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Court of Appeal of New Zealand |
Last Updated: 29 January 2018
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IN THE COURT OF APPEAL OF NEW ZEALAND
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BETWEEN
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Appellant |
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AND
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First Respondent |
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Second Respondents |
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Third Respondents |
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Fourth Respondents |
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Fifth Respondent |
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Sixth Respondent |
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Court: |
Randerson, Wild and French JJ |
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Counsel: |
P W O'Regan and S M Kinsler for Appellant
G Brittain for First to Fourth Respondents
No appearance for Fifth and Sixth Respondents
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(On the papers) |
JUDGMENT OF THE COURT
(a) an order under s 284(1)(b) of the Companies Act 1993 reversing the liquidators’ final report dated 29 January 2010; and
(b) an order under s 329 of the Companies Act 1993 restoring Mount Lifestyles Ltd to the Companies Register.
____________________________________________________________________
REASONS OF THE COURT
(Given by French J)
Introduction
[1] The Registrar of Companies (the Registrar) appeals a decision of Associate Judge Doogue.[1]
[2] The decision concerned a company that had been removed from the Companies Register in 2010 following completion of a voluntary liquidation. Associate Judge Doogue made orders restoring the company to the Register and appointing a new liquidator.
[3] The Registrar supports restoration of the company in liquidation, but says the way in which the Associate Judge effected the restoration is highly problematic. In particular, the Registrar says that the Judge was wrong to refuse to make an order under s 284(1)(b) of the Companies Act 1993 (the Act) reversing the original liquidators’ final report. In the Registrar’s submission, such an order was the only way back into liquidation.
[4] The key issue raised by the appeal is whether the power under s 284(1)(b) is limited to situations where the actions of a liquidator are wrong or unreasonable.
[5] The first to fourth respondents support the Registrar’s submissions and otherwise abide the decision of the Court. The fifth respondent is taking no active steps in the appeal.[2] The sixth respondent abides the decision of the Court, does not intend to take steps and does not wish to be represented in argument.
[6] Counsel for the appellant and counsel for the first to fourth respondents agreed that an amicus need not be appointed and that the matter could be dealt with on the papers. We are satisfied that is the appropriate course.
Background
[7] The first to fourth respondents own a leaky building (the owners). They want to bring a claim against the developer, Mount Lifestyles Ltd, so as to be able to access warranties that the builder, Mainzeal Property and Construction Ltd, gave to Mount Lifestyles. Mount Lifestyles was put into voluntary liquidation on 24 September 2009. The liquidators appointed were Kenneth Peter Brown and Thomas Lee Rodewald (the original liquidators). They filed their final report on 29 January 2010 and the company was removed from the Register shortly thereafter.
[8] The owners can only proceed with their claim if Mount Lifestyles is restored to the Register.
[9] The owners applied to the High Court for an order restoring Mount Lifestyles to the Register and for it to be put back into liquidation. The application was opposed by Mount Lifestyle’s former director Mr Rogers. While Mr Rogers was agreeable to the company being restored to the Register, he did not want it restored in liquidation but rather subject once more to his control as director.
[10] The application was heard by Associate Judge Doogue. Section 329(1)(b) of the Act empowers the court to order restoration if satisfied that it would be just and equitable to do so. The Judge found that it was just for Mount Lifestyles to be restored to the Register and made the following orders:[3]
- (a) an order under s 329 restoring Mount Lifestyles to the Register;
- (b) an order pursuant to s 241(4)(d) appointing Anthony Charles Harris liquidator of Mount Lifestyles; and
- (c) an order under s 248 granting leave to the owners to commence a proceeding in the High Court against Mount Lifestyles.
