ALBACORE FISHERIES LIMITED V SUNSAI LIMITED HC WN CIV-2010-485-2395

ALBACORE FISHERIES LIMITED V SUNSAI LIMITED HC WN CIV-2010-485-2395 [10 February 2012]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2010-485-2395[2012] NZHC 117BETWEEN ALBACORE FISHERIES LIMITEDApplicantAND SUNSAI LIMITEDRespondentHearing: 14 December 2011Counsel: K Smith for ApplicantNo appearance for RespondentR Gordon for Ian PharaohJudgment: 10 February 2012JUDGMENT OF WILLIAMS JIn accordance with r 11.5, I direct the Registrar to endorse this judgment with the delivery time of 3.00pm on the 10 February 2012.Introduction[1] Albacore Fisheries Ltd (Albacore) applies to have Sunsai Limited (Sunsai) restored to the register of companies. It applies on the basis that when Sunsai was removed from the register, Albacore was a creditor of Sunsai. Albacore's strategy isto restore Sunsai to the register, put Sunsai into liquidation, and then trace Sunsai'spre-removal assets. Albacore asserts that some of those assets were transferred either to a company with the same shareholding as Sunsai, or to related parties, and they will be available to satisfy any judgment debt.[2] Sunsai was originally incorporated as Sea Resources Co Ltd on 7 June 1994. The name was changed to Sunsai Limited on 20 March 2008. On 26 March 2008, shortly following the name change, a new company was registered with the name Sea Resources Ltd. That company had the same shareholders as Sunsai.[3] Ian Pharaoh, a former director and shareholder of Sunsai, and current director and shareholder of Sea Resources Ltd, appeared through counsel to oppose the application. He says that from the financial year ending 2007, Sunsai traded at a loss. As a consequence, in March and June 2008, all the assets of Sunsai were sold. Mr Pharaoh says that Sunsai did not hold any assets from that date until it was removed from the register on 20 October 2009.[4] The dispute at the heart of this claim relates to the purchase of squid by Albacore from Sunsai when it was still called Sea Resources Co. The squid was purchased in February 2005, and an invoice issued on 28 February 2005. Albacore alleges that Sunsai represented that the squid was fit for human consumption when it was not. The New Zealand Food Safety Authority subsequently investigated, and agreed with Albacore. A large proportion of the squid was condemned and destroyed.[5] On 4 July 2007, Albacore's solicitors wrote to Sunsai. After again alleging that the squid was not fit for purpose, they noted that two invoices had been issued one using the descriptor "Squid Sales" and the other using "Squid Bait Sales".Albacore's solicitors claimed that this was no more than a belated attempt to coverup the problem. The letter demanded a full refund within 14 days. Failure to comply, it said, would result in summary judgment proceedings being issued. The total purchase price was claimed to be $164,489.40.[6] A second letter was sent 14 days later. It was in substance the same as the first but for one important difference: instead of demanding a full refund, it sought the value of the condemned squid together with storage costs incurred. The total amount claimed was $134,862.48, more than $30,000 less than the original claim.[7] It appears that no response was received, and no summary judgment proceedings were instituted.[8] Two and a half years later, in November 2009, Albacore sent a further letter of demand to Sunsai. That letter demanded that the full purchase price of the squid be paid within 14 days, or debt recovery proceedings would be instituted. Mr Pharaoh's previous solicitors responded, informing Albacore that Sunsai had, by that stage, been removed from the register a month earlier. There was, in short, no point.[9] Following further and active exchanges between solicitors for Albacore and Mr Pharaoh, these proceedings were instituted on 1 December 2010.Standing and jurisdiction[10] Mr Pharaoh says Albacore has no standing to bring the application. In order to bring an application in the circumstances of this case, a person must be a creditor of a company or have an undischarged claim on the company.1 Subject to what I will say below, Albacore clearly has an undischarged claim against Sunsai, and so has standing.2 Albacore's claim arose prior to Sunsai being removed from the register, so there is jurisdiction to restore. The matter then becomes a question of discretion.1 Companies Act 1993, s 329.2 See generally Re West HC Napier M37/02, 15 May 2003.Discretion[11] In Attorney-General v Registrar of Companies, this court approved the following statement from Re Pranfield Holdings Ltd:3The principle must be that the somewhat peremptory power of the Registrar to remove dead wood from the corporate scene, will not prevail against the rights of those so removed, or of others with whom they have dealt, to reinstate the company to pursue remedies provided by substantive law, unless it is plain that the proceeding, if successful, will still be nugatory. This principle puts grand notions of access to law ahead of mere rules for administrative ease.