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Court of Appeal of New Zealand |
Last Updated: 27 March 2014
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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
RICHINA GLOBAL REAL ESTATE LIMITED (IN LIQUIDATION)
Second Respondent |
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Hearing: |
11 March 2014 |
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Court: |
Ellen France, French and Cooper JJ |
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Counsel: |
D J Chisholm QC and T P Mullins for Appellant
Z G Kennedy and M D Pascariu for Respondents |
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Judgment: |
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 MayoSmith 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) preventing steps being taken in the liquidation. The application is made on the basis Mr Yan will provide an undertaking in the terms formulated in the High Court or as this Court sees fit to prevent the disposal of assets. In support of the application, the appellant says that the Judge was wrong to conclude that there was no jurisdiction to order a stay. Mr Chisholm QC on behalf of Mr Yan submits that even if there was no jurisdiction under r 12(3)(a), this Court could make an order under r 12(3)(b).
[18] The application for a stay is advanced on the basis that Mr Yan’s appeal would be otherwise rendered nugatory. The principal concern is said to arise from the fact that the BDO liquidators are also the liquidators for the other companies within the group and so will be involved as liquidators for the other companies in opposition to the challenge to the orders for contribution from RGREL. As liquidators they will have access to RGREL’s documents and staff. Further, the liquidators could seek to recover intercompany debts not otherwise due and owing. In the context where the proposed appeal is said to raise an important and novel question of law, the submission is that a stay should have been granted.
[19] In terms of other factors relevant to the balance of convenience, it is noted that RGREL is a holding company with no bank account. It is not trading. Relief is sought on the basis of an undertaking that preserves the status quo and Mr Yan has undertaken to pay the sole undisputed external debt of RGREL to Mainzeal, namely, the sum of $289,923.67.[11]
[20] The respondents maintain that there is no jurisdiction to make an order under r 12(3) of the Court of Appeal (Civil) Rules. Mr Kennedy for the respondents submits that in a liquidation the relevant remedies are provided for via s 284 of the Companies Act which sets out the powers of the court in the supervision of a liquidation. It is further submitted that the usual considerations applicable to an application for a stay do not favour that outcome.
Our assessment
[21] In the written submissions, there was a considerable focus on the question of jurisdiction. However, by the time of the hearing before us Mr Kennedy accepted, on the basis of the authorities, that there was jurisdiction to make an interim order under r 12(3)(b) even where the relevant order was non-executory and so not amenable to an order for a stay under r 12(3)(a).
[22] That was the approach taken by Wild J in Diver v Loktronic Industries Ltd.[12] Loktronic sought a stay from this Court pending an application for leave to appeal to the Supreme Court. The basis for the stay application was that a successful appeal to the Supreme Court would have the effect of reinstating the basis for Loktronic’s bankruptcy proceeding against Mr Diver. This Court on appeal had set aside the judgment of the High Court in relation to Mr Diver. The setting aside took affect upon delivery of the judgment.[13] Accordingly, Wild J noted that as those parts of the judgment did not require execution there was nothing capable of being stayed under the Rules. Wild J considered that what Loktronic really sought were orders by way of interim relief and interim orders were granted pending determination of the application for leave to appeal to the Supreme Court. This approach is supported by the change in wording in the 2005 Rules which allows the Court to grant “any interim relief”. The predecessor to r 12(3)(b) provided for the Court to grant “other interim relief”.[14]
[23] We do not accept Mr Kennedy’s broader submission, adopted by Brown J, that the only source of a remedy in this situation is s 284 of the Companies Act. On the face of s 284, in particular, and pt 16, more generally, it is not apparent that the Companies Act intended to exclude the jurisdiction to grant orders by way of interim relief under r 12(3)(b).[15] Further, the policy considerations do not require an outcome that displaces r 12(3)(b). We add that it appears that the argument from the parties on jurisdiction has shifted from that before Brown J because his Honour dealt with the prospects of interim relief, as opposed to a stay, only briefly. We understand, for example, that Diver v Loktronic was not cited in the High Court.
[24] We do not have to finally resolve the question of whether there is jurisdiction to make an interim order under r 12(3)(b) because, assuming that rule applied, we would dismiss the application on its merits.