[11] The plaintiffs in the High Court had also sought an order under s 284(1)(b) of the Act reversing the liquidators’ final report. This would have had the effect of reinstating the original liquidators. However, the Associate Judge declined to make such an order. The Judge took the view, following Trinity Foundation (Services No 1) Ltd v Downey, that the jurisdiction under s 284 should only be exercised in situations where the actions of a liquidator are wrong or unreasonable.[4] And that was not the case here. The original liquidators had not acted unreasonably or wrongly in filing the final report. The need for a claim against the company in order to access the warranties had not been foreseeable. On the other hand, the Judge was not prepared to acquiesce to Mr Rogers’ request that the company be restored to his control. Mr Rogers had a potential conflict of interest and if he was in charge the owners might not receive the cooperation they needed in order to be able to access the warranties. It was therefore desirable for the company to be under the control of an independent liquidator. In the Judge’s view, the appropriate course of action was for the Court to appoint a new liquidator under s 241(4)(d) on the basis that it was just and equitable that the company be put into liquidation.
[12] The Registrar says the Judge’s orders create significant legal and practical difficulties. He submits that the only way back into liquidation for Mount Lifestyles was through restoration and reversal of the final report. He further submits that the power to reverse the final report was available to the Judge, notwithstanding that on the facts the original liquidators had done nothing wrong in completing the liquidation.
[13] Unfortunately the difficulties the Registrar has identified in this Court were never drawn to the attention of the Associate Judge. The Registrar did not take an active part in the High Court hearing but elected to abide the decision of the Court. In making that election, the Registrar overlooked that one of the orders the plaintiffs in the High Court were seeking was an order under s 241 appointing new liquidators.
Analysis
[14] The process of liquidation begins with the appointment of a named person or an Official Assignee as liquidator.[5] One of the ways the liquidation comes to an end or is completed is when the liquidator provides his or her final report to the Registrar together with certain other specified documentation.[6] On the filing of the final report and the other documentation, the liquidator is discharged from office[7] and the Registrar is required to remove the company from the Register.[8] Pending removal from the Register, the status of the company is that it is no longer in liquidation but is awaiting removal.[9]
[15] As Associate Judge Doogue recognised, the fact the company is not in liquidation at the point of removal means that a restoration order on its own will not result in the restored company automatically resuming its former status as a company in liquidation. The restoration order must be accompanied by other orders to achieve that result if it is considered desirable, as it was in this case.
[16] Under s 284(1)(b), the court has the power to reverse an act or decision of the liquidator on the application of a prospective creditor (such as the owners in this case). The power may be exercised after a company has been removed from the Register.[10] The filing of a final report is an act of the liquidator and therefore the reversing of a final report is within the scope of the s 284 power. As noted in Re Ocean Shipping Ltd, reversing the filing of a final report has the effect of abrogating the completion of the liquidation. Thus, the combined effect of a restoration and a reversal order is that the company is restored to the Register still in liquidation and the former liquidator resumes office. The liquidation is reinstated.
[17] In this case, the Associate Judge did not reverse the final report, which meant the original liquidation remained completed. Instead he appointed a new liquidator under s 241. On the face of it, that course of action would appear to be authorised by s 241(2)(c)(viii), which empowers the court to put a company that has been removed from the Register into liquidation on restoration. However, we agree with the Registrar that this power does not apply to a company that has already been liquidated prior to its removal. Otherwise, the company would effectively be put into liquidation twice – once before removal and once after restoration.
[18] Such a result is unprecedented and problematic for a number of reasons.
[19] First, as already mentioned, the Registrar is under a statutory obligation to remove a company once a final report has been filed and the last date for objections to removal has expired. The predicament for the Registrar is that technically he would now appear to be required to remove Mount Lifestyles once again.
[20] Secondly, the scheme of the Act is that liquidation is something that can only happen once because of its terminal consequences for the company. Two separate liquidations means two separate commencement dates for the liquidations and consequently two separate voidable transaction periods. There would also be two separate limitation periods for proceedings to be brought by the respective liquidators in the company’s name. Issues would also arise about the status of creditors and the right to prove in the second liquidation, with all that might entail for the equal treatment (pari passu) rule.
[21] All of these difficulties would have been avoided had the Associate Judge followed the approach of Fisher J in Ocean Shipping and ordered reversal of the final report under s 284(1)(b).
