Olliver v Deputy Registrar of Companies [2024] NZCA 173 (22 May 2024)

Last Updated: 27 May 2024

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA438/2023 [2024] NZCA 173

	BETWEEN	GREGORY MARTIN OLLIVER Appellant
	AND	DEPUTY REGISTRAR OF COMPANIES Respondent

Hearing:	12 March 2024
Court:	French, Palmer and Cooke JJ
Counsel:	P R W Chisnall and E J Watt for Appellant S P R Conway and C D Fuller for Respondent
Judgment:	22 May 2024 at 3 pm

JUDGMENT OF THE COURT

1. The appeal is dismissed.
2. The cross-appeal is allowed.

100. The orders of the High Court are confirmed.

4. The respondent is entitled to costs for a standard appeal and cross-appeal on a band A basis together with usual disbursements. We certify for two counsel.

____________________________________________________________________

REASONS OF THE COURT

(Given by Cooke J)

Table of Contents

Para No
Factual background [3]
Requirements of s 385 [18]
Relevant context [29]
Form of JGC contract [33]
Assessment [35]
Removal of caveats [44]
Assessment [48]
Cross-appeal: legal advice on caveat removal [59]
Assessment [63]
The discretion [69]
Assessment [72]
Conclusion [77]
Result [81]

• [1] The appellant, Mr Gregory Olliver, appeals from a decision of the High Court upholding the decision of the Deputy Registrar of Companies (the Registrar) prohibiting him from being a director or promoter of a company, or being concerned and/or taking part, whether directly or indirectly, in the management of a company under s 385(3) of the Companies Act 1993 (the Act).^[1] The Registrar had earlier prohibited Mr Olliver under s 385(3) from being a director or being involved in the management of a company for a term of four years, but the High Court substituted a period of three years in light of errors it identified in the Registrar’s decision.^[2] On appeal Mr Olliver contends that the High Court erred in reaching its conclusions, and that the finding he engaged in conduct falling within s 385 should be overturned. Alternatively, he argues that the period of prohibition should be reduced.
• [2] The Registrar challenges one aspect of the findings of the High Court by way of cross-appeal, and contends that the period of prohibition ought to be either increased or upheld depending on the outcome of the cross-appeal.

Factual background

• [3] Most of the background facts are not in dispute and are set out in the High Court judgment,^[3] although the High Court held that the Registrar had made some factual errors.
• [4] The background involves a subdivision proposal that Mr Olliver and his former spouse, Ms Sparks, had developed. Beginning in the 2000s, Mr Olliver and Ms Sparks purchased a number of properties in Waimarie Street, Saint Heliers, Auckland through related entities. In 2009, bankruptcy proceedings were brought against Mr Olliver. Mr Olliver and Ms Sparks then took steps to avoid the adverse effects of bankruptcy on the development. They created a joint venture between a trust controlled by Ms Sparks and a trust controlled by Mr Olliver. As part of that joint venture, a company, CIT Holdings Ltd (CIT) purchased the Waimarie properties in two tranches in early 2009. CIT’s purchases were largely funded by BNZ.
• [5] Unfortunately, the relationship between Mr Olliver and Ms Sparks deteriorated. This is reflected in steps that were then taken. Mr Olliver ceased to be a director of CIT from February 2009. Ms Sparks and a third party remained as directors of CIT,^[4] and in 2011 the second tranche of properties was transferred to another trust controlled by Ms Sparks without Mr Olliver’s consent. This was inconsistent with the joint venture between them. Mr Olliver then brought proceedings against Ms Sparks. The Court subsequently held that CIT was entitled to have the second tranche of properties transferred back to it.^[5] At that stage, Ms Sparks, through her trust, placed caveats on CIT’s titles over the Waimarie properties.
• [6] By this stage, the parties were at an impasse. Mr Olliver then developed the plan that has led to the action taken by the Registrar. That plan involved the use of a new entity, BBG Holdings Ltd (BBG). Mr Olliver was the sole shareholder of BBG through another trust. He was also its sole director. It had earlier been incorporated in 1998, but was undertaking no active business. It was employed by Mr Olliver to take steps in relation to the subdivision project described below.
• [7] On 19 June 2014, BBG entered into a sale and purchase agreement with CIT for seven of the Waimarie properties for the total consideration of $5,813,500. That contract was conditional on:

(a) CIT procuring the withdrawal of the caveats lodged by Ms Sparks’ trust, as well as a caveat lodged by Bank of New Zealand (BNZ); and

(b) an agreement between CIT and Mr Olliver (or another party acceptable to BBG) to purchase three other Waimarie properties.

