HUNG & ANOR V PARTS IMPORTS CO LTD HC AK CIV 2007-404-003902 [2008] NZHC 722 (19 May 2008)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                                  CIV 2007-404-003902

              UNDER                        the Companies Act 1993


              BETWEEN                      NORMAN HUNG
    
                                      First Plaintiff

              AND                          ANDREW YONG
                  
                        Second Plaintiff

              AND                          PARTS IMPORTS CO LIMITED
                  
                        Defendant


Hearing:      13 and 14 May 2008

Counsel:      F Deliu and E Orlov for plaintiffs
         
    M Bos and C Clayton for K Tse, a person who has filed an appearance

Judgment:     19 May 2008 at 1530


                 JUDGMENT
OF ASSOCIATE JUDGE FAIRE
                    [on application to appoint a liquidator]




Solicitors:   DJ Gates, PO Box 222, Whangaparaoa
for plaintiffs
              DLA Phillips Fox, PO Box 160, Auckland for K Tse



HUNG & ANOR V PARTS IMPORTS CO LTD HC AK CIV 2007-404-003902
19 May 2008

[1]     The plaintiffs apply for an order placing the defendant company into
liquidation and appointing a liquidator.


[2]     The application alleges that the company is unable to pay its debts. It is
primarily based on s 241(4)(a) of the Companies
Act 1993.            Counsel for the
plaintiffs confirmed that reliance was also placed on the just and equitable ground
contained
in s 241(4)(d).


[3]     The application was filed on 4 July 2007. The Court allocated a date of
hearing for 1 November 2007 at
10am. The notice of proceeding and statement of
claim, however, were not served until 6 November 2007. Service was effected by
leaving
the documents at the defendant's registered office. There does not appear to
have been any good reason for the delay in service of
the documents.


[4]     An ex parte application seeking the appointment of an interim liquidator was
filed with supporting affidavits
and counsel's memorandum on 5 July 2007.          An
order was made by Associate Judge Christiansen on 12 July 2007.            It
required
correction. As a result, I recalled his order and issued a new order but with the error
corrected in reliance on r 12. 
     That order appointed Alan Tong, Chartered
Accountant of Auckland, as interim liquidator. That order was sealed on 19 July
2007.
The plaintiffs' documents contained a further error. An amendment to the
defendant's name was ordered correcting the mistake on 24
August 2007. That
removed any irregularity relating to the appointment of the interim liquidator.


[5]     At the first call of
this proceeding on 1 November 2007, the proceeding was
adjourned for proof of service and advertising to 10am on 29 November 2007.
No
specific reason for the lack of proof of service and advertising was given to the Court
at that time.


[6]     On 29 November
2007, a further adjournment was sought to allow
advertising. The defendant's non-appearance was noted. No reason is recorded for
the lack of advertising. The proceeding was adjourned until 21 February 2008.
There is now evidence on the Court file disclosing
that the proceeding was
advertised in the New Zealand Herald on 13 November 2007. That advertisement

drew attention to the hearing
date of 29 November 2007. The proceeding, however,
was not advertised in the New Zealand Gazette until 31 January 2008.         
       The
requirement to advertise is set out in r 700I(2) of the High Court Rules and requires
advertising in the New Zealand Gazette
and in a newspaper published in the town of
the registered office of the company.


[7]    On 13 February 2008 an appearance was
filed on behalf of K Tse. That
document recorded:


       a)     Support for the placing of the defendant company into liquidation;


       b)     Opposition to the appointment of Alan Tong as liquidator and the
              appointment of the Official Assignee
as liquidator;


       c)     A claim that Mr Tse:


              i)      Is a creditor in the sum of $446,070.80;


              ii)     holds 22,000 of the 36,000
shares issued in the defendant
                      company; and


              iii)    is the sole director of the company.


[8]    On 21 February 2008 appearances were entered by counsel for the plaintiff
and counsel for Mr Tse. No appearance was entered
on the defendant company's
behalf nor, in the circumstances of the case, was one expected. After hearing
counsel I issued a written
minute which for completeness sake I now set out the
important parts for the purpose of the matter which I must now consider:

 
     3.     Mr Bos's client claims to be a creditor, shareholder and director of
              the defendant company. He does not
oppose the placing of the
              company into liquidation. He does oppose the appointment of the
              interim liquidator
as a liquidator of the company.

