Steven v Te Awanga Lifestyle Limited [2014] NZHC 2129 (4 September 2014)

Last Updated: 9 September 2014

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2014-441-44 [2014] NZHC 2129

IN THE MATTER OF	The Companies Act 1993
BETWEEN	GARTH CAMPBELL STEVEN Plaintiff
AND	TE AWANGA LIFESTYLE LIMITED Defendant

Hearing:	4 September 2014
Counsel:	J Bates for plaintiff No appearance for defendant
Judgment:	4 September 2014

_{ORAL JUDGMENT OF ASSOCIATE JUDGE SMITH}

[1] This application to place the defendant in liquidation has proceeded on an undefended basis. A defence purportedly filed by Mr Mahoney, a shareholder and director of the defendant, is not valid: Mr Mahoney, not being a solicitor, had no standing to file the document.

[2] Mr Mahoney was given time to instruct legal counsel for the defendant but he has elected not to do so. In those circumstances the purported defence filed by the company is struck out. Mr Mahoney did not personally file a notice of intention to appear to support or oppose the application, and did not seek a right of audience in his capacity as a shareholder of the defendant.

[3] I have nevertheless raised with counsel a number of issues relating to what appears to have been a compromise entered into by the defendant with its creditors on 31 March 2014, under which payment of the defendant’s creditors was to be deferred, without any payments on account and without interest, until 2029. If the

_{compromise was valid, the effect would appear to be that the plaintiff was bound by}

GARTH CAMPBELL STEVEN v TE AWANGA LIFESTYLE LIMITED [2014] NZHC 2129 [4 September

2014]

it, and precluded from presenting and prosecuting this liquidation application: Companies Act 1993, s 230(2).

[4] Copies of the compromise documents were produced by the plaintiff with an affidavit sworn by Ms Anna Wright, and counsel for the plaintiff has filed memoranda in response to various issues raised by the court.

[5] The compromise was no ordinary compromise. First, the moratorium period of 15 years without any payment may be described as extraordinary. Secondly, there were only two unsecured creditors. There was the plaintiff with a debt of approximately $59,000, and there was Mr Mahoney himself, with a debt said to be approximately $480,000. No meeting was actually held. The proposal was to be decided on postal voting in accordance with s 230(1) and schedule 5, clause 1(c), of the Act.

[6] The plaintiff, although receiving notice of the meeting, did not vote. Mr Mahoney did though, and he subsequently declared the compromise approved.

[7] The plaintiff did not, within the period allowed under s 232(4) of the Act, make any application to the court under s 232(3) for an order that he is not bound by the compromise.

[8] Mr Gustafson for the plaintiff submitted that the compromise was purportedly made after a statutory demand served on the defendant by the plaintiff had expired, and that as no compromise has been entered into within the 15 working day period allowed for compliance with the demand, an act of insolvency occurred. But it seems to me that most if not all companies which propose compromises to their creditors will be insolvent, and the expiry of the period for complying with a statutory demand, without payment, is designed only to provide an evidentiary basis for a creditor’s subsequent liquidation application based on insolvency.

[9] Secondly, Mr Gustafson submitted that s 233(2) of the Act clearly contemplates the liquidation of a company which has previously entered into a compromise with its creditors. But it seems to me that s 233(2) must be read

together with s 230(2), under which creditors who have had notice of a proposed compromise which is subsequently approved, are bound by that compromise. Counsel was unable to refer me to any authority on the point, but it seems to me that the provision in s 233(2) is intended to address the situation where the company has been put into liquidation by a creditor who did not have notice of the proposed compromise and was therefore not bound by it. Any creditor who became a creditor of the company after the compromise was approved would come into that category.

[10] I was referred to the Court of Appeal decision in Buttle v Allen as official liquidator of Buttle & Co. Sharebrokers (in liquidation),¹ in support of the proposition that a compromise under s 230 does not per se preclude the liquidation of the company. I agree, but I do not see that as the issue in this case. The issue is whether it is open to a creditor who has received proper notice of a compromise proposal, and would be bound by the proposal if approved, to commence a liquidation claim in the face of that approval. In my view such a creditor could not be said to be “bound” by the proposal if it were free to commence a liquidation claim

shortly after the compromise was approved. The issues in Buttle were concerned with a different scenario, in which the liquidator of the company which had entered into a court-sanctioned compromise sought to proceed against the directors of the company, alleging that they were personally responsible for the company’s debts.

[11] Mr Gustafson also submitted that there were irregularities, in that the quorum provisions of the fifth schedule to the Companies Act were not met, as not all creditors attended. But it seems to me that the defendant was entitled to hold the “meeting” by postal ballot, and that the quorum provisions of the schedule were inapplicable to a “no actual meeting/postal voting only” scenario.

[12] In the end, while I have considerable sympathy with the position Mr Steven finds himself in, I think he ignored the proposed compromise at his peril.

[13] I do not think it is either necessary or appropriate in this liquidation proceeding to rule on the validity or otherwise of the compromise. That in my view

_{should be the subject of a separate proceeding or application.}

¹ Buttle v Allen [1994] 1 NZLR 396.

[14] In the exercise of my discretion, I decline to make the liquidation order sought, and the proceeding is dismissed. There will be no order for costs.

Associate Judge Smith

Solicitors:

Gresson Grayson, Napier for plaintiff

No appearance for defendant