• [8] On 1 July 2014, CIT then applied to the High Court to remove the caveats lodged on behalf of Ms Sparks. The High Court dismissed the application.^[6] The judgment records that by this time CIT owed BNZ over $10 million, and other creditors a further sum of approximately $4 million.^[7] The properties were said to be worth approximately $10.57 million.^[8]
• [9] In the meantime, in the period between June and December 2014, Mr Olliver had pursued his plan. In July 2014, BBG engaged JG Civil Ltd (JGC) to undertake work to physically clear the site for the purposes of the planned subdivision. This involved all of the properties and not just the seven subject to the conditional sale and purchase agreement.
• [10] JGC provided a schedule of prices entitled “Enabling Works site clearing” with a total indicated price of $134,775, which was attached to the notes of a meeting held on 10 July 2014. On 31 July, however, JGC issued a first invoice to BBG for $206,605.38 (including GST) for work until 28 July. BBG was assisted by Woods and Partners Consultants Ltd (Woods and Partners), an engineering and project management firm. On 1 August, BBG’s accountant issued an invoice to CIT re‑charging the amount of the JGC invoice, and, on 8 August, a certificate for payment of that invoice by BBG was signed by Woods and Partners.
• [11] There was an on-site meeting after the first invoice and concerns were expressed by Mr Olliver. On 18 August, Woods and Partners then produced a detailed ten-page schedule estimating the overall costs of the subdivision development. The total cost figure was $2,097,680, although that was subsequently revised downwards to $1,845,680. Prior to that time, Woods and Partners had only provided an estimate of the overall costs at $1,000,000.
• [12] On 31 August 2014, JGC issued a second invoice for $619,406.68 (including GST). This again was reinvoiced to CIT.
• [13] In September, Mr Olliver then met with Mr Dryland of Woods and Partners, and there was a subsequent detailed email exchange between them. Mr Olliver complained about the higher detailed costs estimate given the original estimate that had been provided. On 18 September, Mr Dryland sent an updated schedule. Mr Olliver replied that from his perspective “it [had] become uneconomic” and he suggested they meet to go through the costs estimate.
• [14] JGC remained unpaid, and it issued a statutory demand soon thereafter for the sum of $836,012.06. There were then exchanges where the absence of any formal contract between JGC and BBG was raised by BBG’s solicitors. It would appear that work ceased at the site from about this time. The High Court released its decision declining CIT’s application to remove the caveats in early December 2014.^[9] In substance, this meant Mr Olliver’s plan to rescue the subdivision project involving BBG had failed.
• [15] In March 2016, CIT was placed into liquidation. BBG then made a claim in CIT’s liquidation relating to the amounts that it had invoiced for JGC’s work. On 4 September 2019, BBG was placed into liquidation with outstanding debts to JGC ($836,012.06) and the Inland Revenue Department (IRD) ($32,354.61).
• [16] In October 2020, CIT’s liquidators formally rejected BBG’s claim in CIT’s liquidation. That decision was set aside by the High Court on the basis that it could be inferred that CIT had agreed to pay for earthworks that BBG had conducted on its behalf.^[10]
• [17] Notice was given by the Registrar under s 385(5) in February 2021 of an investigation into alleged mismanagement of BBG. Later in October 2021, Mr Olliver’s trust then entered into an agreement with JGC under which JGC received $138,000 to assign JGC’s claims against BBG (in liq) to the trust. The trust ultimately received $222,418.25 in BBG’s liquidation on the basis of JGC’s claims.

Requirements of s 385

• [18] Before turning to the arguments advanced by the parties, we first address the requirements of s 385 of the Act. The section provides:

385 Registrar or FMA may prohibit persons from managing companies

(1) This section applies in relation to a company—

(a) that has been put into liquidation because of its inability to pay its debts as and when they became due:

(b) that has ceased to carry on business because of its inability to pay its debts as and when they became due:

(c) in respect of which execution is returned unsatisfied in whole or in part:

(d) in respect of the property of which a receiver, or a receiver and manager, has been appointed by a court or pursuant to the powers contained in an instrument, whether or not the appointment has been terminated:

(e) in respect of which, or the property of which, a person has been appointed as a receiver and manager, or a judicial manager, or a statutory manager, or as a manager, or to exercise control, under or pursuant to any enactment, whether or not the appointment has been terminated:

(f) that has entered into a compromise or arrangement with its creditors:

(g) that is in voluntary administration under Part 15A.

(2) This section also applies in relation to a company the liquidation of which has been completed whether or not the company has been removed from the New Zealand register.

(3) The Registrar or the FMA may, by notice in writing given to a person, prohibit that person from being a director or promoter of a company, or being concerned in, or taking part, whether directly or indirectly, in the management of, a company during such period not exceeding 10 years after the date of the notice as is specified in the notice. Every notice shall be published in the Gazette.

(4) The power conferred by subsection (3) may be exercised in relation to—

(a) any person who the Registrar or the FMA is satisfied was, within a period of 5 years before a notice was given to that person under subsection (5) (whether that period commenced before or after the commencement of this section), a director of, or concerned in, or a person who took part in, the management of, a company in relation to which this section applies if the Registrar or the FMA is also satisfied that the manner in which the affairs of it were managed was wholly or partly responsible for the company being a company in relation to which this section applies; or

(b) any person who the Registrar or the FMA is satisfied was, within a period of 5 years before a notice was given to that person under subsection (5) (whether that period commenced before or after the commencement of this section), a director of, or concerned in, or a person who took part in, the management of, 2 or more companies to which this section applies, unless that person satisfies the Registrar or the FMA—

(i) that the manner in which the affairs of all, or all but one, of those companies were managed was not wholly or partly responsible for them being companies in relation to which this section applies; or

(ii) that it would not be just or equitable for the power to be exercised.

(5) The Registrar or the FMA must not exercise the power conferred by subsection (3) unless—

(a) not less than 10 working days’ notice of the fact that the Registrar or the FMA intends to consider the exercise of it is given to the person; and

(b) the Registrar or the FMA considers any representations made by the person.

(6) No person to whom a notice under subsection (3) applies shall be a director or promoter of a company, or be concerned or take part (whether directly or indirectly) in the management of a company.

(7) Where a person to whom the Registrar or the FMA has issued a notice under subsection (3) appeals against the issue of the notice under this Act or otherwise seeks judicial review of the notice, the notice remains in full force and effect pending the determination of the appeal or review, as the case may be.

(8) The Registrar or the FMA may, by notice in writing to a person to whom a notice under subsection (3) has been given,—

(a) revoke that notice; or

(b) exempt that person from the notice in relation to a specified company or companies.

Every such notice shall be published in the Gazette.

(9) Every person to whom a notice under subsection (3) is given who fails to comply with the notice commits an offence and is liable on conviction to the penalties set out in section 373(4).

