FORESTLANDS, EX PARTE JACKSON [2018] NZHC 2583

FORESTLANDS, EX PARTE JACKSON [2018] NZHC 2583 [3 October 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2018-404-2024[2018] NZHC 2583UNDER Part 19 of the High Court Rules and sections255,257 and 284(1)(a) of the Companies Act1993IN THE MATTER of an application concerningFORESTLANDS (NO. 2) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 3) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 4) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 5) LIMITED (INLIQUIDATION)/ContHearing: On the papersAppearances: D T Broadmore and L A O'Gorman for the ApplicantsJudgment: 3 October 2018JUDGMENT OF ASSOCIATE JUDGE SMITHThis judgment was delivered by me on 3 October 2018 at 9.30am,pursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors / Counsel:Buddle Findlay, AucklandFORESTLANDS (NO. 6) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 7) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 8) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 9) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 10) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 11) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 12) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 14) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 15) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 16) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 17) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 18) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 19) LIMITED (INLIQUIDATION)FORESTLANDS (NO. 20) LIMITED (INLIQUIDATION)ANDIN THE MATTER of an application by NEALE JACKSONand GRANT ROBERT GRAHAMApplicants[1] The applicants, Mr Neale Jackson and Mr Grant Robert Graham (theliquidators), were appointed liquidators of the Forestlands companies listed above(collectively "the Forestland entities"), on 6 September 2018. They now apply fordirections as to the manner in which they may serve liquidators' reports and otherdocuments on the creditors and shareholders of the Forestlands entities. They applyseparately for leave to bring their application as a "without notice" originatingapplication under Part 19 of the High Court Rules.Background[2] Each of the Forestlands entities was incorporated to own land and developforests on the land. Each entity issued a prospectus for non-voting "B" shares, and atotal of over 17,000 B shares were issued to subscribers in the Forestlands entities.Because some shareholders have shares in more than one of the Forestlands entities,the liquidators reckon that the total number of shareholders in all of the Forestlandsentities is approximately 4,600.[3] The Forestlands entities were put into liquidation on the application of theFinancial Markets Authority.[4] According to Mr Jackson's affidavit, the Forestlands entities are not insolvent.There will be funds for distribution to subscribing shareholders, and the liquidators'primary role will be to scrutinise the deductions made from the sale of the Forestlandentities' assets, to assess creditors' claims, and make distributions to shareholders.[5] Based on his experience with similar sized liquidations and his knowledge ofthe Forestlands entitles, Mr Jackson anticipates that the liquidations are likely to bereasonably complex, and will require a reasonable period of time to complete.Liquidators' reports – the statutory requirements[6] Under the Companies Act 1993 (the Act), liquidators have the reportingobligations (relevant to this application) that are set out in ss 255(2)(c)(ii) and (d), andin s 257(1) of the Act.[7] Section 255(2)(c)(ii) is concerned with the liquidator's first report. Theliquidator is required to prepare and send to every known creditor, every shareholder,and the Registrar for registration:(a) a report containing the statement of the company's affairs, proposals forconducting the liquidation, and, if practicable, the estimated date of itscompletion; and(b) a notice explaining the right of the creditor or shareholder to require theliquidator to call a meeting of creditors under s 314 of the Act; and(c) the list of creditors the liquidators are required to prepare unders 255(2)(c)(i).[8] The liquidators' obligations under s 255(2)(c)(ii) are required (in this case) tobe discharged within 25 working days of the liquidators' appointment. That is, by11 October 2018.[9] Section 255(2)(d) is concerned with subsequent liquidators' reports. It requiresa liquidator within 20 working days of the end of each period of six months followingthe date of commencement of the liquidation, to prepare and send to every knowncreditor and every shareholder, and to the Registrar for registration, a report –(i) on the conduct of the liquidation during the preceding six months; and(ii) of any further proposals which the liquidator has for completing theliquidation.