[12] There is, therefore, not a high threshold here. The applicant must simply show that the application is not completely pointless as a gateway for the recovery of its claim.[13] In this case, there are two possible reasons why the application may indeed be pointless. The first is that the claim against Sunsai may be time barred under the Limitation Act 2010. The second relates to whether Albacore still has time to reach through Sunsai into the assets now owned by Sea Resources Ltd or others.Limitations[14] The invoice for the squid was issued on 28 February 2005. The claim against Sunsai is said to be one of misrepresentation or fraud: either that Sunsai represented to Albacore that the squid was fit for human consumption when it was not, or that Sunsai knew that Albacore thought that it was fit for human consumption, knew that it was not, but sold it to Albacore anyway. Under s 11 of the Limitation Act 2010, the time to bring a money claim is six years. That term expired in late February 2011. On its face, any claim, except the more difficult to prove fraud claim, is now statute barred.[15] The court has the power, under s 329(4) of the Companies Act 1993, to stop limitations time running for the period during which the company was removed from3 Attorney-General v Registrar of Companies HC Wellington CIV-2003-485-344, 4 July 2003 at [9], citing re Pranfield Holdings Ltd (2001) 9 NZCLC 262, 571 at [20].the register – i.e. from 20 October 2009.4 Such an order would bring any proceedings within the six-year limit by one year and four months. Here, Albacore was informed that Sunsai had been removed from the register in December 2009. Since then, Albacore has been reasonably diligent in trying to get Sunsai restored to the register, first by consent, and now by instituting these proceedings. If Albacore had not had to take the extra step of getting Sunsai restored to the register, it could well have brought the proceedings within time.[16] Mr Pharaoh says that no such order should be made. He says that this case is similar to Skeates v Bruce,5 where the Court declined to make an order of the kind sought here. Skeates was also a case of an unresolved dispute (as opposed to a liquidated debt), but in that case the removed company was needed as a plaintiff not as a defendant. The claim was statute barred. Allan J considered whether time should be stopped for the period for which the company was not on the register. He declined to make the order. Time had run out a month and a half after the company was removed from the register. The evidence did not show that, at the time when the company was removed from the register, it had been preparing to take any action in respect of the dispute. Allan J said that in order for him to make an order that time not run, it would need to have been shown that, but for the company being removed from the register, it would have instituted proceedings before time ran out. There was no evidence showing that was the case.[17] This case is different. Here, although there had been two and a half years of dilly-dallying, the latest attempt to resolve the dispute was made shortly after Sunsai was removed from the register. When informed that Sunsai had been removed from the register, Albacore took steps to have it restored in order to pursue the claim. At that point Albacore still had over a year to institute proceedings before time ran out. That is ample to show that there was both time and intention on Albacore's part.4 See Re West; Thornton Estates Ltd v Registrar of Companies HC Auckland CIV-2006-404-2256, 17 August 2006; Skeates v Bruce HC Auckland CIV-2007-404-1137, 11 February 2008;John Hammonds & Co Ltd v Registrar of Companies [1999] 3 NZLR 690 (HC).5 Skeates v Bruce HC Auckland CIV-2007-404-1137, 11 February 2008.Reach through to purchasers of Sunsai's assets[18] Albacore intends to recover from Sunsai by reopening the sale of Sunsai'sassets to Sea Resources Ltd and others. The question is whether it will be able to do so even if the underlying Sunsai claim is successful. There are two parts to this issue. The first is factual: when does the time for reopening those transactions expire? The second is legal: if time has expired, does the court have the power to extend time, and if so, should it do so in this case?[19] Mr Pharaoh submits that the applicable time period for reopening the relevant transactions is contained in s 292 of the Companies Act. Section 292 relates to reopening insolvent transactions. It provides that transactions are voidable only if completed within two years of the appointment of a liquidator if they were entered into when the company was insolvent. There are two other potentially relevant sections in the Companies Act:(a) section 297 deals with transactions at an undervalue. A liquidator may recover the difference in value if the transaction was entered into within two years of his or her appointment; and(b) section 298 deals with transactions between the subject company and its own directors, other companies with common directors, related companies, or certain other related parties including parties who control the subject company. Where consideration has been inadequate or excessive, the difference in value is recoverable provided the transaction occurred within three years of liquidation. Under s 298(4)(c), the period is slightly longer, being within three years of an application to put a company into liquidation.