THE COMMISSIONER OF INLAND REVENUE V CASTOR BAY VILLAS LIMITED HC AK CIV2007-404-3715

THE COMMISSIONER OF INLAND REVENUE V CASTOR BAY VILLAS LIMITED HC AK CIV2007- 404-3715 22 November 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV2007-404-3715IN THE MATTER OF the Companies Act 1993 BETWEEN THE COMMISSIONER OF INLAND REVENUE Plaintiff AND CASTOR BAY VILLAS LIMITED Defendant Hearing: 15 November 2007 Appearances: J Berryman for Plaintiff R Hucker for Liquidators appointed by shareholders resolution Judgment: 22 November 2007 at 11.30 amRESERVED JUDGMENT OF ASSOCIATE JUDGE H SARGISSONThis judgment was delivered by Associate Judge Sargisson on 22 November 2007 at 11.30 am pursuant to Rule 540(4) of the High Court Rules Registrar/Deputy RegistrarDate:Solicitors: Inland Revenue Dept, PO Box 33-150, Auckland Hucker & Associates, PO Box 3843, Auckland[1] On 27 June 2007 the plaintiff filed an application to place the defendant company into liquidation. [2] The plaintiff served the application on the defendant on 5 July 2005. [3] The application was listed for hearing on 15 November 2007. [4] At the hearing on 15 November 2007, counsel appearing for the plaintiff requested orders appointing liquidators nominated by the plaintiff. Counsel for Mr Meltzer and Mr Lamacraft was given leave to appear, which was not opposed. He advised that on 13 November 2007 the defendant company was placed into voluntary liquidation by way of shareholder resolution which appointed Jeffery Phillip Meltzer and Michael Lamacraft as liquidators. [5] The plaintiff and the shareholders' liquidators take different positions on the effect that s 241AA of the Companies Act 1993 has on the latter's appointment. [6] It was agreed that I would consider and issue a ruling on the effect of s 241AA in relation to the plaintiff's application, and in particular on whether the plaintiff is entitled to an order appointing the liquidators it has nominated. It was also agreed that the answer turns on whether the shareholders' appointment is invalid because of the enactment of the new provisions in s241AA. [7] Section 241AA states:(1) This section applies if an application has been filed for the appointment of a liquidator of a company by the Court under s 241(2)(c). (2) A liquidator of the company may only be appointed under s 241(2)(a) or (b) if the liquidator is appointed within 10 working days after service on the company of the application. (3) If a liquidator is appointed under s 241(2)(a) or (b), the creditor who filed the application referred to in subsection (1) may apply to the Court under section 283(4) for the review of his or her appointment as if the words "successor to a liquidator" in section 283(4) read "liquidator". (4) Subsection (2) does not apply once the application has been finally disposed of.[8] Section 241AA was enacted in 2006, as part of the Companies Amendment Act 2006 to come into force on a date to be appointed by the Governor-General by Order in Council. The relevant order was made on 24 September 2007. It appointed 1 November 2007 as the date on which the Amendment Act came into force. [9] The effect and purpose of the new section is discussed in Brooker's Insolvency Law and Practice as follows:SynopsisThe shareholder of a company and the board of a company cease to have power to appoint a liquidator under s 241(2)(a) or s 241(2)(b) (respectively) if an application to the Court to appoint a liquidator under s 241(2)(c) has been made and 10 working days or more have passed since notice of that application has been served on the company. . . .CA 241AA.01 PurposeSection 241AA was introduced by the Companies Amendment Act 2006. It addresses the concern that a company may seek to pre-empty the Court's appointment by appointing a liquidator partisan to the company. While the section preserves the right of the company's shareholders and its board to appoint a liquidator following the filing of an application by a creditor for the company's winding up, it substantially reduces the potential for "game playing" by shareholders or the company's board. It will be no longer possible to defer the appointment of a liquidator by the shareholders or by the board until just before the Court is due to consider the winding-up application by one or more of the company's creditors. In addition, even where the shareholders or the company board act to appoint a liquidator within the 10 working day period following the filing in Court of the winding up application, it is now open to a creditor to apply to the Court to have the appointment of the liquidator reviewed.The different positions[10] It is the plaintiff's submission that the shareholders' resolution was invalid because it was made after the new section came into force and after the time limit specified in the new section. Counsel also argues that there was no accrued right of appointment and that the shareholders have lost a mere expectation that they could appoint a liquidator.