SLAVICH V PACESETTER PRINT GROUP LIMITED AND ANOR HC HAM CIV 2006-419-318

SLAVICH V PACESETTER PRINT GROUP LIMITED AND ANOR HC HAM CIV 2006-419-318 6 April 2006IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY CIV 2006-419-318BETWEEN J K SLAVICH Plaintiff AND PACESETTER PRINT GROUP LIMITED First Defendant AND J R MAURD, D B CUFF AND C NICHOLSON, B AND T BAIRD AND M J DONOVAN Second Defendants Hearing: 4 and 6 April 2006 Counsel: K J Crossland for Plaintiff M D Branch and V A Whitfield for Defendants Judgment: 6 April 2006(ORAL) JUDGMENT OF HEATH JSolicitors: Stace Hammond, Hamilton Harkness Henry, HamiltonIntroduction[1] This proceeding involves a battle for control of a company. An interim injunction is sought to maintain what is said to be the status quo pending the hearing of proceedings designed to determine who is successful in that battle. [2] Mr Slavich is a trustee of the John Slavich Family Trust (the Trust). In that capacity he was, together with a co-trustee, a shareholder in a company that carries on business in Hamilton as a printer, Pacesetter Print Group Ltd (Pacesetter). [3] As at September 2005, the trustees of the Trust held a 25% stake in Pacesetter. The remaining 75% stake was held, as to 25% each, by interests associated with Mr Maurd, Mr and Mrs Baird and Mr Cuff and Ms Nicholson respectively. [4] In mid 2005, Pacesetter faced financial difficulties. The directors of Pacesetter (Messrs Maurd, Baird, Cuff and Donovan) decided that an injection of capital was required. A Share Offer was prepared and sent to all shareholders. [5] Mr Slavich alleges that, as a result of the way in which the Share Offer was made and accepted, the trustees of the Trust are the only shareholders to have subscribed for new shares. The consequence is, he says, that he and his co-trustee now hold a 75% stake in Pacesetter. The remaining shareholders dispute that contention. [6] Mr Slavich issued these proceedings to determine that point of difference between the shareholders. An application for summary judgment has been set down for hearing before an Associate Judge of this Court on 6 July 2006. An interim injunction is sought, pending further order of the Court, to prevent Pacesetter from transferring its assets to any other party and to restrain those who say they hold a 75% shareholding in Pacesetter from passing a resolution to put Pacesetter into liquidation. The application is opposed.Who are the appropriate plaintiffs?[7] This proceeding has been brought by Mr Slavich, purportedly on behalf of the Trust. An affidavit sworn by Mr Slavich on the application for summary judgment stated that he was one of two trustees of the Trust. A copy of the Trust Deed was annexed to the affidavit. The impression I gained from the affidavit and the Trust Deed was that a barrister and solicitor in Hamilton, Mr P M Lang, was Mr Slavich's co trustee. [8] I issued a Minute on the morning of 4 April 2006 seeking argument on the threshold issue whether Mr Slavich was entitled, as a trustee, to bring the proceeding in his sole name. Subsequently an affidavit was filed by Mr Slavich's brother, stating that he had replaced Mr Lang as a trustee. The brother deposed that a Deed of Retirement and Appointment of New Trustee had been prepared but could not, at that time, be produced. [9] Mr Branch submitted that I ought not to entertain the application for an interim injunction because both trustees had not brought the proceeding. Nor, he submitted, was there any acceptable evidence that Mr Slavich's brother had, in fact, been appointed as a trustee or that Mr Lang had retired. [10] There is an absence of any provision in the Trust Deed of 14 June 1996 permitting one trustee to act on behalf of all. There are, in contrast, provisions consistent with the view that one trustee cannot act on behalf of all as a general rule. In particular, I refer to the definition of the term "the trustees" in cl 2(a), the ability conferred by of cl 11(r) of a majority of trustees to exercise a power or discretion where more than two trustees have been appointed and the overriding provision of s23(1) of the Trustee Act 1956 enabling a power given to a trustee to be exercised by a survivor when conferred on two or more trustees jointly. [11] Mr Branch referred me to the rule that a trustee must not delegate duties or powers, even to a co trustee: Garrow & Kelly, Law of Trusts and Trustees (6 th ed, Lexis Nexis, Wellington) at 551. Mr Branch pointed to certain exceptions to thatgeneral rule to which the learned authors of Garrow & Kelly refer but submitted that none of those exceptions apply in this particular case. [12] He referred me also to Rodney Aero Club Inc v Moore [1998] 2 NZLR 192 at 195-196 in which Hammond J said:The starting point is that a trustee must not delegate her powers or duties, whether to a stranger or to a co-trustee, unless authorised by the trust instrument itself or by the law. An example of the latter kind is the power to employ agents conferred by s 29 of the Trustee Act 1956. There is also a very limited power of delegation in s 31 of the Act. Authority for this fundamental principle of non-delegation is to be found, at an appellate level, in Luke v South Kensington Hotel Co (1879) 11 Ch D 121 (CA). That was a case relating to a mortgage foreclosure. The then Master of the Rolls, Sir George Jessel, and James and