Should interim relief be granted?
[25] It is helpful to address this by considering the criteria applicable to a stay. The factors to be taken into account include:[16]
(a) whether the appeal may be rendered nugatory by the lack of a stay;
(b) the bona fides of the applicant as to the prosecution of the appeal;
(c) whether the successful party will be injuriously affected by the stay;
(d) the effect on third parties;
(e) the novelty and importance of questions involved;
(f) the public interest in the proceeding;
(g) the overall balance of convenience; and
(h) the apparent strength of the appeal.
[26] We deal with each of these factors in turn. As to the impact on the appeal, as the respondents point out, Mr Yan’s evidence is that RGREL is a holding company with no bank account. On this basis, there would be no assets that the liquidators could realise pending the appeal. Accordingly, if the liquidator’s appointment by the High Court is set aside on appeal, control of RGREL will simply be returned to Mr Yan. On this analysis, it is difficult to see how the right of appeal is rendered nugatory if interim relief is not granted.
[27] Mr Yan’s real concern, as we apprehend it, must be directed to the provision of RGREL’s information to the liquidators because of the perceived conflict of interest given the application to set aside the pooling order. Any concern about a possible compromise of that application has been addressed by the order made by Brown J under s 284. Two points can be made about this aspect.
[28] First, there are other avenues for the appellant to protect his interests in this respect. It is open to Mr Yan to seek to have the liquidators replaced under s 286(4). Further, the challenge to the provision of information is susceptible to relief under s 284(1). We acknowledge that the appellant will need the leave of the court under that provision and that the types of orders made under that section in the past have been different in kind.[17] However, to stop the liquidation altogether in the context of the present proceeding to protect these concerns would be an unduly blunt response given that other, more tailored, remedies are available. Brown J did not consider that any other orders under s 284 were required at this point.
[29] Secondly, while the appellant disputes the liquidators’ claims as to the extent of the interrelationship between the Mainzeal group of companies, we do not consider we can ignore the broader context. Namely, the desirability of the liquidators ascertaining the causes of failure of the wider Mainzeal group which owes its creditors in excess of $100 million. In giving weight to this aspect, we have not ignored the fact that Mr Yan has made payment of the undisputed part of the debt and is prepared to undertake not to deal with any assets in the interim.
[30] These sorts of concerns appear to underlie the cautious approach to the grant of a stay of a liquidation in the United Kingdom. In Re A & BC Chewing Gum Ltd, Plowman J noted that there was jurisdiction to grant a stay because the applicable Act specifically provided for that.[18] However, Plowman J stated:[19]
[T]here are very good reasons for the practice of never ordering a stay, and they are these: as soon as a winding up order has been made the Official Receiver has to ascertain first of all the assets at the date of the order; secondly, the assets at the date of the presentation of the petition ...; and thirdly, the liabilities of the company at the date of the order, so that he can find out who the preferential creditors are, and also the unsecured creditors.
Supposing there is an appeal and the winding up order is ultimately affirmed by the Court of Appeal, and there has been a stay, his ability to discover all these things is very seriously hampered: it makes it very difficult for him, possibly a year later, to ascertain what the position was at different times a year previously.
[31] Subsequently, in Credit Lucky Ltd v National Crime Agency (formerly the Serious Organised Crime Agency), Barling J made the point that there was no merit in the proposition that the court should not grant a stay of a winding up just because it was not the practice of the court to do so on the ground that an appeal is pending in another court.[20] Where the jurisdiction exists, Barling J said, it must be exercised judicially without reference to any fettering as a result of past practice. Nonetheless, in that case, the Judge refused to grant a stay. The Judge considered a stay would be disproportionate in the circumstances and would “hinder if not totally obstruct” the liquidator’s investigation with “inevitable delay in the process”.[21]
[32] In Australia, as Brown J observed, the approach seems to be similar. That is, that there is a discretion to grant a stay but it should be sparingly exercised.[22]
[33] The broader context is also relevant to the impact of interim relief on the successful party and, potentially, to the impact on third parties and to the public interest.