(10) In this section, company includes an overseas company that carries on business in New Zealand.

• [19] Section 385 re-enacted a provision that had first been inserted into the Companies Act 1955 following the 1987 share-market crash.^[11] When introducing the amendment, the Minister of Justice, the Hon Geoffrey Palmer said:^[12]

It has become more apparent, particularly since the sharemarket crash of last year, that there are persons who have been directors who have demonstrated that they are not fit and proper persons to be involved in the management of companies. There is growing public concern about persons who use the benefits of limited-liability companies to wheel and deal for their own benefit, leaving behind unpaid creditors, and companies in financial difficulties. The Companies Act already contains the power for the court to prohibit persons from being involved in the management of companies on the ground, amongst other grounds, of reckless management. There is a need for a speedier and more efficient means of dealing with the problem.

Clause 50 inserts a new s 189A in the Companies Act 1955. The scheme of the new section 189A is that the Registrar of Companies can issue a notice to a person prohibiting that person from managing companies for a specified period not exceeding 5 years. The registrar’s decision to issue a notice must first be confirmed by the Securities Commission after it has considered the information in the registrar’s possession and any representation made to the registrar by the person concerned. The circumstances in which the notice can be issued are, in effect, that a company is in financial difficulties, that those financial difficulties are attributable to mismanagement, and that the person concerned is an officer of the company. The person concerned bears the onus of satisfying the registrar and the Securities Commission that he or she was not responsible for the mismanagement that caused the company’s financial difficulties.

• [20] When the Law Commission conducted its review of the Companies Act, it recommended that this provision should be repealed. The Commission said:^[13]

Although this is a recent amendment, we are of the view that it is unacceptably severe and that the power for the Registrar to make application to the Court provides ample protection for the public interest.

• [21] However, when the Companies Bill 1990 was introduced, the Bill proposed a provision along the lines of the initial provision be retained.^[14] When this came before the Justice and Law Reform Committee, the Committee recommended a change to the proposed legislation to provide the Registrar of Companies with an additional discretion to prohibit a person from being a director who had been involved with two or more companies that had failed, foreshadowing what is now s 385(4)(b).^[15] The legislative materials suggest it was decided that the continued existence of such a provision struck a balance between rules that facilitated business and the protection of the public.^[16] The section was included in the Act when it was enacted in 1993.^[17]
• [22] The present case involves an application under s 385(4)(a) — it was not contended that Mr Olliver was involved in the arrangement of other insolvent companies s 385(4)(b). Section 385(4)(a) has the following material elements:

(a) that BBG was a company of the kind referred to in s 385(1) — essentially that it had committed an act of insolvency; and

(b) that the way in which the affairs of BBG were managed wholly or partly caused its insolvency.

• [23] When those elements are satisfied, the Registrar may exercise the power to prohibit persons involved in the management from being involved as a director, promoter or manager of a company for a period not exceeding 10 years under s 385(3).
• [24] The decisions of the Registrar and High Court include, as a significant part of the analysis, assessments of whether Mr Olliver breached the directors’ duties under the Act, such as the duties under ss 131, 135 and 136.^[18] On appeal, Mr Olliver argues that the High Court erred in its interpretation and application of those provisions.
• [25] We do not consider that the sections prescribing the duties of directors are directly engaged by the application of s 385. While there may often be an overlap between the type of conduct covered by s 385 and the type of conduct that involves breaches of directors’ duties, s 385 has independent operation. It is not a section that necessarily applies when there has been a breach of directors’ duties, such as the duties in ss 135 and 136 of the Act. There are separate and different requirements in the provisions specifying the duties of directors. Section 385 also applies to all those involved in the management of the company, and not just the directors.^[19] We consider that it involves unnecessary complexity to import the requirements for establishing a breach of directors’ duties into the application of s 385. Moreover, the focus of s 385 is the management of the company’s affairs, not the decisions of individual directors. The position of the individuals involved in the management of the company’s affairs will be relevant to the discretion to be applied under s 385(3), but only after mismanagement of the company’s affairs has first been established.
• [26] As with all legislation, the section should be interpreted and applied in light of its purpose, and in its context.^[20] The legislative background evidences a concern that the section should not be applied too readily.^[21] As Miller J said in Davidson v Registrar of Companies, the provision focuses on both the protection of the public, and the punishment of those who engage in mismanagement:^[22]

Prohibition is aimed not at remedying wrongs done to shareholders and creditors of the insolvent company but at protecting the public from unscrupulous or incompetent directors in future, deterring others, and setting appropriate standards of behaviour.

• [27] Given the purposes and context of the provision, it should not be interpreted as applying to all managers of companies that commit acts of insolvency simply because of the failure of the company arising from its management. The purpose of limited liability for companies under the Act is to encourage the taking of risk, and the promotion of entrepreneurial behaviour.^[23] The failure of companies, with the limitation of liability, is a recognised part of their existence. The section is instead focused on mismanagement of a company which causes insolvency, and which warrants an order being made to prohibit a person’s involvement in the management of a company, in order to protect the public from this kind of behaviour in the future. Those concepts limit the appropriate exercise of the power, including when the discretion is exercised under s 385(3). Without seeking to circumscribe its application, we consider that it applies in the following kinds of cases where insolvency within the meaning of s 385(1) is caused:

(a) Incompetent management — where the company has failed to meet core requirements such as the obligation to file returns, where there is inadequate contemporaneous recording of the company’s activities, or there is a failure to recover liabilities such as debts in a timely way.^[24]

(b) Insolvent trading — trading a company in an insolvent state, for example by entering into an obligation without there being reasonable grounds to believe that the company will be able to perform that obligation when required to do so.^[25]

(c) Abuse of limited liability — conducting the company’s affairs in a way that it abuses its separate legal existence, for example by the company incurring the obligations or losses associated with certain activities, but where the associated benefits or returns are diverted to a separate legal entity.^[26]

• [28] There may be other circumstances where s 385(1) applies. These examples should not be treated as a limitation on the operation of the provision. Such conduct may also involve a breach of duties by the directors of the company. But that is a separate issue.

