KOCATÜRK v ZARA’S TURKISH LIMITED (IN LIQ) [2020] NZHC 3124

KOCATÜRK v ZARA'S TURKISH LIMITED (IN LIQ) [2020] NZHC 3124 [25 November 2020]IN THE HIGH COURT OF NEW ZEALANDNELSON REGISTRYI TE KŌTI MATUA O AOTEAROAWHAKATŪ ROHECIV-2020-442-52[2020] NZHC 3124BETWEEN IBRAHIM KOCATÜRK and GÜLERKOCATÜRKApplicantsAND ZARA'S TURKISH LIMITED (INLIQUIDATION)RespondentTeleconference: 23 November 2020Counsel: A Sharma for applicantsS Galbreath for respondentJudgment: 25 November 2020JUDGMENT OF DOBSON J[1] This judgment deals with an application brought under s 248 of the CompaniesAct 1993 for an order granting the applicants leave to continue Employment Courtproceedings against the respondent in liquidation. Those proceedings were adjournedpart-heard shortly before the respondent company passed into liquidation.[2] Section 248 provides as follows:248 Effect of commencement of liquidation(1) With effect from the commencement of the liquidation of acompany,—(a) the liquidator has custody and control of the company'sassets:(b) the directors remain in office but cease to have powers,functions, or duties other than those required or permitted tobe exercised by this Part:(c) unless the liquidator agrees or the court orders otherwise, aperson must not—(i) commence or continue legal proceedings against thecompany or in relation to its property; or(ii) exercise or enforce, or continue to exercise orenforce, a right or remedy over or against property ofthe company:(d) unless the court orders otherwise, a share in the company mustnot be transferred:(e) an alteration must not be made to the rights or liabilities of ashareholder of the company:(f) a shareholder must not exercise a power under the constitutionof the company or this Act except for the purposes of this Part:(g) the constitution of the company must not be altered.(2) Subsection (1) does not affect the right of a secured creditor, subjectto section 305, to take possession of, and realise or otherwise dealwith, property of the company over which that creditor has a charge.(3) This section is subject to section 139J(1) to (3) of the Reserve Bankof New Zealand Act 1989.[3] The applicants are former employees of the respondent. In September 2017,the Employment Relations Authority (the Authority) awarded them remedies forunpaid wages owed to them by the respondent. The respondent sought a stay of ordersmade by the Authority, and on 29 November 2017 the Employment Court directed theamounts of the awards were to be paid into the Crown account under the control of theEmployment Court registrar.[4] Since that time, there have been protracted proceedings before theEmployment Court, with the applicants pursuing additional claims for holiday pay andother allegedly unpaid items, and the respondent disputing liability. The hearings havebeen unusually protracted by the requirement for interpreters. On Ms Sharma'sestimation, she sees the remaining evidence for the applicants' case would take a littleless than a further week of hearing.[5] Unbeknown to the applicants, as long ago as 2017 the respondent ceasedtrading. The directors/shareholders sold the undertaking to a company controlled bytheir son, and he has continued to operate the business, ostensibly as before, from thesame premises.[6] On 8 September 2020, the shareholders of the respondent resolved to put thatcompany into voluntary liquidation. Mr Geoff Falloon was appointed liquidator and10 days later he notified the applicants of the liquidation and of his appointment. Aresumed hearing that was then scheduled was adjourned, given the liquidator'sindication that he would not consent to the proceeding continuing against the companyin liquidation.[7] The applicants see the directors/shareholders of the respondent as vehementlyopposed to paying them the amounts to which they are entitled as employees, and thatthey are prepared to undertake all possible manoeuvres to obstruct recoveries. Ontheir behalf, Ms Sharma characterises the voluntary liquidation as a device that is partof the employers' unjustified antipathy towards the applicants who have been placedunder substantial pressure by the respondent's failure to pay them what they claim isdue. Ms Sharma instances the fact that the trading entity was substituted when thedispute was well underway, and the absence of any warning to them that therespondent had ceased trading whilst resources were being provided to it for extensivelegal initiatives in opposing their claims. Ms Sharma submits that it would be amiscarriage of justice if they were not entitled to proceed and obtain whateverjudgment the Employment Court gives them to vindicate their rights as employees.[8] Ms Sharma submitted that the relative importance of employees' claimsagainst a company is reflected in their statutory priority on a company's liquidation.In his limited response on behalf of the liquidator, Mr Galbreath questioned whether,in the present circumstances, the applicants would be entitled to preferential treatmentgiven that their claims are for employee entitlements four or more years ago.[9] One consideration under s 248 is whether pursuit of a claim against a companyin liquidation would be futile: a liquidator ought not to be required to divert resourcesinto defending a claim if there is not likely to be a source of funds to meet anyjudgment against the company. Ms Sharma submitted that the prospects of attributingpersonal liability to the directors for the extent of the judgment in the circumstancesshe outlined could not be dismissed. Mr Galbreath countered that an application tojoin the directors as parties to the Employment Court proceedings had previously beendismissed.[10] Given the circumstances in which the company has passed into liquidation, Iam not prepared to dismiss the prospect of a solvent entity being rendered liable forwhatever Employment Court judgments are obtained. The current, inevitablyprovisional, status of the assets and liabilities of the company in liquidation is also notdecisive against the prospect of a meaningful recovery for the applicants.[11] In other respects, the circumstances in which the company has passed intoliquidation, the conduct of the directors (which Mr Galbreath was not in a position torespond to in substantive detail) and the point that had been reached when theshareholders put the respondent into liquidation, all point in favour of leave beinggranted.[12] I am satisfied that it is an appropriate case and accordingly grant the leavesought. The applicants are entitled to costs against the company in liquidation for thecosts of this proceeding, on a scale 2B basis.Dobson JSolicitors:Anjela Sharma, Nelson for applicantsDuncan Cotterill, Nelson for respondent