[10] Section 257 of the Act deals with a liquidators' duties in relation to theprovision of a final report and accounts. Section 257(1) provides:(1) As soon as practicable after completing his or her duties in relation tothe liquidation, the liquidator of a company must—(a) prepare and send to every creditor whose claim has beenadmitted and every shareholder—(i) the final report and statement of realisation anddistribution in respect of the liquidation; and(ii) a statement that—(A) all known assets have been disclaimed, orrealised, or distributed without realisation;and(B) all proceeds of realisation have beendistributed; and(C) the company is ready to be removed from theNew Zealand register; and(iii) a summary of the applicable grounds on which thecreditor or shareholder may object to the removal ofthe company from the New Zealand register undersection 321:(b) send or deliver copies of the documents referred to inparagraph (a) to the Registrar for registration.[11] Section 391 of the Act deals with the manner in which notices, statements,reports, accounts, or other documents are to be sent to a shareholder or creditor whois a natural person. The methods of delivery provided for in s 391 include personaldelivery, posting to the person's address, or sending the document by facsimile.[12] Section 391 does make provision for the sending of documents to a shareholderor creditor by electronic means, but only where the shareholder or creditor has notifiedthe company that he or she wishes to receive documents by electronic means.1The Court's power to modify a liquidator's reporting obligations[13] On the application of a liquidator, the Court may exempt the liquidator fromcompliance with the provisions relating to the first report and/or the six-monthlyreports required by s 255(2)(c)(ii) and s 255(2)(d).2 The Court also has power, on theliquidator's application, to modify the application of s 255(2)(c)(ii) and/or1 Companies Act 1993, s 391(3A)-(3C).2 Companies Act 1993, s 255(4)(a).s 255(2)(d).3 In either case, a modifying order can be made on such terms andconditions as the Court thinks fit.[14] Section 257(2) of the Act contains a similar power for the Court, on theapplication of a liquidator, to exempt or modify the requirements of s 257(1), on suchterms and conditions as the Court thinks fit.The liquidators' concerns with the discharge of their reporting obligations in thiscase[15] Mr Jackson says that he and Mr Graham have not yet formed a view onwhether they will prepare separate liquidators' reports for each of the Forestlandsentities, or consolidated liquidators' reports for all of the Forestlands entities. If theywere to prepare separate liquidators' reports, approximately 9,000 liquidators' reportswould need to be sent to shareholders on each reporting date, because the shareholderswho hold shares in more than one of the Forestlands entities would be sent more thanone report. If the liquidators elected to prepare consolidated reports, they would needto be sent to approximately 4,600 shareholders.[16] Of the total 4,600 shareholders, Mr Jackson says that nearly all are individuals;only 42 of the shareholders are companies.[17] Mr Jackson estimates the cost of posting 9,000 liquidators' reports to theshareholders at approximately $17,000 plus GST on each occasion. If consolidatedliquidators' reports were posted, the estimated cost would be approximately $8,500plus GST on each occasion. If (as anticipated) the liquidations prove to be lengthy,the costs will become significant, and will reduce the pool of funds available to bedistributed to the shareholders.[18] The liquidators' proposal is to save those costs by making the reports availableto shareholders, where possible, by email. The liquidators and their staff have so faridentified email addresses for approximately 700 shareholders, and they haveapproximately 3,000 unread emails that have been sent by shareholders to the3 Companies Act 1993, s 255(4)(b).Forestlands entities. Once those emails have been reviewed, there should be numerousfurther email addresses to which liquidators' reports could be sent.[19] The liquidators propose that the most efficient way to send emails to theshareholders and creditors would be to send an email with a link to a website wherethe reports could be readily downloaded. Providing the reports in that manner wouldavoid the risk that the liquidators' reports may prove to be too large to be received bywhatever email service provider a shareholder or creditor might be using. Also, wherea creditor or shareholder has an interest in several Forestlands entities, that creditor orshareholder could access copies of the relevant liquidators' reports, avoiding theadditional administration and cost of determining which creditors and shareholdersshould be receiving which particular reports.The specific orders sought[20] As noted, the liquidators make a procedural application, seeking leave to maketheir substantive application by originating application on a "without notice" basis.[21] In their substantive application, the liquidators ask for the following orders:1(a) That the requirements under ss 255(c)(ii) and (d) and 257(1) of theCompanies Act 1993 ("Act") relating to the sending of the liquidators'reports and all other documents required to be sent under thosesections (together, the "Liquidators' Reports"), be modified suchthat where the [liquidators] hold an email address for a creditor orshareholder of [any of] the [Forestlands entities]:(i) the [liquidators] are not required to send that creditor orshareholder the Liquidators' Reports; and(ii) if the [liquidators] do not send that creditor or shareholder theLiquidators' Reports, the [liquidators] must send that creditoror shareholder an email with a link to a website where copiesof the Liquidators' Reports can be downloaded.