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High Court of New Zealand Decisions |
Last Updated: 8 October 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-2017-409-933
[2018] NZHC 2354 |
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BETWEEN
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ROBERT BRUCE WALKER
Applicant
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AND
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GEOFFREY DAVID ANGUS
First Respondent
DESMOND JOHN KNOWLES
Second Respondent
DAVID RONALD KITSON
Third Respondent
GRANT SMITH
Fourth Respondent
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Hearing:
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3 July 2018
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Appearances:
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G Slevin for Applicant
J B Lill for First and Second Respondents G Hair for Third Respondent
D Ballantyne for Fourth Respondent
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Judgment:
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7 September 2018
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JUDGMENT OF MANDER J
[1] The applicant, Mr Robert Walker, is the liquidator of two companies, Te Anau Ventures Ltd (Te Anau) and Tay Properties Ltd (Tay). Both are wholly owned subsidiaries of Property Ventures Ltd (PVL), in respect of which he is also the liquidator.
[2] Mr Walker has made application pursuant to the Companies Act 1993 (the Act) for orders directing the first and second respondents, Messrs Geoffrey Angus and Desmond Knowles to provide documents to him which are said to be in their
WALKER v ANGUS [2018] NZHC 2354 [7 September 2018]
possession or under their control.1 Both Messrs Angus and Knowles are directors of Secured Finance Ltd (SFL) and The Secured Investment Company Ltd (SICL), the latter under its previous name of Secured Lending Limited. These companies entered into loan agreements with Te Anau and Tay.
[3] Orders to produce documents are also sought in respect of the third and fourth respondents, Messrs David Kitson and Grant Smith. Accounting services relating to the Te Anau and Tay loans were provided to SFL and SICL and/or an assignee of those loans by Taurus Group Ltd (Taurus) or a related entity within the Taurus group of companies. Mr Kitson is a director of Taurus. Because of correspondence received from Taurus, Mr Walker believes the documents he seeks were provided to Mr Grant Smith who is the principal of the firm of solicitors which acted for the company, FTG Ltd (FTG), that purchased SFL and SICL’s rights under the loan agreements.
[4] Each of the respondents opposed the making of orders to produce the documents and records sought by Mr Walker. In the event that orders are made, Messrs Angus, Knowles and Smith seek reasonable remuneration and payment of expenses in complying with the orders.
[5] Leave was granted to file a number of further short affidavits from the parties. Mr Walker also made application to include in the list of documents to be provided copies of the electronic files containing the general ledgers for SFL and SICL for loans made by them to Te Anau and Tay. That application is dealt with at [90]-[95].
Background
[6] Te Anau was incorporated in August 2003 for the purpose of purchasing and developing land. It created and sold some 170 sections. During the course of that commercial enterprise, it obtained loans and became indebted to SFL and SICL. Those companies obtained a first mortgage over Te Anau’s sections. Te Anau was placed into liquidation on 7 September 2009. Its first liquidator reported that he had no funds
1 Companies Act 1993, s 266(2)(b).
available to investigate the company’s affairs. He considered it unlikely any funds would become available for its unsecured creditors because secured creditors were owed more than $2.7 million, and preferential creditors $179,000. Those debts exceeded the market value of its assets.
[7] From July 2010, SFL and SICL sold 19 or 20 sections belonging to Te Anau by mortgagee sale. Mr Walker deposed that no information regarding these sales was provided to the liquidator. In November 2012, the first liquidator was succeeded by Mr Walker. Te Anau was finally liquidated on the application of a construction company for a debt of some $133,000. The Commissioner of Inland Revenue (the Commissioner) lodged a proof of debt for some $200,000, and Te Anau’s general ledger showed unpaid accounts of approximately $42,000 as at March 2009. Mr Walker considers the company’s actual indebtedness is likely to be substantially higher.
[8] In June 2012, Mr Walker obtained documents relating to companies in the PVL group. Included in those documents were some internal accounting records for Te Anau, including its general ledger. Mr Walker also obtained a copy of a loan agreement between Te Anau and SFL and SICL, dated 5 August 2008. The purpose of the loan appeared to be to repay earlier borrowings. However, Mr Walker noted that
$350,000 was advanced to a company called Kapiti Ventures Ltd, a wholly owned subsidiary of Taurus, which had no apparent business relationship with Te Anau.
[9] In February 2013, Mr Walker wrote to Taurus seeking information relating to PVL and its subsidiaries. Taurus provided accounting, taxation and mortgage broking services to PVL and its subsidiaries for a number of years prior to that company’s collapse. The following month, Taurus provided, amongst other documents, a statement of transactions relating to the August 2008 loan involving SFL and SICL. Mr Walker deposed that this document is markedly different from the statement of transactions on the same loan that was provided to Te Anau in June 2010. Mr Walker considers there should at least be an audit trail explaining why these documents are different. He considers a general ledger would, or at least should, have been kept for the loan.
[10] Mr Walker also maintains that a reconciliation of the Te Anau general ledger and the trust account records of Mr Smith’s legal firm, which acted for Te Anau on its section sales, revealed discrepancies. Payments of $115,716.31 and $273,798.92 made from the proceeds of section sales and a partial repayment of the SFL/SICL mortgage in December 2008 had not been credited to Te Anau in the conflicting loan statements provided to Mr Walker. The liquidator also has a concern that a further payment in the amount of $71,566.60 made in August 2008 does not appear to have been credited to the loan account.
[11] Mr Walker says that, on 26 August 2013, he wrote to the directors of SFL and SICL seeking documents and information about these discrepancies and about various transactions listed in the loan statements that did not appear to relate to Te Anau. Mr Walker provides as an example that on 8 May 2008 there is an entry of $210,566.79 with the narrative “principal to repay Warrick Mews loan”. However, he is unaware of any business relationship between Te Anau and Warrick Mews Ltd, save that the latter was a guarantor of a loan to PVL. He also refers to an entry of the same date of $82,000 with the narrative “principal to Elgin Investments”, another guarantor. Mr Walker maintains there are several payments to Taurus for fees, but he is not aware what these fees were for and why Te Anau should have been paying them with funds borrowed from SFL and/or SICL. These unexplained payments to third parties total some $785,000.
[12] Mr Walker is of the view that the documents listed in “Schedule A” to his application are required in order for him to confirm the validity of the transactions recorded against Te Anau. He maintains that without a proper accounting he is unable to determine the extent of Te Anau’s indebtedness or the existence of any assets, as the case may be. He considers it to be possible that SFL and/or SICL are actually indebted to Te Anau under the loan arrangements, although he accepts there may be some credible explanation which shows this is not the case. Mr Walker is of the view that he needs access to the identified documents before reaching any conclusion regarding that issue.
[13] Mr Walker was appointed as liquidator of Tay on 13 December 2010 by the application of the Commissioner. The known debts of Tay total some $42,000, most of which is owed to the Commissioner.
[14] Tay owned two properties in Invercargill that were the subject of a first mortgage to the Southland Building Society and a second mortgage to SICL. Pursuant to an apparent agreement between Tay and SFL/SICL, rental income from the properties was paid to a company in the Taurus group and distributed to SICL. Tay had been trying to sell the properties for several months without success.
[15] In May 2011, Mr Walker received a loan statement for Tay from SICL. He subsequently received another copy of a loan statement addressed to the company. Mr Walker observed in his evidence that it is apparent the statements refer to the same loan facility because the first four entries are identical in each statement but, to his concern, thereafter they are markedly different.
[16] By letter of 26 August 2013, Mr Walker sought documents and information pertaining to the SICL loan facility for Tay, including the documents referred to in “Schedule B” to his application which are the subject of this proceeding. Mr Walker maintains that, as with Te Anau, he has not received the documents requested. He maintains the documents listed in Schedule B are needed in order for him to confirm the validity of transactions recorded against Tay, and that without proper accounting records he is unable to determine the extent of Tay’s indebtedness or the existence of any assets, as the case may be.
