THE DEPARTMENT OF INTERNAL AFFAIRS [2019] NZHC 2675

THE DEPARTMENT OF INTERNAL AFFAIRS [2019] NZHC 2675 [18 October 2019]INTERIM NON-PUBLICATION ORDERJUDGMENT NOT TO BE PUBLISHED BEFORE 12 MIDDAY ON21 OCTOBER 2019 — REFER TO PARAGRAPH [16] AND THE POSTSCRIPTTO THE JUDGMENTIN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-1716[2019] NZHC 2675UNDER Section 329 of the Companies Act 1993IN THE MATTER of an application by THE DEPARTMENTOF INTERNAL AFFAIRS restoring MSIGROUP LIMITED (removed)Hearing: 18 October 2019Appearances: Ms E Smith for the ApplicantJudgment: 18 October 2019ORAL JUDGMENT OF ASSOCIATE JUDGE SMITHThis judgment was delivered by me on 18 October 2019,pursuant to r 11.3 of the High Court RulesRegistrar/Deputy RegistrarSolicitors / Counsel:Meredith Connell, Auckland[1] The applicant (the Department) applies for an order under s 329 of theCompanies Act 1993 (the Act) restoring to the register the company MSI Group Ltd(the company).Background[2] The company was incorporated on 29 May 2014, and it was removed from theCompanies Register on 20 May 2019. The company's last annual return was filed on7 November 2016, and the company was removed from the register under s 318(1)(b)of the Act (company not carrying on business and no proper reason for the companyto continue in existence).[3] The company operated money transfer and foreign exchange services prior toits removal from the register, and the Department wishes to issue a civil proceedingagainst the company claiming pecuniary remedies for alleged breaches of theAnti-Money Laundering and Countering Financing of Terrorism Act 2009 (theAML/CFT Act).[4] Evidence for the Department was given by Mr Schoeman, the manager(operations) of the Department's Anti-Money Laundering Group. Mr Schoeman gaveevidence about investigations conducted by his group's officers, and the officers beingtold during a police search conducted in September 2016 that the company was not areporting entity for the purposes of the AML/CFT Act. At that point, the Departmentdid not investigate further. It was apparently satisfied at the time that the companywas merely a branch of another entity called OTT Trading Group Ltd (OTT). TheDepartment appears to have reached that view based on an agency agreement betweenthe company and OTT dated 19 March 2015. However, the Department now believesthat the purported agency agreement was false, and could not have been created before2 May 2016. The Department was also told in September 2017 that the company wasno longer trading and had become part of OTT in April or May of that year.[5] The Department's officers remained interested in OTT. On 5 April 2019 theynoted during a visit to the company's (or OTT's) Christchurch premises that an "MSI"sign had been erected. The company's director and shareholder then told theDepartment's officers that the company had 2,000 customers. The Departmentconcluded that the information previously given to it about the company's role,relevant to its possible status as a reporting entity under the AML/CFT Act, was notcorrect.[6] The Department commenced a proceeding under the AML/CFT Act on23 August 2019 against OTT and a number of other parties. The company was namedas fourth defendant, and its director, Ye Duan, was named as fifth defendant. Thereare eight causes of action in the proceeding, and four of them include allegationsagainst the company. Each cause of action seeks a civil penalty against the companyin such sum as the Court may think just. The causes of action are said to reflect thecompany's failure to:(a) establish, implement or maintain an AML/CFT programme;(b) conduct customer due diligence as required by the AML/CFT Act;(c) adequately monitor accounts and transactions; and(d) keep records in accordance with the requirements of the AML/CFT.[7] Mr Schoeman said in his affidavit that the recovery of any penalties is onereason for the Department commencing civil penalty proceedings, but theDepartment's primary motivation is to ensure that reporting entities generally areaware of, and comply with, their obligations under the AML/CFT. Mr Schoemanacknowledged that, even if the company were solvent, any civil penalty awardedwould likely be at a level that the company could not meet. However, the Departmentconsiders that it must be seen to enforce the AML/CFT Act against non-compliantentities and to obtain civil penalties in an amount that makes it uneconomic for entitiesnot to comply with the AML/CFT Act. The Department takes the view that that isparticularly so where, as here, the company is alleged to have attempted to avoidliability by false and misleading conduct.Section 329 of the Act[8] Section 329 of the Act materially provides:329 Court may restore company to New Zealand register(1) The court may, on the application of a person referred to in subsection(2), order that a company that has been removed from theNew Zealand register be restored to the register if it is satisfied that,—(a) at the time the company was removed from the register,—(i) the company was carrying on business or a properreason existed for the company to continue inexistence; or(b) for any other reason it is just and equitable to restore thecompany to the New Zealand register.(1A) In considering whether to restore a company to the register on theground referred to in subsection (1)(a)(i) or (b), the court must haveregard to the reasons for the company's removal and whether thosegrounds existed at the time of removal or exist at the time of thehearing of the application.(2) The following persons may make an application under subsection (1):(a) any person who, at the time the company was removed fromthe New Zealand register,—(i) was a shareholder or director of the company; or(ii) was a creditor of the company; or(iii) was a party to any legal proceedings against thecompany; or(iv) had an undischarged claim against the company; or(v) was the liquidator, or a receiver of the property of, thecompany:(b) the Registrar:(c) with the leave of the court, any other person.