       4.     What is apparent to me is that the company's position is currently
              protected
by the appointment of the interim liquidator. There is,
              therefore, time for the parties to consider whether they can
reach
              agreement on the appointment of a liquidator or, if not, for

              appropriate evidence to be put before
the Court. What counsel have
              explained to me is that there are issues as to:

              a.      Mr Tse's standing;
and

              b.      Whether the interim liquidator may be disqualified in terms
                      of s 280 of the Companies
Act 1993.

       5.     I propose to give the parties up until 3 March 2008 to discuss
              whether they can reach agreement.
If they cannot, evidence on the
              issues that I have mentioned shall be filed and served as follows:

              a.
     by Mr Tse by affidavit filed and served by 14 March 2008;
                      and

              b.      by the plaintiffs
in answer to Mr Tse's evidence by affidavit
                      filed and served by 26 March 2008; and

       6.     The proceeding
is adjourned to the Companies' List at 11.45am on
              1 April 2008.

       7.     Costs are reserved.

[9]    The matter
was called before me on 1 April 2008. The parties were unable to
agree. They advised me that a day was required for argument. I adjourned
the
proceeding for a one-day fixture to 10am on 13 May 2008. I also directed:

       The plaintiffs' submissions, including an indexed
and paginated booklet of
       the pleadings and affidavits, shall be filed and served by 18 April 2008.
       Documents for Mr
Tse shall be filed and served by 2 May 2008.

By the time of the call of this proceeding on 1 April 2008 an affidavit had been filed
by Mr Tse dated 13 March 2008 and an affidavit by the liquidator, Mr Alan Tong,
had been filed and served by 26 March 2008. In addition,
the plaintiffs filed a notice
of intention to cross-examine Mr Tse, which is dated 26 March 2008.


[10]   The order requiring the
plaintiffs to file an indexed and paginated booklet
was ignored. That, quite apart from being discourteous, is unfortunate and has
tended to cause further Court time to be applied to this application because of the
way the documents have been put together and,
in particular, because they lack an
index and any coherent numbering system. I make it plain that no criticism of
Mr Bos or his client
is intended by these comments.

The issue ­ who should the Court appoint as liquidator?


[11]   The only appearances entered are
on behalf of the plaintiffs and Mr Tse. All
agree that the company should be placed into liquidation.


[12]   The statement of claim
erroneously pleads the status of the plaintiffs. The
evidence reveals that the first plaintiff is a shareholder. The second plaintiff
is not.
There are 36,000 shares in this company. Twenty-two thousand, or 61.11% of the
shares, are held by Mr Tse. Four thousand
shares are held by the plaintiff, Mr Hung,
being 11.11%. Kim Kee Wong and Mr Ben Bong jointly hold 6,000 (16.66%) in the
company. The remaining
4,000 and 11.11% are held by Lai Yee Chiu.


[13]   The second plaintiff's connection with the proceeding is through his family
trust
which is the beneficial owner of the shares recorded as being owned by Kim
Kee Yong and Mr Ben Bong. Mr Yong also refers to an advance
made to the
company, but it is unclear whether the advance was made by the shareholder trust or
him personally.


[14]   The plaintiffs
plead the following matters in their statement of claim. It is
clear that they direct their allegations at Mr Tse. They plead:


       a)      False and misleading misrepresentations by Mr Tse inducing them to
               invest in the defendant company;


       b)      As a result of those representations that they made investments of
               $100,000 and $150,000 which were
applied in obtaining (by
               implication) in Mr Hung's case his shares, and in the case of Kim Kee
               Yong
and Mr Bong, their shares;


       c)      That they made advances, in the case of Mr Hong, of $90,000 and in
               the
case of Mr Yong $50,000, to the defendant company.               The
               pleading in respect of Mr Yong's advance, however,
does not accord
               precisely with his evidence as it appears to have been a shareholder
               advance;

  
    d)      That Mr Tse has stripped the company of all its assets in
               circumstances which strongly suggest evidence
of impropriety on his
               part. Those matters are particularised as selling all assets and stock,
               paying
himself an excessive director's salary, using the company's
               revenue to pay personal and travelling expenses, firing
employees
               without notice, cancelling a lease which the company enjoyed from a
               company controlled by
Mr Tse leaving the company without premises
               and failing to provide the shareholders access to company accounts;
 
             and


       e)      That the latest accounts produced show a trading pattern where cash is
               short and
which is said to be evidence of:

                       trading virtually insolvent since October 2004.

