Department of Internal Affairs (MSI Group Limited) [2019] NZHC 2675 (18 October 2019)

Last Updated: 25 November 2019

INTERIM NON-PUBLICATION ORDER JUDGMENT NOT TO BE PUBLISHED BEFORE 12 MIDDAY ON 21 OCTOBER 2019 — REFER TO PARAGRAPH [16] AND THE POSTSCRIPT TO THE JUDGMENT

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

CIV-2019-404-1716 [2019] NZHC 2675

UNDER	Section 329 of the Companies Act 1993
IN THE MATTER	of an application by THE DEPARTMENT OF INTERNAL AFFAIRS restoring MSI GROUP LIMITED (removed)

Hearing:	18 October 2019
Appearances:	Ms E Smith for the Applicant
Judgment:	18 October 2019

ORAL JUDGMENT OF ASSOCIATE JUDGE SMITH

This judgment was delivered by me on 18 October 2019, pursuant to r 11.3 of the High Court Rules

Registrar/Deputy Registrar

Solicitors / Counsel:

Meredith Connell, Auckland

THE DEPARTMENT OF INTERNAL AFFAIRS [2019] NZHC 2675 [18 October 2019]

[1] The applicant (the Department) applies for an order under s 329 of the Companies Act 1993 (the Act) restoring to the register the company MSI Group Ltd (the company).

Background

[2] The company was incorporated on 29 May 2014, and it was removed from the Companies Register on 20 May 2019. The company's last annual return was filed on 7 November 2016, and the company was removed from the register under s 318(1)(b) of the Act (company not carrying on business and no proper reason for the company to continue in existence).

[3] The company operated money transfer and foreign exchange services prior to its removal from the register, and the Department wishes to issue a civil proceeding against the company claiming pecuniary remedies for alleged breaches of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the AML/CFT Act).

[4] Evidence for the Department was given by Mr Schoeman, the manager (operations) of the Department's Anti-Money Laundering Group. Mr Schoeman gave evidence about investigations conducted by his group's officers, and the officers being told during a police search conducted in September 2016 that the company was not a reporting entity for the purposes of the AML/CFT Act. At that point, the Department did not investigate further. It was apparently satisfied at the time that the company was merely a branch of another entity called OTT Trading Group Ltd (OTT). The Department appears to have reached that view based on an agency agreement between the company and OTT dated 19 March 2015. However, the Department now believes that the purported agency agreement was false, and could not have been created before 2 May 2016. The Department was also told in September 2017 that the company was no longer trading and had become part of OTT in April or May of that year.

[5] The Department's officers remained interested in OTT. On 5 April 2019 they noted during a visit to the company's (or OTT's) Christchurch premises that an "MSI" sign had been erected. The company's director and shareholder then told the Department's officers that the company had 2,000 customers. The Department
concluded that the information previously given to it about the company's role, relevant to its possible status as a reporting entity under the AML/CFT Act, was not correct.

[6] The Department commenced a proceeding under the AML/CFT Act on 23 August 2019 against OTT and a number of other parties. The company was named as fourth defendant, and its director, Ye Duan, was named as fifth defendant. There are eight causes of action in the proceeding, and four of them include allegations against the company. Each cause of action seeks a civil penalty against the company in such sum as the Court may think just. The causes of action are said to reflect the company's failure to:

(a) establish, implement or maintain an AML/CFT programme;

(b) conduct customer due diligence as required by the AML/CFT Act;

(c) adequately monitor accounts and transactions; and

(d) keep records in accordance with the requirements of the AML/CFT.

[7] Mr Schoeman said in his affidavit that the recovery of any penalties is one reason for the Department commencing civil penalty proceedings, but the Department's primary motivation is to ensure that reporting entities generally are aware of, and comply with, their obligations under the AML/CFT. Mr Schoeman acknowledged that, even if the company were solvent, any civil penalty awarded would likely be at a level that the company could not meet. However, the Department considers that it must be seen to enforce the AML/CFT Act against non-compliant entities and to obtain civil penalties in an amount that makes it uneconomic for entities not to comply with the AML/CFT Act. The Department takes the view that that is particularly so where, as here, the company is alleged to have attempted to avoid liability by false and misleading conduct.

Section 329 of the Act

[8] Section 329 of the Act materially provides:

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 carrying on business or a proper reason existed for the company to continue in existence; or

...