[17] Mr Walker deposed that having not received the documents he requested from Messrs Angus and Knowles in their capacity as directors of SFL and SICL, he wrote to Taurus, on 24 July 2014, seeking many of the documents and much of the information that he had requested from the directors in his letter of 26 August 2013. By letter of 1 August 2014, the solicitors for Taurus advised that its client was committed to meeting its obligation to provide the requested information and would
reply within four weeks. By this time, the Te Anau and Tay loans had been assigned to another company, FTG.
[18] On 12 September 2014, Mr Walker received a further letter from Taurus’s solicitors advising that its client had sought the consent of FTG to release the information to him. Further correspondence confirmed that the material Mr Walker sought was being collated as a priority and would address his queries. However, on
25 November, Mr Walker received a further letter stating that the requested information had been provided to the solicitors for FTG, who were now holding that material, but that it would be made available in due course. Notwithstanding that representation, the information and documents Mr Walker requested have not been provided, either by Mr Kitson of Taurus or by Mr Smith of the law firm acting for FTG.
The respondents’ response
[19] Messrs Angus and Knowles maintain they have been cooperative with Mr Walker throughout this process. In support of that view, Mr Knowles deposed that in response to a s 261 Companies Act request from Mr Walker of 26 February 2013, in relation to a related company of Te Anau and Tay of which Mr Walker was also the liquidator, information was provided on 12 April 2013 that fell within the scope of the orders sought under the present application. By way of formal reply on 14 April 2013, Mr Walker acknowledged receipt of what he described as a comprehensive response to his requests, and stated that should he have further questions he would make contact. Mr Knowles deposed that no further questions were received from Mr Walker on this matter. It was also noted that Mr Knowles attended a voluntary meeting with Mr Walker in October 2012, although at that time Mr Walker had not yet been appointed liquidator of Te Anau. Mr Walker also maintained that he was not, at that point in time, specifically investigating the affairs of Tay.
[20] Messrs Angus and Knowles maintain they have provided everything sought by Mr Walker’s application that they consider they are required to provide. They also maintain that full information was provided to the original liquidator which should
have been passed on to Mr Walker when the matter was handed over to him. Mr Knowles deposed that, in response to Mr Walker’s application, documentation was couriered to Mr Walker on 26 January 2018. Both directors maintain that the collating of this material took considerable time and was at some cost because their records over the relevant period had been archived in a number of locations. In particular, some documentation was recovered from their previous solicitors that had become disorganised as a result of the abandonment of their premises after the February 2011 Christchurch earthquake.
[21] The two directors maintain that a number of the documents listed in items 1 to 9 of Schedule A were couriered to Mr Walker on 26 January 2018. The provision of items 10 to 13 of Schedule A, which include sales prices of the sections and other information relating to their sale, were objected to on the basis they are matters of public record. It was not clear whether Mr Walker accepted Messrs Angus and Knowles’ position but, in the event, item 10 was not pursued at the hearing of his application.
[22] Item 14 of Schedule A lists the agreement by which SFL assigned to FTG its “right, title and interest” in Te Anau’s indebtedness on 21 March 2013. The directors deposed that they provided Mr Walker with a copy of the notice of assignment. They object to providing the assignment agreement itself on the basis the agreement does not relate to the business affairs of Te Anau, and cannot be provided voluntarily to him without FTG’s consent because the agreement provides that it is confidential to the parties. In relation to documents requested at items 15 to 24 of Schedule A, the directors maintain these have already been provided or have been withheld on the grounds they do not relate to the business affairs of Te Anau, are either not readily ascertainable, or are outside their possession or control.
[23] In relation to Schedule B, which concerns Tay, the directors deposed that items 1 to 9 were couriered to Mr Walker on 26 January 2018. Item 10 is considered to relate to SFL’s and SICL’s businesses and to be outside the scope of the application. In relation to items 11 to 15, the directors maintain they have either already provided those documents, they are properly withheld on the grounds that they are not relevant
to the application, or they are otherwise not readily ascertainable or outside their control.
Mr Kitson
[24] Mr Kitson, a chartered accountant and director of Taurus, confirmed that his company provided mortgage broking services to Te Anau and Tay up to late 2007. From time to time, Taurus provided trust account services to both companies and their lenders, SFL and SICL. Mr Kitson first became involved in communicating with Mr Walker in December 2010. In July 2011, he and a fellow director of Taurus met with representatives of Mr Walker. Mr Kitson maintains Taurus’s relationship with Te Anau and Tay was purely a commercial one. Taurus provided mortgage arrangement services and was paid by Te Anau and Tay accordingly. It did provide accounting services for Tay, but this, Mr Kitson maintains, was well before its liquidation.
[25] Mr Kitson deposed that copies of documents relating to the relationship and transactions between Te Anau, Tay and Taurus had been forwarded to Mr Walker on three previous occasions. Mr Kitson referred to earlier boxes of documents being provided to Mr Walker in June 2012 and March 2013. He deposed that Taurus does not hold, and has never held, any other documents concerning Taurus’s relationship with Te Anau and Tay. Mr Kitson maintains that Taurus has no knowledge of the affairs of Te Anau or Tay with respect to the transactions referred to in Mr Walker’s letter of 24 July 2014. In summary, Mr Kitson denied that Taurus has, or ever had, possession of the documents sought by Mr Walker, as listed in Schedule C of his application, other than one series of documents which he maintains he has already provided.
[26] Mr Kitson further deposed that Mr Walker has not previously requested a large number of the documents listed in Schedule C, for which orders are sought against him and Mr Smith.
[27] The fourth respondent, Mr Smith, is a director of the law firm Canterbury Legal. In reference to the list of documents itemised in Schedule C to Mr Walker’s
application, Mr Smith maintains the categories of documents sought are too broad to identify exactly the documents Mr Walker seeks. He states he is unable to supply documents which he cannot identify. Further, Mr Smith deposed that a significant portion of the documents being sought did not appear to have been in his firm’s possession, power or control.
[28] Mr Smith deposed that a number of the documents that Mr Walker appears to be seeking have, in any event, previously been supplied to him. In that regard, he referred to Mr Walker having, on 28 May 2013, acknowledged receipt of a number of files relating to various companies in respect of which Mr Walker was the liquidator. These, Mr Smith maintained, encompassed documents relating to Te Anau, including files concerning loans from SFL and SICL.
Mr Walker’s application
[29] Mr Walker’s application for orders rests on s 266(2)(b) of the Act which provides that:
(2) The court may, on the application of the liquidator, order a person to whom section 261 applies to—
...
(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.
[30] The persons to whom s 261 of the Act applies are persons listed in subs (2) of that section, namely:
(a) a director or former director of the company; or
(b) a shareholder of the company; or
(c) a person who was involved in the promotion or formation of the company; or
(d) a person who is, or has been, an employee of the company; or
(e) a receiver, accountant, auditor, bank officer, or other person having knowledge of the affairs of the company; or
(f) a person who is acting or who has at any time acted as a solicitor for the company—
Are the respondents persons to whom s 261 of the Act apply?
[31] Messrs Angus and Knowles are not directors or shareholders of Te Anau or Tay, nor have they acted in a professional capacity of the type referred to s 261(2)(e) and (f). They only come with the ambit of s 261(2)(e) by being persons who have knowledge of the affairs of those companies. Mr Lill submitted on their behalf that, as a result, such knowledge must be limited to the loans which SFL and SICL provided to Te Anau and Tay and through guarantees and securities Te Anau and Tay provided to other borrowers. Mr Lill submitted his clients were persons at the boundaries of whom a liquidator would ordinarily be entitled to require information. He argued the Court should take this into account in balancing the parties’ competing interests when exercising its discretion to make orders of the type sought.