Relevant context

• [29] Before addressing each of the points raised on appeal, we first address the overall context in which they are to be assessed. We consider that the context is important in this case when considering the significance of the findings of the Registrar and the High Court, and the criticisms of those findings. There is a risk of losing overall perspective when addressing particular matters associated with the management of the company if they are not seen in context. The focus on more specific factors arose in this case partly because of Registrar’s specification of particular criticisms of the management as a matter of natural justice, and the nature of the responses to that particularisation.^[27]
• [30] This case involves a very particular set of circumstances. A significant property development venture had stalled, with the participants at an impasse because of disagreements between the joint venture partners. Mr Olliver then sought to use a new company, BBG, as a vehicle to implement a rescue plan. He did so without involving his joint venture partner, Ms Sparks. The land being developed was not owned by BBG. BBG entered a contract to acquire part of the land, but this was conditional on having two caveats lodged by Ms Sparks, and one lodged by BNZ, removed. Furthermore, BBG had no assets. It was a shell company with no capital or existing business activities. Its only asset was significant tax losses. It was dependent on Mr Olliver providing it with funds to allow it to perform contracts to undertake the proposed work. Mr Olliver provided no binding commitment in terms of the provision of those funds, however.
• [31] BBG went into liquidation when the attempt to rescue the development was unsuccessful. Some of the initial costs of clearing the sites turned out to be more expensive than anticipated, but, more significantly, the application to remove the caveats failed. Mr Olliver then let BBG go into liquidation with creditors unpaid.
• [32] These general circumstances give rise to the potential application of s 385. BBG is a company of a kind referred to in s 385(1), and its insolvency has potentially been caused by the way in which the affairs of BBG were managed. We address the particular matters raised on the appeal and cross-appeal against that background.

Form of JGC contract

• [33] Mr Olliver’s first criticisms of the Registrar and the High Court relate to their findings in relation to the contract between BBG and JGC. The Registrar concluded that part of the reason why there was mismanagement by BBG was associated with it entering only an oral contract with JGC.^[28] The High Court Judge agreed with the Registrar that there was no written contract, but accepted that the Registrar had misinterpreted the contractual arrangements in some respects.^[29] She nevertheless concluded that there was mismanagement involved in Mr Olliver allowing the work to continue after JGC’s first invoice knowing BBG had insufficient funds to pay the amount, and that BGG had exposed itself to liability for which it could not make payment.^[30]
• [34] On appeal, Mr Chisnall submits that, first, the form of the JGC contract cannot constitute mismanagement, and second, if it was mismanagement, it was not causative of BBG’s insolvency. He argues that a schedule of prices initially provided by JGC demonstrates that the contract was based on a written estimate, that there was no mismanagement in approaching the contract in this way, and there was no basis to find that BBG was not able to pay the contract prices. The only reason for non-payment of JGC was a dispute about the increase in price for the work well above the initial estimate. The form of the contract was also not the cause of BBG’s liquidation. Rather, liquidation arose in the context of an increase in the costs of the work from $154,991.25 to $836,012.06.

Assessment

• [35] We accept that the particular form of contractual arrangements, whether they are fully or partly in writing, and whether they are for a fixed price, would not usually form the basis for a finding there had been mismanagement of a company under s 385. Those responsible for managing companies frequently make decisions on whether to choose to enter fixed-price contracts, or contracts based on time and materials. Fixed‑price contracts are usually more expensive and whether to prefer them will usually involve business judgment. Management decisions can also legitimately made on whether to have a fully written contract or not.
• [36] We also accept that the particular form of the contract entered by BBG may not, in itself, be a central reason why mismanagement under s 385 arises. But as we have emphasised, the nature and form of the contract here needs to be considered in the broader context. Two related points arise here: first, BBG had no funds and relied entirely on funding provided by Mr Olliver in circumstances where Mr Olliver had made no binding commitment to BBG; and, second, BBG had no clear understanding of the costs that would be incurred by entering into the JGC contract.
• [37] In these circumstances it was necessary, before using BBG to pursue a property development of land, in total worth more than $10 million, for BBG to have a clear understanding of the costs it would incur, and for it to have a reasonable basis to conclude that it had the ability to meet those costs. But BBG did not have an overall cost estimate from Woods and Partners, and it only had an initial cost estimate from JGC. When Woods and Partners provided detailed estimates in August and September, Mr Olliver responded by email that it showed that the position was “uneconomic”. This foreshadowed the failure of Mr Olliver’s plan, and BBG’s ultimate liquidation.
• [38] We accordingly agree with the High Court Judge that BBG was entering contractual obligations that exposed it to liability for which it could not make payment, and which exposed it to liquidation.^[31] It is in that context that the findings of the Registrar and the High Court, that there was mismanagement because the contract with JGC was not for a fixed price, should be understood. We agree that the form of the contract can be seen as an aspect of the overall mismanagement of BBG.
• [39] The High Court Judge’s conclusions also emphasised that BBG continued to engage JGC even after the cost increases were becoming apparent. We agree with that criticism but see the more significant issue as arising from BBG entering contractual obligations at all given the above circumstances.
• [40] Mr Chisnall referred to the decision of the Supreme Court in Yan v Mainzeal Property Construction Ltd (in liq) where it was held that assurances of support on which directors can reasonably rely may be material to whether a company can continue trading.^[32] But, as the Court held, “if such assurances were not legally or practically enforceable and not honoured ... there are likely to be questions as to the reasonableness of reliance on them”.^[33] Here, Mr Olliver had provided no assurances. The reality was that BBG was being used as a vehicle by Mr Olliver in a way that protected him from any personal liability should his plan to rescue the development fail.
• [41] We also do not agree with the submission that any mismanagement surrounding the form of the contract did not cause the insolvency of BBG. The fact is that Mr Olliver did not continue to fund BBG and this was clearly one of the reasons that BBG failed. The lack of fixed pricing and/or committed support is associated with that decision. Causation needs to be addressed taking into account all relevant aspects of mismanagement, and it is artificial to consider only this aspect in isolation.
• [42] We accordingly agree that the lack of fixed prices, and commitments to fund BBG to meet the obligations, are legitimately seen as part of the overall mismanagement of BBG by Mr Olliver. It was a ramification of Mr Olliver using BBG essentially as a shell entity, to provide him with protection should his attempt to rescue the property development not succeed.
• [43] For these reasons we reject this aspect of Mr Olliver’s appeal.