(b) That, where the [liquidators] hold an email address for a creditor orshareholder of [any of] the [Forestlands entities] the [liquidators] arepermitted to send any other documents or correspondence to thosecreditors and shareholders by electronic means, in addition to all othermethods permitted by the Act.(c) That the Liquidators' Reports be uploaded to the website ofKordaMentha at https://www.kordamentha.com/ as soon aspracticable after they have been prepared.(d) That the applications and sealed orders in this proceeding be sent toevery known creditor and shareholder of [each of] the [Forestlandsentities] at the same time and in the same manner (as modified by 1(a)above) as the documents listed in s 255(2)(c)(ii) of the Act.(e) That any creditor or shareholder of [any of] the [Forestlands entities]is granted leave to apply to the Court within 15 working days of suchservice referred to in 1(d) above to modify or discharge these orderson appropriate notice being given to the [liquidators].(f) That leave is reserved for the [liquidators] to apply further in respectof any ancillary orders.(g) That the applicants' solicitor-client costs of this application be anexpense incurred by the [liquidators] in carrying out their duties asliquidators.Discussion and ordersThe procedural application[22] I am satisfied that it is appropriate to make an order granting leave to theliquidators to commence the proceeding by way of originating application. Underr 19.5, the Court may permit any proceeding not otherwise covered by Part 19 of theHigh Court Rules to be commenced by originating application, where the interests ofjustice so require. Also, s 284(1)(a) of the Act enables a liquidator to seek directionsfrom the Court in relation to any matter arising in connection with a liquidation.[23] In this case, the matter in issue is how the liquidators are to discharge theirstatutory obligation to communicate their reports and other documents to thousands ofpeople. That issue is appropriately determined on affidavit evidence, without the needfor a formal statement of claim (as would be required if the proceedings wascommenced under Part 18 of the High Court Rules, which would be the applicablePart of the Rules if no orders were made). I am satisfied that it is in the interests ofjustice for the substantive application to be made by originating application underPart 19.[24] The liquidators ask that the substantive application be dealt with on a "withoutnotice" basis, relying on r 7.46 of the High Court Rules, which permits a Judge to dealwith an application without notice only if the Judge is satisfied that requiring theapplication to proceed on notice would cause undue delay or prejudice, the applicationaffects only the applicant, the application relates to a routine matter, or the interests ofjustice require the application to be determined without serving the notice ofapplication.[25] Counsel submit that it is appropriate to make the substantive applicationwithout notice, for the following reasons. First, the liquidators have only 25 workingdays from the date of liquidation to provide their first report under s 255(2)(c)(ii).Secondly, personal service of the application on a significant number of shareholderswould add substantial and unnecessary expense to the liquidation. Thirdly, theliquidators propose that notice will be given to the shareholders and creditors after theorders are made, with leave reserved to them to apply to discharge or vary the orders.In all of those circumstances, the liquidators submit that the interests of justice requirethat the orders be made without notice.[26] I accept those submissions. The liquidators' first report is due by 11 October2018, and it is impracticable for the liquidators to serve all of the shareholders andcreditors, with time for them to be heard, if they wish, before that date. I also acceptthat requiring notification would add unjustified additional expense to the liquidations.[27] For those reasons, I grant permission to the liquidators to commence theirsubstantive application by way of originating application, to be dealt with on a"without notice" basis.The substantive application[28] Counsel referred to FCS Loans Ltd (in liq) v Fisk, a case in which AssociateJudge Gendall dealt with an application under s 255(2)(d) of the Act exempting theliquidators from sending reports to every preference shareholder of the company inliquidation.4 There were 3,141 preference shareholders, and the likely direct cashcosts of any further mail-out to them would be approximately $4,700 plus GST foreach six-monthly report. The evidence was that the liquidation of the company wouldbe complex and would take considerable time.4 FCS Loans Ltd (in liq) v Fisk [2013] NZHC 1190.[29] Associate Judge Gendall considered that the costs of supplying the six-monthlyreports to the preference shareholders would be out of proportion to any benefit thosepreference shareholders would receive. Also, any particular shareholder who wishedto view the six-monthly report could do so by searching the website of the Registrarof Companies or the website of the liquidators' firm.