RE DEPARTMENT OF INTERNAL AFFAIRS (QIAN DUODUO LTD) [2023] NZHC 602

RE DEPARTMENT OF INTERNAL AFFAIRS (QIAN DUODUO LTD) [2023] NZHC 602 [23 March 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2022-404-1840[2023] NZHC 602UNDER section 329 of the Companies Act 1993IN THE MATTER OF an application to restore Qian DuoDuoLimited (removed) to the New ZealandRegister of CompaniesBY THE DEPARTMENT OF INTERNALAFFAIRSApplicantHearing: 6 March 2023Counsel: D B Dow for applicantG P Aspell for Qian DuoDuo LimitedJudgment: 23 March 2023JUDGMENT OF ASSOCIATE JUDGE TAYLORThis judgment was delivered by me on 23 March 2023 at 3pm, pursuant tor 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Solicitors/Counsel:Meredith Connell, Auckland for applicantG P Aspell, Auckland for Qian DuoDuo LimitedIntroduction[1] The Department of Internal Affairs (DIA) applies for an order restoringQian DuoDuo Limited (t/a Lidong Foreign Exchange) (QDD) to the New ZealandRegister of Companies (the Register).Background[2] QDD was incorporated as a company on the Register on 10 February 2011. Itoperated as a foreign exchange and money remittance service.[3] The DIA began investigating QDD, as a reporting entity under the Anti-MoneyLaundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act), in2015 for potential contraventions of the AML/CFT Act. As a result, the DIA hadcommenced both civil and criminal proceedings against QDD.[4] QDD was removed from the register on 18 August 2022. DIA now bringsproceedings to attempt to restore the company to the Register to enable the criminalproceedings against it to continue.DIA's application to restore company to register of companies[5] The DIA, as an entity which was a party to a proceeding against QDD at thetime it was removed from the register, seeks orders restoring QDD to the Register andcosts.1[6] The grounds on which the orders are sought are:2(a) QDD was incorporated on 10 February 2011;(b) at all material times QDD operated as a foreign exchange and moneyremittance service;(c) on 16 April 2021, DIA commenced civil proceedings against QDD;31 Originating application for orders to restore company to the register of companies dated22 September 2022 at [1].2 At [2].3 Department of Internal Affairs (Qian DuoDuo Ltd) HC Auckland CIV-2021-404-642.(d) on 25 June 2021, DIA commenced criminal proceedings againstQDD;4(e) a trial date for the criminal charges filed against QDD has not yet beenallocated, but is expected to be set at a callover hearing on21 November 2022;(f) on 14 July 2022, the Registrar of Companies (Registrar) gave noticein the Gazette of an intention to remove QDD from the Register;(g) the notice period for objecting to the removal of QDD from theRegister expired on 16 August 2022;(h) the Registrar declined an objection made by the DIA out of time on23 August 2022;(i) it is just that QDD remain on the Register to enable the criminalproceeding against it to continue; and(j) no unfair prejudice would arise if the orders are granted.Affidavit of Robert James Timothy Milne dated 22 September 2022[7] Mr Milne, the principal adviser of the Anti-Money Laundering Group inRegulatory Services at the DIA, has made an affidavit in support of the DIA'sapplication to have QDD restored to the register.5[8] He deposes that the DIA is responsible, among other things, for enforcingcompliance with the AML/CFT Act. He confirms that he is an appointed enforcementofficer under s 141 of the Act. In relation to this case, he relies on his first-handknowledge and DIA records.[9] Mr Milne deposes that in 2015 the DIA began investigating QDD andassociated persons and entities for potential contraventions of the AML/CFT Act.[10] As a result of that investigation the DIA commenced civil proceedings andQDD was ordered to pay a civil pecuniary penalty on 27 July 2018.6 On 16 April2021, the DIA commenced further civil proceedings under which QDD is currentlysubject to an interim injunction.74 Department of Internal Affairs v Qian DuoDuo Ltd DC Auckland CRI-2021-004-5281.5 Affidavit of Robert James Timothy Milnes in support of originating application for ordersrestoring a company to the register of companies dated 22 September 2022.6 Department of Internal Affairs v Qian DuoDuo Ltd [2018] NZHC 1887.7 Department of Internal Affairs v Qian DuoDuo Ltd HC Auckland CIV-2021-404-642.[11] On 25 June 2021, the DIA commenced criminal proceedings against QDDalleging criminal breaches of the AML/CFT Act. Mr Milne deposes that he is theinvestigator in charge of these proceedings. Mr Milne notes that QDD is representedby counsel in both proceedings and has taken active steps to defend itself.