[32] A related feature, which the applicant acknowledges, is that the documents being sought are not Te Anau or Tay’s records or documents. The Court is being invited to impose an obligation on another party to provide documents that the liquidator would not otherwise be entitled. Be that as it may, it is indisputable that both Messrs Angus and Knowles fall into the category of persons who have knowledge of the affairs of Te Anau and Tay, if only because of SFL and SICL’s financing of those companies.
[33] Mr Kitson disputes that he is a person who has knowledge of the affairs of Te Anau or Tay. He argues that the Court does not have jurisdiction to impose the orders sought by Mr Walker because he does not fall within the categories of persons to whom 261 applies.
[34] In Re Communication and Energy Workers’ Union Inc, Greg J held that, for the purposes of s 261(2)(e), it was not sufficient simply for the person from whom information was being sought to be a member of one of the named occupations.2 In that case, the liquidators requested documents from a bank which was not the banker
2 Re Communication and Energy Workers’ Union Inc (1996) 7 NZCLC 261,264 (HC).
of the society in liquidation but rather the bankers of a third party which had purchased and on-sold assets of the society. Bank officers who did not have direct knowledge of the affairs of the society in liquidation were not considered to fall within the scope of paragraph (e). Mr Kitson argues that he is in the same position, having no direct knowledge of the affairs of Te Anau and Tay.
[35] In Deuchrass v BP Oil New Zealand Limited, Master Christiaansen further limited the category of person described in paragraph (e).3 The Master held the range of persons “having knowledge of the affairs of the company” was to be interpreted in accordance with the ejusdem generis principle and that the words “receiver, accountant, auditor, bank officer” indicated a genus comprising persons involved in the company’s financial administration or who owed duties to the company and had responsibilities to act in its interests.4
[36] However, Associate Judge Gendall in Managh v Currie declined to follow that approach.5 While the Associate Judge (as he then was) confirmed that an operative requirement of persons named in paragraph (e), including accountants and bankers, was that they have “knowledge of the affairs of the company”, the reference to “other person” is not confined to the category of persons described by Master Christiaansen in Deuchrass. So long as the person has the requisite knowledge of the company’s affairs, that is sufficient.
[37] Like Associate Judge Gendall in Managh, I do not consider the reference to “other person” is to be interpreted as limited to a particular occupation or person owing formal duties to the company. The qualification of the person having to be one who has “knowledge of the affairs of the company” sufficiently limits the ambit of the power. That approach appears consistent with that taken by the Court of Appeal in Finnegan v Ellis when it observed:6
- [38] First, as a matter of statutory interpretation, in terms of the scheme and purpose of Pt 16 of the Companies Act, we consider the phrase “any matter relating to the ... affairs of the company” is limited to information about the company’s management, accounts, and the handling of its business affairs,
3 Deuchrass v BP Oil New Zealand Ltd HC Christchurch M327/01, 3 July 2003.
4 At [13].
5 Managh v Currie [2011] NZHC 61; (2011) 10 NZCLC 264,841 at [12]- [16].
6 Finnigan v Ellis [2017] NZCA 488.
including its assets and liabilities. This would include information regarding the mismanagement or mishandling of the company’s affairs. Sections 261(2) identifies six classes of persons who might have that information, all of whom were associated with the company’s activities before liquidation and may be expected to have relevant knowledge of its activities.
[Emphasis added]
[38] The category of “other person having knowledge of the affairs of the company”, will include persons who have information about the company’s management, accounts, and its business affairs, including its assets and liabilities. Persons with such knowledge need not be limited to those who owe formal duties and obligations to the company.
[39] Whether a person has the requisite knowledge of the company’s affairs will turn on the particular facts or circumstances of each case. Mr Kitson’s position is that, notwithstanding his role as an accountant, like the banker in Re Communication and Energy Workers’ Union he did not have knowledge of the affairs of Te Anau and Tay. Mr Hair submitted on his behalf that, in relation to the loans, Taurus had acted as accountants for SICL and SFL, not Te Anau and Tay. Because it was not acting as the accountant for those companies and did not receive instructions and information from Te Anau and Tay, he submitted Taurus did not have “knowledge of the affairs of the company”.
[40] It was submitted that while Taurus had previously provided some trust account recording and accounting services for Te Anau and Tay prior to 2004, and also some mortgage broker services, that separate provision of services did not give rise to material knowledge, namely “knowledge of the affairs of the company” relevant to the loans in question.7 Mr Hair submitted that Mr Walker had provided no evidence that Taurus’s involvement by providing pre-2004 services to the company had given rise to knowledge of its affairs as it related to the loan transactions the subject of his inquiries. Nor, it was submitted, did the fact that Taurus or a company within its group received rents from Tay as part of its arrangements with SICL and/or SFL give rise to Mr Kitson having the requisite knowledge.
7 Price v ASB Bank Ltd [2013] NZHC 3352 at [36] and [37].
[41] However, Mr Walker maintained that Mr Kitson and Taurus’s position was distinguishable from the banker in Re Communication Energy Workers’ Union because their services were provided directly to Te Anau and Tay. Mr Kitson acknowledged in his evidence that Taurus had been providing mortgage broking services to Te Anau and Tay up until late-2007, and had additionally provided trust account services to both companies and their lenders. In that regard, it was noted that Mr Kitson acknowledged receipt of $91,804.25 by Taurus which was described in the statement of loan transactions as “principal to Taurus fees”.
[42] Mr Slevin on behalf of the liquidator emphasised Mr Kitson’s acknowledgment that he was a director of Taurus, which had provided mortgage broking services to Te Anau and Tay, and trust accounting services not only to those companies but also to their lenders, SFL and SICL. I consider those are material circumstances. I doubt the submission made on behalf of Mr Kitson that Taurus’s professional involvement with Te Anau and Taurus coming to an end prior to the liquidation is decisive. Mr Walker was candid in his evidence that his interest in information held by Taurus does not arise from its past association with Te Anau and Tay. Rather, he was seeking documents relating to the affairs of those companies arising from the lending arrangements entered into with SFL and SICL, for which Taurus provided accounting services.
[43] The question really distils to whether, because of Taurus’s past professional association with Te Anau and Tay and its provision of services to SFL and SICL in relation to the loans those companies provided, Mr Kitson can be considered as having knowledge of the affairs of those companies. Such knowledge may extend to include information regarding the companies’ assets and liabilities. In the circumstances of this case, I consider that Taurus’s knowledge of Te Anau and Tay, at least insofar as it relates to the loans transactions, is of a sufficient degree to fall within the category of person described in s 261(2)(e).
[44] Mr Smith did not oppose the making of orders on the basis he was not a person to whom s 261(2) of the Act applied.
Principles governing the exercise of the discretion
[45] In deciding whether to exercise its powers under s 266(2)(b) of the Act, the Court is required to balance the need to enable a liquidator to obtain information to investigate the affairs of the company against the effect of an order on the party being compelled to produce the documents.8 It is for the liquidator to satisfy the Court that after balancing all relevant factors there is a proper case for requiring the production of documents.9
[46] As identified by Associate Judge Abbot in Official Assignee v Grant Thornton, two approaches to the exercise of the Court’s discretion have been recognised. The first is for the Court to assess whether the liquidator’s application represents a genuine investigative step taken bona fide with a view to reaching an informed decision. The second is to consider whether the order is necessary to put the liquidator in the same position of the directors, so far as knowledge of the company’s affairs is concerned.10
[47] In Carrow Holdings Ltd (in liquidation) v Sadiq, Heath J observed that both approaches largely overlap:11
In reality, both approaches work together. It is equally important for the liquidator to reconstitute knowledge of directors of the company as it is for him or her to make informed decisions about what steps to take for the benefit of creditors. In that context, it must be remembered that a liquidator usually has limited funds with which to work and it is in the public interest that he or she ascertains relevant information with as little expense as possible and in the most expeditious manner.
