Pillay v Registrar of Companies [2018] NZHC 842 (26 April 2018)

Last Updated: 14 May 2018

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-2959 [2018] NZHC 842

UNDER	the Companies Act 1993, Section 329
IN THE MATTER OF	an application to restore GALVESTON NOMINEES (2009) limited (previously known as Ascent Business Directions Ltd) to the Companies Register
BETWEEN	VASINTHA PILLAY Applicant
AND	REGISTRAR OF COMPANIES First Respondent THE SECRETARY FOR THE TREASURY Second Respondent DAMIEN MITCHELL GRANT and STEVEN KHOV as former liquidators of Galveston Nominees (2009) Ltd (In Liq) Third Respondents MARK JOHN SALMON Fourth Respondent

Hearing:	26 April 2018
Appearances:	A Ho for the Applicant No appearances for First and Second Respondents J Wong for the Third Respondents A D Sharp for the Fourth Respondent
Judgment:	26 April 2018

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

PILLAY v REGISTRAR OF COMPANIES [2018] NZHC 842 [26 April 2018]

[1] Ms Pillay, an accountant, applies for Galveston Nominees (2009) Ltd to be restored to the companies register. Ancillary orders are sought. She seeks leave to apply by an originating application. She also seeks leave to apply—because she does not have standing as of right—under s 329(2)(c) of the Companies Act. She seeks an order reversing the liquidators’ final report.

[2] Galveston Nominees (2009) Ltd carried on business as an accountancy practice. Mr Mark Salmon, the fourth respondent, was the director of the company and at all material times was a shareholder of the company but not necessarily the sole shareholder. The company was incorporated in December 1991. It went into liquidation by shareholders’ special resolution on 12 November 2014. The liquidation was unremarkable. There were no claims by creditors, no assets were realised and there were no distributions to shareholders.

[3] The liquidators, the third respondents, gave a final report on 9 April 2014. The Registrar removed the company from the register on 21 May 2014. The Registrar and the Secretary of the Treasury were served but have taken no steps. Mr Salmon, the former director and shareholder, opposes. The third respondents also submit that no order can be made restoring the company to the register. As well, they say that if an order were to be made, arrangements should be made for them to be remunerated for their work as liquidators upon restoration.

[4] The application is satellite litigation. Ms Pillay has another proceeding in this court against Mr Salmon in CIV-2017-404-941. She is the plaintiff and Mr Salmon is the sole defendant. Her case is that she worked for Galveston (which was also known as Ascent Business Directions Ltd). She started with the company in March 2003. In 2007, Mr Salmon raised with her the possibility of her taking a 20 per cent shareholding in Ascent. There were further discussions. She says that in August 2009 she and Mr Salmon agreed that she would take a 20 per cent shareholding which would allow her 20 per cent of the dividends and retained earnings. The purchase price for her share would be 20 per cent of the market value of the shares in Ascent, valued as at June 2009. She pleads that in August 2009 the market value of the shares would be
determined later because Mr Salmon was apparently going through a relationship property dispute and he did not want to have the shares valued until his personal circumstances were resolved. Her case is that the purchase price would be paid by offsets from her future dividend and retained earnings entitlement. She alleges that Mr Salmon continually confirmed to her that she was a 20 per cent shareholder in Galveston and she was entitled to 20 per cent of the dividends and retained earnings, with the market value and documentation to be completed later. While she raised the matter with Mr Salmon a number of times, nothing was formalised.

[5] There was a silent 50 per cent shareholder in the company, Mr Mark Letton. He was an Australian accountant. He got into trouble with the authorities and eventually was sentenced to imprisonment. That was in August 2014. Mr Salmon was unwilling to make any firm arrangements until matters involving Mr Letton had been resolved. Court proceedings against Mr Letton had been pending since mid- 2011. Mr Salmon is alleged to have incorporated a new company, Rubiix Accountants Ltd, which took over the business of Galveston. Ms Pillay says that the arrangements for a shareholding in Ascent would be replaced by arrangements to take a shareholding in Rubiix.

[6] Even though the issues concerning Mr Letton had been resolved by August 2014, nothing was finalised between Ms Pillay and Mr Salmon for to take a shareholding and receive dividends and a share of retained earnings. She pleads that in December 2014, Mr Salmon gave her a summary of income for Ascent/Rubiix between 2011 and 2015. That summary shows total profits was $880,000 and that, after deductions for tax, the net profit was $281,000. She says that her 20 per cent entitlement is $116,000. She sues Mr Salmon for breach of contract and also makes a constructive trust claim.