[30] Counsel also referred to the judgment of Associate Judge Gendall in PerpetualTrust Ltd v Strategic Finance Ltd (In Receivership).5 Again, orders were madeexempting the liquidators of the defendant from compliance with their obligation toprepare and send to every known preferential shareholder, reports on the conduct ofthe liquidation. The evidence showed that there were at least 1,367 preferentialshareholders, and the liquidators estimated that the direct cost of posting eachsix-monthly report to the preferential shareholders would be about $6,000, including$1,500 for postage. The liquidators did not expect there would be sufficient funds tomake a distribution to preferential shareholders, and it appeared that it would takeseveral years before the liquidation could be completed. The Associate Judge madeorders that the reports be posted on the liquidators' website and on the CompaniesOffice website.[31] The Associate Judge in Perpetual Trust Ltd considered that the large numberof preferential shareholders, and the fact that they were highly unlikely to achieve anydividend in the liquidation, justified a departure from the standard requirement ofsix-monthly reporting to preferential shareholders. His Honour referred to the cost ofproviding the six-monthly reports, noting that it would be out of proportion to anybenefit the shareholders might receive from the reports being mailed to them.[32] While this case is different in one respect, namely that the Forestlands entitiesappear to be solvent, I am satisfied that the orders sought are appropriate, and willresult in a small saving for creditors without undermining what I apprehend to be thepurpose of the provisions of the Act that require liquidators' reports to be sent toshareholders and creditors (in the manner prescribed by s 391), namely to keep themadvised of the way the liquidation is being conducted. The compelling ground for5 Perpetual Trust Ltd v Strategic Finance Ltd (In Receivership) HC Wellington,CIV-2010-485-1085, 27 July 2010.making the orders sought is the number of reports that would have to be sent, everysix months, if the orders sought (or orders similar to them) are not made, and the costof posting those reports. There are over 4,500 shareholders, and posting the reports toall of them would represent, over time, a not insubstantial cost, not only in postagecosts but also in administrative time for the liquidators' staff. Given the likely costssavings if the proposed orders are made, I think the questions are whether the makingof the orders would be contrary to any purpose in the Act, and whether any shareholderor creditor is likely to be disadvantaged or prejudiced if the orders sought are made.[33] First, the relevant parts of the Act (being the ss 255 and 257 reportingrequirements and the mode of giving notice to individuals prescribed by s 391) willnot in my view be undermined if orders are made as sought. The notificationprovisions in s 391 allow for service by post, and it seems to me that what will be lostif the orders sought are made will be the shareholder's or creditor's entitlement toreceive the reports and other documents in hard copy. I accept that may be a negativefactor for a few shareholders, but I think it is outweighed by the cost andinconvenience of sending so many reports by post. In saying that, I bear in mind thatthe proposed notification by email will only apply in respect of shareholders andcreditors who have already been communicating by email with the liquidators or withone or more of the Forestlands entities. Where the liquidators do not have emailaddresses, notice will have to be given in accordance with s 391.[34] Leave will be given to any affected creditor or shareholder to apply to the Courtwithin 15 working days of service of these orders, to modify or discharge these orders,on giving appropriate notice to the liquidators. And if the liquidators perceive anydifficulty in implementing the notification regime, leave will also be reserved to themto apply for further orders. Those orders will in my view sufficiently mitigate any riskof unforeseen disadvantage or prejudice to any creditor or shareholder[35] For all of those reasons, I make orders in terms of the application, as set out inparagraph [21], 1(a)-(f) of this judgment.[36] On the question of costs, I note that in Perpetual Trust Ltd Associate JudgeGendall awarded costs on a 2B basis, while in FCS Loans Ltd His Honour called formemoranda "if costs are in issue here". For my own part, I doubt that a costs order isnecessary. On the face of it, the costs of the applications appear to be costs incurredby the liquidators in the conduct of the liquidations, just as costs incurred by aliquidator in pursuing a debt owed to the company by a third party would be (or theliquidator's costs of obtaining legal advice on a matter arising in the course of aliquidation would be). However, it may be that there is a relevant distinction to bedrawn here between the companies and the liquidators in their personal capacities, andI would be grateful for a short submission from counsel on the point if an order forcosts is considered necessary. Any costs memorandum should be filed within15 working days.Associate Judge Smith