[48] There is a public interest for liquidators to obtain information expeditiously and with as little expense as possible. However, requirements for the production of information should not lead to oppressive consequences. The information being sought will need to be referable to a line of inquiry which will benefit the company in liquidation.12 When assessing the effect on a person required to produce records or
8 Official Assignee v Grant Thornton [2012] NZHC 2145 at [9].
10 Clover Bay Ltd (Joint Administrators) v Bank of Credit and Commerce International SA [1991] Ch 90 (CA), [1991] 1 All ER 894, referred to as the “Clover Bay approach acquiring the reconstitution of the company’s knowledge”.
11 Carrow Holdings Ltd (in liq) v Sadiq HC Wellington CIV-2007-404-2854, 5 June 2008 at [32].
12 ANZ National Bank Ltd v Sheahan [2012] NZHC 3037, [2013] 1 NZLR 674 at [56] and [59].
documents relating to the business affairs of the company, other considerations are the reasonable expectation of privacy of financial information and the relationship of the person with the company. The more distant the person from the company, the more onerous the obligation will likely be viewed.13
[49] While more relevant to applications to examine persons on oath or affirmation under s 266(2)(a), care is required to ensure the mandatory provision of documentary evidence, which in most circumstances would be unobjectionable, is not oppressive, such as where the liquidator is considering proceedings against the person from whom the information is sought.14
[50] In British & Commonwealth Holdings Plc v Spicer and Oppenheim, the House of Lords summarised the approach to be taken in the following terms:15
The protection for the person called upon to produce documents lies, thus, not in a limitation by category of documents (“reconstituting the company’s state of knowledge”) but in the fact that the applicant must satisfy the court that, after balancing all the relevant factors, there is a proper case for such an order to be made. A proper case is one where the administrator reasonably requires to see the documents to carry out his functions and the production does not impose an unnecessary and unreasonable burden on the person required to produce them in the light of the administrator’s requirement. An application is not necessarily unreasonable because it is inconvenient for the addressee of the application or causes him a lot of work or may make him vulnerable to future claims or is addressed to a person who is not an officer or employee of or a contractor with the company in administration, but all these will be relevant factors, together no doubt with many others.
[51] The power is to be exercised after careful balancing of the relevant factors. The Court is required to take into account the reasonable requirements of the liquidator to carry out his or her task, as well as the need to avoid the making of an order which will result in wholly unreasonable, unnecessary, or oppressive consequences for the person obliged to comply.
13 Finnegan v Ellis, above n 6, at [46]; Price v ASB Bank Ltd, above n 7, at [53].
14 ANZ National Bank Ltd v Sheahan, above n 12, at [31].
15 British & Commonwealth Holdings Plc v Spicer and Oppenheim, above n 9, at 439.
Has the liquidator established the necessary threshold of a “proper case”?
[52] The documents sought by the liquidator included information relating to the mortgagee sales of Te Anau’s property, unexplained transactions in respect of both companies’ loan accounts with the mortgagees, and the assignment of allegedly residual debt and securities to a company associated with the sole director of both Te Anau and Tay. Mr Slevin noted that that Mr Kitson had confirmed in his evidence that the loan transactions were conducted through the Taurus trust account, on the instructions of the mortgagees SFL and SICL, and thus presumably in accordance with the instructions of those companies’ directors, Messrs Angus and Knowles.
[53] Mr Slevin submitted that it was reasonable for Mr Walker, as the liquidator of the companies, to require to see these documents in order to carry out his functions. The loan account transactions must have been undertaken with the knowledge of the directors of Te Anau and Tay, and thus with the companies’ knowledge. Mr Walker is entitled to obtain or recover that knowledge. Because of the conflicting information contained in statements of account that have so far been provided to Mr Walker, the payments made to third parties, and the apparent failure to credit the proceeds of some of the mortgagee sales of the companies’ properties to those entities, Mr Slevin submitted the liquidator has good grounds for seeking to progress his inquiries into those transactions.
[54] Without the documents sought by the liquidator, Mr Slevin submitted, Mr Walker is unable to establish whether the companies are indebted to the assignee of the mortgagees’“claim” against the companies, or whether there are actually monies owed by the mortgagees to the companies. Nor, he submitted, is the liquidator able to ascertain whether the companies may have claims against other parties who received the proceeds of the mortgagee sales of some of its properties. In any event, Mr Slevin submitted that if there were documents relating to these transactions and property sales that the companies in liquidation were aware of, the liquidator was entitled, in order to make informed decisions about what steps to take, to obtain that information for the purpose of investigating the companies’ affairs.
[55] While the respondents argued that Mr Walker’s application falls short of establishing a proper case for the orders, that opposition was largely premised on the liquidator having failed to establish the reason he needs to see all the documents listed in the schedule to discharge his functions. It is acknowledged, at least on behalf of Messrs Angus and Knowles, that Mr Walker may have a legitimate interest in some specific documents but that is not the case for all the documents listed in Schedules A and B. In particular, Mr Lill argued the evidence in support of the application does not establish that documents related to the mortgagee sales will be of any benefit to the companies in liquidation, or that the assignment of securities are relevant to the affairs of their business.
[56] Having reviewed the evidence and the submissions of the parties, I consider, with the exception of one document, that the liquidator has established a proper basis upon which to obtain the production of the information he seeks for the purpose of carrying out his functions. However, because of the period that has elapsed since inquiries were first made by Mr Walker, and the documentation which is said to have been provided to date, the question arises whether the exercise or the resort to the Court’s powers to compel the production of documents places an unnecessary and unreasonable burden on the respondents. Various matters were traversed which were submitted, either individually or in combination, rendered the application unreasonable and oppressive. Each must be considered in turn.
Absence of a previous request for particular documents
[57] One of the grounds on which Mr Walker seeks the orders is that documents have been requested from the respondents but have not been provided. Messrs Angus and Knowles acknowledged that Mr Walker’s letter of 26 August 2013 did request some of the information listed in Schedules A and B, but that not all the items included in those schedules have been the subject of previous requests. The position is the same in respect of Mr Kitson. Mr Walker’s letter to Taurus of 24 July 2014 did not request the majority of the documents which are now the subject of the application, as itemised in Schedule C. Mr Walker accepts, or at least does not dispute, that is the position. Mr Smith was also critical of the fact that he had not previously been requested to provide the documents listed in Schedule C.
[58] While I accept the absence of a prior request is a factor to be taken into account in the exercise of the Court’s discretion, such a request is not a prerequisite to the exercise of its jurisdiction. It is apparent that some material has been furnished in the past, but a substantial amount of information has not been provided despite being previously requested. While a liquidator has powers under s 261 to require the production of documents belonging to the company, in the present case, where a liquidator is seeking to compel the production of records that are not “documents of the company” the imposition of such a mandatory obligation can only be achieved under s 266(2)(b) of the Act.
[59] Messrs Angus and Knowles are critical of the amount of time that has elapsed, some four years since Mr Walker formally requested documents from them, and the lack of any prior notice that an application was going to be made to the Court. They submitted there is no urgency to collect these documents and that, because of the staleness of Mr Walker’s earlier approaches to them, the appropriate course would have been for Mr Walker to have renewed his requests directly with them.
[60] I accept there has been significant delay between the liquidator’s application and the last formal requests he made to the respondents for the information he is now seeking. However, having acknowledged that delay, there is no indication that the respondents’ position regarding the information the liquidator seeks would be any different now from the position previously taken. Mr Walker has deposed that he has been seeking documents and information in relation to these and other matters over a lengthy period with limited success. He has expressed a degree of frustration regarding his lack of progress to obtain the information that he considers is necessary for him to discharge his duties.