Bramwell LJJ were quite clear that the act of (even) a majority of a group of trustees cannot bind a dissenting minority, or the trust estate. To bind a trust estate, the particular act must be the act of all of the trustees. This view of the law appears also to be the view of contemporary treatise writers: see Petitt, Equity and the Law of Trusts (1993) p 359; Underhill and Hayton, Law Relating to Trusts and Trustees (15th ed, 1995) p 634. The unanimity rule is a corollary to the non-delegation principle. For, if trustees cannot delegate, it must follow that they must all perform the duties attendant upon the execution of the trust. There is no such thing in trustee law – at least absent a provision in the trust instrument – for some such concept as a "managing trustee", or suchlike. Both in theory and in practice, the settlor requires several persons to execute the office, and to watch over each other. I hold that the "agreement" purportedly "executed" by the trustees of Mr Irvine's estate in 1988 is invalid.[13] One of the exceptions to the general rule to which Garrow & Kelly refer is if it were "practically unavoidable" and "is usual" in the ordinary course of business for one trustee to act. In the context of an application for an interim injunction requiring resolution promptly, I assume that rule, based as I understand it on necessity applies. I hold that Mr Slavich was entitled to initiate the proceeding on his own. If, however, the substantive proceeding were to be pursued any co trustee must be a plaintiff. I granted leave to the co trustee to be joined as a co plaintiff at the conclusion of the hearing on 4 April 2006.Background to the interim injunction application[14] Between 6 May 2004 and 21 October 2005 the shareholding in Pacesetter was as follows: a) Mr Slavich and Mr Lang 30,000 shares 25% b) Mr Maurd 30,000 shares 25% c) Mr and Mrs Baird 30,000 shares 25% d) Mr Cuff 10,000 shares 8.33% e) Mr Cuff and Ms Nicholson 12,000 shares 10% f) Mr Cuff and Ms Nicholson 8,000 6.7% [15] Mr Slavich alleged that Mr Cuff and Ms Nicholson hold shares jointly in their capacity as trustees for two different trusts. Nothing, however, turns on that issue for the purposes of the present application. [16] Mr Slavich was formerly a financially controller of Pacesetter. He had responsibility for the company's day to day financial management. Things changed after, particularly, Mr Slavich's arrest on serious criminal charges arising out of a police investigation into alleged fraud became public knowledge. Those events have caused a lack of confidence and trust on the part of others involved in Pacesetter towards Mr Slavich. For the purpose of the present application, however, I give Mr Slavich the benefit of the presumption of innocence to which he is properly entitled. [17] On 21 September 2005 the Board of Pacesetter, except Mr Donovan, passed a resolution that additional shares be issued. Subsequently Mr Donovan assented to that resolution. There is no dispute that the resolution was properly passed.[18] On 30 September 2005 the shareholders other than Mr Slavich passed a special shareholders' resolution approving the proposed offer of shares. [19] Correspondence then ensued between the solicitors for the company and Messrs Slavich and Lang stating, among other things, that the latter had "10 days from [30 September 2005] on which to take up and pay for 250,000 shares at $0.40 per share". Subsequently the time for acceptance was extended until 4pm on 21 October 2005. Prior to 21 October 2005 the trustees paid $100,000 to Pacesetter and were subsequently issued with 250,000 additional shares in Pacesetter. [20] At the time the Share Offer was accepted by the trustees, their solicitors advised the solicitors for all defendants that should any other shareholders not accept the Share Offer, the trustees would purchase those shares. [21] The procedure whereby new shares are issued is governed by Part VI of the Companies Act 1993, particularly ss41-51 inclusive. The provisions contained in a company's Constitution must also be taken into account. [22] Section 47(1) of the Act provides that before the Board of a company issues shares under s42 or s44 of the Act the Board must:(a) Decide the consideration for which the shares will be issued and the terms on which they will be issued; and (b) If the shares are to be issued other than for cash, determine the reasonable present cash value of the consideration for the issue; and (c) Resolve that, in its opinion, the consideration for and terms of the issue are fair and reasonable to the company and to all existing shareholders; and (d) If the shares are to be issued other than for cash, resolve that, in its opinion, the present cash value of the consideration to be provided for the issue of the shares is not less than the amount to be credited for the issue of the shares.[23] Section 47(2) provides that directors who vote in favour of a resolution required by ss47(1) must sign a certificate providing the information set out in ss(2) namely:(2) The directors who vote in favour of a resolution required by subsection (1) of this section must sign a certificate—(a) Stating the consideration for, and the terms of, the issue; and (b) Describing the consideration in sufficient detail to identify it; and (c) Where a present cash value has been determined in accordance with subsection (1)(b) of this section, stating that value and the basis for assessing it; and (d) Stating that, in their opinion, the consideration for and terms of issue are fair and reasonable to the company and to all existing shareholders; and (e) If the shares are to be issued other than for cash stating that, in their opinion, the present cash value of the consideration to be provided for the issue of the shares is not less than the amount to be credited for the issue of the shares.