BEST INVEST NZ COMPANY LIMITED (In Interim Liquidation) v JAPAN BUSINESS CONSULTING COMPANY LIMITED [2019] NZHC 1037

BEST INVEST NZ COMPANY LIMITED (In Interim Liquidation) v JAPAN BUSINESS CONSULTINGCOMPANY LIMITED [2019] NZHC 1037 [13 May 2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-870[2019] NZHC 1037UNDER The Companies Act 1993IN THE MATTER OF the liquidation of Japan Business ConsultingCo Ltd and East Wind group of companiesBETWEEN BEST INVEST NZ COMPANY LIMITED(In Interim Liquidation)PlaintiffAND JAPAN BUSINESS CONSULTINGCOMPANY LIMITEDDefendantCIV-2019-404-872BETWEEN BEST INVEST NZ COMPANY LIMTED(In Interim Liquidation)PlaintiffAND EAST WIND HOLDINGS LIMITEDDefendantCIV-2019-404-873BETWEEN BEST INVEST NZ COMPANY LIMITED(In Interim Liquidation)PlaintiffAND EAST WIND NOMINEE LIMITEDDefendantCIV-2019-404-874BETWEEN BEST INVEST NZ COMPANY LIMITED(In Interim Liquidation)PlaintiffAND EAST WIND MEDICARE LIMITEDDefendantCIV-2019-404-876BETWEEN BEST INVEST NZ COMPANY LIMITED(In Interim Liquidation)PlaintiffAND EAST WIND PROGRAMME LIMITEDDefendantCIV-2019-404-879BETWEEN BEST INVEST NZ COMPANY LIMITED(In Interim Liquidation)PlaintiffAND EAST WIND COMPANY LIMITEDDefendantHearing: On the papersAppearances: R Sussock for the PlaintiffJudgment: 13 May 2019JUDGMENT OF ASSOCIATE JUDGE R M BELLThis judgment was delivered by me on 13 May 2019 at 1:00pmpursuant to Rule 11.5 of the High Court Rules.Deputy RegistrarSolicitors:Lowndes Jordan (Rachel Sussock), Auckland, for the Plaintiff[1] In these liquidation proceedings Best Invest NZ Company Limited (in interimliquidation) applies for orders that interim liquidators be appointed for Japan BusinessConsulting Company Limited, East Wind Holdings Limited, East Wind NomineeCompany Limited, East Wind Medicare Limited, East Wind Programme Limited andEast Wind Company Limited. The interim liquidators of Best Invest NZ CompanyLimited, Messrs Downes and Moore, propose that they be appointed interimliquidators of the defendants.[2] The plaintiff and the defendants are related companies under s 2(3)(c) of theCompanies Act 1993.1 Mr Masatomo Ashikaga was the sole director of the plaintiffand all the defendants. He was the sole shareholder of the plaintiff and all thedefendants except East Wind Medicare Limited. For that company he held 450 sharesin his own right; East Wind Holdings Limited (of which he is the sole shareholder)holds 300 shares; and the remaining 250 shares are held by a Japanese resident.[3] Mr Ashikaga died on 21 February 2019. Since his death none of the companieshave had a director. No steps have been taken to obtain a grant of administration forhis estate. In the absence of any grant of administration, the shares have presumablyvested in the Crown under s 22(1) of the Administration Act 1969.2 No-one has taken1 In this Act, a company is related to another company if— (c) more than half of the issued shares, other than shares that carry no right to participatebeyond a specified amount in a distribution of either profits or capital, of each of themare held by members of the other (whether directly or indirectly, but other than in afiduciary capacity);2 The section says:22(1) Subject to the provisions of this Act and any other Act, where a person dies withoutleaving a will that effectively appoints an executor, his or her estate shall, until administrationany steps to appoint a director to replace Mr Ashikaga. He is survived by his widow,Ms Siu Tai Tsai. There is no suggestion that she has any interest in any of thecompanies or holds any office in them. Because the companies do not have a director,they do not meet one of the requirements for a company under s 10 of the CompaniesAct 1993.[4] In Ohara v Best Invest NZ Company Ltd, investors who had placed money withBest Invest NZ Company Limited brought a liquidation proceeding on two grounds,non-compliance with s 10 of the Companies Act, and the just and equitable ground.They applied for interim liquidators to be appointed. On 16 April 2019 AssociateJudge Andrew appointed Mr Timothy Downes and Mr Michael Moore interimliquidators.3 The substantive application is to be heard on 24 May 2019.