[61] For their part, the respondents consider they have attempted to cooperate with the liquidator. Various allegations have been made regarding the respective conduct of both the liquidator and the respondents. Within the ambit of the present application and in the absence of cross-examination, it is not realistic nor responsible for the Court to make any determinations regarding those conflicting contentions. The only observation I would make is the apparent inconsistent approach taken by Mr Kitson on behalf of Taurus and by Mr Smith, when, in 2014, the liquidator was led to believe
that the information he sought was being compiled and would be made available to him, only for that material to be withheld without apparent explanation to Mr Walker. It would appear that what he was led to believe would be a productive inquiry was ultimately blocked. It is therefore not altogether unsurprising that the liquidator considers after the elapse of such time that any course other than an application to the Court would likely only result in further delay.
Documents are not “books, records, or documents relating to the business, accounts, or affairs of the company”
[62] It was submitted on behalf of Mr Kitson that the documents sought by the liquidator were not documents relating to the affairs and business of Te Anau and Tay, but were held and prepared by Taurus in its capacity as the accountant for SFL and SICL. Mr Kitson argued that information supplied by its clients and documents it created from that information would not otherwise have been available to Te Anau and Tay. Therefore, they should not be accessed by Mr Walker.
[63] Leaving to one side issues of confidentiality, the fact the documents being sought are not documents of the company does not prevent them falling under the category of document which can be accessed by order of the Court under s 266(2). While a liquidator can require information to be provided regarding the affairs of the company, he or she does not have the power to require production of documents that belong to any other entity other than the company.16 The power to require production of another person’s documents is an extraordinary power reposed in the Court in the exercise of its discretion upon application by a liquidator.17
[64] As is apparent from my earlier findings, I accept Mr Slevin’s submission that insofar as the documents held by Taurus relate to the business, accounts, or affairs of the company, the Court has jurisdiction. In the present case, the documents sought relate to the companies’ borrowings and indebtedness, the mortgagee sale of properties owned by Te Anau, and transactions relating to the loan agreements. Documents relating to those subject areas fall within the category of records or documents relating
16 Companies Act 1993, s 261(1) and (3)(b).
17 Official Assignee v Thornton, above n 8, at [19].
to the companies’ business, accounts, or affairs and therefore within the ambit of s 266(2).
Are the categories of documents being sought too broad?
[65] Messrs Angus and Knowles argued that the breadth of the category of documents listed in the schedules is unclear and lacks definition. For example, item 13 in Schedule A is for “all communications between [the respondents or any agents
or representatives of SFL or SICL] and [Te Anau] or its [representatives or agents]
relating to the mortgagee sales or any loan agreements”. Mr Lill submitted that such a request must include a vast amount of irrelevant documentation and that collating or attempting to collate such documents six years after the mortgagee sales would be unreasonable and oppressive. Mr Lill submitted that determining whether documents fall within or outside such a described category will lead to confusion and likely disagreement between the respondents and the liquidator. Because of the possible sanction of contempt, he submitted this places an unreasonable burden on the respondents.
[66] Mr Smith also objected to the making of orders in relation to Schedule C on the same basis. He submitted the categories of documents sought by the liquidator were too broad. Further, the description provided was not sufficiently certain and would result in unnecessary costs and inconvenience to both him and his firm. Mr Smith relied upon the observations of Barker J in Re Harland Developments Ltd (in liq) where the Official Assignee had summoned a solicitor who acted for clients who had entered into a property transaction with the company before it went into liquidation.18 Justice Barker’s view was that a notice for the production of documents must be specific and exact, and must notify the party of exactly what documents are required to be produced.
[67] Items 1-12 of Schedule A sets out the copies of records or documents which are sought by the liquidator in paper and/or electronic form:
18 Re Harland Developments Ltd (in liq) (1986) 3 NZCLC 99,540.
[68] I consider these categories of document at 1-9 are sufficiently specific to allow Messrs Angus and Knowles to identify the records being sought. It was not explained to me what ambiguity would arise from the descriptions provided. Similarly, the information sought in relation to the mortgagee sales (items 11-12) are readily identifiable. I was informed by Mr Slevin that item 10 is no longer in issue. Item 14 is dealt with at [96]-[100].
[69] In relation to item 13, I accept the submission made on behalf of Messrs Angus and Knowles that compliance with that request for information is likely to be exceedingly onerous. Copies of the communications which are being sought are
between SFL and/or SICL and Te Anau, either directly or by its agents, employees or professional representatives. It has not been explained to me why the liquidator cannot source that information directly from either the companies’ officers, or professional representatives and agents that it must have instructed on its behalf. Ordinarily, the appropriate course would be to source such information from persons who made and received those communications on behalf of Te Anau rather than from the mortgagee, at least in the first instance.
[70] No evidence was furnished as to what information that falls under item 13 may have already been acquired and analysed. Nor, whether it is a case of there being gaps in the records presently available, or why the liquidator cannot require such information and records be produced directly from the company or its officers or representatives. I consider the blanket request made of a third party to gather records of communications of such breadth from so many years ago is unreasonable, particularly in the absence of evidence of what steps have been taken to obtain this information from more direct sources closer to the companies.
[71] By items 15-21, Mr Walker seeks records supporting identified transactions. The statements of these loan transactions, which are annexed to Mr Walker’s affidavit, have previously been provided to him. The items are described in the following way:
I do not consider the description of these documents is so wide as to prevent their accurate identification by the respondents.
[72] Items 22 to 24 are described as follows:
In respect of the Canterbury Legal Services Ltd trust account extracts for [Te Anau] annexed to the affidavit of Robert Bruce Walker filed herein as exhibit “G”.
$115,716.31 denoted by the entry dated 23 December 2008 with narrative ‘To: Harmans, part repayment of mortgage to Secured Lending Limited plus fees’
$273,798.93 denoted by the entry dated 23 December 2008 with narrative ‘To: Harmans, part repayment of mortgage to Secured Lending Limited plus fees’
[73] Items 22-24 of Schedule A identify three payments to the mortgagees’ solicitors from Te Anau’s solicitor’s trust account for repayment of its mortgage. From Mr Walker’s analysis to date, these payments do not appear to have been credited to Te Anau’s loan account. I do not consider a request for documents relating to the application of these funds by the mortgagees could be considered broad, in fact, they are quite specific.
[74] In relation to Schedule B, items 1-10 are listed as follows:
Copies in paper and/or electronic form of:
[75] I consider the documents and records are adequately defined. While there will no doubt be some inconvenience in having to collate this information, that does not of itself make the requirement unreasonable.19 However, for the same reasons considered earlier, I consider, in the absence of explanation as to why the information described in item 10 of Schedule B cannot be obtained by more direct means and the lack of evidence outlining steps taken so far to reconstruct the communications between Tay and its mortgagee, requiring Messrs Angus and Knowles as the directors of the mortgagee company to provide that information is excessively onerous. The balancing exercise falls on the side of not requiring such an exercise to be undertaken; at least at this stage.
[76] The remaining items listed in Schedule B are as follows:
In respect of the loan statement dated 16 February 2009 in the name of TPL annexed to the affidavit of Robert Bruce Walker filed herein as exhibit “K”
The documents are referable to specific single transactions and I do not consider the documents sought in relation to those transactions cannot be ascertained from the description provided, or that the category can be classified as being too wide.
19 Official Assignee v Thorton, above n 8, at [27].
[77] Messrs Angus and Knowles submitted that the transactions which are the subject of the liquidator’s inquiries took place in 2007 and 2008, with the mortgagee sales having taken place over some six years ago. In the intervening period of time the Canterbury earthquakes occurred which seriously damaged the respondents’ solicitor’s files. It was submitted that both the vintage of the transactions and the disruption caused by the earthquakes makes collation of the documents difficult and increases the burden on the respondent.
