AUCKLAND COUNCIL v NINE INVESTMENTS LIMITED (IN LIQUIDATION) [2019] NZHC 2714

AUCKLAND COUNCIL v NINE INVESTMENTS LIMITED (IN LIQUIDATION) [2019] NZHC 2714 [23October 2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2018-404-002709[2019] NZHC 2714BETWEEN AUCKLAND COUNCILPlaintiffAND NINE INVESTMENTS LIMITED (INLIQUIDATION)DefendantHearing: 14 October 2019Appearances: G Neil and L Hui for Official Assignee as LiquidatorJ Belthazar for Ms Sahay (Director and Shareholder)Judgment: 23 October 2019JUDGMENT OF ASSOCIATE JUDGE P J ANDREWThis judgment was delivered by Associate Judge Andrewon 23 October 2019 at 4.00 pmpursuant to Rule 11.5 of the High Court Rule.Registrar/Deputy RegistrarDate:Introduction[1] Madhu Sahay is the sole named director and shareholder of Nine InvestmentsLtd (in liq) (the Company), which was placed into liquidation on 5 April 2019 on theapplication of the Auckland Council.[2] In these proceedings, the Official Assignee, as the liquidator, has applied fororders under s 266(2) of the Companies Act 1993 that Ms Sahay:(a) produce all books, records or documents relating to the business,accounts, or affairs of Nine Investments Ltd (in liq) in her possessionor under her control; and(b) produce the documents to the liquidator by delivering them to theofficers of Meredith Connell, solicitors, Auckland, within 10 workingdays of service.[3] Ms Sahay opposes the orders sought on the grounds that she does not hold thedocuments and that, in the circumstances, it would be oppressive and unreasonable togrant them.Background facts[4] The registered office of the Company as at the date of its liquidation was27A Puhinui Road, Manukau, Auckland.[5] Ms Sahay currently occupies the Puhinui Road property.[6] The Company is the registered proprietor of the property at 15 Regan Road,Papatoetoe. It is the company's major asset. That property is currently occupied byMs Sahay's uncle and subject to a Kiwibank Ltd mortgage guaranteed by Ms Sahay.[7] The property is subject to a sale and purchase agreement (SPA) with theCompany as vendor and Nandro Investment Ltd, a company under the directorship ofDeo Singh, as purchaser. At the time the SPA was entered into, Mr Singh was the soledirector and shareholder of the Company.[8] The liquidator is investigating the circumstances under which the SPA wasentered into as well as the source of the funds used to purchase the Regan Roadproperty. He is also investigating a number of unexplained transactions on theCompany's bank statements, including what he says were transfers of substantial sumsto Ms Sahay and to a company under her directorship.[9] On 16 April 2019, the liquidator issued a notice under s 261 of the CompaniesAct to Ms Sahay requiring her to produce financial statements, accounting reports andother documentation (including bank statements) relating to the Company no later than3 May 2019. The liquidator says that Ms Sahay has failed to comply with the notice.He also says that she has not supplied a copy of the tenancy agreement for Regan Roadproperty or provided any information to him in relation to the terms of the tenancy.[10] In related High Court proceedings CIV-2018-404-1193 (the RelatedProceedings) issued in June 2018, Mr Singh challenged Ms Sahay's status as directorand shareholder. Mr Singh has, from time to time, been the sole director andshareholder of the Company.[11] On 29 June 2018, orders were made in the Related Proceedings restrainingMs Sahay from carrying out any obligations of the Company (apart from GST returns)or dealing with the Regan Road property.[12] The Related Proceedings, to the extent that claims are made against theCompany, are stayed.[13] The Related Proceedings have been allocated a seven-day hearingcommencing on 6 July 2020.Relevant legal principles[14] Section 266(1) and (2) of the Companies Act 1993 reads:266 Powers of court(1) The court may, on the application of the liquidator, order a person whohas failed to comply with a requirement of the liquidator undersection 261 to comply with that requirement.(2) The court may, on the application of the liquidator, order a person towhom section 261 applies to –(a) attend before the court and be examined on oath or affirmationby the court or the liquidator or a barrister or solicitor actingon behalf of the liquidator on any matter relating to thebusiness, accounts, or affairs of the company:(b) produce any books, records, or documents relating to thebusiness, accounts, or affairs of the company in that person'spossession or under that person's control.[15] Qualifying persons in terms of s 261 include a director (or former director) andshareholder of the company.[16] Section 266 of the Act is the means by which the Court may order that aqualifying person be examined and produce documents. Two distinct bases exist tomake such an order. First, the Court may order a person who has failed to complywith a requirement of a liquidator under s 261 of the Act to comply with it.1Alternatively, the Court, without proof of the failure to comply with an earlierrequirement of a liquidator, may order that a qualifying person "produce any books,records or documents relating to the business, accounts or affairs of the company inthat person's possession or under that person's control".2[17] In relation to the production of documentation under s 266(2)(b) of the Act, theCourt in Norrie v Sutich made the following observations:3(a) It is necessary to keep in mind that exercising the discretion to make anorder involves balancing a number of factors including the interests ofthose against whom the order is sought.41 ANZ National Bank v Sheahan [2012] NZHC 3037, [2013] 1 NZLR 674 at [35].2 At [36].3 Norrie v Sutich [2013] NZHC 2495.4 At [28].