Removal of caveats

• [44] BBG had only a conditional contract to acquire part of the land required for the subdivision. It would only obtain title under that contract if the caveats were removed. But it nevertheless began work on the land. Both the Registrar and the High Court Judge concluded that this involved mismanagement.^[34]
• [45] The High Court Judge disagreed with the Registrar’s finding that Mr Olliver was “foolhardy” to believe that the caveats would be removed, however. This was because Mr Olliver had received legal advice on the application to remove the caveat, and the Court considered that it was “open to Mr Olliver to consider he had reasonable prospects of succeeding in that application”.^[35] We address the respondent’s criticism of that finding further within the cross-appeal below.^[36] But the High Court nevertheless went on to conclude that Mr Olliver’s belief did not remove the risk that the caveats would not be removed, so that Mr Olliver’s conduct still involved mismanagement.^[37]
• [46] The Judge also held that Mr Olliver had a conflict of interest which he had failed to address, and that this was reflected in the fact that some of the land JGC was working on was not the subject of the contract, and that these steps were taken without considering JGC’s interests as a potential creditor.^[38]
• [47] Mr Chisnall argues that the High Court applied the wrong legal test under s 135 when making these findings, as the section required a substantial risk of serious loss. It was accordingly wrong for the High Court to find that a degree of certainty that the caveats would be removed was required before BBG could contract to undertake the works. He also argued that Mr Olliver was not obliged to consider the interests of JGC as BBG was not insolvent or near insolvency when JGC was engaged. There was also no conflict of interest when the interests of the participants were common in completing the subdivision, and that the Court’s decision was based on hindsight. On the information that Mr Olliver had at the time, engaging JGC was reasonable and prudent, and the liability to JGC was one that BBG was in a position to meet.

Assessment

• [48] We agree with the Registrar and the High Court Judge that undertaking work on the land despite the fact BBG had no entitlement to it and no ability to acquire it subject to the caveats constitutes an aspect of mismanagement under s 385.
• [49] As we have indicated, we do not consider that it is necessary to show Mr Olliver breached his duty as a director under s 135 before the court can find there has been mismanagement under s 385(1). We accordingly do not agree with the submission that the High Court erred in finding there needed to be certainty that the caveats be removed on the basis that this is inconsistent with the need to establish a substantial risk of serious loss in accordance with s 135. The relevant question under s 385 is whether there was mismanagement of BBG that caused its insolvency.
• [50] Mr Olliver was using BBG as the vehicle to commence work on the land necessary to complete the subdivision. But the reality was that the subdivision project was a joint venture between Mr Olliver and Ms Sparks. The relationship between them had become acrimonious and litigious. Mr Olliver’s unilateral attempt to take over the subdivision using BBG was always going to face the problem that Ms Sparks was a joint beneficial owner. Her caveats were a manifestation of her beneficial entitlement, but her entitlement existed whether or not the caveats were in place. The fact that BBG’s contract to acquire the land was conditional on removing the caveats was a reflection of this reality.
• [51] As the Registrar said, Mr Olliver’s plan could only succeed if he obtained Ms Sparks’ consent, or he succeeded with a legal strategy that avoided her beneficial interest.^[39] Her agreement was never likely, which is reflected in the fact that Mr Olliver did not involve her in the plan, but rather proceeded with the application to have the caveats removed. It follows that the whole venture using BBG not only depended on the caveats being successfully removed, but also Ms Sparks’ beneficial interest being avoided in some way. If the caveats were not removed, BBG would not acquire the land, and the costs incurred by BBG on that land would have involved significant expenditure without benefit, and the likely collapse of BBG. That is what transpired following the unsuccessful application to have the caveats removed.
• [52] The highly risky nature of Mr Olliver’s plan is also reflected in the fact that, on the materials that we have been provided, there is no evidence that he involved BNZ in the plan. BNZ was the primary secured party with a substantial debt of over $10 million, and Mr Olliver could only have been successful if it had BNZ’s support. When we put to Mr Chisnall that there was no evidence of BNZ’s support he drew attention to BNZ’s support for the application to remove Ms Sparks’ caveats. But that application was made by CIT, not BBG. BBG was not a party to the caveat proceeding, although its purchase of the land is recorded in the judgment dismissing the application.^[40]
• [53] We consider that Mr Olliver’s plan was highly speculative and most unlikely to succeed. It was really a desperate attempt to use a new corporate entity to rescue a significant subdivision that had become impossibly deadlocked. While we understand why Mr Olliver made this attempt, it is impermissible to do so using a new company to take the risk, thereby exposing its creditors to the loss that would arise if the attempt failed. The use of BBG in this way involved an abuse of its separate legal personality and its associated limited liability.
• [54] We do not accept Mr Chisnall’s argument that the findings of the High Court involved unjustified hindsight. On the contrary, not only were the risks of failure foreseeable but clearly were foreseen by Mr Olliver who structured matters planning for this risk materialising. The use of BBG to enter the contract with JGC, and the fact that entry to the contract was conditional on the caveats being removed, show that Mr Olliver designed the attempt to rescue the development in a way that minimised his personal exposure and the risk to the overall subdivision. BBG was the entity that took the risk, and because it would not own the properties unless the plan was successful, those properties were not put in jeopardy by BBG’s liquidation. Mr Olliver also made no commitments to BBG that could be enforced against him if BBG failed, and BBG had no assets. For these reasons, it was BBG’s creditors who would suffer the losses if the plan failed. The fact that BBG was simply a vehicle for taking the risk is further reflected in the fact that BBG reinvoiced CIT for all the costs it incurred to JGC.
• [55] We do not accept the submission that Mr Olliver had no obligation to consider the position of creditors because BBG was not insolvent, or nearly insolvent. We consider that BBG was insolvent throughout the period it was being used for this project. Its liabilities exceeded its assets. It had no assets at all and was incurring liabilities to JGC and IRD. It also could not meet its debts as they fell due because it had no money to pay any debts, and relied entirely on Mr Olliver providing funding which he had given no commitment to do.
• [56] We also do not accept Mr Chisnall’s submission that there was no relevant conflict of interest. He argued that the interests of all the participants aligned, and there was the real prospect of a highly profitable subdivision development. That was only true if the strategy succeeded. But there was a very significant risk that it would not. If it did not succeed, the interests of the participants were clearly divergent. For example, BBG would have undertaken work on land that it had no interest in (to the benefit of CIT and Mr Olliver) and it would not be in Mr Olliver’s interests to fund BBG to pay JGC’s outstanding liability. These conflicting interests subsequently manifested themselves in BBG’s failure.
• [57] For these reasons we agree with the Registrar and the High Court that the circumstances involving the caveat demonstrate mismanagement under s 385(1). We also conclude that the steps taken concerning the caveat were part of an overall plan that misused BBG’s separate corporate personality in a way involving mismanagement under s 385(1).
• [58] For these reasons we dismiss this aspect of Mr Olliver’s appeal.