[78] While these difficulties are to be acknowledged, I consider they are largely subsumed by the requirement that the documents be in the possession or control of the respondents. If, because of the elapse of time or the earthquakes, that is no longer the case, then that provides the answer to whether the documents can be provided. The reasons as to why the documents are not in the respondents’ possession or control is immaterial. I also note that the records are sought either in paper or electronic form.
[79] It was also submitted that it would be oppressive to require documents that have already been provided to the liquidator to again have to be produced. In particular, it was submitted on behalf of Messrs Angus and Knowles that they had previously provided documentation which they had considered relevant following receipt of the liquidator’s application. It was argued that the orders now being sought from the Court should be modified significantly in order to reflect the records they had voluntarily provided in response to this proceeding. This was necessary to avoid duplication of effort on their part, and to restrict the requirement placed upon them to only those documents which remain relevant. Otherwise, it was submitted they would be put to unnecessary expense in having to review or attempt to retrieve old files and duplicate documents already provided or held by the liquidator.
[80] I consider the respondents’ concern as to the duplication of effort to be properly held. However, Mr Slevin’s proposal on behalf of the liquidator should avoid that difficulty. Mr Walker has provided a schedule of documents that were provided by Messrs Angus and Knowles earlier this year. It is annexed to his affidavit in reply. Mr Walker does not consider either the documents provided or their content to be
comprehensive. For example, he maintains he has only been provided with extracts from the general ledgers of the companies, whereas he seeks the complete general ledgers and in electronic form.20 Mr Walker is of the view that many of the items listed in the schedule have only been addressed in part in the documents provided, or not at all.
[81] I consider it would be unreasonable to make orders requiring Messrs Angus and Knowles to provide the same documents they have already supplied in response to the liquidator’s application. Accordingly, any order made to provide the liquidator with the documents listed in Schedules A and B will be to the exclusion of the documents listed in Exhibit A to Mr Walker’s reply affidavit of 2 March 2018.
Documents not in the possession or control of the respondents
[82] Mr Kitson deposed that, apart from a series of documents which have already been provided concerning Taurus’s client relationship with Te Anau and Tay, Taurus does not have possession of the documents listed in Schedule C of the application. Mr Kitson also deposed that the documents delivered in September 2014 to Mr Smith as the solicitor for FTG were not sent by Taurus, and he only became aware of this as a result of conversations with the other parties. That is plainly at odds with the correspondence from Taurus’s solicitors to Mr Walker stating that Taurus was committed to providing the information requested and that it has sought the consent of FTG to release information. Further correspondence from his solicitor advised that the information was being collated as a priority and would address the liquidator’s queries. Mr Walker then received advice from Taurus’s solicitors that the last of the material information he had requested had now been provided to the solicitor for FTG.
[83] That correspondence may indicate that Mr Kitson or Taurus no longer have possession of the relevant documents, but s 266(2)(b) includes documents not just in the party’s possession but extends to records under that person’s control. Mr Slevin submitted that, even if Mr Kitson or his company no longer have paper records, such information may be backed-up electronically and stored on Taurus’s servers or cloud
storage facilities. Therefore, they would remain under Mr Kitson’s control. In particular, it was noted that Mr Kitson and Taurus may not have paper copies of invoices for the fees deducted from Te Anau’s loan account but this did not mean they did not have electronic copies of the relevant invoices. That information is sought in order to understand the services for which Taurus was charging the companies at that time.
[84] The short answer to the issue raised by Mr Kitson is that he is not required to provide records that are not in his possession or control. Any order would be subject to that qualification, and his or Taurus’s inability to provide that information for that reason would not constitute a breach. Conversely, if the documents are in his possession or control they would need to be made available.
[85] Oppression may arise where a liquidator suspects a person of wrongdoing and seeks to utilise powers which will expose that person to self-incrimination, or be used to obtain an unfair or improper advantage for the purpose of litigation which may be considered an abuse of process. The Court is required to strike a balance between the liquidator’s rights to acquire information and rights of silence or privacy that the third party may have.21 This will be particularly acute where third parties are required to provide information and expose themselves to liability by being required to submit to a liquidator’s examination.
[86] The liquidator in the present case has signalled his intention to investigate potential claims against the mortgagees, SFL and/or SICL, and potentially Taurus, none of which are respondents. It was submitted that the documents being sought, particularly in relation to the mortgagee sales, went beyond those required for a genuine investigative step, and requiring the respondents to produce the stipulated information would be oppressive. However, I consider a liquidator is entitled to seek out information in order to assess whether there are claims against third parties
available to the company. At this stage, the liquidator is only making preliminary inquiries in relation to whether there may be a basis for possible claims.
[87] Specifically, in relation to the mortgagee sales, I do not consider some possible vulnerability of third parties to future claims gives rise to any abuse or unreasonableness. Nor, in relation to that subject area, do I consider the requirement to provide advertising records for the mortgagee sales and valuations obtained for the land the subject of those sales, places an unreasonable burden on Messrs Angus and Knowles if, indeed, such documentation remains in their possession or under their control. Although, for the reasons provided at [69]-[70], which are unrelated to any potential jeopardy to the respondents, I have accepted that the requirement to pursue all the communications described at item 13 of Schedule A goes too far.
Privacy and financial information
[88] In opposing Mr Walker’s application, the respondents all emphasised the need to recognise the privacy interests relating to the financial data the liquidator seeks. Counsel referred to the Court of Appeal’s observations in Finnigan v Ellis, that privacy values are increasingly being recognised in New Zealand’s developing jurisprudence as a valid consideration to be taken into account when assessing liquidator’s initiatives to obtain information.22 This was considered particularly acute where the exercise of powers intruded into a director’s personal financial affairs.
[89] I accept the Court is to take into account considerations of privacy in relation to the respondents’ own personal financial information when exercising its discretion to require material to be disclosed. Particularly in relation to third parties. However, confidentiality of information in the records and documents will not of itself prevent a liquidator accessing such information. Those concerns can be adequately provided for by requiring a liquidator to keep such information confidential, and to only use it for the purpose of discharging his or her duties and obligations. Despite other concerns, if records or documents relate to the business affairs of the company, they qualify as information which may be required to be produced.
22 Finnigan v Ellis, above n 6, at [9].
[90] In the present case, Mr Walker made a late application to amend all three schedules of documents for which he was seeking orders to include “copies of the electronic files containing the general ledgers for SFL and SICL for loans made by them to [Te Anau and Tay]”. Mr Slevin submitted that these electronic files would either contain or identify documents that refer to the specific transactions currently being sought in an attempt to understand and reconcile the various conflicting entries in the statements of accounts that had been provided to Mr Walker to date. Mr Slevin submitted that accessing the general ledgers in an electronic form would enable the respondents to comply with those particular aspects of the orders that were being sought in an efficient and cost-effective manner.
[91] The respondents opposed the amendments to the application. Messrs Angus and Knowles submitted that being required to provide the electronic files for the ledgers would raise serious issues relating to the privacy of the financial data of both them and other borrowers. Mr Knowles filed a supplementary affidavit in which he informed that no general ledger for Te Anau and Tay is held, and that it is not possible to provide the information sought without also providing access to essentially their entire loan book. Extracts were able to be pulled from the system for the relevant companies, however, that information would be no different to what is able to be provided in paper format and would not provide any additional information.
[92] It appears that Mr Walker’s interest in the electronic files, and in particular Te Anau’s general ledger in that form, is because it would allow the liquidator to view and analyse the records and the software that they were created in. It was submitted that the electronic files containing the general ledges for SFL and SICL’s loans to Te Anau and Tay would answer most of Mr Walker’s questions regarding the transactions identified in the schedules. Mr Slevin advised that the liquidator has or will purchase the software needed to access those files.
[93] While I grant leave to Mr Walker to amend his application to include his request to access the electronic files, this supplementary part of his application is declined. The onus is upon Mr Walker to substantiate why information is required in a certain form. I accept that the provision of information in an electronic form would ordinarily be the most convenient and cost-effective way of providing those records.