[12] Mr Milne asserts that the DIA has determined there is a public interest in thepursuit of charges against QDD due to the important deterrent effect of prosecution onoffending against the AML/CFT Act.[13] Regarding removal of QDD from the Register, Mr Milne deposes that theRegistrar of Companies gazetted a notice of their intention to remove QDD from theregister on 14 July 2022. On 23 August 2022, counsel for DIA wrote to the Registrarto object, and the Registrar responded on 6 September 2022 declining the objection asthe objection period has already expired. QDD was removed on 18 August 2022. Atthe time the sole director was Ms Hua and its shareholders were Ms Hua and Mr Qian.[14] Mr Milne asserts that the restoration order is sought to enable the civil andcriminal proceedings to continue, and he believe there is no unfair prejudice that wouldarise if granted.Affidavit of Sharon Margaret Murdock dated 25 October 2022[15] Ms Murdock, a practice administrator at Meredith Connell, has affirmed anaffidavit of service of the originating application and Mr Milne's affidavit on theRegistrar of Companies, the Secretary of the Treasury and Ms Ye Hua, the sole directorof QDD at the time of its removal from the Register.8 She annexes a true copy of eachservice to her affidavit.[16] Ms Murdock effected service of the originating application and affidavit to theRegistrar of Companies on 30 September 2022 via email to an address where she isaware they accept service of documents.8 Affidavit of service of Sharon Margaret Murdock dated 25 October 2022.[17] Ms Murdock effected service of the originating application and affidavit to theSecretary of the Treasury on 30 September 2022 via email to an address where she isaware they accept service of documents.[18] Ms Murdock effected service of the originating application and affidavit toMs Hua, the sole QDD director on its removal, on 30 September 2022 via her lawyer,Mr David Jones KC, who was authorised to accept service on her behalf.[19] Finally, on 19 September 2022 she undertook a search of the Personal PropertySecurities Register and discovered QDD did not have any registered secured creditors.QDD's opposition[20] The shareholders of QDD, Mr Zhenhua Qian and Ms Ye Hua, oppose DIA'sapplication on the following grounds:9a. Both the civil proceedings and the prosecution are against thecompany which is no longer trading. The prosecution is regulatory innature.b. Restoration of the company to the register of companies would serveno useful purpose. It would be a waste of resource for the parties andthe courts.c. Any sentence that might arise from any conviction can only be a fineand would not be collectable.d. The civil proceedings taken against QDD are in abeyance. That civilproceeding resulted in an agreement by the company to cease businessactivities. There is no reason or legitimate basis to pursue civilprocess further.e. The shareholders of QDD are husband and wife and they haveseparately been prosecuted in relation to alleged offending relating tothe QDD business activities.f. It is not in the interests of justice, nor in the public interest for thecompany to be restored to the register. It is not just and equitable torestore the company to the register.g. The failure of the Department of Internal Affairs (as the prosecutingauthority) to notify their objection to the Registrar of Companieswithin the requisite time period is unexplained. Neither the9 Notice of opposition by the shareholders of Qian DuoDuo Limited to originating application fororders to restore company to the register of companies dated 21 October 2022 at [1] and [2].shareholders nor the company should be required to pay the costs ofany application to restore the company, should that occur.Affidavit of Zhenhua Qian dated 1 December 2022[21] Mr Qian has made an affidavit in support of QDD's opposition.10 He deposeshe is one of two QDD shareholders, the other being his wife, Ms Hua.[22] Mr Qian deposes that QDD is no longer in operation and has annexed a letterfrom QDD's accountant confirming that it has not operated since at least March 2021.He also annexes the last financial statement finalised for QDD for the year ending31 March 2020.Reply affidavit of Andrew James Holmes dated 7 December 2022[23] Mr Holmes, the deputy director, operations in the Anti-Money LaunderingGroup at the DIA, has made a reply affidavit in further support of the DIA'sapplication.11 He deposes that he is an enforcement officer under s 141 of theAML/CFT Act and has worked at the DIA since October 2013.