[7] I asked Mr Ho what value his client put on the shares that she was to buy. Mr Ho did not have instructions about that. On the face of it, Ms Pillay has claimed for the earnings which she would have received once she became a shareholder, without bringing into account the cost of the shares. The purchase price would be significant. Once allowance is made for it, her claim must be for less than $100,000. This case appears to come easily within the jurisdiction of the District Court.
[8] I need to say something about how the litigation in CIV-2017-404-941 has run. Ms Pillay is concerned that Mr Salmon has not disclosed the financial records of Galveston Nominees (2009) Ltd. She has separately sought further discovery from Mr Salmon. On the question of documents of Galveston Nominees (2009) Ltd, Mr Salmon says that he handed the records of the company to the liquidators once it went into liquidation. That, of course, is consistent with the duties of any director of a company that goes into liquidation. He can therefore properly say that the records are no longer in his control but in the hands of the liquidators who took control of the company on liquidation.

[9] The liquidators say that they no longer hold the records of the company. For that, they refer to s 256 of the Companies Act. Under s 256(1)(b), liquidators are required to retain the accounts and records of the liquidation and of the company for not less than one year after completion of the liquidation. The completion of the liquidation was on 9 April 2014 when the liquidators sent their final report to the Registrar. The liquidators say that they have now destroyed all hard copies of documents of the company.

[10] Mr Ho referred me to a letter from Waterstone Insolvency which recorded the existence of electronic copies of documents. Mr Wong accepted that the liquidators would scan hard copies of documents for liquidations. No one has yet, however, made any enquiry as to what copies of documents are available for inspection.

[11] For the main proceeding, Ms Pillay wishes to inspect records of Galveston Nominees (2009) Ltd to ascertain its actual earnings. To that end, given the apparent absence of documents held by the liquidators, Ms Pillay applied for an order for non- party discovery against the Commissioner of Inland Revenue. The Commissioner of Inland Revenue opposed, relying on the secrecy provision, s 81 of the Tax Administration Act 1994. Ms Pillay’s lawyers accepted that that objection was well- founded and barred the Commissioner from disclosing records of Galveston Nominees (2009) Ltd to her or her legal advisors. Section 81 of the Tax Administration Act nevertheless recognises that the Commissioner may disclose records to the taxpayer.¹

¹ Tax Administration Act 1994, s 81(4)(l)

In this case the taxpayer was represented by and in the control of the liquidators. Ms Pillay therefore proposes that Galveston Nominees (2009) Ltd be restored to the register and that the liquidators be reinstated so that they can recover records of the company from the Commissioner.

[12] It is necessary to note certain aspects about that. Section 256 of the Companies Act gives limited rights of inspection of records of the company and records of the liquidation:

256 Duties in relation to accounts

(1) Subject to subsection (2), the liquidator of a company must—

(a) keep accounts and records of the liquidation and permit those accounts and records, and the accounts and records in the company, to be inspected by—

(i) any liquidation committee appointed under section 314, unless the liquidator believes on reasonable grounds that inspection would be prejudicial to the liquidation; and

(ii) if the court so orders, a creditor or shareholder; and

(b) retain the accounts and records of the liquidation and of the company for not less than 1 year after completion of the liquidation.

(2) The Registrar may, whether before or after the completion of the liquidation,—

(a) authorise the disposal of any accounts and records; and

(b) require any accounts or records to be retained for longer than 1 year after the completion of the liquidation.

(Emphasis added)

[13] Ms Pillay does not qualify as a person entitled to inspect the records of a company under s 256(1)(a) or to apply to inspect. She does not claim to be a shareholder of Galveston. She simply says that there was an agreement which, if carried into effect, would have made her a shareholder. She does not meet the definition of “shareholder” in s 96 of the Companies Act 1993. Nor does she claim to be a creditor of the company. As she is neither a creditor nor a shareholder of the company, she could not apply to the court for an order allowing her to inspect company
records. Instead, Mr Ho proposed that, in the substantive proceeding, Ms Pillay could apply for an order for non-party discovery and inspection under r 8.21 of the High Court Rules. That application would not be against the Commissioner because of the Commissioner’s objections under s 81 of the Tax Administration Act. The application would be against the liquidators and would require them to disclose documents under their control. The definition of “control” under the High Court Rules encompasses not only documents in the actual possession of the non-party but documents to which they have a right of possession, and also documents which they are able to inspect and copy.