However, as matters presently stand, the evidence indicates that it is not possible to provide the information in that form without providing confidential information relating to other entities. This is not an unusual situation when investigations are being carried out in relation to electronic accounting records.
[94] Ordinarily, arrangements can be put in place to quarantine irrelevant private information. I understand there has been some discussion and correspondence between counsel for the parties regarding that possibility. I also understand that the liquidator is seeking to forensically examine the files to establish from the electronic data how and when certain entries may have been made in the ledgers. However, I do not consider he has provided a sufficient evidential basis to allow the Court to make these particular orders in the present circumstances. In particular, he has not explained to me why he cannot deploy the now relatively commonplace processes that can be used to prevent the disclosure of irrelevant confidential information yet ensure the thorough inspection of electronic files.
[95] The liquidator may access extracts from the ledgers that relate to the particular entries pertaining to Te Anau and Tay, either in electronic or paper format, being records or documents which relate to the business affairs of those companies. However, to support the type of further forensic inquiry which I understand the liquidator is seeking to make of the electronic files, I consider, in the absence of any type of proposal to mitigate confidentiality and privacy concerns, the Court has little option but to decline that aspect of his application.
Assignment to FTG Securities Limited
[96] The orders sought by the liquidator include that Messrs Angus and Knowles provide the agreement “by which SFL/SICL assigned to FTG Securities Limited absolutely all the Assignor’s rights, title and interest in the indebtedness between [Te Anau] and the Assignor” (item 14 of Schedule A). It is acknowledged the agreement is within the control of Messrs Angus and Knowles, and that it has not been provided to Mr Walker. The respondents maintain it does not relate to the affairs of Te Anau and therefore falls outside the scope of s 266(2)(b) of the Act.
[97] Mr Slevin submitted that the expression “relating to the business, accounts or affairs of the companies” should be given a liberal interpretation where a liquidator reasonably requires to see a particular document in order to carry out his or her function. Mr Slevin submitted Mr Walker needs to know what conditions the assignment was subject to, and should be entitled to scrutinise the agreement for its validity in order to determine whether he would be entitled to have FTG account for the proceeds of any claims he may wish to pursue on behalf of Te Anau for the benefit of its creditors.
[98] Mr Lill argued that the inquiry by the liquidator must have some benefit to the company in liquidation and that any fault with the assignment would only result in the security reverting to the assignor. This would not benefit or affect Te Anau or its creditors.
[99] I accept the liquidator is entitled to inquire into all aspects of the companies’ indebtedness. However, whether the document recording the agreement to assign the rights relating to Te Anau’s indebtedness constitutes a document relating to the affairs of the company turns on the validity of the loan transactions involving SFL/SICL. Until that is determined, I do not consider the agreement can be held to fall into that category of document. The legitimate inquiries of the liquidator regarding the loan transactions between Te Anau and SFL/SICL may lead to the agreement having the status for which Mr Slevin contends. However, at this point, I do not consider Mr Walker can legitimately “work backwards” from the validity of the assignment agreement to see if a claim on behalf of creditors could ultimately be traced to the assignee. It would first be necessary to show that a potential claim could be established against SFL/SICL in order to render the assignment agreement a document that relates to Te Anau’s affairs.
[100] Concerns were raised regarding whether Mr Walker may have an ulterior purpose in obtaining this information because of his wider brief regarding the PVL group. However, I can only deal with the matter on the basis of the known circumstances. I accept that Mr Walker is investigating matters relating to the indebtedness of Te Anau arising from the loans with SFL/SICL. The assignment of that indebtedness by way of the agreement between SFL/SICL to FTG is a document
which may ultimately relate to the affairs of Te Anau, but presently I consider it falls outside the Court’s jurisdiction under s 266(2)(b).
The position of the fourth respondent – Mr Smith
[101] Mr Smith opposed the liquidator’s application for the production of documents listed in Schedule C on a number of bases. He argued that the categories of documents sought were too broad, that Mr Walker has already had access to a number of documents, and that Mr Smith has not previously been requested to provide the documents listed in the schedule. I have already canvassed those issues and my conclusions in relation to them equally apply to Mr Smith. However, there are a number of aspects of the application as it relates to Mr Smith which require separate consideration.
[102] The first is that Mr Smith submitted that any documents he held was in his capacity as solicitor for FTG, and they were in his possession as the solicitor for this third party. Thus, while it is accepted that he may have possession of the documents, they were not under his control. There was no evidence of any requests being made by the liquidator to FTG for these documents. Mr Smith submitted that it would not be appropriate to require him to produce documents held on behalf of a client, in respect of whom no application for production had been made. While the power under s 266(2)(b) of the Act extends to documents that are simply in a person’s possession, I accept that this is likely to be an influential factor when the Court exercises its discretion.
[103] Mr Slevin submitted that the application in respect of Mr Smith was being made not just because he is the solicitor for FTG but also because he was formerly the solicitor for both Te Anau and Tay. Nevertheless, Mr Slevin acknowledged that the application was only being made against Mr Smith because of the correspondence received from Taurus’ solicitors regarding the location of documentation that had been collated. Mr Walker was informed that this material had been provided to the solicitors for FTG. Mr Smith denies receiving documents from Taurus, and maintains any such records would have come from SFL or SICL not from Mr Kitson or Taurus. In any event, it appears that any documents Mr Smith may hold are now the documents of
FTG, although Mr Smith denies having made any implicit acknowledgement that the documents sought by Mr Walker are in his possession or control.
[104] Mr Slevin did not accept that was the position. Despite claims to the contrary, Mr Slevin submitted the category of documents described would enable Mr Smith to identify relevant documents, and importantly, enable him to determine whether such documents were in his possession or under his control. I consider that is correct.
[105] However, in his reply submissions, Mr Slevin suggested that, in the circumstances, the appropriate course was to reserve the position in respect of Mr Smith pending the outcome of the liquidator’s application for orders in respect of the other respondents. I consider that is an appropriate and responsible course. The liquidator was proceeding in his application in respect of Mr Smith on the basis that information had been provided to him by Taurus and that the documents he sought were now in Mr Smith’s possession. However, as Mr Smith denies having received those documents from Taurus, and that any information he would have received would have been from SFL or SICL, effectively from Messrs Angus and Knowles, if orders are to be granted, they should be made in the first instance in respect of those respondents rather than Mr Smith.
[106] Furthermore, Mr Smith is presently acting on behalf of the third party, FTG. Even if he did have relevant documents in his possession, a real question arises as to whether they are under his control when they are the documents of his client and, perhaps more relevantly, even if in his possession, whether he as the solicitor of a third party should be required to provide those documents when no application for their provision has been made of his client. It is important to appreciate that, as I understand the position, the documents are being sought from Mr Smith in his capacity as a solicitor of a third party, and not as a solicitor who has relevant records and documents in his possession because Te Anau and Tay are his clients.
The position of the third respondent - Mr Kitson
[107] Similar considerations may have applied in respect to Mr Kitson. However, because of Taurus’ past professional involvement with Te Anau and Tay, and with SFL and SICL, I consider Taurus to have been more directly linked with those aspects of
the companies’ affairs that the liquidator is seeking to investigate. It is apparent on the evidence that records and documents relating to the affairs of those companies have been in Taurus’ possession or control, and it is reasonable to assume electronic copies have been retained and are accessible.
[108] Mr Hair observed that the documents are not being sought from Mr Kitson in his personal capacity but as a director of Taurus. He also submitted that it is not inevitable that Mr Kitson would continue to be a director of Taurus, nor that the other directors would agree to him providing the documents.
[109] I accept that realistically the application being made in respect of Mr Kitson is directed at documents and records in his company’s possession or control. However, it is not a case of Mr Kitson or his fellow directors agreeing to make the information available. If Mr Kitson is obliged by orders of the Court to produce records held by his company, a failure by fellow directors to allow Mr Kitson to discharge his obligations would likely result in further orders being made.
