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High Court of New Zealand |
Last Updated: 21 June 2018
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IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
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CIV-2010-409-002323 [2018] NZHC 1232
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UNDER
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The Companies Act 1993
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IN THE MATTER
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of the liquidation of LIVINGSPACE PROPERTIES LIMITED (in liq)
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BETWEEN
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COMMISSIONER OF INLAND REVENUE
Plaintiff
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AND
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LIVINGSPACE PROPERTIES LIMITED
(in liq) Defendant
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Hearing:
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1 May 2018
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Appearances:
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G Neil for Robert Walker, liquidator of Livingspace Properties Ltd (in
liq)
D J Ballantyne for K L Buxton (Respondent)
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Judgment:
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29 May 2018
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JUDGMENT OF ASSOCIATE JUDGE OSBORNE
[under s 266 Companies Act 1993]
Introduction
[1] Robert Walker is the liquidator (“liquidator”) of Livingspace Properties Ltd (in liq) (“Livingspace”). Kristina Louise Buxton is the director of RFD Finance Ltd (RFD), having been so appointed on 9 December 2014.
COMMISSIONER OF INLAND REVENUE v LIVINGSPACE PROPERTIES LIMITED (in liq) [2018] NZHC 1232 [29 May 2018]
Background
[2] On 13 September 2010, RFD took assignment of securities which Livingspace had provided to financiers. On 16 September 2016, RFD and Livingspace entered into a contract by which RFD lent $300,000.00 to Livingspace. On the same date, RFD as mortgagee took possession of the businesses of Livingspace (in particular, two accommodation businesses in Invercargill and Dunedin) (“the mortgaged property”). Subsequently, on 6 August 2012, RFD ceased to be in possession of the mortgaged property.
The liquidator’s application
[3] The liquidator applies for orders that Ms Buxton:
(a) On a date to be allocated by the Court, attend before the Court and be examined on oath or affirmation by or on behalf of the Liquidator or a barrister or solicitor acting on behalf of the Liquidator on any matter relating to the business, accounts and/or affairs of Livingspace Properties Limited (in liq) (Company); and
(b) Produce originals or copies of all books, records and/or documents relating to the business, accounts, or affairs of the Company in Ms Buxton’s possession or under her control, including but not limited to the following matters:
(i) Any statement of account detailing the transactions between the Company and RFD Finance Limited (RFD);
(ii) Any accounting records that RFD must keep as mortgagee in possession of the Company’s mortgaged land, goods or accounts receivable required by s 160 of the Property Law Act 2007;
(together, Documents)
(c) Produce the Documents to the Liquidator by delivering them to the offices of Meredith Connell, Level 5, 4 Graham Street, Auckland within:
(i) 20 working days of the date of service of the Court’s sealed order made pursuant to paragraph 1(b) above; or
(ii) 10 working days prior to the date of the examination scheduled pursuant to the order made at paragraph l(a) above, whichever is the earlier.
Liquidator’s power to obtain documents and information
[4] Section 261 Companies Act 1993 (the Act) empowers a liquidator to obtain documents and information from a director (and other identified persons):
261 Power to obtain documents and information
(1) A liquidator may, from time to time, by notice in writing, require a director or shareholder of the company or any other person to deliver to the liquidator such books, records, or documents of the company in that person’s possession or under that person’s control as the liquidator requires.
...
[5] Section 266 of the Act gives the Court powers in relation to the obtaining of documents and other information relating to a company in liquidation. Section 266 provides:
266 Powers of court
(1) The court may, on the application of the liquidator, order a person who has failed to comply with a requirement of the liquidator under section 261 to comply with that requirement.
(2) The court may, on the application of the liquidator, order a person to whom section 261 applies to—
(a) attend before the court and be examined on oath or affirmation by the court or the liquidator or a barrister or solicitor acting on behalf of the liquidator on any matter relating to the business, accounts, or affairs of the company:
(b) produce any books, records, or documents relating to the business, accounts, or affairs of the company in that person’s possession or under that person’s control.
(3) Where a person is examined under subsection (2)(a),—
(a) the examination must be recorded in writing; and
(b) the person examined must sign the record.
(4) Subject to any directions by the court, a record of an examination under this section is admissible in evidence in any proceedings under this Part, section 383, subpart 6 of Part 8 of the Financial Markets Conduct Act 2013, or section 44F of the Takeovers Act 1993.