Cross-appeal: legal advice on caveat removal

• [59] It is convenient to address the arguments advanced by the respondent on the cross-appeal at this stage, as they also relate to the application to remove the caveats.
• [60] The Registrar found that Mr Olliver’s belief that he would be able to have the caveats removed so that BBG could obtain title on the land being developed was “foolhardy”.^[41] The Registrar considered s 138 of the Act, which provides that directors may rely on advice they have received, but concluded that s 138 did not apply because Mr Olliver had provided no direct evidence of any advice he had relied upon.^[42] The High Court Judge held that the Registrar had erred by not taking into account Mr Oliver’s assertion that he had made the application to remove the caveats on legal advice and accordingly had a reasonable expectation of success.^[43] The Judge accordingly held the finding Mr Olliver had acted in a foolhardy way was in error, and that Mr Olliver’s conduct was less serious than the Registrar had found.^[44]
• [61] Mr Conway for the Registrar argues that the Registrar rightly disregarded Mr Olliver’s assertions about the legal advice. The advice itself had not been provided, and the High Court Judge erred in placing weight on advice that neither the Registrar nor the Court had seen. Section 138 of the Act was an affirmative defence, and the Court held in Morgenstern v Jeffreys that it cannot be relied upon if evidence of the advice is not provided.^[45]
• [62] In response, Ms Watts argues for Mr Olliver that s 138 is not relevant to the application of s 385 of the Act, as it is only an affirmative defence to a claim for breach of statutory duty. There is no evidential onus on a director under s 385. The evidence before the Registrar was that Mr Olliver had received and acted on legal advice, and it was correct for the High Court to find that, on the information before the Registrar, the Registrar had erred in not taking this into account.

Assessment

• [63] We agree with Ms Watt’s submission that s 138 has no direct application to decisions by the Registrar under s 385. Section 138 concerns information and advice received by a director of a company when exercising powers or performing duties as a director. As we have emphasised, s 385 concerns the management of a company not the duties of its directors. It has potential application to all managers, whether they are a director or not.^[46] The findings of the Court in Morgenstern v Jeffreys were in relation to affirmative defences in relation to proceedings against a director for breach of the director’s statutory duties under ss 131, 135 and 137. For that reason the section does not have direct application.
• [64] But, we nevertheless agree with the approach that the Registrar took as a matter of principle, and consider that s 138 can be applied by way of analogy. As the Court said in Morgenstern v Jeffreys:^[47]

[77] A director who does not adduce direct evidence from the relevant professional advisers is unlikely to be able to establish the defence solely on the basis of his or her own evidence. As this court pointed out in Mason v Lewis, little, if any, weight could appropriately be given to a director’s suggestion in evidence that he had been reassured as to his company’s prospects by his accountant, who was not called.

[78] Furthermore, failure to adduce evidence from the relevant professional advisers would support the inference that their evidence would not assist the director when the director would be expected to call them as witnesses, their evidence would explain or elucidate their advice and their absence is unexplained. In a civil case, contrary to Mr Walker’s suggestion, there is no obligation on a party to call the professional advisers of the other party as witnesses. An adverse inference may be drawn where a witness is in the “camp” of one party and it would be natural for that party to produce the witness. This is particularly the case where the witness has a relationship of confidence with the party, and, specifically, where the witness is the party’s accountant.

