Hua Limited (in liquidation) [2024] NZHC 2565 (6 September 2024)

Last Updated: 13 September 2024

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-1929 [2024] NZHC 2565

UNDER AND	the Companies Act 1993
IN THE MATTER OF	of the liquidation of HUA LIMITED
BETWEEN	VERO LIABILITY INSURANCE LIMITED Plaintiff
AND	HUA LIMITED (IN LIQUIDATION) Defendant
AND	HUA BAI and JUN YAN Applicants

Hearing:	On the papers
Counsel:	RO Parmenter for the Applicants B Molloy for the Liquidators of Hua Limited (in liquidation) E Tobeck for Vero Liability Insurance Limited
Judgment:	6 September 2024

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 6 September 2024 at 3.30 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Winston Wang & Associates, Auckland Haigh Lyon Lawyers, Auckland

Morgan Coakle, Auckland

RE HUA LIMITED (IN LIQUIDATION) [2024] NZHC 2565 [6 September 2024]

Introduction

• [1] The applicants, Hua Bai and Jun Yan, seek an order terminating the liquidation of Hua Ltd (in liq), pursuant to s 250 of the Companies Act 1993. The application is filed in the original liquidation proceeding brought by Vero Liability Insurance (Vero) as the petitioning creditor.

• [2] An affidavit was filed in support of the application for termination by Mr Yan, who is a shareholder and director of the company together with his mother, Ms Bai. Mr Yan confirms that he and his mother are the only shareholders and explains that the liquidation was pursued by Vero in respect of unpaid body corporate fees for a property owned by the company in Lorne Street, Auckland.

• [3] Mr Yan and Ms Bai have now paid $190,000 to allow all creditors to be repaid in full and to pay the fees and disbursements of the liquidators for the period of the liquidation.

• [4] A joint memorandum, dated 6 June 2024, was filed by Vero and the liquidators on the day of the first call, confirming that Vero and the liquidators consent to the termination following the payment of $190,000. The joint memorandum attaches a draft final report for the liquidators and draft statement of realisations and distributions, prepared on the basis the $190,000 had been received from the applicants.

• [5] In addition in the joint memorandum, the liquidators seek approval of their overall remuneration for the liquidation.

• [6] I am satisfied that it is appropriate to terminate the liquidation and to approve the overall remuneration of the liquidators as proposed for the reasons set out below.

Factual background

• [7] Hua Ltd (in liq) was put into liquidation on 17 March 2023 with Keaton Pronk and Iain McLennan appointed as liquidators.
• [8] As set out above, the applicants, Ms Bai and Mr Yan, are the two directors and the only shareholders in the defendant company.

• [9] Mr Yan explains in his affidavit that his mother mainly looked after the family’s day-to-day financial affairs, including Hua Limited (in liq)’s business. Mr Yan’s evidence is that his mother did not understand the various letters requiring payment of the body corporate charges and that he was unaware of the situation.

• [10] Mr Yan explains that the company’s lack of funds arose after he and his mother used the proceeds from the sale of the apartment, the subject of Vero’s claim to body corporate charges, to repay loans that he and his mother made to the company for its running costs, such as downpayments, GST, interest and renovation of the company's properties. Mr Yan’s affidavit records that this was done without understanding the need for proper accounting processes.

• [11] Mr Yan confirms that he and his mother have now appointed chartered accountants to assist in the smooth running of their financial affairs and that he considers it unlikely that they will encounter any significant problems with their affairs from this point. Mr Yan says that he has explained these matters to demonstrate that the shareholders have not been deliberately disrespectful of Hua Limited (in liq)’s obligations.

• [12] Mr Yan attaches the liquidators’ third report to his affidavit for the period 17 September 2023 to 16 March 2024. This confirms that as a result of initial investigations the liquidators had identified that considerable funds from the sale of a property previously owned by Hua Ltd had been used to pay off related party debt. This is consistent with Mr Yan’s affidavit evidence that the company had repaid the loans owing to his mother and him from the proceeds of sale of the apartment owned by the company.