[14] The secrecy provisions of the Tax Administration Act would not bar the liquidators from having access to the documents held by the Commissioner of Inland Revenue. She proposes that the liquidators should be required to make an affidavit of documents, setting out documents which are in their control, namely, any documents held by the Commissioner of Inland Revenue. That is Ms Pillay’s case why the company should be restored to the register.

[15] There is a timing element to this application. I am advised that the substantive proceeding has a hearing in June 2018. Mr Sharp, who acts for Mr Salmon in that proceeding as well, advises that there is a proposal for a split hearing, that the court will decide liability first, and only if liability goes in favour of Ms Pillay would there be a later hearing as to quantum. That led to him proposing that this application should be put on hold to await the outcome of the hearing in June this year. Mr Ho, on the other hand, advises that he is instructed to seek an order one way or the other whether the company should be restored.

[16] I will consider the application on the basis that there will be a split hearing and that it is not essential to have the company restored to the register before the substantive hearing in June 2018. I accept that it would not be practicable to carry out the steps that Ms Pillay proposes before the substantive hearing, that is, to restore the company to the register, re-instate the liquidators in office, then deal with an application under r 8.21 of the High Court Rules, and see whether documents can be obtained from the Inland Revenue Department. That process could easily take much longer.
[17] The court’s power to restore a company to the register comes in s 329 of the Companies Act:

329 Court may restore company to New Zealand register

(1) The court may, on the application of a person referred to in subsection (2), order that a company that has been removed from the New Zealand register be restored to the register if it is satisfied that,—

(a) at the time the company was removed from the register,—

(i) the company was still carrying on business or other reason existed for the company to continue in existence; or

(ii) the company was a party to legal proceedings; or

(iii) the company was in receivership, or liquidation, or both; or

(iv) the applicant was a creditor, or a shareholder, or a person who had an undischarged claim against the company; or

(v) the applicant believed that a right of action existed, or intended to pursue a right of action, on behalf of the company under Part 9; or

(b) for any other reason it is just and equitable to restore the company to the New Zealand register.

(2) The following persons may make an application under subsection (1):

(a) any person who, at the time the company was removed from the New Zealand register,—

(i) was a shareholder or director of the company; or

(ii) was a creditor of the company; or

(iii) was a party to any legal proceedings against the company; or

(iv) had an undischarged claim against the company; or

(v) was the liquidator, or a receiver of the property of, the company:

(b) the Registrar:

(c) with the leave of the court, any other person.

(3) Before the court makes an order restoring a company to the New Zealand register under this section, it may require any provisions of

this Act or any regulations made under this Act, being provisions with which the company had failed to comply before it was removed from the register, to be complied with.

(4) The court may give such directions or make such orders as may be necessary or desirable for the purpose of placing the company and any other persons as nearly as possible in the same position as if the company had not been removed from the New Zealand register.

Under s 330(2), a company that is restored to the register shall be deemed to have continued in existence as if it had not been removed from the register.

[18] When a company has been in liquidation, an additional order is required to reverse the liquidators’ final report. To explain, the liquidation of a company is completed when liquidators file their final report under s 257 of the Companies Act.² A company remains in existence until it is removed from the register, but removal does to take place immediately.³ The Registrar is required to allow time for any objections to the removal of the company from the register.⁴ Only when the time for filing objections has expired, and there are no objections, does removal take place.⁵ Between the completion of the liquidation and the removal of the company from the register the company remains in existence and is in a kind of limbo. It is out of liquidation but no one has control of it. Authorities recognising the need to reverse the liquidator’s final report before the company can go back into liquidation are Fisher J’s decision in Re Oceanic Shipping Ltd (In Liq), the Court of Appeal’s decision in Registrar of Companies v Body Corporate 307730 and the decision of Katz J in Williams v Registrar of Companies.⁶

[19] Ms Pillay faces a difficulty under s 329 because she does not have standing as of right under s 329(2)(a) or (b). She needs leave of the court under s 329(2)(c) to apply. Under s 329, the court has alternate powers to restore a company to the register. It can restore the company to the register if any of the grounds under s 329(1)(a)(i)-
(v) are made out. Under s 329(1)(b) it may also restore the company to the register if

² Companies Act, s 249.

³ Companies Act, s 317.

⁴ Companies Act, ss 318(1)(e) and 320(2), (4).

⁵ Companies Act, s 318(5).