[24] The Board is also obliged to deliver a copy of a certificate complying with s47(2) to the Registrar for registration within 10 working days after it is given: s47(5). If the Board fails to comply with s47(5) every director of the company commits an offence and is liable on conviction to the penalty set out in s374(2) of the Act: s47(9).The plaintiff's argument[25] The legal bases on which Mr Crossland, for Mr Slavich, submits that the claim should succeed follows. [26] First, there was no lawful acceptance by shareholders other than Mr Slavich of the offer to issue new shares. Therefore, those shareholders have not subscribed for shares in accordance with the Share Offer. The directors are said to have breached cl 14.6(4) of the Constitution by failing to offer unsubscribed shares proportionately to other existing shareholders. [27] The provisions of the Constitution that are relevant to this aspect of the claim are cls 14.3, 14.6 and 14.7. So far as they are relevant to this case, they provide:Issue of other shares14.3 Subject to the Act and approval by special resolution, the board may issue shares at any time and in any number if –(a) the shares belong to a class provided for in this constitution; and (b) the number of shares does not exceed the maximum number of shares that may, under this constitution, be issued in that class of shares; and (c) the provisions of this constitution relating to the issue of shares are complied with.Entitlement to new shares14.6 (1)Shares issued or proposed to be issued that rank or would rank as to voting or distribution rights, or both, equally with or prior to shares already issued by the company must be offered for acquisition to the holders of the shares already issued in a manner and on terms that would, if accepted, maintain the existing voting or distribution rights, or both, of those holders. (2) The offer must be made by notice specifying the number of shares to which the shareholder is entitled and limiting a time within which the offer, if not accepted, is deemed to be declined. (3) The offer must remain open for acceptance for a reasonable time.Offer not accepted(4) After the expiration of that time or on the receipt of an intimation from the shareholder to whom such notice is given that he or she declines to accept the shares offered, the board must offer those shares proportionately to the other then existing shareholders.Payment for assets(6) Nothing contained in this clause prevents the board from issuing (either as fully paid up or partly paid up) any shares in payment or in part payment for the purchase of any assets or in satisfaction or part satisfaction of any obligation into which the company has entered or agreed to enter.Consideration14.7 (1)Before the board issues shares under clause 14.3 [Issue of other shares] or clause 14.4 [Shareholder approval for issue of new shares], the board must- (a) Decide the consideration for which the shares will be issued and the terms on which they will be issued: and (b) Jif the shares are to be issued other than for cash, determine the reasonable present cash value of the consideration for the issue: and(c) Resolve that, in its opinion, the consideration for and terms of issue are fair and reasonable to the company and to all existing shareholders: and (d) If the shares are to be issued other than for cash, resolve that, in its opinion, the present cash value of the consideration to be provided for the issue of the shares is not less than the amount to be credited for the issue of the shares.Directors' certificate(2) The directors who vote in favour of a resolution under subclause (1) must sign a certificate- (a) Stating the consideration for and the terms of the issue: and (b) Describing the consideration in sufficient detail to identify it: and (c) Where a present cash value has been determined in accordance with subclause (1)(b), stating that value and the basis for assessit it: and (d) Stating that, in their opinion, the consideration for and terms of issue are fair and reasonable to the company and to all existing shareholders: and (e) If the shares are to be issued other than for cash stating that, in their opinion the present cash value of the consideration to be provided for the issue of the shares is not less than the amount to be credited for the issue of the shares. Certificate to Registrar(3) The board must deliver a copy of a certificate that complies with subclause (2) or subclause (4) to the Registrar for registration within 10 working days after it is given.[28] The second issue concerns a share transaction apparently entered into after the purported acceptance of the offer to issue new shares. That occurred between 6 December 2005 and 25 January 2006 and involved the transfer of 83,333 shares from Mr Cuff and Ms Nicholson to Mr Cuff alone. [29] Mr Slavich says that the transfer did not comply with cl 11 of the Constitution because the Cuff/Nicholson interests failed to give a transfer notice concerning the proposed transfer (as required by cl 11.2(1) of the Constitution) and the directors failed to issue a notice under cl 11.3(1) to other shareholders.