Steps taken to obtain documents and information
[6] RFD had two sole directors before Ms Buxton. Ms Buxton’s husband, David Ian Henderson, was director until 1 December 2010. Ian Bruce Hyndman was director from 1 December 2010 to 9 December 2014. Throughout, Ms Buxton was the sole shareholder of RFD.
[7] On 1 August 2013, the liquidator issued a s 261 notice to Mr Hyndman requiring him to send all information and documentation sufficient to enable Livingspace to comply with s 22 Tax Administration Act 1984. The information was to include, but not be limited to, a statement of account detailing the transactions between Livingspace and RFD.
[8] Mr Hyndman did not send any documents to the liquidator in response to that notice.
[9] On 3 August 2015, the liquidator issued a s 261 notice to Ms Buxton. Ms Buxton’s notice included a copy of Mr Hyndman’s notice and required Ms Buxton to comply with the requirements of that notice. Ms Buxton’s notice referred to RFD’s taking possession of Livingspace’s businesses and recorded that RFD, as mortgagee in possession, had been obliged to comply with s 160 Property Law Act 2007. That included maintaining accounting records for the property that was subject of the possession. The liquidator stated that it was those records which he required Ms Buxton to deliver to him forthwith.
[10] Ms Buxton did not send any documents to the liquidator in response to that notice.
[11] On 20 October 2017, the liquidator issued a second s 261 notice to Ms Buxton. He attached a further copy of his 2015 notice. He required Ms Buxton to comply with the new notice no later than 25 October 2017.
[12] Ms Buxton did not reply to the second notice.
The liquidator’s interest in the requested documents
[13] The liquidator seeks the requested documents on the basis that they will assist him in ascertaining and locating property (tangible or intangible) of Livingspace and thereby enable him to discharge his functions and duties under the Act. He identifies Ms Buxton, in terms of s 261(2)(e) of the Act, as a person having “knowledge of the affairs of [Livingspace]”. He asserts that production of the requested documents would not impose an unnecessary or unfair burden on Ms Buxton and the order sought is reasonably required in the interests of justice.
[14] In his affidavit evidence, the liquidator refers to information he has obtained through matters of public record as to RFD’s period in possession of the mortgaged property.
[15] Mr Hyndman gave notice to the Companies Office in late-2012 that RFD withdrew from possession of Livingspace’s mortgaged property from 6 August 2012. The liquidator exhibits the four reports (2010 – 2012) made by Mr Hyndman on behalf of RFD as mortgagee in possession. RFD’s reports record:
TABLE 1
RFD’s recorded income and expenditure
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16 Mar 11
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16 Sep 11
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16 Mar 12
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16 Sep 12
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Cash receipts
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1,295,884
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1,360,016
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1,409,226
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1,117,108
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Operating Expenses
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912,104
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1,156,486
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1,060,880
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1,043,207
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Management Fees
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150,000
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150,000
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150,000
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117,534
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Legal Fees
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8,115
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14,060
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12,080
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14,821
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Total Payments
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1,070,219
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1,320,546
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1,222,960
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1,175,563
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Net Receipts and Payments
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225,665
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39,470
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186,267
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(58,455)
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Funds paid to mortgagee
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225,665
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39,470
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186,267
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(58,455)
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[16] The liquidator has scrutinised such information as he has in relation to the period of RFD’s possession. He identifies a number of issues which arise from that information:
- (a) If RFD’s receipts from possession were attributed first to interest, the loan balance would have been repaid before RFD gave up possession;
(b) The liquidator is concerned that the operating expenses claimed by RFD may have been inflated. He draws the conclusion of inflation partly by analysis of a comparison with Livingspace’s operating expenses when it controlled a third business at Christchurch. The liquidator also has regard to affidavit evidence provided by Simon Thorn, one of the receivers of Livingspace who took legal proceedings against RFD and Livingspace. Mr Thorn (apparently by reference to discovered documentation relating to operating expenses) concluded in May 2012 that RFD’s claimed operating expenses were disproportionate and inaccurate in a number of areas. The receivers’ litigation resulted in a judgment for interim relief in Thorn v RFD Finance Ltd,1 in that the receivers obtained an order that RFD withdraw from possession of Livingspace’s businesses (including the accounts receivable relating to them). Potter J, in concluding that such relief was available to the receivers, found that RFD was no longer entitled to remain in possession as mortgagee, saying:2
On RFD’s own figures, it has received sufficient to recover repayment of the amount secured plus interest and costs.