[110] Insofar as Mr Kitson and other directors may have concerns regarding confidentiality and privacy obligations, conditions can be imposed requiring the liquidator to maintain the confidentiality of material provided by limiting access to Mr Walker, members of his staff, and professional advisors who may reasonably need access to perform their duties.
Conclusion
[111] In large part, the liquidator’s application is successful. I consider he has demonstrated a reasonable need to obtain the documents listed in the schedules. The key issue for the Court in exercising its discretion has been to decide whether it would be unreasonable or oppressive to require the respondents to produce the documents sought to be provided. It is not necessarily unreasonable for documents to be required to be produced simply because it is inconvenient for the respondent or may cause that
person a substantial amount of work, or, indeed, may make the respondent or others vulnerable to future claims.23
[112] The liquidator has provided prima facie evidence of irregularities in the mortgagees’ accounting records relating to the loans to Te Anau and Tay, including those kept by Taurus. While some of those discrepancies were sought to be addressed in submissions, there remain a number of outstanding irregularities which Mr Walker is entitled to pursue. In that regard, a number of the documents sought relate to specific transactions that have been identified in the mortgagees’ accounting records and are therefore clearly identifiable. Documentation relating to the companies’ loans and documents relating to the mortgagee sales of Te Anau’s properties are matters that I consider fall into the category of records or documents relating to the business affairs of the company.
[113] I have drawn the line in relation to item 13 in Schedule A and item 10 in Schedule B because I consider those blanket requests are, at least on balance at this stage, too arduous. I accept that, as a result of electronic record-keeping and storage systems, those records may likely still be held and may remain available notwithstanding the paper copies having been lost or destroyed. However, I have not been provided with evidence of what attempts have been made by the liquidator to reconstruct from information and records available to him the communications that took place between Te Anau and Tay and SFL and/or SICL, either directly or on their behalf by their professional advisors and agents.
[114] I was also provided with no evidence of what efforts have been made by the liquidator to obtain this information from Te Anau and Tay’s own records or, more particularly, from its own officers, professional representatives, agents and former employees. Before such requirements are to be imposed on third parties, it would need to be demonstrated that those efforts had been exhausted, and that it is necessary to widen inquiries to either obtain that information or complete gaps in the communications records.
[115] For the reasons at [96]-[99], I consider item 14 falls outside the scope of s 266(2)(b). I have also declined the liquidator’s application to access the electronic files containing the general ledgers for SFL and SICL for the reasons discussed at [90]- [95].
Respondents’ application for remuneration and expenses
[116] Messrs Angus, Knowles and Smith have sought directions that in the event the Court considers that orders are appropriate, they should receive reasonable remuneration and compensation for the expense incurred in having to provide the required documents.
[117] The jurisdiction for the Court to make such orders is not clear. Mr Lill referred me to s 261(5) of the Act, which provides that a limited category of persons required to submit to a liquidator’s examination or provide information about a company’s business may upon application to the Court, receive reasonable remuneration, and travelling and other expenses incurred in complying with the liquidator’s requirements. By analogy with that provision and in reliance on the inherent jurisdiction of the Court, it was submitted that where a Court directs the production of documents under s 266(2)(b), it must also have the ability to provide for the interests of affected parties by making similar orders for compensation.
[118] A difficulty with that submission is that s 261(5) has no application to the exercise by a liquidator of his or her powers under s 261(1) to require directors or shareholders of a company or other persons to deliver up records or documents of the company in that person’s possession or under their control. A person in that situation has no entitlement or right to be paid or reimbursed costs and expenses in complying with such a requirement.24 Similarly, no provision is made in s 266 for the Court to make such an order when enforcing a liquidator’s request to deliver up the company’s records pursuant to s 266(1).
[119] The liquidator opposed the making of directions requiring him to pay reasonable remuneration and expenses to the respondents. Mr Slevin argued that the
24 Petterson v Gothard (No 3) [2012] NZHC 666.
comparison with s 266(5) was not apt because the respondents were not being asked to respond to a requirement made by the liquidator but rather to carry out a Court order. Further, the requirement under s 266(2)(b) is limited only to the provision of documents or records in their possession or under their control. He argues this is akin to the provision of a company’s documents in a person’s possession or control pursuant to a liquidator’s requirement under s 261(1). No provision is made for reimbursement there.
[120] Whereas s 261 makes specific provision for the Court to make orders for the person to receive reasonable remuneration and expenses when required to attend for examination or provide information as required by the liquidator, s 266 is silent as to whether such directions can accompany orders requiring persons to produce records and documents or to enforce a liquidator’s earlier requests to that effect. It also makes no provision for costs or remuneration where orders are sought requiring persons to attend for examination on oath or affirmation.
[121] Arguably, in the absence of any such specific power in s 266, it can be inferred that Parliament’s omission was deliberate. However, I consider the better interpretation is that the legislature likely did not consider it necessary to explicitly express the Court’s jurisdiction to make ancillary directions and orders when exercising its discretion in relation to formal applications which were already before them. That is to be contrasted with the position under s 261. An explicit statutory means to access the Court was required to be provided in order to allow a limited category of persons to obtain remuneration and expenses.
[122] Section 261(5) provides the ability to apply to the Court to obtain compensation for costs and expenses as a result of having to comply with a liquidator’s unilateral demands. Notably, the information such persons could be required to provide goes beyond books, records, or documents of the company and extends to information relating to the business, accounts, or affairs of the company. That is the situation in the present case.
[123] On behalf of Messrs Angus and Knowles, it was submitted that they are self- employed and, in the event orders are made, they will be required to commit time in
order to comply with the Court’s directions. It was submitted that allowance should be made for the burden that would be placed on them as third parties. However, I am mindful that orders under s 266(2) are made in furtherance of the public interest that a liquidator be able to ascertain relevant information with as little expense as possible, and that he or she will usually have limited funds with which to work.25
[124] On balance, and proceeding on the basis that the Court may have such a jurisdiction, I do not consider it would be appropriate in the present case for the respondents to be reimbursed by the liquidator for the costs incurred in complying with the orders. That burden was a factor which I took into account in exercising my discretion. Inevitably there will be time incurred and inconvenience associated with ensuring compliance with the orders, but I do not consider in the circumstances that goes beyond the responsibilities associated with the ordinary costs of business of companies that finance commercial ventures or professional practices servicing such clients. Accordingly, the respondents’ applications are declined.
Orders
[125] I make the following orders:
(a) Subject to the following stipulated exceptions, I direct Messrs Angus and Knowles to produce the documents listed in Schedule A to Mr Walker’s application of 12 February 2018 that are in their possession or under their control. Documents excluded from the order are:
(i) items 10, 13 and 14; and
(ii) documents listed in Exhibit A to Mr Walker’s reply affidavit of 2 March 2018.
(b) Subject to the following stipulated exceptions, I direct Messrs Angus and Knowles to produce the documents listed in Schedule B to
25 Carrow Holdings v Sadiq, above n 11, at [32].
Mr Walker’s application of 12 February 2018 that are in their possession or under their control. Documents excluded from the order are:
(i) item 10; and
(ii) documents listed in Exhibit A to Mr Walker’s reply affidavit of 2 March 2018.
(c) I direct Mr Kitson to produce the documents listed in Schedule C to Mr Walker’s application of 12 February 2018 that are in his possession or under his control.
[126] The position in respect of Mr Smith is reserved.
Costs
[127] My preliminary view is that costs should lie where they fall. However, costs are formally reserved.
Solicitors:
Maude & Miller, Wellington Chapman Tripp, Christchurch Malley & Co, Christchurch Canterbury Legal, Christchurch
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URL: http://www.nzlii.org/nz/cases/NZHC/2018/2354.html