[24] Mr Holmes begins by explaining that the DIA's role under the AML/CFT Actis to detect and deter money laundering and the financing of terrorism and maintainand enhance New Zealand's international reputation by adopting, where appropriatein the New Zealand context, recommendations issued by the Financial Action TaskForce (FATF) and contribute to public confidence in New Zealand's financial system.As one of three AML/CFT supervisors, and that assigned to QDD, the DIA wasresponsible for promoting, monitoring, investigating, and enforcing QDD'sobligations under the Act as a reporting entity. In assessing whether to commencecivil or criminal proceeding for non-compliance the DIA considers at a minimum themoney laundering and financing of terrorism risk of the relevant sector, the extent ofany non-compliance, the general and specific deterrent value of the enforcementaction, the reporting entity's attitude towards compliance and the extent to whichcertain action upholds the purposes of the Act.10 Affidavit of Zhenhua Qian in opposition to application for orders to restore company to the registerof companies dated 1 December 2022.11 Affidavit of Andrew James Holmes in support of originating application for orders restoring acompany to the register of companies dated 7 December 2022.[25] Regarding enforcement against QDD, Mr Holmes notes the two currentproceedings against QDD. He deposes that the civil proceeding, which would haveprevented QDD from offering financial services which would make it a reportingentity under the Act, is no longer necessary given Mr Qian's evidence that QDD nolonger trades and there appears to be no future intention to trade. However, he assertsthat the criminal proceedings for breach of reporting obligations is still important tothe DIA, public interest and integrity of New Zealand's financial system, despite thefact QDD no longer trades and is unlikely to be able to pay any resultant fine.[26] Regarding the criminal proceedings, Mr Holmes deposes that the proceedingsallege that QDD failed to report two categories of transaction to the Commissioner ofPolice which are mandatory — those being transactions which were objectivelysuspicious and those which were "prescribed transactions". He considers thecontinuance of this proceeding is in the public interest because:(a) The DIA considers enforcement of the AML/CFT Act is a key meansby which the Act's purposes are upheld, particularly general deterrence.(b) QDD was a money remitter, which as a sector has a well-documentedhigh risk of being used to launder money and finance terrorismaccording to the DIA's December 2019 Financial Institutions SectorRisk Assessment. This sector has the highest level of assessed risk ontheir scale.(c) There is no regulator licensing regime to be a money remitter like QDD,unlike lawyers, real estate agents, banks and financial serviceproviders. While money remitters must be registered on the FinancialService Providers Register that creates minimal barriers to entry andmeans non-compliant remitters can easily shutter and re-establishthemselves to avoid operation of the AML/CFT Act.(d) QDD has been the subject of previous civil enforcement action, orderedto pay a penalty of $356,000,12 and despite that the DIA has detectedfurther breaches reflected in the current proceedings.(e) The alleged criminal breaches are serious, repeated, sustained, andgiven QDD's history, may have been premeditated.(f) The need for DIA to enforce breaches is of even greater importancegiven FATF's 2021 report, Anti-money laundering and counter-terrorist financing measures New Zealand: Mutual Evaluation Report,which found that suspicious activity reporting in New Zealand wasgenerally low in sectors which DIA supervises. It is therefore importantthat the DIA enforces reporting obligations to ensure reporting in thesesectors increases.DIA's submissions[27] Mr Dow, for the DIA, notes in relation to the QDD's shareholder's oppositionthat while they argue that no useful purpose would be served by restoring QDD to theRegister, the shareholders do not point to any prejudice in the Court granting theapplication.[28] Mr Dow submits that while it is unusual that a court will decline restoration tothe Register under s 329 of the Companies Act 1993,13 it is not a mere proceduralformality and requires an exercise of judgment by the court.14[29] Mr Dow turns to the criminal charge being about a failure to report a significantnumber of transactions involving close to $100m. He submits there is a high publicinterest in these proceedings against QDD, as it serves a general deterrent purpose. Hesubmits it would be contrary to the public interest to allow offending to be committedthrough a corporate entity and then allow it to go unsanctioned merely because thatentity was dissolved. Further, as the AML/CFT Act is unaccompanied by a licencing12 Department of Internal Affairs v Qian DuoDuo Ltd, above n 6.13 John Hammonds & Co Ltd v Registrar of Companies [1999] 3 NZLR 690.14 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479.requirement, there is nothing preventing an entity dissolving to avoid liability only forits shareholders to create another legal entity to carry on regulated business under theAML/CFT Act.