(c) The liquidator deposes that he has pursued the production of information from both Mr Hyndman and Ms Buxton to enable him to identify and realise legal claims that belong to Livingspace.
Applicable principles
[17] Both Mr Neil and Mr Ballantyne referred to ANZ National Bank Ltd v Sheahan as authoritative on the principles pertaining to the exercise of the discretion under s 266 of the Act.3 Relevant considerations include:
1 Thorn v RFD Finance Ltd [2012] NZHC 1959.
2 At [34].
3 ANZ National Bank Ltd v Sheahan [2012] NZHC 3037, [2013] 1 NZLR 674.
(a) A liquidator will generally be permitted to examine if the information sought is a genuine investigative step to enable the liquidator to reach an informed decision on what to do, whether that involves reconstitution of knowledge or not.4
(b) As a liquidator usually has limited funds, it is in the public interest that he or she obtains relevant information with as little expense as possible and in the most expeditious manner.5
(c) A liquidator will usually be allowed to examine if he or she is not seeking to bring pressure to bear on a potential litigation adversary for some “ulterior purpose”.6 The fact that production or examination may be, and usually is, intensely unwelcome does not amount to an unfairness which counts against an order.7
Ms Buxton’s opposition
[18] Ms Buxton opposes each of the orders sought by the liquidator. In addition to relying on her own affidavit evidence, Ms Buxton records 12 grounds of opposition:
4 At [55].
5 At [56].
6 At [59].
7 At [59], citing Re Northrop Instruments and Systems Ltd [1992] 2 NZLR 361 (HC) at 365.
Gower and Stephen Tubbs and the resulting settlement of proceedings (CIV: 2010-409-2807).
[19] In her affidavit in opposition, Ms Buxton provides history and exhibits a substantial number of documents which are referred to in her evidence. The evidence, particularly when its relevance was developed by Mr Ballantyne’s submissions, supports the proposition that avenues of recovery for Livingspace which the liquidator appears to have in mind may face substantial if not insuperable hurdles.
[20] In the closing paragraphs of her affidavit, Ms Buxton challenges the reasonableness or rationality of the liquidator’s present application by reference to both her view of the merits of his avenues of enquiry and because he “appears to have taken no steps to advance the liquidation since his appointment”.
[21] Ms Buxton deposes that she sees the application as putting RFD and herself to the expense of responding in circumstances where there may be no realistic chance of recovery (by RFD and herself) of any costs incurred. She deposes that the costs will be “considerable” and it may take some time to “appropriately identify records that fall within the scope of any such order”. She records that while she was not a director at the time RFD was mortgagee in possession, she is not aware of any issues being raised as to the sufficiency of RFD’s reporting pursuant to ss 162 – 163 Property Law Act 2007.
Discussion – production of accounting records from operation of Livingspace’s business
[22] For Livingspace (as mortgagor), the accuracy of the s 163 Property Law Act reports of RFD (as the mortgagee which had taken possession) was fundamentally important. Accurate accounting was needed to determine either that Livingspace still had a debt to RFD or that RFD had recovered through its operation of the properties more than it was owed. The director of Livingspace was entitled under s 155 Property Law Act to an accounting of all income and allowances. It may be in this case that the close relationship between Livingspace and RFD resulted in the then-director of Livingspace not demanding the degree of accounting which Livingspace under the Property Law Act could have required from RFD. While the liquidator through an application of this nature often seeks to reconstitute the knowledge which the company’s directors held, the Court’s powers are also amenable to enabling the liquidator to procure documents and information which the company’s directors could have obtained in relation to the company’s affairs but did not.
[23] Ms Buxton’s criticism of the liquidator for “having taken no steps to advance the liquidation since his appointment” lacks merit – the liquidator (before incurring the cost of a fully supported and opposed application) attempted unsuccessfully on
three occasions to obtain either from Ms Buxton or Mr Hyndman the documentation and information now the subject of this application.