[15]   The plaintiffs'
concerns undoubtedly were the reason for the application to
appoint an interim liquidator.


[16]   The Companies Act 1993 does not
provide a set of criteria which must be
applied in determining who should be appointed as a liquidator. The Court has a free
and
unfettered discretion in that matter. The authorities, however, have recognised
that a matter of prime consideration is that the
liquidator is independent and must be
seen to be independent. The Court will also wish to see that the interests of the
persons concerned
in the winding up are best served by the appointment. The Court
will also have regard to wider public interest. The Court will wish
to see that the
person who is appointed is not disqualified from being a liquidator having regard to
s 280 of the Companies Act 1993.
The person to be appointed must consent in terms
of s 282 and must also certify that he or she is not disqualified under subs(1)
of s 280
from accepting appointment. Counsel's submissions helpfully drew attention to the
authorities from which I have extracted
the above criteria which include re Allebart
Pty Ltd and the Companies Act  [1971] 1 NSWLR 24, Jacobsen Creative Surfaces
Ltd v Smith City Ltd  [1994] MCLR 28, Gallagher & Ors v 451237 Ltd HC WN CIV
2007-485-1985 2 November 2007, re Trafalgar Supply Company Ltd (in liquidation)
 [1991] MCLR 293, re Chateau Hotels Ltd  [1997] 1 NZLR 381.

[17]     Mr Deliu, on the plaintiffs' behalf, submits that Mr Tong, the interim
liquidator, should be appointed liquidator. His
consent and certificate, as required
under the Companies Act 1993, has been filed.


[18]     Mr Bos, for Mr Tse, submits that the
Official Assignee or, if a private
liquidator is preferred then, Messrs Boris van Delden and John Whittfield of the firm
McDonald
Vague Insolvency and Business Recovery Specialists should be
appointed as liquidators. A consent on behalf of Mr van Delden and Mr
Whittfield
has also been filed. It contains the appropriate certificate in terms of the Companies
Act 1993.


[19]     The plaintiffs
do not, in any way, question the independence and impartiality
of Messrs van Delden and Whittfield. Indeed, the plaintiffs' counsel
submitted that,
should I not appoint Mr Tong, the plaintiffs would prefer the appointment of Mr van
Delden and Mr Whittfield over
the Official Assignee.


[20]     Mr Bos submitted that Mr Tong should not be appointed as liquidator by the
Court.    He submitted
the actions taken to date by Mr Tong showed a lack of
independence and impartiality on his part or, at least, created a perception
of that
position. He submitted that that arose, in part, from Mr Tong's lack of experience in
undertaking insolvent liquidations.
He drew attention, specifically to the primary
responsibility of an interim liquidator which is referred to in s 246 of the Companies
Act 1993. That is to maintain the value of the assets owned or managed by the
company.


[21]     The appointment of a provisional
liquidator is provisional. It operates to
protect the property for an appropriate distribution only in the event of an order for
winding up being made. The fact that there is no specific limitation imposed on the
powers of an interim liquidator as opposed to
the liquidator appointed on a winding
up does not, in any way, change the interim liquidator's role: re Chateau Hotels Ltd.


[22]
    Mr Bos submitted that Mr Tong, in this case, went beyond the position that
he should have adopted as interim liquidator.

[23]
  Mr Tong wrote to the solicitors for the plaintiffs on 23 July 2007. His letter
records:

       I appoint and instruct you to act
on behalf of the company in protecting the
       company's interests including, but not limited to, requesting documents,
     
 initiating Court proceedings, corresponding with third parties. This authority
       is full and unfettered.