(b) What is required is for the applicant to make a proper case for themaking of an order.5 As to what is a proper case, the Court cited, withapproval, the following extract from the speech of Lord Slynn inBritish & Commonwealth Holdings Plc (Joint Administrators) v Spicerand Oppenheim:6The proper case is one where the administrator reasonablyrequires to see the documents to carry out his functions andthe production does not impose an unnecessary andunreasonable burden on the person required to produce themin the light of the administrator's requirements. Anapplication is not necessarily unreasonable because it isinconvenient for the addressee of the application or causeshim a lot of work or may make him vulnerable to futureclaims, or is addressed to a person who is not an officer oremployee of or a contractor with the company inadministration, but all these will be relevant factors, togetherno doubt with many others.(c) In addition to enabling the liquidator to assemble replacementdocuments which are part of the company's records, the statutorypower to obtain documents and examine company officers enablesanother function of the liquidators which is to take proceedings wherenecessary in the interests of the creditors of the company and others.7It is for that reason that the authorities also acknowledge that betterequipping a liquidator for litigation is a legitimate objective ofexercising the power contained in s 266 of the Act.(d) The powers which are contained in the Act are necessarily broad. Theyshould be given full effect to. They should not go past the point whereunfairness results. The power to require directors and others to providedocuments is a salutary one.8(e) Given the circumstances in which liquidators frequently findthemselves on taking possession of a company which they have knownnothing about previously, they should not have to specify in advance5 At [29].6 British & Commonwealth Holdings Plc (Joint Administrators) v Spicer and Oppenheim [1992]3 WLR 853 (HL) at 862–863.7 Norrie v Sutich, above n 3, at [30].8 At [37].the very documents that they hope to find by exercising their powersunder s 261 and s 266 of the Act.9 The onus is on the respondent tocomply with the requirements of the section.10(f) The powers of liquidators (and those of the Court acting in support ofliquidators) are inquisitorial.11(g) One relevant consideration is the volume of documents overall that thedirector has possession of.12Analysis and decision[18] Ms Sahay contends that it would be oppressive and unreasonable to make theorders sought. Following an alleged burglary of the company premises (the PuhinuiRoad property) by Mr Singh and his associates in February 2018, Ms Sahay claimsshe is no longer in possession or control of any of the documents sought.[19] Ms Sahay has sworn and filed an affidavit of documents in the RelatedProceedings (which address essentially the same issues the liquidator wants toinvestigate), in which she says makes it clear that she has conducted all relevantsearches of emails and company documents to which she has access and there isnothing further to provide. She is concerned that the liquidator is simply going on afishing expedition and is not acting impartially as between herself and Mr Singh.Mr Singh is a discharged bankrupt, and, in the Related Proceedings, Ms Sahay makesserious and significant allegations of fraud against him.[20] However, I reject the submission that to require Ms Sahay to produce thedocuments sought would be oppressive or unreasonable. It is clear from the evidencethat the liquidator, against a background of some confusing and uncertain factualcircumstances, has a legitimate and proper interest in investigating the Company'saffairs and matters at issue. This includes the circumstances under which the SPA was9 At [37].10 At [61].11 At [41].12 At [42].entered into, the source of the funds used to purchase the Regan Road property, thepayment of the deposit and whether the purchase price was at an under-value. I alsoaccept that it is legitimate for the liquidator to be investigating whether or not thetransfer of funds from the Company to Ms Sahay, and/or other entities associated withher, amounts to an unauthorised dissipation of company funds.[21] I further find that the liquidator has established a proper basis for the makingof the orders sought. The liquidator reasonably requires to see the documents to carryout his functions and has provided a sufficient evidential foundation to infer thatMs Sahay is likely to hold at least some of the books, records or documents relatingto the business, accounts and affairs of the Company that are the subject of theapplication. This includes, amongst other matters, the fact that Ms Sahay occupies theformer registered office of the Company at Puhinui Road and that, despite repeatedrequests for the tenancy agreement of the Regan Road property (occupied by heruncle), she has refused to provide it.[22] I accept the submission of Ms Hui, for the liquidator, that, in substance, themajority of the documents sought will be documents in soft copy form which are likelyto be capable of being found by Ms Sahay through a simple search of the relevantcomputers. Furthermore, her contention, in her affidavit of documents in the RelatedProceedings, that she has no further documents to produce, is not an answer to theliquidator's application. The Related Proceedings, while relevant, do not extend to allthe issues the liquidator is investigating and, for reasons set out below, there is a properbasis to conclude that there are likely to be further documents in Ms Sahay'spossession and control.[23] Even if Ms Sahay no longer holds physical records of the company because ofthe alleged burglary in February 2018, she ought still to be in possession or control ofat least the following documents:(a) Documentation relating to the business, accounts or affairs of theCompany generated after 28 February 2018, that is after the date of thealleged burglary and the company records being taken.