• [65] This reasoning refers to adverse inferences in civil litigation generally, and it does not specifically relate to s 138. It applies whether or not s 138 is directly applicable. An assertion by managers that they acted on legal advice in responding to s 385 allegations will carry little weight unless the advice is provided.
• [66] Here it would be significant to know how any legal advice had been expressed, and whether it was qualified. It would be surprising if the legal advice had been that the application to remove the caveats would definitely be successful. The High Court, in fact, declined to remove the caveats so any advice to this effect would have been wrong. Furthermore, there would also still have been the underlying issue of Ms Sparks’ beneficial interest, which the caveats simply reflected. Without actually seeing the legal advice, we agree with the Registrar that little weight can be given to an assertion by Mr Olliver that such advice was received and acted upon.
• [67] We accordingly agree with the Registrar that the High Court erred in finding that Mr Olliver’s mismanagement was less serious because of the Registrar’s failure to take into account that he was acting on legal advice.
• [68] For these reasons we consider that the cross-appeal should be allowed.

The discretion

• [69] Once it was found that s 385 applied, the Registrar had a discretion to make an order under s 385(3) prohibiting Mr Olliver from being a director, promoter, or concerned with the management of a company for any such period not exceeding ten years. The Registrar decided that Mr Olliver should be prohibited for a period of four years.^[48] In light of the errors identified in the Registrar’s decision, the High Court Judge reduced the period of prohibition by twelve months to three years.^[49]
• [70] Mr Chisnall argues that the finding that Mr Olliver was motivated by his own interests contained errors. The first was the failure to recognise that Mr Olliver was acting on legal advice. Secondly, the Judge failed to give weight to the fact that all creditors’ claims in the BBG liquidation were resolved, including that JGC’s claim was resolved at a cost of $138,000. This meant that a reduction of only 12 months was manifestly inadequate.
• [71] Mr Fuller for the respondent argues that, even if the cross-appeal was unsuccessful, the High Court assessment was correct and comparable to other decisions.^[50]

Assessment

• [72] Given we have allowed the Registrar’s cross-appeal, much of Mr Olliver’s criticism of the period of prohibition has already been addressed.
• [73] We do not consider there is much significance in the fact the claim of the main creditor was compromised. There is very little information concerning the negotiation between Mr Olliver and JGC, but in any event it involved JGC receiving only $138,000 for an assignment of its claim against BBG notwithstanding that its claims were for $836,012.06. That is a significant loss to JGC which resulted from BBG’s liquidation. There is also the fact that the IRD is a significant creditor in addition to JGC.
• [74] One of the important factors in assessing the period of prohibition under s 385 can be the extent of the loss to creditors. This case involves a reasonably clear case of mismanagement under s 385, essentially involving the abuse of corporate limited liability. There were then two creditors and the extent of the loss involved was $868,366.67, some of which was recovered. This still involves a significant loss for what was a one-off project, however.
• [75] We bear in mind that for someone like Mr Olliver, a prohibition under s 385 is significant. It prevents him being involved in the management of the company “whether directly or indirectly”. This prevents him being involved in property development through other company vehicles. He will not be able to avoid the prohibition by obscuring his involvement in the management — if he is the de facto controller of any such companies he will be caught by the prohibition. Breaching the prohibition is an offence under s 385(9). This may have the effect of significantly curtailing his livelihood, at least to the extent that he will not be able to limit his liability by using companies. He can engage in property development, but he may need to do so personally.
• [76] But notwithstanding that factor, we are of the view that a significant period of prohibition is appropriate. This case involves Mr Olliver deliberating structuring a highly risky attempt to rescue a fraught subdivision by the use of a separate legal entity with no assets. It is a classic case of abusing corporate personality to unreasonably avoid liability associated with its potential failure. We also consider it is significant that the original structure of CIT, which was owned by trusts, arose because of Mr Olliver’s bankruptcy, and that the use of corporate structures appears to be a feature of his property development business approach. It is important to protect the public from the abusive use of companies, including to deter others, and for appropriate standards of behaviour to be emphasised. For these reasons, we agree with the High Court Judge’s conclusion on the three-year period of prohibition.

Conclusion

• [77] Section 385 is a self-standing provision in the Act which arises when there has been mismanagement of the affairs of a company that has caused its insolvency. It does not depend on a breach of directors’ duties elsewhere specified in the Act, and whilst there may be parallels with conduct involving breach of directors’ duties, it is more appropriate to apply the provision without the complication of also directly applying the provisions of the Act involving the duties of directors.
• [78] Section 385 only arises when there has been mismanagement causing a company to fail — of a kind that warrants a court prohibiting the managers from being involved in the management of companies for specified periods. It has both the punishment of transgressors and the protection of the public as its purposes. The section should be applied with those purposes in mind.
• [79] The circumstances here involved a clear case of mismanagement under s 385. A significant property development had become deadlocked, and Mr Olliver engaged in a highly speculative attempt to rescue the subdivision from the deadlock by using a new company, which had no assets or assurance of support, to enter a significant contract to commence work on the subdivision. That company also had no title to the relevant land, and the contract it had entered to acquire part of that land was conditional on the removal of a caveats such that Mr Olliver did not have full beneficial title to land, and the interest of his joint venture partner could not be avoided. Mr Olliver then let the company collapse when the application to remove the caveats were unsuccessful. The main creditors in the liquidation were the contractor who had been engaged to clear the land, and the IRD. This overall plan involved the misuse of the company’s separate legal personality and its limited liability.
• [80] Although our line of analysis is not the same or as complex as that engaged in by the Registrar or the High Court Judge, we are satisfied that s 385 applies, and that the period of disqualification decided upon by the High Court was appropriate on the facts of this case.