• [13] The liquidators’ third report further records that demand had been made on the shareholders, Ms Bai and Mr Yan, for their overdrawn current accounts and bankruptcy proceedings had been commenced.
• [14] The liquidators further confirmed in the third report that there are no known current or pending proceedings to which the company is a party (except presumably the proceedings brought against Ms Bai and Mr Yan).

• [15] The liquidators confirm in the joint memorandum dated 6 June 2024 that the only proofs of debt received were from Vero and the Inland Revenue Department.

• [16] The draft statement of realisations and distributions to 6 June 2024 annexed to the joint memorandum shows that the payment of $190,000 will allow the liquidators to make a distribution of 100 cents in the dollar to the creditors who proved in the liquidation plus interest and to pay the liquidators’ fees and expenses of the liquidation. The balance held following the distribution to creditors and payment of the liquidators’ fees and expenses is set out as $1,060.

Termination of liquidation pursuant to s 250 of the Companies Act

• [17] Section 250 of the Companies Act relevantly provides:

250 Court may terminate liquidation

(1) The court may, at any time after the appointment of a liquidator of a company, if it is satisfied that it is just and equitable to do so, make an order terminating the liquidation of the company.

(2) An application under this section may be made by—

...

(c) a director or shareholder of the company;

...

(3) The court may require the liquidator of the company to furnish a report to the court with respect to any facts or matters relevant to the application.

(4) The court may, on making an order under subsection (1), or at any time thereafter, make such other order as it thinks fit in connection with the termination of the liquidation.

...

(6) Where the court makes an order under subsection (1), the company ceases to be in liquidation and the liquidator ceases to hold office with effect on and from the making of the order or such other date as may be specified in the order.

...

• [18] The issue for the Court in applications pursuant to s 250(1) of the Companies Act is whether it is just and equitable to terminate the liquidation. It has been held that the Court will generally only exercise its discretion to order termination of a liquidation if:¹

(a) all creditors have been paid in full or satisfactory provision has been made for them to be paid, or they have consented to the application;

(b) the liquidators’ costs have been paid; and

(c) the shareholders have consented or would be in no worse position if the liquidation had proceeded to its conclusion.

• [19] The Court is not constrained by these criteria with additional considerations including the public interest and a concern to protect the interests of the company’s present creditors and those parties who would, in future, have dealings with the company if the liquidations were terminated.²

Liquidators’ remuneration

• [20] As set out above, the Court will usually only exercise its discretion to terminate a liquidation if the liquidators’ fees and expenses have been paid. I therefore consider the liquidators’ application to approve their overall remuneration first so the amount of the remuneration is settled.

• [21] The liquidators seek approval of their overall remuneration for the liquidation totalling up to $37,468 excluding GST and disbursements. The relevant principles applying to consideration of the reasonableness of liquidators’ remuneration are set out in Roselea Path Ltd (in liq),³ as confirmed by the Court of Appeal in Madsen-Ries v Salus Safety Equipment Ltd (in liq).⁴ These cases confirm that the Court’s focus is the value of the services rendered to the creditors of the company.

¹ Re Bell Block Lumber Ltd (in liq) (1992) 6 NZCLC 67,690.

2. Foundation Securities (NZ) Ltd v Direct Labour Services Ltd (in liq) [2007] NZHC 1896; [2008] NZCCLR 1 (HC) at [22].

³ Re Roselea Path Ltd (in liq) [2013] 1 NZLR 207 (HC).

⁴ Madsen-Ries v Salus Safety Equipment Ltd (in liq) [2022] NZCA 101, [2022] NZCCLR 12 at [13].

• [22] The steps taken by the liquidators are recorded in the draft final report. These include recovering funds from the company’s pre-liquidation bank account, receiving a pre-liquidation GST refund, selling a carpark in Newmarket that was owned by the company, and bringing proceedings against the shareholders in respect of their current accounts (including bankruptcy proceedings).