[22] Section 284 is headed “Court supervision of liquidation” and contains a series of powers of which the s 284(1)(b) power to confirm, reverse or modify an act of the liquidator is but one. The other powers include the power to issue directions, order an audit of the accounts of the liquidation, fix the remuneration of the liquidator, and declare whether the liquidator was validly appointed. The powers may be exercised on application of the liquidator, a liquidation committee or, with the leave of the court, a creditor, shareholder, other entitled person or director.
[23] The reason the Associate Judge declined to invoke s 284 was because he did not consider it "justified to unwind the liquidation under a section of the Companies Act headed ‘Court supervision of liquidation’, so that the liquidators [could] be reinstated for the convenience of one of the parties".[11] It is clear the Judge felt constrained by authorities to the effect that relief should only be granted under s 284 if the decisions of the liquidator in issue can be shown to have been wrong or unreasonable. That approach was applied by this Court (in the absence of any argument to the contrary) in Trinity Foundation (Services No 1) Ltd v Downey and described by Venning J in Mulholland v Levin as “a relatively settled” principle.[12]
[24] However, in our view, those authorities do not preclude the use of s 284 in the unusual circumstances of this case. They are distinguishable, involving as they do allegations about the performance of a liquidator, for example that he or she has rejected a proof of debt or failed to identify an asset. It is in that very different context that a “wrong and unreasonable” test has been articulated, borne out of concerns that liquidators should be protected from undue interference in the exercise of their functions.
[25] Those cases did not address a situation like the present one and there is nothing in the wording of s 284 itself that prevents its application in the present situation. We agree with the Registrar that a distinction can properly be drawn between reviewing the exercise of a liquidator’s judgment or discretion, where a “wrong or unreasonable” test is appropriate, and the mechanical performance by a liquidator of one of his or her statutory functions.
[26] In our view, the Associate Judge erred in declining to invoke his powers under s 284 to reverse the final report. Correctly analysed, the use of the power in the circumstances of this case can simply be seen as a necessary step in realising the just outcome (as found by the Associate Judge) of restoring the company to the Register. It is not necessary to establish that the original liquidators were at fault.
Outcome
[27] The appeal is allowed.
[28] The orders of the High Court made at paragraph [40(a)] and [40(b)] of the judgment are quashed and replaced with the following orders:
- (a) an order under s 284(1)(b) of the Companies Act 1993 reversing the liquidators’ final report dated 29 January 2010; and
- (b) an order under s 329 of the Companies Act 1993 restoring Mount Lifestyles Ltd to the Register.
[29] All other orders made by the High Court Judge are confirmed.
[30] The effect of the replacement orders is that Mount Lifestyles will still be restored to the Register and will still be in liquidation. The only difference will be that the original liquidation will have resumed. To make this work administratively, the Registrar has secured the agreement of the original liquidators to resign and to appoint Mr Harris (the liquidator appointed by the Associate Judge) as their successor under s 283(2) of the Act.
[31] There will be no order as to costs.
Solicitors:
Crown Law Office,
Wellington for Appellant
Holland Beckett, Tauranga for First to Fourth
Respondents
[1] Body Corporate 307730 v Registrar of Companies [2012] NZHC 3085.
[2] The Secretary to the Treasury only appears in his capacity as the administrator of ownerless property.
[3] At [40].
[4] Trinity Foundation (Services No 1) Ltd v Downey [2006] NZCA 310; (2006) 3 NZCCLR 401 (CA).
[5] Companies Act 1993, s 241(5).
[6] Companies Act, s 249(a).
[7] Companies Act, s 279.
[8] Companies Act, s 318(1)(e).
[9] Re Ocean Shipping Ltd HC Auckland M348/96, 16 July 1996 at 2.
[10] Companies Act, s 284(2).
[11] Body Corporate 307730 v Registrar of Companies, above n 1, at [21].
[12] Mulholland v Levin [2012] NZHC 1790 at [23].
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