Result

• [81] The appeal is dismissed.
• [82] The cross-appeal is allowed.
• [83] The orders of the High Court are confirmed.
• [84] The respondent is entitled to costs for a standard appeal and cross-appeal on a band A basis and usual disbursements with an allowance for two counsel.

Solicitors:
Buddle Findlay, Wellington for Appellant
Crown Law Office | Te Tari Ture o te Karauna, Wellington for Respondent

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^[1] Olliver v Deputy Registrar of Companies [2023] NZHC 1721 [High Court judgment].

^[2] Gregory Martin Olliver, 20 October 2021 [Registrar’s decision]; and High Court judgment, above n 1, at [198] and [199(b)].

^[3] High Court judgment, above n 1, at [5]–[46]. We gratefully adopt the High Court’s summary of the background facts.

^[4] Mr Olliver resumed his position as a director in 2012, and from that point he was the sole director of CIT.

^[5] BBG Holdings Ltd (in liq) v Fatupaito [2021] NZHC 1877 [CIT liquidation judgment] at [12] citing Glover Trust Ltd v Glover Trust Corp Ltd [2013] NZHC 545; and Glover No 2 Ltd v Glover Trust Ltd [2013] NZCA 608. Leave to appeal to the Supreme Court was declined on 7 May 2014: see Glover No 2 Ltd v Glover Trust Ltd [2014] NZSC 54.

^[6] CIT Holdings Ltd v Glover No 2 Ltd [2014] NZHC 3114, (2014) 16 NZCPR 85 [High Court caveat judgment].

^[7] At [24]–[30].

^[8] At [31].

^[9] High Court caveat judgment, above n 6.

^[10] CIT liquidation judgment, above n 5, at [109].

^[11] Section 189A of the Companies Act 1955, introduced by the Companies Amendment Act 1988, s 5.

^[12] (21 July 1988) 490 NZPD 5284.

^[13] Law Commission Company Law: Reform and Restatement (NZLC R9, 1989) at 127.

^[14] Companies Bill 1990 (50-1), cl 330.

^[15] Justice and Law Reform Committee Report of the Justice and Law Reform Committee on the Companies Bill (15 December 1992) at 7.

^[16] (23 February 1993) 533 NZPD (Companies Bill 1990 — Second Reading) at 25–49; and Department of Justice Departmental briefing: Companies Bill (19 August 1992) at 3–4.

^[17] Companies Act 1993, s 385.

^[18] See for example, Registrar’s decision, above n 2, at [9.1]–[9.4]; and High Court judgment, above n 1, at [81]–[139].

^[19] See Companies Act, s 385(4).

^[20] Legislation Act 2019, s 10(1).

^[21] See for example (23 February 1993) 533 NZPD (Companies Bill 1990 — Second Reading) at
28–29.

^[22] Davidson v Registrar of Companies [2010] NZHC 1497; [2011] 1 NZLR 542 (HC) at [91] citing Re Blackspur Group plc [1998] 1 WLR 422 (CA) at 426; and Rich v Australian Securities and Investments Commission [2004] HCA 42, [2004] 220 CLR 129 at 145. See also (21 July 1988) NZPD 5284 (Hon Geoffrey Palmer, introduction of s 189A): “it must be remembered that the disqualification powers in the Companies Act are not penal, and are intended to be used to protect the public against future mismanagement”.

^[23] See Companies Act, long title.

^[24] See for example Toilolo v Registrar of Companies [2019] NZHC 1090; and Central Tyres Waipukurau (in liq) v Palleson [2016] NZHC 146, [2016] NZCCLR 15.

^[25] See for example Madsen-Ries (as liquidators of Debut Homes Ltd (in Liq)) v Cooper [2020] NZSC 100, [2021] 1 NZLR 43.

^[26] See for example Kumar v Smartpay Ltd [2003] NZCA 410; and Steel & Tube Holdings Ltd v Lewis Holdings Ltd [2016] NZCA 366.

^[27] See the process described in Davidson v Registrar of Companies, above n 22, at [104]–[107].

^[28] Registrar’s decision, above n 2, at [14.4].

^[29] High Court judgment, above n 1, at [109]–[113].

^[30] At [124]–[125].

^[31] At [125].

^[32] Yan v Mainzeal Property Construction Ltd (in liq) [2023] NZSC 113, [2023] 1 NZLR 296 at [216].

^[33] At [363].

^[34] Registrar’s decision, above n 2, at [13.12]; and High Court judgment, above n 1, at [103].

^[35] High Court judgment, above n 1, at [88].

^[36] See [59]–[68] below.

^[37] High Court judgment, above n 1, at [99]–[103].

^[38] At [104].

^[39] Registrar’s decision, above n 2, at [13.11]–[13.12].

^[40] High Court caveat judgment, above n 6, at [34(a)] and [70].

^[41] Registrar’s decision, above n 2, at [13.10].

^[42] At [11.3].

^[43] High Court judgment, above n 1, at [88].

^[44] At [88], [101] and [142].

^[45] Morgenstern v Jeffreys [2014] NZCA 449 at [76]–[78].

^[46] See [25] above.

^[47] Morgenstern v Jeffreys, above n 45 (footnotes omitted).

^[48] Registrar’s decision, above n 2, at [21.1].

^[49] High Court judgment, above n 1, at [198] and [199(b)].

^[50] Relying on Davidson v Registrar of Companies, above n 22; Clarke v Registrar of Companies [2018] NZHC 1608; and Henderson v Registrar of Companies [2023] NZHC 1233.