[11] The plaintiff therefore opposes endorsement of the shareholders' resolution made on 13 November 2007 and is seeking that the Court appoint its nominees as liquidators. [12] Counsel for Mr Meltzer and Mr Lamacraft advised that they will abide the Court's decision. However he also advised that it is their position that their appointment is valid by virtue of s 7 of the Interpretation Act 1999. Section 7 states:Enactments do not have retrospective effect – An enactment does not have retrospective effect.Ruling[13] Section 7 reflects the common law presumption that an enactment is not retrospective. See: Burrows Statute Law in New Zealand, (3 ed 2003), 404. Burrows observes:The explanatory note to the Interpretation Bill 1997 makes it clear that the intention of s 7 was simply to give this presumption legislative force. The note says: The presumption against the retrospective operation of legislation is a well established common law principal and the clause is a legislative statement of that basic principal. It is always open to Parliament to enact a statute that is retrospective in its operation, but it will usually require clear words to have that effect.[14] As to the strength of the presumption, the Court of Appeal has said:The ultimate question is one of construction. It involves weighing retrospectivity concerns in determining the intention of Parliament as reflected in the scheme and language of the legislation. See: Prouse v Commissioner of Inland Revenue (1994) 16 NZC 11249 at 11252 (CA) per Richardson J.[15] Applying these principles, I am led to the following conclusions: a) Prior to 1 November shareholders had an existing right to appoint a liquidator: see s 241(2)(a).b) Section 241AA indicates that Parliament intended that the right of appointment should continue but that it should be restricted by the imposition of a time limit in cases where the Court has been asked to appoint a liquidator and the company has had notice of the application. This is the effect of ss 241AA(1) and (2). c) If the new provisions are construed to apply the time limit to applications retrospectively as well as prospectively, the new provisions would deprive the shareholders in this case of their right to appointment altogether. Such a construction would impose retrospectively a time limit that had already expired from the moment of its imposition. d) There is nothing in the Act that requires that the new provisions be construed retrospectively in the sense I have described or that makes the imposition of the new time limit unavoidable in this case. Section 241AA(1) states that it applies if an application has been filed, but there is nothing to say that it applies to an application where the new time limit has already expired. If Parliament had intended that consequence then it is reasonable to assume that it would state that intention expressly. e) It would not be consistent with Parliament's intention to construe the new provisions so that the new time limit operates in a way that defeats the exercise of the right of appointment altogether. In other words, the new time limit should not operate so as to defeat the exercise of the right at all. f) I am satisfied that in these circumstances the shareholders' right to appoint a liquidator under s 241(2) is protected by s 7 of the Interpretation Act 1999. The Act is not to be construed to retrospectively impose a time limit on that right that cannot, from the very moment of its imposition, be complied with.[16] In reaching the above view, I have not overlooked the supplementary submissions filed by counsel for the plaintiff. She referred to a several decisions that draw a distinction between accrued rights and expectations, including Art Deco Society (Auckland) Incorporated v Auckland City Council [2006] NZRMA 49 (HC). In that case, Asher J was concerned with whether a statutory amendment extending the time at which resource consents lapsed from two to five years applied to all extant resource consents or only those granted after the amendment. [17] Asher J did not consider that there was any problem with retrospectivity in that case, because of a crucial distinction between statutory amendments that alter existing rights or interests and amendments that alter expectations for the future. He held that there was only an expectation that resource consents granted before the change would lapse after two years, which was disappointed by the statutory amendment. However, had the amendment limited the time period rather than extending it, it might have had a different effect, as he pointed out at [70]:... then the BNZ might well have been able to raise s 7 and the presumption against retrospectivity. The BNZ would have lost something akin to a vested or accrued right. The loss of that right would involve an obvious unfairness, and it could be assumed that Parliament would not intend to be so unfair.[18] That is arguably similar to the present case. In any case, counsel for the plaintiff also noted, and I accept, that the issue is one of construction in the particular case. In this case the factors outlined at [14] satisfy me that the appointment of the liquidators by the shareholders was valid. [19] I decline therefore to make an order for liquidation. Liquidators have already been appointed. The plaintiff's application is struck out accordingly. [20] That leaves for determination the application for costs that counsel for the plaintiff made at the hearing. I accept that irrespective of the ruling on s 241AA, the plaintiff should have an order for costs on the liquidation application. Were it not for the shareholders' last minute appointment of liquidators, the plaintiff would almost certainly have been entitled to the orders it was seeking. I make an order for costs in favour of the plaintiff on its application on a 2B basis together with disbursements tobe fixed by the Registrar. Dated at Auckland on ______________________________ at ___________ am/pm. ___________________________ Associate Judge Sargisson