[30] Mr Dow submits that continuation of criminal proceedings against a companyserve a useful purpose, even if that company does not have the financial means to meetany resultant penalty. In support he cites WorkSafe New Zealand v Registrar ofCompanies, in which the High Court considered an opposed application to restore acompany to the Register in order for WorkSafe to continue its prosecution.15 Ingranting the application Associate Judge Doogue commented:16It is in my view consistent with principle that restoring a company to theregister so that it is available meet criminal charges against it is a legitimatepurpose for restoring a company. It is not possible or appropriate for a Courthearing an application for restoration to come to conclusions on the main pointthat Mr White raises, which is that the company is allegedly a financial shelland that no financial benefit would follow from it being restored to theRegister. That, as Mr May has submitted, it is a question that will only ariseif and when the point is reached where sentencing takes place in the criminalproceedings.[31] Mr Dow goes on to note that this comment was cited with approval byAssociate Judge Smith in Re Department of Internal Affairs, another application torestore a company to the Register so proceedings against it could continue.17 Thatcase involved civil rather than criminal proceedings under the AML/CFT Act, butrestoration was granted with confirmation that it is inappropriate for a court to cometo any conclusions on the financial worth or benefit of restoration with those questionsbeing left to a sentencing court.18[32] Applying both cases, Mr Dow submits that a useful purpose is served byrestoring QDD to the register to face prosecution and the fact that it is no longer tradingand may be unable to meet any sentence imposed is not a relevant consideration.Furthermore, he submits the fact that separate proceedings against the shareholdersare ongoing is irrelevant because the public interest in, and alleged criminality of,QDD's criminal prosecution is distinct. The DIA only missed the expiry of the15 WorkSafe New Zealand v Registrar of Companies [2015] NZHC 2350.16 At [7].17 Re Department of Internal Affairs [2019] NZHC 2675 at [11].18 At [12].objection to removal notice period by two working days and had simply missed thenotification. The proceedings however have been underway for over 12 months.[33] Overall, Mr Dow submits that the application for restoration of QDD to theRegister should be granted.QDD's submissions[34] Ms Aspell, for QDD, submits that QDD's operations have ceased since thearrest and prosecution of its two shareholders, Ms Hua and Mr Qian. The companyhas effectively been dormant since their arrest with initial bail conditions preventingthem from engaging in money remittance activities.[35] Regarding the civil proceedings, Ms Aspell submits that given the bailconditions, the proceedings have been in abeyance pending substantive determinationof the criminal prosecution against Ms Hua. The next call for these proceedings is3 May 2023 and an order was made by agreement by the Court in May 2021 that QDDcease its money remittance business, and the company has not traded since.[36] Regarding the criminal proceedings, Ms Aspell submits that not guilty pleashave been entered to all charges against QDD and they were to proceed to a judge-alone trial. She submits that QDD's prosecution is linked to that of Mr Qian andMs Hua and that QDD's criminality is regulatory in nature.[37] Ms Aspell submits that it is an abject waste of court resources for the DIA topursue either proceeding against QDD given the company is no longer trading and thatthe shareholders are themselves subject to prosecution. Whilst the charge may bedifferent, the substance is similar and therefore there is no point in restoring thecompany to prosecute substantially the same alleged criminal conduct. Similarly, thecivil proceeding is purposeless, would put the parties to unnecessary expense,consume valuable court time and achieve no substantive outcome.[38] Ms Aspell submits there is no reason given as to why the objection was notlodged with the Registrar on time. She submits that ongoing proceedings cannot ofthemselves be a reason to have the company restored and there is no public interest orother rationale advanced by the DIA in support of restoration.