[24] The Court attaches little weight to Ms Buxton’s general statement that the costs of compiling information will be “considerable” and that it will take “some time” to appropriately identify records which fall within the scope of any order. RFD, as the party which took possession of Livingspace’s businesses, had a duty to keep proper accounting records. It needed good prime records in order to prepare accounts. In the absence of evidence from Ms Buxton that she did not receive all the relevant records from Mr Hyndman, the Court for the purposes of the present application assumes that she did. She received her first s 261 notice from the liquidator within eight months of taking over as sole director of RFD in August 2015. The implication of her affidavit evidence is that she simply has not taken any steps to identify relevant records since that time.
[25] What is clear is that records relating to the operation of Livingspace’s businesses (while RFD was mortgagee in possession) are of relevance for Livingspace. I have referred (above at [16](b)) to the analysis undertaken by Mr Thorn (one of Livingspace’s receivers) of operating expenses charged by RFD when it was in possession. That analysis resulted in this Court requiring RFD to withdraw from possession of Livingspace’s businesses. As noted by the Court:
On RFD’s own figures, it has received sufficient to recover repayment of the amount secured plus interest and costs.
[26] Leaving aside any matters of issue estoppel, the exploration of evidence in Thorn v RFD Finance Ltd and the conclusion of the Court reinforces the relevance of the requested documents for the liquidator’s purposes.
[27] Another ground of opposition advanced by Ms Buxton (alternative to the proposition that the documents sought are irrelevant or unnecessary) is that all the relevant documents have already been supplied during the course of Livingspace’s liquidation. There is a contest between the parties on this matter. Ms Buxton’s evidence itself falls short of the ground of opposition in that she deposes:
He (the liquidator) has received numerous records relating to the liquidation of Livingspace from the previous liquidators, Receivers and RFD.
[28] Ms Buxton thereby does not assert that all requested records have been provided to the liquidator. Nor does she give any detail of the covering correspondence that could be expected to have existed or of the individuals who are said to have provided RFD’s documents. What is common ground is that none of the requested documents has been provided since the s 261 notices were served. The liquidator filed reply evidence to Ms Buxton’s affidavit, stating:
I have received extremely limited records relating to LPL from the previous liquidators and the various Receivers. In this regard, a letter from the prior liquidators dated 7 December 2012 in response to a notice issued under s 261 Companies Act 1993 records the limited information that I was provided ...
I received no records from RFD in respect of LPL’s business, accounts and affairs generally or more particularly in respect of RFD’s operation of LPL’s business for the period 16 September 2010 to 12 August 2012 from any person.
[29] I find it established on the evidence that RFD will have records of the nature requested by the liquidator which it has not supplied to the liquidator.
[30] In her grounds of opposition, Ms Buxton referred to some of the documents sought by the liquidator as being “internal documents of RFD”. It is not clear precisely what Ms Buxton intends by that reference. The liquidator’s requests have all been for the accounting records which RFD should have maintained in relation to Livingspace’s businesses.
[31] For Ms Buxton, Mr Ballantyne submitted that any production of documents ordered under s 266 of the Act should be subject to restrictions to protect matters of RFD’s commercial sensitivity and confidentiality. Given the nature of documentation sought by the liquidator, it is difficult to envisage how those documents (relating to the operation of Livingspace’s businesses) could be said to attract commercial sensitivity. As it is, any legitimate concern recognised by counsel for RFD can be provided for in orders to be made.
Lack of utility/oppression
[32] Mr Ballantyne devoted a substantial portion of his submissions to establishing what he referred to as Ms Buxton’s primary ground of opposition. He did so by reference to the substantial documentation produced by affidavit and the history of dealings between Livingspace and other entities. The argument for Ms Buxton is that, by reason of various transactions and contracts entered into, any remedies which Livingspace might have were now vested in RFD as Livingspace’s first and second ranking secured creditor and that a deed of assignment and settlement which was entered into between RFD and Livingspace in February 2014 precludes any claim which the liquidator might advance.
[33] These matters as raised for Ms Buxton may, if established, have greater force in relation to the liquidator’s application for an order that Ms Buxton be examined. The Court has long recognised that the draconian nature of such an examination can make it an instrument of oppression. That said, the Court in the context of an interlocutory application such as the present must be cautious not to allow a conclusion reached in a summary context to defeat the expectation that a party’s entitlements will be determined through substantive hearing after all the evidence is tested.