• [23] The numbers of hours spent by the liquidators and their staff are set out in the draft final report but no further breakdown of the fees charged by task is provided. However, I have no difficulty in approving the reasonableness of the remuneration sought, taking into account that the known creditors of the company have been repaid in full, the number of steps taken and that sufficient funds have been obtained to pay the whole of the liquidators’ remuneration. I therefore make an order approving the liquidators’ overall remuneration as proposed.

Is it appropriate to terminate the liquidation?

• [24] The grounds on which the application to terminate the liquidation is sought are that it is just and equitable for a termination order to be made because:

(a) all creditors have been paid in full or satisfactory provision has been made for them to be paid;

(b) the liquidators' costs will have been paid or satisfactory provision will have been made for them to be paid;

(c) the public interest does not require the company to remain in liquidation;

(d) parties who might deal with the company in the future, were the liquidation terminated, will not be prejudiced; and

(e) the company’s shareholders consent to the application as they are the applicants.

• [25] The joint memorandum records that the liquidators had, as at the date of the memorandum, been unable to interview the director and that the books and records of the company had not been provided despite numerous requests. The liquidators could not, therefore, confirm that the two creditors who have filed proofs of debt represent the full creditor indebtedness for the company. Furthermore, the liquidators noted that Mr Yan in his affidavit in support did not confirm whether he was aware of any other actual or contingent creditor claims that had not been filed in the liquidation.

• [26] However, the liquidators recorded that the company had been in liquidation for 13 months and public notices had not resulted in any further creditor claims.

• [27] As a result of these comments, I issued a minute directing that the applicants file a further affidavit confirming whether they are aware of any other actual or contingent creditors and confirming that the $190,000 had been paid (as it was not clear from the documents whether it had all been paid). A further affidavit was filed by Mr Yan, dated 31 July 2024, confirming that the $190,000 was paid prior to the first call on 6 June 2024 and that to the best of his and his mother’s knowledge there were and are no other debts owed by the company.

• [28] Mr Parmenter submitted at the call that if the liquidation was terminated and other creditors then made claims, any such creditors could take steps against the company in the usual way as it would no longer be in liquidation. Now that a further affidavit has been filed by Mr Yan confirming that there are no further creditors to his and his mother’s knowledge, I agree that the fact that any creditors that do make themselves known following termination of the liquidation could then take steps against the company in the usual way addresses any concern about the liquidators not having had an opportunity to properly consider the company’s books and records.

• [29] At the call on 6 June 2024, counsel further advised that a notice of discontinuance signed by all parties would be filed in the proceedings brought by the company against Ms Bai and Mr Yan in respect of their current accounts. A notice of discontinuance has now been filed dated 2 August 2024.
• [30] Finally, I record that an affidavit of service has been filed confirming that the application was served on the Inland Revenue Department, the only other creditor who has proved in the liquidation. No steps have been taken by the Commissioner in opposition, or at all.

• [31] I am satisfied that it is just and equitable to terminate the liquidation, because:

(a) all known creditors of the company have been paid in full;

(b) the liquidators’ costs as approved above have been paid;

(c) Vero, the petitioning creditor, and the liquidators have filed a joint memorandum prepared by counsel for the liquidators which records that Vero consents to the termination and, although the memorandum does not expressly record that the liquidators consent, does not record any opposition;

(d) the applicants, as the directors and shareholders of the company, have brought this application to terminate the liquidation, and therefore consent to it;

(e) if any further creditors do arise, as the company will return to its usual status, then any such creditors will be able to take the usual steps against the company in respect of any debts owing;

(f) there do not appear to be any countervailing public interest factors suggesting it would not be appropriate for the liquidation to be terminated; and

(g) there do not appear to be any parties who would be adversely affected by the termination of this liquidation.

Result

• [32] I order:

(a) the liquidation of Hua Ltd is terminated from the time and date of this judgment; and

(b) the liquidators’ overall remuneration for the liquidation totalling up to

$37,468 excluding GST and disbursements is approved.

Associate Judge Sussock