[5] On 9 May 2019 Best Invest NZ Company Limited began these liquidationapplications. The statement of claim is the same in each proceeding. The grounds foreach application are that the company has persistently or seriously failed to complywith the Companies Act (section 241(4)(b)); the company does not comply with s 10of the Companies Act (section 241(4)(c)); and it is just and equitable that the companybe put into liquidation (section 241(4)(d)). Best Invest NZ Company Limited does notallege that any of the defendants is unable to pay their debts (section 241(4)(a)).[6] Best Invest NZ Company Limited pleads that it is a creditor of East WindCompany Limited for $7,174,587.42. So far as the other companies are concerned,the statements of claim say:21. There is reason to suspect that the Plaintiff Company may be a creditorof each of the Associated Companies, as the Companies appear to have beenrun on a co-mingled basis.22. The interim liquidators for the Plaintiff Company have receivedcorrespondence from various investors in the Plaintiff Company, includinginvestors who are not plaintiffs in the liquidation proceedings of the PlaintiffCompany. The correspondence gives the interim liquidators further reason tosuspect that there has been a co-mingling of funds between the PlaintiffCompany and the Associated Companies.is granted in respect thereof, vest in the Crown in the same manner and to the same extent asformerly in England in the case of personal property it vested in the ordinary.3 Ohara v Best Invest NZ Company Ltd [2019] NZHC 850.[7] Best Invest NZ Company Limited appears to have carried on businessproviding financial services. It received substantial funds from Japanese investors andappears to have re-invested those funds. The interim liquidators have obtainedrepayment of a loan of $1 million made by Best Invest to RPV SPV Two Limited.They hold these funds on trust pending the making of any liquidation order.[8] The interim liquidators believe that Ms Tsai may have control of bank accountsof Best Invest NZ Company Limited and the defendants. Shortly after her husband'sdeath she told two of the plaintiffs in Ohara v Best Invest NZ Company Ltd that therewas only $3 in a bank account. I directed her to be served with a copy of the liquidationapplication.4 The process server attempted service at her home address but wasunsuccessful. An occupant told the process server that she no longer lives there. Herefused to give any information as to her whereabouts.[9] The interim liquidators say that the assets of the defendants are in jeopardybecause of Ms Tsai's apparent ability to access them, even though she is not a directoror manager of any of the defendants.[10] The interim liquidators of Best Invest NZ Company Limited have clearlyobtained some information and have carried out some investigations, but theirevidence does not describe in any detail the extent of their investigations or how muchinformation altogether they have obtained. There is no evidence that they havecontacted Ms Tsai or that she has provided them with any information. They do notsay what company records they have obtained, for example accounting records,financial statements and banking records. I assess their application only on theinformation they have provided.[11] The appointment of interim liquidators is a drastic remedy. Once interimliquidators are appointed, it is almost inevitable that a liquidation order will be made.Applications to appoint interim liquidators must therefore be considered with care andshould not be made lightly. In most applications, the plaintiff normally has astraightforward case on the substantive merits. In the typical case the plaintiff isindisputably a creditor and there are clear signs of insolvency. In such cases the court's4 Ohara v Best Invest NZ Company Ltd – minute of 3 April 2019.main inquiry is whether the appointment of interim liquidators is necessary orexpedient for the purpose of maintaining the value of assets owned or managed by thecompany. A sound case on the substantive merits is a prerequisite for any applicationto appoint interim liquidators. That is required to avoid any miscarriage of justice inappointing interim liquidators. If the substantive proceeding should ultimately fail,damage to the business caused by the appointment of interim liquidators may beirreparable.