(3) Before the court makes an order restoring a company to the NewZealand register under this section, it may require any provisions ofthis Act or any regulations made under this Act, being provisions withwhich the company had failed to comply before it was removed fromthe register, to be complied with.(4) The court may give such directions or make such orders as may benecessary or desirable for the purpose of placing the company and anyother persons as nearly as possible in the same position as if thecompany had not been removed from the New Zealand register.[9] The Department relies for its standing to bring the proceeding on s 329(2)(c)of the Act, under which the Court may grant leave to any person to apply to have aremoved company restored to the register.Service[10] All parties who may have an interest in the application have been served. Theformer sole director and shareholder of the company and the Registrar of Companieshave both signed a form of consent to the application, and the Department hasproduced a letter written on behalf of the Secretary to the Treasury confirming receiptof the application and advising that the Secretary has no objection to the application.Discussion and conclusions[11] In my view, the application is similar to the application dealt with by AssociateJudge Doogue in Re Hawke Equipment Ltd (struck off), Worksafe New Zealand vRegistrar of Companies.1 In that case, Hawke Equipment had been removed from theregister for failing to file a return, and Worksafe New Zealand wished to proceed witha prosecution following the death of one of Hawke Equipment's employees at work.Charges had been laid before Hawke Equipment was removed from the register, andWorksafe was anxious to have it restored to the register so that the criminal proceedingagainst it could continue.[12] The Associate Judge considered that restoring a company to the register so thatit is available to meet criminal charges against it is a legitimate purpose for the exerciseof the s 329 jurisdiction.2 His Honour did not consider it possible or appropriate for aCourt hearing an application for a restoration order to come to any conclusions on thefinancial worth of the removed company, and whether there would be any financialbenefit arising if it were restored to the register. Those would be questions for thesentencing judge in the criminal proceeding.1 Re Hawke Equipment Ltd (struck off), Worksafe New Zealand v Registrar of Companies [2015]NZHC 2350.2 At [7].[13] The particular jurisdiction to restore the company to the register in this case iseither under s 329(1)(a)(i) (at the time of its removal from the register, a proper reasonexisted for the company to continue in existence), or s 329(1)(b) (just and equitable torestore the company to the New Zealand Register). On either basis, the Court isrequired by s 329(1A) to have regard to the reasons for the company's removal, andwhether those grounds existed at the time of removal or exist at the time of the hearingof the application. One of the grounds for removal from the register was that therewas no proper reason for the company to continue in existence. In my view, thatground did not in fact exist at the time the company was removed from the register inMay 2019. By 5 April 2019 the Department had concluded that the company was inbreach of its obligations under the AML/CFT Act in various respects, and followingthe 5 April 2019 site visit the Department instructed its solicitors to commence a claimagainst the company. The company was removed from the register before the claimcould be commenced. In those circumstances, the Department's claim had clearly beenidentified by the time the company was removed from the register, and on the principleaccepted by Associate Judge Doogue in Re Hawke Equipment Ltd the need for thecompany to answer the Department's claims constituted a proper reason for it tocontinue in existence. That same "proper reason" still exists. For the same reason, Ifind that it was just and equitable for the company to have remained on the register inMay 2019, and that that ground still subsists.[14] Having regard to all of the foregoing factors, I grant leave to the Departmentunder s 329(2)(c) to make the present application, and I make an order under s 329(1)restoring the company, MSI Group Ltd, to the New Zealand Register of Companies.[15] The Department asked for costs. The application was not opposed, and theutility of the restoration to the register seems unlikely to be known until theDepartment's claims under the AML/CFT Act have been heard and determined. Inthose circumstances I reserve the issue of costs, to be dealt with when the issue ofcosts is dealt with in the Department's proceeding under the AML/CFT Act.[16] Finally, I have raised with Ms Smith the question of whether there may be aneed for any non-publication orders, having regard to the provisions of the AML/CFTAct, and the existence of a proceeding already commenced under that Act. Ms Smithindicated that she did not think there were any issues that might require anon-publication or similar order, but that indication was given before I delivered thisjudgment. In case there are any issues relating to the publication of facts or names inthis judgment that ought to be suppressed having regard to the provisions of theAML/CFT Act and/or any orders made in the existing proceeding under the AML/CFTAct in which the company has been named as a party, I direct that there is to be nopublication of this judgment before 12 midday on Monday 21 October 2019. Ifcounsel perceives that there may be some issue requiring an extension of that order, amemorandum should be filed promptly on Monday morning 21 October, with arequest that it be drawn to my attention immediately.Associate Judge SmithPostscript: For the avoidance of any doubt, I add that if any matters are raised withthe Court by counsel under paragraph [16] above before midday on 21 October 2019,the interim non-publication order made above may then be extended to the extent andfor the period that the interests of justice may require.