or its business to continue in existence, results in a better return for the company's creditors and shareholders than would result from an immediate liquidation of the company.

[14] Where a company is put into administration, the administrator puts a restructuring proposal to all creditors who vote on it at the watershed meeting under sub-part 8 of Part 15A of the Act. The administrator is obliged to achieve the best result for creditors as a whole (as contrasted to a receiver who is primarily responsible to recover the secured creditor’s funds (whilst having regard to the interests of other creditors and of the company).

[15] Where an administrator is appointed, the combined effect of the provisions of the Act is to ensure that the people who are appointed as administrators have sufficient independence, confidence and integrity to carry out their role without causing risk to creditors or third parties.

Prior involvement of Mr Tubbs and Mr Gower

[16] Mr Gower has given evidence as to the prior involvement of Mr Tubbs and himself.

[17] Mr Gower is a director of BDO Christchurch Ltd and a partner of BDO Christchurch. The firm is a full service professional advisory firm specialising in accountancy, corporate advisory, restructuring and insolvency services. Mr Gower has more than 20 years experience in liquidations, administrations and related services.

[18] Mr Tubbs holds the same positions. He has similar experience. Mr Tubbs is in addition a fellow of the New Zealand Institute of Chartered Accountants.

[19] Both Mr Gower and Mr Tubbs are well known to this Court inasmuch as they are frequently appointed by the Court as liquidators.

[20] Madagascar (No 1) and Madagascar (No 2) have a sole director in Adam Carville. The two companies specialised in international cargo. The businesses were sold in May 2013 with settlement on 1 August 2013.

[21] In the meantime, in July 2013, Messrs Tubbs and Gower were (at the request of ANZ) engaged by the Companies as investigating accountants. Mr Gower had the lead role. The engagement was to undertake a financial review of the companies and to monitor the sale process.

[22] Since the sale of the businesses, the two companies have not traded and do not have employees. The debt to ANZ as the first ranking secured creditor has been repaid. Messrs Gower and Tubbs understand the two companies to have no assets remaining other than pre-sale book debts.

[23] Mr Gower has deposed as to the extent of known creditors, including contingent creditors, of the two companies.

[24] The director, Mr Carville, has signalled to Messrs Gower and Tubbs a concern that the companies may become insolvent. Hence his intention to resolve to appoint administrators. The intention is to seek a better return for creditors than would result from a liquidation.

[25] Mr Gower discloses that he and Mr Tubbs, in addition to the specific relationship with the companies as investigating accountants, have arguably had a continuing business relationship with ANZ (the companies’ banker) in that ANZ has in that period appointed Messrs Gower and Tubbs to numerous roles such as receivers, liquidators and investigating accountants.

Discussion

[26] The situation is directly parallel to that of the proposed (and approved) administrators in Icon Digital.⁴ I apply that decision. In both cases, there was a prior appointment (at the behest of a bank) to investigate a situation but with an emphasis upon independent investigation. In both cases there was also the prior relationship to the bank in question through which the administrators had been appointed to various professional roles.

[27] I am satisfied that, as in Icon Digital, nothing in those circumstances compromises the independence of Messrs Tubbs and Gower or their ability to carry out their role of administrators professionally and effectively. The prior involvement of the proposed administrators is in fact likely to enable the administration to take place more quickly and efficiently than otherwise.

Orders

[28] I order:

(a) This application may be made by way of originating application;

(b) Notwithstanding ss 239F and 280(1)(ca) and (cb) Companies Act

1993 (the Act) Stephen John Tubbs and Colin Anthony Latham Gower may be appointed as administrators of Madagascar (No 1) 2013 Ltd (Madagascar (No 1)) and Madagascar (No 2) 2013 Ltd (Madagascar (No 2));

(c) The application and a copy of this order shall be served on all creditors notified of the first meeting of creditors pursuant to s

239AO(1)(a) of the Act, at the same time and in the same manner as notice under s 239AO is given by the administrators to those

_creditors;

⁴ Icon Digital Entertainment Ltd v Westpac New Zealand Ltd, above at [1].

(d) Leave is reserved to any creditor of Madagascar (No 1) and/or Madagascar (No 2) to apply to the Court within 10 working days of service of the order to set aside the appointment of Stephen John Tubbs and Colin Anthony Latham Gower as administrators;

(e) The applicants’ reasonable solicitor/client costs of this application are an expense incurred by the applicants in carrying out their duties as administrators.

Associate Judge Osborne

Solicitors:

Chapman Tripp, Christchurch