[39] Ms Aspell submits that the two cases cited by the DIA in support of theapplication can be readily differentiated from the present case because criminalproceedings have already been taken against the sole two shareholders of QDD,Ms Hua and Mr Qian. She submits this necessarily informs the public interestelement.[40] With respect to the decision in Re Department of Internal Affairs, Ms Aspellsubmits the primary motivation for commencing proceedings was for deterrence ofother entities and to ensure that they generally comply with the AML/CFT Act. Shesubmits that that is not a concern in the present case as both shareholders have hadcriminal proceedings laid against them and that is likely to be a much greater deterrentthan the DIA's intended prosecution of QDD.[41] In relation to Re Hawke Equipment Ltd,19 Ms Aspell submits that the casediffers from the present one as the individual charged in relation to the death of one ofthe company's employees, a Mr Thompson, did not have a direct association with thecompany. She submits that is different from the present instance where Ms Hua andMr Qian are sole shareholders of QDD and they are already being prosecuted.[42] Overall, as restoration would serve no useful purpose, Ms Aspell submits thatthe application should be dismissed.Legal principles[43] Section 329 of the Companies Act 1993, as far as relevant, provides:329 Court may restore company to New Zealand register(1) The court may, on the application of a person referred to insubsection (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,—19 Re Hawke Equipment Ltd [2015] NZHC 2350.(i) the company was carrying on business or a properreason existed for the company to continue inexistence; or(ii) the company was a party to legal proceedings; or(iii) the company was in receivership, or liquidation, orboth; or(iv) the applicant was a creditor, or a shareholder, or aperson who had an undischarged claim against thecompany; or(v) the applicant believed that a right of action existed, orintended to pursue a right of action, on behalf of thecompany under Part 9; 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.[44] An application under s 329 of the Companies Act is not a mere proceduralformality and involves the exercise of judgement by the Court.20Analysis[45] The key submissions made by Mr Dow and the affidavit evidence produced insupport of the application can be summarised as follows:(a) Failure by DIA to lodge the objection with the Registrar of Companiesto removal of QDD in time was due to inadvertence. The DIA did notreceive the notice calling for objections and overlooked the issue of thenotice.(b) There is a high public interest element in the prosecution going aheadas a deterrent. It is important that the criminal proceedings are taken asa deterrent in relation to the enforcement of the AML/CFT Act.20 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479.(c) Upholding the AML/CFT Act is important for confidence inNew Zealand's financial system and supporting the integrity of theAML/CFT Act.(d) The fact that any penalty ultimately imposed on QDD may not berecoverable is not a reason not to restore QDD to the Register. Theissue of recoverability of any penalty can be dealt with at the time QDDis sentenced if the criminal proceedings are successful.(e) The fact that the shareholders are being prosecuted individually is nota reason not to pursue QDD's prosecution as QDD's criminalprosecution is distinct.[46] Ms Aspell's objections to the application can be summarised as:(a) Restoring QDD would allow pointless prosecution against QDD tocontinue. QDD is a shell company and has not traded since March2021. A further order against QDD to cease its money remittancebusiness was made in May 2021.(b) The public interest in relation to the AML/CFT Act is served byprosecutions of Ms Hua and Mr Qian, the shareholders of QDD. It isnot therefore necessary in the public interest for the prosecution ofQDD to go ahead.(c) Any penalty imposed on QDD would be pointless as it is unlikely to beable to pay the penalty.(d) The failure by DIA to object to the Registrar of Companies' removal ofQDD has not been adequately explained.Result[47] I am of the view that QDD should be restored to the Register and I generallyaccepted Mr Dow's submissions. In particular, QDD should be restored for thereasons set out at [45](a) to [45](e).Orders[48] I make the following orders:(a) QDD is to be restored to the Register of Companies pursuant to s 329(1)of the Companies Act 1993;(b) as DIA is the successful party, costs are awarded to the DIA on a2B basis, together with disbursements.Associate Judge Taylor