6. Re Ocean Shipping Ltd (In Liq) HC Auckland M348/96, 16 July 1996; Registrar of Companies v Body Corporate 307730 [2013] NZCA 659, [2014] 2 NZLR 623; Williams v Registrar of Companies [2015] NZHC 3217 at [9]–[22].

it is just and equitable. In both cases, the court’s power is discretionary. In general, though, once one of the grounds in s 329(1)(a) is made out, there must be some affirmative ground that makes restoration undesirable. Under s 329(1)(b), the discretion involves weighing different factors. Here, as the company was in liquidation, the ground under s 329(1)(a)(iii) is made out. That does not by itself mean that Ms Pillay should be granted leave to apply. The question of granting leave to apply is connected with the court’s residual discretion to allow restoration under s 329(1).

[20] In opposition to the leave application, it was submitted that “any other person” in s 329(2)(c) must be confined to someone with a legal or proprietary interest in the company. I am not prepared to read down “any other person” in that way. It is arguable that there may be “persons” who have a proper interest in restoring the company to the register even where they may have no legal or proprietary connection with or interest in the company. For example, regulatory authorities may wish to have a company restored to the register for investigations into affairs of other persons, not the removed company itself. One can imagine enquiries by the Financial Markets Authority or prosecution authorities who may wish to investigate the affairs of a removed company to assist them in enquiries of other companies or other persons. I do not wish to say anything in this decision which would fetter the power of the court in later cases where there may be genuine public interest factors at stake.

[21] Counsel for the liquidators and Mr Salmon objected that restoration to the register would be pointless here because, while the company could be restored to the register, Ms Pillay did not have standing under s 284(1) to apply for the liquidators’ final report to be reversed. Section 284 says:

284 Court supervision of liquidation

(1) On the application of the liquidator, a liquidation committee, or, with the leave of the court, a creditor, shareholder, other entitled person, or director of a company in liquidation, the court may—

(a) give directions in relation to any matter arising in connection with the liquidation:

(b) confirm, reverse, or modify an act or decision of the liquidator:
(c) order an audit of the accounts of the liquidation:

(d) order the liquidator to produce the accounts and records of the liquidation for audit and to provide the auditor with such information concerning the conduct of the liquidation as the auditor requests:

(e) in respect of any period, review or fix the remuneration of the liquidator at a level which is reasonable in the circumstances:

(f) to the extent that an amount retained by the liquidator as remuneration is found by the court to be unreasonable in the circumstances, order the liquidator to refund the amount:

(g) declare whether or not the liquidator was validly appointed or validly assumed custody or control of property:

(h) make an order concerning the retention or the disposition of the accounts and records of the liquidation or of the company.

(2) The powers given by subsection (1) are in addition to any other powers a court may exercise in its jurisdiction relating to liquidators under this Part, and may be exercised in relation to a matter occurring either before or after the commencement of the liquidation, or the removal of the company from the New Zealand register, and whether or not the liquidator has ceased to act as liquidator when the application or the order is made.

...

(Emphasis added)

[22] When the court orders restoration of a company that was in liquidation before removal, the court normally exercises powers under s 284(1)(b) to reverse the liquidator’s final report. In Williams v Registrar of Companies, Katz J indicated that that was the only avenue by which a liquidator’s final report could be reversed:⁷

[33] The applicant’s lack of standing to seek reversal of the liquidator’s final report is fatal to their application to restore the company to the register, because there would be no point in restoring ... to the register without reversing the final liquidator’s report, for the reasons outlined above.

I am in respectful disagreement with Katz J in that ruling. In my judgment, s 284 is not the only provision under which the court can set aside a liquidator’s final report when a company is restored. The court also has that power under s 329(4). Under

7. Williams v The Registrar of Companies [2015] NZHC 3217 at [22]–[33], and see the references at [14]–[21] to Ocean Fishing Ltd v The Registrar of Companies HC Auckland M348/96, 16 July 1996; and Registrar of Companies v Body Corporate 307730 [2013] NZCA 659, [2014] 2 NZLR 623.

that subsection, the court is given the power to give such directions and make orders as may be necessary or desirable for the purpose of placing the company and any other persons as nearly as possible in the same position as if the company had not been removed from the register. A bare order restoring the company to the register would only put the company back into a limbo. Parliament cannot have intended that s 329 was to be restricted to putting a company into a limbo status. It would be taking too narrow a view of s 329(4) to bar that provision from being used also to make any ancillary orders required to restore the company to the position it was in before the liquidators filed their final report.