[30] Clause 11.2, 11.3 and 11.6 provide, so far as relevant to this case:11.2 (1)Except clauses 11.10 or 11.11 every shareholder, manager, protection attorney, trustee in bankruptcy, or personal representative of a shareholder who desires to sell or to transfer any shares in the shareholder ("the proposing transferor") must give notice in writing ("a transfer notice") to the company that he or she desires to transfer the shares. (2) The transfer notice- (a) Must specify the sum which he or she considers to be the value of the shares: and (b) Must (subject as is hereinafter provided) constitute the company his or her agent for the sale of shares to any other shareholders of the company (or to any other person nominated by the board) at the sum so fixed or (at the option of the purchaser) at the fair value to be fixed in accordance with clause 11.4.Offer to shareholders11.3 (1)The board must (immediately upon receipt of the transfer notice) send to each of the shareholders of the company (other than the proposing transferor) a notice which (a) Advises him or her of the number of shares for sale: and (b) Names a day (being 28 days after the receipt by the company of the transfer notice) on which the right to acquire all or any of the shares if not already exercised is deemed to be declined.Allocation(2) After the receipt of replies from all shareholders or the expiry of the said period of 28 days (whichever is the earlier), the shares must be allocated to those shareholders who are willing to purchase the shares and, if more than one, then in proportion to their existing share holding in that class. (3) If no shareholder is willing to take all or any of the shares, then the shares which are not purchased by the shareholders must be allocated by the board to persons (selected by the board) who are willing to purchase them. Seller can withdraw11.6 (1)Once with clause 11.4 is less than the sum specified by the proposing transferor in his or her transfer notice as the sum which he or she considers to be the value of the shares, then the proposing transferor may (at any time before the expiration of 14 days after the date on which the proposing transferor received notice of the fairvalue fixed by the expert) revoke the transfer notice which was given by him or her. (2) If the proposing transferor fails to revoke the transfer notice within the specified time, then it remains in full force and effect and the proposing transferor is bound by it. (3) Except as provided in this clause, the transfer notice is revocable only by resolution of the board..[31] The Board of Pacesetter took the view that the new shares had been validly issued and that the transfers among the Cuff/Nicholson interests was effective. [32] On the Board's view the shareholding in Pacesetter as at 25 January 2006 was as follows: a) Slavich interests 280,000 shares 25% b) Maurd interests 280,000 shares 25% c) Baird interests 280,000 shares 25% d) Mr Cuff 93,333 shares 8.33% e) Mr Cuff and Ms Nicholson 186,667 shares 16.67% [33] The proportions of shareholding, after new shares were issued, were no different from those that existed as at 21 October 2005. The only discernible difference is that the basis upon which the Cuff/Nicholson interests hold their shares has changed: but in one form or another they still hold 25% of the share capital.The issue[34] Mr Slavich's position is that the Share Offer of 21 September 2005 was designed to provide additional working capital for the company. He relies on documents sent to shareholders when the Share Offer was made to substantiate that view. His view is that the new shares had to be paid for in cash, that being the onlyway in which new capital could properly be provided to assist with payment of outstanding debt. [35] The trustees of the Trust paid $100,000 to the company on 21 October 2005 to acquire their new shares. That was within the 10 days period stipulated in the Share Offer as extended. The remaining shareholders purported to subscribe for the new shares by means other than the payment of cash. They relied on a set-off of a debt which each had to the company as at 21 October 2005. In the case of Mr and Mrs Baird a sum of $100,000 had been advanced on or about 9 August 2005. [36] In the case of the Cuff/Nicholson interests a sum of $100,000 had been advanced on or about 11 August 2005. In the case of Mr Maurd, a company he controlled (Pacesetter Properties Ltd) was owed approximately $1.3million of which $100,000 was converted to equity to meet Mr Maurd's obligation to pay for the new shares. [37] The effect of all three of those transactions was to convert a debt payable by Pacesetter to the shareholders (or their interests) to equity in the company. [38] Mr Slavich contends that because the shares were not subscribed for by other shareholders in cash the only new shares validly issued were those issued to the trustees of the Trust. On that basis he contends, for reasons to which I will refer later, that 75% of the shares in Pacesetter are now owned by the trustees. That contention, if correct, changes the whole shareholder dynamic