That letter is written
some nine days after Associate Judge Christiansen had
appointed an interim liquidator by minute of 12 July 2007.


[24]   It is not
disputed that Mr Tong appointed the plaintiffs', Mr Hung and Mr
Yong, as his agents to search company records. His response to criticism
of that
action is that he was entitled to do this in reliance on the Sixth Schedule to the
Companies Act 1993. Further, he wished
to utilise Mr Yong's experience as a
chartered accountant.


[25]   These two matters immediately raise a concern as to Mr Tong's
independence and impartiality. Street J in Allebart Pty Ltd and the Companies Act
emphasised that a liquidator should not permit
a situation to develop in which it
might appear that he has yielded up to any degree whatever his exclusive
independent control in
the decision-making process and administration of a winding
up. The appointment of the solicitors in this case does just that. As
Wylie J said in
re Trafalgar Supply Co Ltd (in liquidation) where a situation creates a body of
suspicion, whether it is justified
or not, but with some factual foundation, it is
undesirable that that person should be appointed the liquidator. It can only lead
to
those interested in the liquidation of a company being dissatisfied that an appointee
of the Court may not be totally impartial
in the performance of his or her duties.


[26]   I mention other areas where I have a concern as to Mr Tong's understanding
of what
is required of an interim liquidator and a liquidator. Mr Tong signed a letter
addressed to the Registrar of Companies, dated 21 July 2007, advising that he had
been appointed liquidator of
the defendant by the High Court on 19 July 2007. He
clearly had not been. The same letter goes on to give what is a liquidator's
first
report and perpetuates his claim that he was the liquidator.

[27]   The evidence also indicates that he called for proofs
of debt and indicated
that he would not be calling a meeting of creditors. Whilst I do not regard those
matters as particularly important,
they really flow from Mr Tong's misunderstanding
of the role that the Court's appointment intended him to take.


[28]   I have no
doubt that some of the actions that Mr Tong had taken leading, in
particular, to securing an undertaking from Mr Tse's solicitors
to hold a large sum of
money in excess of $600,000 pending resolution of proceedings issued on the
company's behalf, apparently on
Mr Tong's instruction, will be of considerable
benefit.   Normally, the issue of proceedings by an interim liquidator is not
appropriate,
although each case's circumstances would need to be reviewed on that
particular point. For an example of a Court finding a lack of
authority to commence
proceedings I refer to re Chateau Hotels Ltd. The proceedings which Mr Tong
authorised apparently currently
stand adjourned pending the determination of who
should be appointed the liquidator. I take that to be no more than a need to establish
the authoritative basis for the continuation of those proceedings. The proceedings
currently await determination of a strike out
application filed by Mr Tse.


[29]   What became apparent, as I listened to counsel's submissions in this case, is
that the plaintiffs,
who say they are of limited means, are concerned that their ability,
or the liquidator's ability, to finance a proper investigation
of the actions of the
director of the defendant company will be severely curtailed, and possibly lost, if a
new liquidator is now
appointed. They are concerned that the work that Mr Tong
has undertaken may well have to be repeated by any replacement liquidator
in
forming a view as to whether to continue, more particularly, with the proceedings
that have been issued against Mr Tse. They say
they are concerned that no real
objection was raised to Mr Tong's appointment by solicitors acting for Mr Tse. That
is so, to a certain
extent, although there was an early challenge to the basis for the
plaintiffs' solicitors acting for the liquidator. When challenged
about this counsel's
response was that they would terminate their instructions from the plaintiffs and act
solely for the liquidator.
With respect, that completely misunderstands the position
and, in fact, is directly contrary to their position as counsel for the
plaintiffs in the
application which is before me now. What is apparent is that the liquidator has given
an open authority to the
plaintiffs' solicitors to take what steps they deem

appropriate, including the issue of proceedings, in a case where the conflict
is clearly
between shareholders.