[12] There is a weakness in the applications against Japan Business ConsultingCompany Limited, East Wind Holdings Limited, East Wind Medicare Limited andEast Wind Programme Limited. Best Invest NZ Company Limited has not establishedclearly that it has standing as a plaintiff. The standing requirements for a liquidationapplication are set out in s 241(2)(c) of the Companies Act. Best Invest NZ CompanyLimited claims to be a creditor, which includes any contingent5 or prospectivecreditor6 (section 241(2)(c)(iv)).[13] In this case there is no evidence that Japan Business Consulting CompanyLimited, East Wind Holdings Limited, East Wind Medicare Limited or East WingProgramme Limited have been trading or carrying on any kind of business, or thatthey have entered into any transactions with Best Invest NZ Company Limited. Bankstatements, accounting records or statements of financial position might provideevidence of dealings between Best Invest NZ Company Limited and the othercompanies, but there is no such evidence here.[14] The plaintiff's claim that funds may have been intermingled is conjectural andspeculative. Mr Downes has put in evidence copies of translations of land bankingagreements between a Ms Iijima and East Wind Co Limited. Those are clearlydocumented transactions which may go to show that Ms Iijima is a creditor of EastWind Company Limited, but it is not evidence that funds of Best Invest NZ Company5 For contingent creditor, see the definition in Re William Hockley Ltd [1962] 1WLR 555:A person towards whom, under an existing obligation, the company may orwill become subject to a present liability on the happening of some futureevent or at some future date.6 In Re Austral Group Investment Management Limited [1993] 2 NZLR 692, Holland J held thata prospective creditor is a person in respect of whom there is a real prospect of being a creditor(for example someone claiming damages against the company).Limited have been intermingled with funds of other companies. There is insufficientevidence to show that Best Invest NZ Company Limited has standing as a creditor toapply for these companies to be put into liquidation.[15] In the absence of an adequate case on the substantive merits, it is inappropriateto appoint interim liquidators. I reserve leave to Best Invest NZ Company Ltd torenew its application. Further information may come to hand which may show that itis a creditor. It may be able to get around the difficulty by adding a plaintiff withstanding. As the substantive case relies on non-compliance with the Companies Act,the Registrar of Companies may be persuaded to be added as a plaintiff.[16] On the other hand, I am satisfied that Best Invest NZ Company Limited hasstanding as a creditor for its applications against East Wind Company Limited andEast Wind Nominees Limited. Mr Downes has exhibited bank account detailsshowing payments of $7,174,587.42 by Best Invest NZ Company Limited to EastWind Company Limited. He has also shown payments between Best Invest NZCompany Limited and East Wind Nominees Limited of about $1,250,000.[17] Given the amounts of the payments by Best Invest NZ Company Limited toEast Wind Company Limited and East West Nominee Limited, it may be assumed thatthose companies held and may continue to hold assets corresponding in value to thosepayments. Those companies are however in limbo, as there is no director. The interimshareholder, the Crown, is unlikely to appoint a director. Given the void inmanagement and control of the company, there is a risk of assets disappearing. Theinterests of creditors should be protected on an interim basis until the court canconsider the substantive merits of the liquidation applications. In short, Best InvestNZ Company Limited has established the ground for appointing interim liquidatorsunder s 246 of the Companies Act.[18] Best Invest NZ Company Limited has applied without notice. I accept thatapplying without notice is appropriate here, as the experience with service of theliquidation application against Best Invest NZ Company Limited shows that there isno-one to respond to the applications. There is, however, a procedural defect in theinterlocutory applications. Each application has a certificate under the old form,whereas it should continue a certificate in the new form.7 The orders made in thisdecision will not take effect until applications showing the appropriate certificate arefiled.