[34] Ms Buxton’s concerns as to unnecessary or oppressive conduct on the part of the liquidator cannot in this case attach strongly to the liquidator’s request for documents. Nothing said by Ms Buxton establishes that production of the requested documents to the liquidator will be burdensome, let alone unduly burdensome. RFD took and had possession of Livingspace’s businesses. It received the income RFD must hold the relevant records. It is appropriate that Livingspace (through its liquidator) also has access to those records. Ms Buxton, as RFD’s sole director, is the appropriate person to have the responsibility for gathering and producing the document.
[35] Mr Ballantyne submitted that if the Court were to grant the liquidator’s application, it should also order, pursuant to s 261(5) of the Act, that the liquidator pay Ms Buxton’s reasonable remuneration and travelling expenses. Travelling expenses need not arise in relation to the production of documentation. I am not satisfied on the
evidence that remuneration for time taken in producing the documents is reasonably required – Ms Buxton’s duties as liquidator of RFD extend to enabling her company to meet its Property Law Act duties of accounting. On the other hand, she should recover her reasonable disbursements in providing the documents to the liquidator’s solicitors.
A staggered outcome
[36] In the circumstances, I am satisfied that it is appropriate at this point to order production of documents as sought by the liquidator. The liquidator will thereby be able to reach his own conclusions as to the accounting between RFD and Livingspace. That, in turn, may further inform his conclusions as to property (tangible or intangible) which might be available in the liquidation in the form of rights and remedies against other parties. The content of documents received may also further inform the liquidator as to whether Ms Buxton (rather than another person such as Mr Hyndman) is a person who might most appropriately be examined. If the production of documents brings to light evidence relevant to the undetermined aspect of the application, it is appropriate that that be before the Court before judgment is given on that aspect of the application.
[37] I recognise that through the process of production and examination of records the liquidator might not obtain any further information relevant to the issues he identifies in his affidavit evidence. On the other hand, further relevant information may be elicited. The Court has already heard fully developed submissions on the contractual and financing documentation and upon completion of the ordered production, will be in a position to promptly determine that part of the liquidator’s application in which he seeks an examination of Ms Buxton.
Orders
[38] I order:
(a) Kristina Louise Buxton shall produce originals or copies of all books, records and/or documents relating to the business, accounts, or affairs of Livingspace Properties Limited (in liq) (“the Company”) in her
possession or under her control, including but not limited to the following matters:
(i) any statement of account detailing the transactions between the Company and RFD Finance Limited (RFD);
(ii) any accounting records that RFD must keep as mortgagee in possession of the Company’s mortgaged land, goods or accounts receivable required by s 160 of the Property Law Act 2007;
(together, the Documents)
(b) Ms Buxton shall produce the Documents to the Liquidator of the Company by delivering them to the offices of Meredith Connell, Level 5, 4 Graham Street, Auckland within 20 working days of the date of service of the Court’s sealed order made pursuant to paragraph [38](a).
(c) Ms Buxton shall promptly upon production of the documents under paragraph [38](b) produce to the liquidator details of her reasonable out-of-pocket expenses, including the relevant invoice/s, incurred in photocopying and/or delivering documents pursuant to this order (together “Ms Buxton’s demand”).
(d) The liquidator shall promptly on receipt of Ms Buxton’s demand and without deduction make payment to her of her reasonable out-of-pocket expenses.
(e) Leave is reserved to Ms Buxton through a Memorandum filed by counsel within 15 working days of the date of service of the Court’s sealed order made pursuant to paragraph [38](b) to request in relation to exhibited documents the Court’s direction (with draft attached) designed to protect RFD’s legitimate commercial sensitivity or confidentiality in relation to any document to be produced.
(f) Leave is reserved to the parties to apply for further directions in relation to the orders in paragraph [38](a) – (d).
(g) The hearing of the liquidator’s application for an order of examination at paragraph [1](a) of the notice of application dated 11 December 2017 is adjourned to be brought on for completion of hearing on three days’ notice.
(h) The costs and disbursements of the application to date are reserved.
Associate Judge Osborne
Meredith Connell, Auckland
Canterbury Legal, Christchurch
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