Kijurina and Albarran [2014] NZHC 115 (10 February 2014)

High Court of New Zealand

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Kijurina and Albarran [2014] NZHC 115 (10 February 2014)

Last Updated: 3 March 2014

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2014-412-000008 [2014] NZHC 115

IN THE MATTER OF Sections 239ADQ and 239F of the Companies Act 1993, Part 15A of the Companies Act 1993 and Part 19 of the High Court Rules

AND

IN THE MATTER OF an application by Brent Kijurina and Richard Albarran, of Sydney, New South Wales, Australia, Insolvency Practitioners, for a ruling on the validity of their appointment as administrators to Envirofocus Limited (Administrators Appointed and in Receivership)

Hearing: 10 February 2014

Appearances: G J Ryan for Applicants

No appearance for Debtor

Judgment: 10 February 2014

_{JUDGMENT OF DUNNINGHAM J}

[1] This is an originating application by Brent Kijurina and Richard Albarran, who are insolvency practitioners based in Australia. They seek an order confirming the validity of their appointment as administrators to Envirofocus Limited (Envirofocus) pursuant to s 239ADQ of the Companies Act 1993 (the Act).

[2] In the alternative, if they are found to be disqualified, the applicants seek an order pursuant to s 239F(2) of the Act that they may continue to act and to validate

_{their actions as administrators to date.}

KIJURINA AND ALBARRAN [2014] NZHC 115 [10 February 2014]

[3] There is some urgency to resolve this matter because of timing issues. On

15 January 2014, following a telephone conference, Mander J made timetabling orders requiring the creditors of Envirofocus to be served by email and to file and serve opposition to this application on or before 28 January 2014. I have today received an affidavit of service confirming that service has been effected on the creditors pursuant to that order. He also made orders pursuant to s 239AZ of the Act adjourning the watershed meeting of creditors for not more than 30 working days from the original scheduled date of 16 January 2014.

[4] No notice of opposition to this application has been received. The two interested parties¹ who participated in the 15 January 2014 teleconference have subsequently confirmed that they wish to take no part in the hearing of this application, although I note that the email received from Mr Woodgate, the receiver and manager of Envirofocus, records that while he will not be filing opposition, he does not submit to any order of the Court relating to the costs of this application.

[5] As the watershed meeting of creditors has been adjourned to

28 February 2014, the parties need some certainty on this issue prior to that meeting.

Background

[6] The applicants seek the Court’s determination as to the validity of the appointment as administrators in light of an allegation that they are disqualified under ss 239F and 280 of the Act.

[7] The relevant parts of those sections provide as follows:

Section 239F - Who may be appointed administrator

(1) A natural person who is not disqualified under subsection (2) may be appointed an administrator of a company.

(2) Unless the court orders otherwise, a person is disqualified from appointment as an administrator if that person-

(a) is disqualified under section 280(1) from being appointed or acting as a liquidator of the company; or

¹ Featherston Resources Ltd and Mr G. Woodgate

(b) is prohibited from being an administrator by an order made under section 239ADV.

280 Qualifications of liquidators

(1) Unless the Court orders otherwise, none of the following persons may be appointed or act as a liquidator of a company:

...

(c) A person who has, within the 2 years immediately preceding the commencement of the liquidation, been a shareholder, director, auditor, or receiver of the company or of a related company:

(emphasis added)

[8] The basis for the allegation by certain creditors that the applicants are disqualified is that, on 3 December 2013, the Supreme Court of New South Wales appointed the applicants as receivers and managers of two companies which are related to Envirofocus; Featherston Resources Limited (Featherston) and Adveco Fertilisers Pty Limited (Adveco). The orders provided that the applicants’ role was to “receive, manage and protect all of the property of FRL (Featherston) and its subsidiary Adveco Fertilisers Pty Limited whether within or outside Australia”.

[9] Featherston and Adveco are related companies of Envirofocus.² Featherston is the sole shareholder in Envirofocus and Adveco is a wholly owned subsidiary of Featherston.

[10] The appointment was made on an interim basis and was subsequently set aside by order of the Supreme Court of New South Wales on 10 December 2013 after hearing from other interested parties.

[11] As a result of the disqualification alleged, the applicants have considered it necessary to seek a ruling on the validity of their appointment under s 239ADQ of the Act which provides as follows:

_{239ADQ Court may rule on validity of administrator's appointment}

² Leaving aside the issue of whether, in a technical sense, Adveco is not a related company under s 280(1)(c) of the Act because it is not a New Zealand registered company, as discussed in para [15] below.

(1) If there is doubt, on a specific ground, as to the validity of the appointment of a person as administrator or deed administrator, any of the following persons may apply to the Court for a ruling on the validity of the appointment:

(a) the person appointed; or

(b) the company in question; or

(c) any of the company's creditors.

(2) In ruling that the appointment is invalid, the Court is not limited to the grounds specified in the application.

[12] The allegation that the applicants were disqualified arose at a creditors’ meeting which took place on 18 December 2013. At the meeting it was proposed that Mr Albarran and Mr Kijurina be replaced as administrators by alternate appointees who had by then been appointed as administrators of Featherston. A poll was taken on the issue of replacement at that meeting. The result of that poll was that:

(a) by number eight creditors voted in favour of the replacement of the applicants and six voted against it. The majority in number required by s 239AK(2) of the Act before the resolution could be adopted was therefore met.