[30]   The plaintiffs gave notice wishing to cross-examine Mr Tse. I listened very
carefully to
their arguments in relation to this matter but came to the very clear
conclusion that cross-examination of Mr Tse would not assist
me in the area of
greatest concern, that is, whether Mr Tong would be seen to be independent and
impartial. The conclusions that
I have reached can be derived solely from the
plaintiffs' affidavits. The conflict of interest flowing from the solicitors' acceptance
of briefs and the open authority given by Mr Tong to those solicitors is quite
independent of any action or anything said by Mr Tse.


[31]   Mr Deliu invited me to rule that Mr Tse had no standing. His submission
was advanced on the basis that r 700R, which permits
a person to file a notice of
appearance, does not, by subr (b), permit such a person to do other than either
support or oppose the
application.


[32]   Mr Tse has standing, in my view, in this case and is an interested party
because he fits within the definition of persons who are authorised
to commence a
proceeding to appoint a liquidator by the operation of s 241(2)(c) of the Companies
Act 1993. That arises irrespective
of whether he is or is not a creditor. Mr Deliu
invited me to find he was not because of an alleged set-off. There is no need for
me
to determine his status as a creditor. Indeed, it is difficult to see how I could
determine this issue on the information before
me. His right to apply, in this case,
flows from his status as a shareholder and a director. There is no contest that he is
both
in this case.


[33]   There is no point in Mr Tse filing a statement of defence in utilisation of the
right to do so by virtue of
r 700P. He plainly did not oppose the application to put
the company into liquidation. His opposition, which was clearly set forth
in his
notice of appearance, was simply as to who the Court should appoint utilising its
powers under s 241(4) of the Companies Act
1993. Accordingly, I reject Mr Deliu's
submission and find that Mr Tse does have standing.

[34]   Mr Deliu and his junior, Mr Orlov,
both invited me to disregard Mr Tse's
opposition to Mr Tong because of the fact that there had been a tacit acceptance of
Mr Tong's
appointment as interim liquidator and an alleged lack of opposition by
Mr Tse to the steps that Mr Tong had taken. Mr Bos, in the
first instance, did not
accept the submission that there had been such an acceptance. It is unnecessary for
me to rule on it, in
any event, because, as I have already ruled in this judgment, the
Court's discretion as to who is to be appointed a liquidator cannot
be fettered by the
actions of the parties. It is the Court's role to appoint a liquidator. It is for the Court
to be satisfied, in
the exercise of that discretion, who is an appropriate person to
appoint. I have already referred, in this judgment, to criteria
which are helpful in the
exercise of that discretion. As I have mentioned, they are not exhaustive. They
cannot be because the Court's
discretion cannot be fettered.             The authorities,
however, emphasise the importance of an appointment which is independent
and
impartial and seen to be. What has happened since Mr Tong's appointment leaves
me in doubt as to his independence and his impartiality.
Whether that flows from
decisions he has made himself or from the legal advice that he has received I cannot
yet determine. What
I am able to determine is that he has given a very wide
authority to the plaintiffs' solicitors and has felt no difficulty in appointing
the
plaintiffs as his agents to carry out tasks.


[35]   On the other hand, there is no such concern about Mr van Delden or
Mr Whittfield.
Nor do I apprehend any real disadvantage in their appointment. The
Court is confident that they can properly discharge their duty
as liquidators. Any
concern about the financing of their work is more imaginary than real. Bearing in
mind the need to maintain independence,
they have the same ability as Mr Tong to
take steps to finance what inquiries they deem appropriate.


Conclusion


[36]   I am not
satisfied that the appointment of Mr Tong should be made in this
case. That then causes me to consider what the options are. To a
certain extent, the
decision is relatively straightforward because the plaintiffs, through counsel, have

indicated that they have
no objection to the appointment of Mr Boris van Delden and
Mr John Whittfield.


Orders


[37]   I order that the defendant company
be put into liquidation. Boris van Delden
and John Whittfield are appointed the liquidators. At the request of counsel I reserve
costs. I allow the parties fourteen days to endeavour to resolve costs. If they cannot,
memoranda shall be filed in support, opposition
and reply at seven-day intervals.


[38]   This order is made at 3.30pm




                                                    
       _____________________

                                                                             JA Faire
                                  
                                   Associate Judge