[23] Section 329(2) has its own standing provisions which are more extensive than for those who may apply for leave under s 284. For example, the Registrar may apply as of right, as can a receiver. It is possible to think of situations where a receiver sees a reason to restore a company to the register: it may be necessary to restore the company so that the receivership may continue. Receivers, on the other hand, do not have standing under s 284(1). It would be absurd to stymie a receivership by denying the receiver the right to have the liquidators’ final report reversed. Quite clearly subsection (4) is intended to serve that purpose. I regard that as consistent with the court’s approach to interpreting legislation to fill in gaps.⁸

[24] With those preliminary matters dealt with, I consider the application on its merits: whether to restore the company and whether to grant leave to Ms Pillay to apply. It is necessary to bear in mind that the primary function of liquidators is to realise assets of the company and distribute them to creditors, and then to shareholders
—see s 253 of the Companies Act. Liquidators are not archivists. They are not required to hold records of a company indefinitely. That appears clear from s 256 of the Companies Act. They are required to keep records after the liquidation is completed, but only for a defined period—one year. The obvious intention is that there should be closure in the affairs of a company and that goes to the limited retention of company records.

8. Northland Milk Vendors Association Inc v Northland Milk Ltd [1988] 1 NZLR 530 (HC and CA) at 537.

[25] This application is an unusual one. Ms Pillay does not seek restoration to the register for the purpose of pursuing any claim against the company or for having the company put back into existence to carry on business again or to allow the company to bring any claim. She is not a shareholder, director or creditor of the company. She is an outsider who wants to have the company restored to existence so that she can then carry out an extended discovery exercise for her substantive proceeding. She needs the restoration to allow an application under r 8.21 to work, not with a view to getting documents just from the liquidators but also from the Commissioner of Inland Revenue.

[26] This is a very convoluted exercise to obtain documents for a proceeding where the sums in issue are less than $100,000. It is necessary to apply some sense of proportion. Discovery must be kept proportionate—see r 8.2 of the High Court Rules. It is necessary to consider all the costs that this exercise will involve. The liquidators will not carry out their work without remuneration. I see no basis for restoring the company and expecting the liquidators to work for Ms Pillay on a charitable basis. Under s 276 of the Companies Act, they are entitled to remuneration for their work. The only way that that can be done would be to require Ms Pillay to pay the liquidators for their remuneration in doing the work that she requires. She would, of course, be required on any order under r 8.21 to pay the liquidators’ actual and reasonable costs of the application and in complying with any discovery orders. The liquidators would be required to do other work as well. Once the company is restored to the register they will need to re-open their files, resurrect their records, and presumably advise the Commissioner for GST purposes. Once any disclosure of documents has been completed, they will need to file a fresh final report and wind up the liquidation yet again. That is setting up and wash up will all be part of any continued liquidation. In doing all this, the liquidator will be going outside their normal roles of protecting and realising assets and distributing them to creditors and shareholders.

[27] I accept that there may be some cases where an outsider might come to the court and show good reason for requiring liquidators to actively assist in making available records of a company that has been removed from the register. But a sense of proportion is required about this. Given what seems to be the small amount of the
claim by Ms Pillay, she is going to extraordinary lengths and costs to get access to documents which may have relevance only for quantum issues in the proceeding.

[28] When a court decides questions of quantum in a proceeding, it often proceeds on less than complete information. Assessing damages as monetary relief is often a matter of jury judgment—awarding what is reasonable. That can often be the case where less than complete information is available. If Ms Pillay succeeds and the court has to ascertain the earnings of the company, Mr Salmon may face difficulties because he was the one who took steps to have the company put into liquidation and removed from the register. If there is inadequate document disclosure, he may have to bear the risk of that rather than Ms Pillay. I do not regard the steps that Ms Pillay is now taking as proportionate in relation to the sums in issue. In John Hammond & Company Ltd v Registrar of Companies, cited by Mr Salmon, Hammond J used the image of crossing the Himalayas to find that the river is dry. In this case, the river may not be dry but it may be a very modest trickle which does not make the effort worthwhile.⁹

[29] Because I regard the circumstances of this case as disproportionate to the discovery requirements of the substantive proceeding, I decline to make an order restoring the company to the register. The application is accordingly dismissed.

[30] I make an order for costs in favour of the liquidators and Mr Salmon on a category 2 basis. I trust that counsel will be able to agree as to costs but if they cannot the parties may file memoranda and I will decide costs on the papers.



...........................................

Associate Judge R M Bell

Solicitors:

Martelli McKegg (Alden Ho), Auckland, for the Applicant

Waterstone Insolvency (Joshua Wong), Auckland, for the Third Respondents Vlatkovich & McGowan, (A Vlatkovich), Auckland, for the Fourth Respondent

Counsel:

Ashley D Sharp, Auckland for the Fourth Respondent

⁹ John Hammond & Company Ltd v Registrar of Companies [1999] 3 NZLR 690 (HC) at [49].