[19] The interim liquidators have such of the powers in Part 16 and Schedule 6 ofthe Companies Act as are required to take possession of, protect and realise assets ofthe companies. While the interim liquidators may receive claims, they are not toprocess them or to distribute assets to creditors.[20] Messrs Downs and Moore have provided written consents under s 282 of theCompanies Act and have certified that they are not disqualified from holding office asliquidators. There is an obvious efficiency in the interim liquidators of Best Invest NZCompany Limited also acting as interim liquidators of East Wind Company Limitedand East Wind Nominee Limited.[21] In CIV 2019-404-633 an accounting practice, Icon Accounting Service Ltd,has applied to liquidate East Wind Company Ltd. It says that it is a creditor for$1,496.50 for unpaid accounting fees. Its application has its first call on 24 May 2019.It is likely to seek the appointment of another liquidator. That should not stand in theway of Messrs Downes and Moore acting as interim liquidators. Icon's claim is verysmall; it is so small that by itself it would not warrant a liquidation, which would be adisproportionate remedy. It would be very inconvenient to have different liquidatorsfor East Wind Company Ltd and for other Ashikaga companies.[22] Messrs Downes and Moore have provided proposed rates of remuneration:(a) Liquidators/partners $450 - $600 an hour;(b) Senior managers/associate directors $350 - $450 an hour;(c) Accountants $125 - $350 an hour;(d) Support staff $100 - $140 an hour.7 See Form G 32 in the Schedule 1 of the High Court Rules.[23] The top rate for liquidator/partners is above current market rates for court-appointed liquidators. The circumstances of the Ashikaga companies do not seem toraise any unusual challenges for experienced insolvency practitioners. I see no reasonto approve rates above those normally approved when liquidation orders are made.The maximum rate for a liquidator/partner is $550 per hour. That aside, I approve theproposed rates.[24] Messrs Downes and Moore are reminded that they should keep separaterecords for their work as interim liquidators for each of the companies, Best Invest NZCompany Limited, East Wind Company Limited, and East Wind Nominee Limited.That is because under s 278 of the Companies Act the expenses and remuneration ofa liquidator are payable only out of the assets of the company, not out of the assets ofrelated companies.[25] The proceedings should of course be served on the registered office of eachdefendant company. I also direct the plaintiff to make reasonable efforts to bring theproceeding to the knowledge of Ms Tai Tsai. If nothing else works, copies of theproceedings should be left in the letterbox of her Glenfield home, even if she is nolonger in occupation.[26] All proceedings are to be called on 24 May 2019 at 10.00 am, even if allpreliminary steps have not been carried out. That is to allow the applications to bemanaged with Icon Accounting Service Ltd's application and with the application toput Best Invest NZ Company Ltd into liquidation.[27] I make these orders:(a) Messrs Downes and Moore are appointed interim liquidators of EastWind Company Limited and East Wind Nominee Limited pendingfurther order of the court.(b) They have such of the powers of liquidators in Part 16 and Schedule 6of the Companies Act as are required to take possession of, protect andrealise assets of the companies. While they may receive claims, theyare not to process them or to distribute assets to creditors.(c) I approve their proposed rates of remuneration, except that themaximum rate for liquidators/partners is $550 per hour (exclusive ofGST).(d) Their remuneration for acting as interim liquidator for each companyshall be paid from the assets of that company.(e) The above orders will take effect when the plaintiff files applicationsthat comply with form G 32. The Registrar is to record the time of theorders as the time that the amended applications are filed.(f) The applications to appoint interim liquidators of Japan BusinessConsulting Company Limited, East Wind Holdings Limited, East WindMedicare Limited and East Wind Programme Limited are dismissed,but without prejudice to the plaintiff applying again if it can show onnew evidence a basis for appointing interim liquidators.(g) Leave is reserved to apply for further directions...Associate Judge R M Bell