[20] The applicable time period for a Sunsai liquidator to take steps against Sea Resources Ltd or other parties is therefore either two or three years prior to Sunsai being put into liquidation, or in some circumstances three years prior to Albacore applying to liquidate Sunsai.[21] The fixed assets of Sunsai were sold in March 2008, apparently it was suggested, in part settlement of a shareholder's current account which was then in credit. There were three Sunsai shareholders. One of the shareholders, Mr Pharaoh, was also a director. It is possible that he was a party to the transaction and caught by s 298. It seems that the sale may have been to a trust in which some of the shareholders were trustees or beneficiaries, or to a company owned by some of the shareholders. I do not have enough facts to make definitive judgments here, but given the lack of details, I cannot say there is no chance that a director of Sunsai, ora related company, was involved in the sale of Sunsai's assets. It is at least possible therefore that the longer three year time period applies.[22] There were two main asset sales: the fixed assets were sold in March 2008, and the other assets were sold in June 2008. If the relevant time period was the longer three years, that would have given until March 2011 and/or June 2011 for a liquidator to be appointed to Sunsai. It is now February 2012. Unless time can be extended in some way, time will have run out for the sales to be reopened under all of the provisions of the Companies Act referred to above. No alternative method of recovery has been suggested.[23] The result therefore turns on whether there is power to extend the time for reopening the relevant transactions under the Companies Act, where the company has been removed from the register. Such a power, if it exists, would be analogous to the power to extend the normal time limits for bringing proceedings provided for by the Limitation Act. As I have already set out, the power to avoid limitations has been found by the court in s 329(4) of the Companies Act, which reads:The Court may give such directions or make such orders as may be necessary or desirable for the purpose of placing the company and any other person as nearly as possible in the same position as if the company had not been removed from the New Zealand register.[24] That subsection gives the court a broad power to avoid any adverse consequences of the company being removed from the register. I see no reason why that power should include winding the clock back to 20 October 2009 for the purpose of the time limits under the Limitation Act, but not include the power to do the same in respect of the time limits provided by the Companies Act itself. Afterall, when Albacore made its November 2009 demand it was still in time under all of ss 292, 297 and 298, and showing an intention to pursue its remedies.[25] Accordingly, I find there is jurisdiction to stop time running under any of ss 292, 297 and/or 298 of the Companies Act during the period that Sunsai was deleted from the register. The question is whether I should exercise it in this case.[26] As I have said, Albacore was informed that Sunsai had been removed from the register in November 2009. At that point, Albacore had at the least three months before the two year time period for reopening transactions would have come to an end, sufficient time for a determined Albacore to take the necessary steps, even if it had dithered up until that time. But, as I have said, it is possible that the sales were covered by s 298, meaning that Albacore may have had one year and three months to take steps. That would have been ample time for Albacore to seek to put Sunsai into liquidation. The reasons I have already given to stop time running under the Limitation Act apply equally to the Companies Act discretion. It is appropriate therefore to order that time will not run under ss 292, 297 or 298 of the Companies Act from the date of Sunsai's removal on 20 October 2009 until Sunsai is restored to the register.Orders[27] There will be an order restoring Sunsai to the Companies Register. There will also be orders that time under the Limitation Act and ss 292, 297 and 298 of the Companies Act will not run from 27 November 2009 when Albacore was informedof Sunsai's removal until the day Sunsai is restored to the register.[28] Memoranda as to costs may be filed.___________________________Williams J