(b) By value creditors accounting for $9,757.95 of a total accepted value of $29,923.60 voted in favour of replacement so the 75 percent by value component of s 239AK(2) was not met, and the resolution failed.

[13] Equally, taking creditors’ claims at face value, the result would not have allowed the appointed administrators to be replaced and the resolution would also have failed. However, notwithstanding the failure of the poll (both on the accepted value of the creditors’ claims and on the face value of their claims), as a consequence of the issues raised at this meeting, including the allegations that they were disqualified from appointment, the applicants have brought this application to have their appointment either confirmed as valid, or validated by the Court.

Discussion

[14] The question turns to be resolved on whether the applicants fall within the meaning of the word “receiver” at s 280(1)(c) of the Act because of their previous appointment as receivers to Adveco and Featherston.

[15] I note, as an aside, that Adveco is not a company registered in New Zealand and therefore it was argued that it does not fall within the definition of “company” at s 2 of the Act and therefore cannot be a “related company” of Envirofocus in terms of s 280(1)(c). However, Featherston is a related company of Envirofocus because it is registered in New Zealand, therefore the issue still needs to be determined as to whether the applicants are disqualified because they are receivers as defined in the section.

[16] Section 2(1) of the Act provides that the word “receiver” has the same meaning as in s 2(1) of the Receiverships Act 1993. Section 2(1) of the Receiverships Act 1993 defines “receiver” as follows:

Receiver means a receiver, or a manager, or a receiver and manager in respect of any property appointed-

(a) by or under any deed or agreement, or

(b) by the Court in the exercise of a power conferred on the Court or in the exercise of its inherent jurisdiction.

[17] As the applicants submit, “Court” is defined in s 2 of the Receiverships Act to mean “the High Court”. It was the contention of the parties who challenged the appointment of the administrators that the applicants were disqualified because they were (at least briefly), appointed as receivers of the related companies by the Supreme Court of New South Wales. The question to be determined therefore, is whether a receiver appointed by a foreign Court is a “receiver” for the purposes of s

280(1)(c).

[18] The applicants submit there is no need to give the words “the High Court” a more expansive meaning, such that the Supreme Court of New South Wales should fall within the definition. While s 5 of the Interpretation Act 1999 requires the Court to consider the purpose of a section in ascertaining its meaning and that may, on

occasion, require the word to be read more broadly than adopting the literal interpretation of its definition, in this case, I do not find it necessary to do that. The purpose of the disqualification of receivers appointed in New Zealand is to avoid the potential conflict of interest that arises if such receivers then act as administrators. The Act clearly recognises the appointment of receivers by a New Zealand Court as giving rise to a prima facie conflict of interest with an administrator’s role, but of course, that presumption can be displaced and the appointment confirmed.

[19] I accept that the legislature does not presume that a receiver appointed over property of a New Zealand company by any Court in any part of the world necessarily gives rise to a conflict that justifies automatic disqualification as an administrator. However, of course, if there are concerns about such a person’s independence, the Court retains a discretion to remove that person as an administrator, including on application by a creditor, under s 239R of the Act.

[20] For this reason I accept the applicants’ submissions that the definition of receiver which is imported into the disqualification provisions in s 280 of the Act is limited, in the case of a Court appointed receiver, to receivers appointed by the High Court of New Zealand. It therefore does not disqualify the applicants.

[21] For completeness, had I not reached this conclusion, I observe that I would have granted relief from disqualification under s 239F of the Act. I would have granted this relief because:

(a) The evidence is clear that the applicants are experienced insolvency practitioners who have conducted numerous insolvency-related appointments, including administrations in Australia.

(b) Their appointment as receivers to Featherston and Adveco does not give rise to a real risk that their independence as administrators of Envirofocus would be compromised. Their appointment was made by a Court, not a secured creditor, for the purpose of receiving, managing and protecting the assets of Featherston and Adveco. Their

appointment was short-lived and no significant actions, such as the sale of assets, were undertaken during that time.

(c) The setting aside of their appointment by the Supreme Court of New South Wales was also clearly unrelated to the propriety of their actions or to any issue with their conduct in the management of those companies.

(d) Finally, despite issue having been taken by the two interested parties who participated in the 15 January 2014 teleconference, neither of those parties, nor any other creditor of the company, has opposed this application.

[22] In seeking an order validating their appointment and actions as administrators of Envirofocus as from 6 December 2013, the applicants have also sought an order confirming that their liabilities incurred properly in the due performance of duties assumed as a result of their appointment as administrators, and their reasonable remuneration for the performance of such duties, be liabilities and remuneration in respect of which they are entitled to indemnification from the company’s assets pursuant to s 239ADL of the Act. The applicants seek, as part of that order, that it include the applicants’ costs of this application.

[23] I have not found it necessary to make such an order. I consider that the administrators are entitled to be indemnified out of the company’s property for the costs of making this application simply by operation of the provisions of s 239ADL of the Act, given that I have found their appointment to have been valid from the outset.

[24] Accordingly, I order that, pursuant to s 239ADQ of the Act, the applicants’ appointment as administrators of Envirofocus Limited on 6 December 2013 is confirmed as valid.

Solicitors:

White Fox and Jones, Christchurch