(b) Documentation relating to the business, accounts or affairs of theCompany that were discovered by the company and the other parties tothe Related Proceeding. In this regard, I note that the liquidator isentitled to be served with all documents in that proceeding, despite ithaving been stayed against the Company.13 There is no good reasonwhy this documentation should not be provided immediately.(c) Email correspondence relating to the business, accounts or affairs ofthe Company from accounts accessible by Ms Sahay (for example,nandrogroup@xtra.co.nz and chill_2005sahay@yahoo.com). Therecent email document attached to Ms Sahay's affidavit of September2019 would suggest that she continues to have access to the NandroGroup email account.(d) Electronic copies of original documents relating to the business,accounts or affairs of the Company that are stored on Ms Sahay'scomputer or in some other storage medium (cloud-based or otherwise)that is in her possession or under her control.(e) Electronic documents relating to the business, accounts or affairs of theCompany that were prepared and remained saved (for example,Microsoft Word documents or Excel spreadsheets) on Ms Sahay'scomputer or in some other storage medium (cloud-based or otherwise)that is in her possession or under her control.(f) Electronic accounting records and reports relating to the business,accounts or affairs of the Company stored on Ms Sahay's computer orin some other storage medium (cloud-based or otherwise) that is in herpossession or under her control.(g) Communications with the mortgagee of the property, Kiwibank Ltd,relating to the company loans.13 See Nandro Investment Ltd v Wiri Holdings Ltd HC Auckland CIV-2018-404-001193, Minute ofPowell J (dated 14 August 2019).(h) Her personal bank statements showing the source of the monies thatwere purportedly paid towards the settlement of the Company'spurchase of the property on 3 November 2014.(i) Her personal bank statements and credit card statements recording thereceipt of monies from the Company and the transfer of monies to theCompany.[24] I do not accept Ms Sahay's submission that to require bank statements goingback prior to the purchase of the property in 2014 would amount to fishing or someillegitimate investigation. The question of the source of the funds for the propertyacquisition is at issue and, as part of his legitimate investigative functions, I find thatthe liquidator should have access to the documents he seeks. In any event, as Ms Huisubmitted, to the extent that the bank statements contain non-company-relatedtransactions and information, those can of course properly be redacted from thedocuments to be provided.[25] I likewise do not accept the submission that the restraining orders made by thisCourt on 27 June 2018 in the Related Proceedings, which preclude Ms Sahay fromcarrying out any obligations on behalf of the Company (except for filing an annualreturn and a GST return), somehow supports her contention that she is no longer inpossession or control of the relevant documents and cannot provide them. TheCompany is now in liquidation and the orders in no way preclude or provide an excusefor Ms Sahay now producing the documents sought. The orders may have limited thenumber of documents generated or produced by Ms Sahay, but they do not provide adefence to the liquidator's application.[26] Heath J held in Grant v Grewal:14[15] An order requiring persons associated with a company to producerelevant company records is one that demands close attention from itsrecipient. Almost invariably, a liquidator comes to administration of thecompany without prior knowledge of the way its business was conducted. Heor she must obtain relevant information from the company's directors,including its accounting and other records. Without co-operation from thosefrom whom information is sought (whether orally or in the form of14 Grant v Grewal [2016] NZHC 1564.documentation) it is almost impossible for a liquidator to reconstitute theaffairs of the company and to determine what, if any, action can be taken tomaximise returns to creditors.[27] Those comments have particular application to this case. The uncertaintyabout the fate of the Related Proceedings (and whether they will ever proceed to trial)reinforces the need for the liquidator to take steps to investigate all matters at issueand for him to obtain the relevant information from Ms Sahay, a former director.[28] I also reject the submission of Ms Sahay that the liquidator has somehow beenacting less than impartially in failing to investigate the affairs and role of Mr Singhand concentrating solely on the actions or omissions of Ms Sahay. I note that theliquidator has examined Mr Singh and there is no basis for the allegation that theliquidator, here the Official Assignee, is taking steps to generate unwarranted fees inthe liquidation. Even if the liquidator has been focusing his attention on Ms Sahay(with a view to legitimately pursuing his investigation), that provides no excuse forMs Sahay not producing the documents that he seeks.[29] For all these reasons I find that the orders sought by the liquidator should begranted.Result[30] I find that the application by the Official Assignee, as the liquidator of NineInvestments Ltd (in liq), dated 12 September 2019, for orders under s 266(2) of theCompanies Act 1993 against Madhu Sahay should be granted.[31] I order as follows:(a) Ms Madhu Reshmi Sahay is to produce all books, records or documentsrelating to the business, accounts or affairs of Nine Investments Ltd (inliq) in her possession or under her control to the Official Assignee, asliquidator; and(b) Ms Sahay is to produce the documents to the Official Assignee, asliquidator, by delivering them to the offices of Meredith Connell,level 5, 4 Graham Street, Auckland, within 10 working days of serviceof the Court's sealed order made pursuant to [31](a) above.[32] As to costs, I accept the submission of the liquidator and find that Ms Sahayshould pay costs and disbursements to the liquidator on a 2B basis as fixed by theRegistrar.__________________________Associate Judge P J Andrew