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

(1A) In considering whether to restore a company to the register on the ground referred to in subsection (1)(a)(i) or (b), the court must have regard to the reasons for the company’s removal and whether those grounds existed at the time of removal or exist at the time of the hearing of the application.

(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.
[9] The Department relies for its standing to bring the proceeding on s 329(2)(c) of the Act, under which the Court may grant leave to any person to apply to have a removed company restored to the register.

Service

[10] All parties who may have an interest in the application have been served. The former sole director and shareholder of the company and the Registrar of Companies have both signed a form of consent to the application, and the Department has produced a letter written on behalf of the Secretary to the Treasury confirming receipt of the application and advising that the Secretary has no objection to the application.

Discussion and conclusions

[11] In my view, the application is similar to the application dealt with by Associate Judge Doogue in Re Hawke Equipment Ltd (struck off), Worksafe New Zealand v Registrar of Companies.¹ In that case, Hawke Equipment had been removed from the register for failing to file a return, and Worksafe New Zealand wished to proceed with a prosecution following the death of one of Hawke Equipment's employees at work. Charges had been laid before Hawke Equipment was removed from the register, and Worksafe was anxious to have it restored to the register so that the criminal proceeding against it could continue.

[12] The Associate Judge considered that restoring a company to the register so that it is available to meet criminal charges against it is a legitimate purpose for the exercise of the s 329 jurisdiction.² His Honour did not consider it possible or appropriate for a Court hearing an application for a restoration order to come to any conclusions on the financial worth of the removed company, and whether there would be any financial benefit arising if it were restored to the register. Those would be questions for the sentencing judge in the criminal proceeding.

1. Re Hawke Equipment Ltd (struck off), Worksafe New Zealand v Registrar of Companies [2015] NZHC 2350.

² At [7].

[13] The particular jurisdiction to restore the company to the register in this case is either under s 329(1)(a)(i) (at the time of its removal from the register, a proper reason existed for the company to continue in existence), or s 329(1)(b) (just and equitable to restore the company to the New Zealand Register). On either basis, the Court is required by s 329(1A) to have regard to the reasons for the company's removal, and whether those grounds existed at the time of removal or exist at the time of the hearing of the application. One of the grounds for removal from the register was that there was no proper reason for the company to continue in existence. In my view, that ground did not in fact exist at the time the company was removed from the register in May 2019. By 5 April 2019 the Department had concluded that the company was in breach of its obligations under the AML/CFT Act in various respects, and following the 5 April 2019 site visit the Department instructed its solicitors to commence a claim against the company. The company was removed from the register before the claim could be commenced. In those circumstances, the Department's claim had clearly been identified by the time the company was removed from the register, and on the principle accepted by Associate Judge Doogue in Re Hawke Equipment Ltd the need for the company to answer the Department's claims constituted a proper reason for it to continue in existence. That same "proper reason" still exists. For the same reason, I find that it was just and equitable for the company to have remained on the register in May 2019, and that that ground still subsists.

[14] Having regard to all of the foregoing factors, I grant leave to the Department under s 329(2)(c) to make the present application, and I make an order under s 329(1) restoring the company, MSI Group Ltd, to the New Zealand Register of Companies.

[15] The Department asked for costs. The application was not opposed, and the utility of the restoration to the register seems unlikely to be known until the Department's claims under the AML/CFT Act have been heard and determined. In those circumstances I reserve the issue of costs, to be dealt with when the issue of costs is dealt with in the Department's proceeding under the AML/CFT Act.

[16] Finally, I have raised with Ms Smith the question of whether there may be a need for any non-publication orders, having regard to the provisions of the AML/CFT Act, and the existence of a proceeding already commenced under that Act. Ms Smith
indicated that she did not think there were any issues that might require a non-publication or similar order, but that indication was given before I delivered this judgment. In case there are any issues relating to the publication of facts or names in this judgment that ought to be suppressed having regard to the provisions of the AML/CFT Act and/or any orders made in the existing proceeding under the AML/CFT Act in which the company has been named as a party, I direct that there is to be no publication of this judgment before 12 midday on Monday 21 October 2019. If counsel perceives that there may be some issue requiring an extension of that order, a memorandum should be filed promptly on Monday morning 21 October, with a request that it be drawn to my attention immediately.

Associate Judge Smith

Postscript: For the avoidance of any doubt, I add that if any matters are raised with the Court by counsel under paragraph [16] above before midday on 21 October 2019, the interim non-publication order made above may then be extended to the extent and for the period that the interests of justice may require.