[34] As to the bona fides of the conduct of the appeal, Mr Yan has said he will progress the appeal expeditiously. Further, Brown J considered the points raised on appeal were important but not novel. We are content to deal with the matter on the basis that these two factors favour interim relief.
[35] Finally, we see the balance of convenience as not favouring interim relief. That is essentially because of the availability of other remedies and the broader public interest.
[36] We reach a different view on this from that of Brown J who, as we have noted, would have ordered a stay if there was jurisdiction to do so. However, his consideration of the factors relating to the grant of stay did not take into account the order he made to protect the pooling order application.[23] When the matter is looked at overall, while some of the factors favour interim relief, they are outweighed by other factors, particularly the appellant’s ability to seek a more tailored remedy and the broader public interest.
Result
[37] In the circumstances, we decline to make an order for relief under r 12(3).
[38] The appellant must pay the respondents costs calculated as for a standard application on a band A basis and usual disbursements.
Solicitors:
Lee Salmon
Long, Auckland for Appellant
Minter Ellison Rudd Watts, Auckland for
Respondents
APPENDIX
[1] Mainzeal Property and Construction Ltd (in rec and in liq) v Richina Global Real Estate Ltd [2014] NZHC 277 [Mainzeal v RGREL].
[2] Mainzeal Property and Construction Ltd (in re and in liq) v Richina Global Real Estate Ltd [2014] NZHC 387 [stay judgment].
[3] Bethell v Mainzeal Property and Construction Ltd (in rec and in liq) [2013] NZHC 1556.
[4] Mainzeal v RGREL, above n 1, at [7]; and see Bethell v Mainzeal, above n 3, at [4]–[6].
[5] Mainzeal v RGREL, above n 1, at [38].
[6] The hearing of the proceedings against Isola and RGREL proceeded on the basis that reliance could be placed on the evidence filed in those proceedings but also that in the pooling proceeding: Mainzeal v RGREL, above n 1, at [5].
[7] Mainzeal v RGREL, above n 1, at [4].
[8] At [30].
[9] At [48] (footnote omitted).
[10] Stay judgment, above n 2, at [12].
[11] Mr Chisholm advised that this sum had been paid into the solicitors’ trust account and would be paid on 12 March 2014. The $289,923.67 figure is half of the sum owed to the BNZ as a result of the foreign exchange losses.
[12] Diver v Loktronic Industries Ltd [2012] NZCA 272, (2012) 21 PRNZ 254.
[13] Court of Appeal (Civil) Rules 2005, r 52(1).
[14] Court of Appeal (Civil) Rules 1997, r 9(1); and see Wilfred v Gan [2013] NZCA 285 at [33].
[15] There was an express power to stay “all proceedings in relation to” winding-up orders on the application of specified persons in s 250 of the Companies Act 1955 modelled on s 256 of the Companies Act 148 (UK) referred to in n 18, below.
[16] Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17 at [11] citing Dymocks Franchise Systems (NSW) Pty Ltd v Bilgoa Enterprises Ltd (1999) 13 PRNZ 48 (HC) at [9] and Body Corporate No 188529 v North Shore City Council (No 6) HC Auckland CIV20044043230, 11 February 2009.
[17] See, for example, the commentary on s 284 in Paul Heath and Michael Whale (eds) Heath and Whale on Insolvency (online looseleaf ed, LexisNexis) at [22.8]; and Billie J Little (ed) Brookers Insolvency Law & Practice (online looseleaf ed, Thomson Reuters) at [CA284.01]–[CA284.09].
[18] Re A & BC Chewing Gum Ltd [1975] 1 WLR 579 (Ch) at 592; the relevant provision was then s 256 of the Companies Act 1948 (UK) and is now s 147 of the Insolvency Act 1986 (UK).
[19] At 592–593.
[20] Credit Lucky Ltd v National Crime Agency (formerly the Serious Organised Crime Agency) [2014] EWHC 83 (Ch) at [60].
[21] At [67].
[22] See, for example, Arafura Finance Corp Pty Ltd v Kooba Pty Ltd (No 2) (1987) 12 ACLR 331 (NTSC) at 334.
[23] For this reason, he placed weight on the impact on appeal rights and on the effect on the successful party.
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