of the company and alters the underlying ownership position.The plaintiff's argument[39] At the heart of Mr Crossland's argument, for Mr Slavich, is the proposition that the issue of new shares was designed to provide additional working capital for the company, with the necessary consequence of that being that any shares for which existing shareholders elected to subscribe would be issued for cash. [40] Mr Crossland's submission was developed in the following way:a) He referred to the authority to issue new shares as conferred by s47(1) of the Act on the Board of Directors of the company. That provision is set out earlier in this judgment. b) He then refers to the decision made by the Board of Pacesetter to issue new shares on 21 September 2005. The certificate given by the directors with reference to the resolution required by s47(1) of the Act stated:1. All the Directors have voted in favour of a board resolution required by section 47(1) of the Act to issue 1 million shares in the Company on the terms set out in the attached Resolution ("the shares"). 2. In the Directors' opinion, the consideration for and the terms of issue of the Shares are faire and reasonable to the company and to all existing shareholders.c) The offer of shares had been accompanied by a summary of the financial position prepared by Mr Bridges, a chartered accountant of Staples Rodway, for the purpose of fixing a value for the shares. That report was dated 21 September 2005. In essence Mr Bridges determined a method by which the shares should be valued which appears on the face of the report to have been based on the balance sheet as at 31 March 2005, taken in conjunction with up to date figures in relation to creditors of the company as at 31 July 2005. He then expressed opinions as to the company's financial position as at 30 June 2005. On that basis the share valuation was calculated for the purpose of issuing new shares. [41] While Mr Donovan did not sign the 21 September 2005 resolution, it is, as I said before, common ground that he assented to that decision. Nothing turns on the absence of his signature from the original resolution. [42] Mr Crossland submitted that the terms of the offer and the information conveyed to shareholders implicitly represented that moneys were to be paid in order to meet existing debt as at 31 July 2005. However, the $100,000 advances made by Mr and Mrs Baird and the Cuff/Nicholson interests were paid in early August, wellbefore the date of the resolution. Accordingly, in Mr Crossland's submission, they could not have been contemplated as a method by which a shareholder could subscribe for the new shares. [43] Mr Crossland submitted that Mr Maurd's position was worse because that part of the debt that Pacesetter owed to the company associated with Mr Maurd used to pay for the new shares was a long term debt for which, he submitted, there was no immediate right to compel repayment. [44] Mr Crossland also attempted to develop an argument based upon the failure to issue a notice of transfer notice in respect of the 83,333 shares transferred among the Cuff/Nicholson interests. [45] However, I indicated to Mr Crossland during the course of argument that, because that transaction was likely to result, if set aside, in the Cuff/Nicholson interests retaining their 25% stake in the company, albeit through different entities, I would not be prepared to grant an injunction on the basis that that claim was seriously arguable. I could see no aspect of that transaction with which Mr Slavich could be interested or which harmed his interest. Accordingly, I need to refer no further to that argument.Argument for defendants[46] On behalf of Pacesetter, the remaining shareholders and the directors of that company, Mr Branch submitted that the threshold test to be applied ought to be approached on the same basis as a Mareva injunction, thereby requiring a higher standard of arguability than would be required on an orthodox application for an interim injunction. He submitted that was so because the application sought to restrain disposition of assets, and therefore the application was more akin to use of the Mareva jurisdiction. [47] Mr Branch submitted that the share issue was not invalid. While there might be technical issues as to the way in which the shares were issued, there was no suggestion that s47 of the Act had not been complied with. In any event, Mr Branchsubmitted that any breach of s47 constituted an offence but did not invalidate the issue of shares. [48] Mr Branch submitted further that the moneys off-set from debts payable to the Baird, Cuff/Nicholson and Maurd interests did provide valuable consideration and enabled the company's balance sheet to be improved with the likely consequence that debts, as at 31 July 2005, had in fact been reduced. The moneys advanced by all three of those interests were advanced after 31 July 2005. [49] The balance of convenience, Mr Branch submitted, weighed heavily in favour of rejecting the application for an interim injunction because particularly of the irretrievable breakdown in trust and confidence between Mr Slavich and the three remaining shareholder groups. In particular, he referred to the problems which had arisen following Mr Slavich being charged with criminal offences, allegations of misappropriation of company funds and the fact that Mr Slavich was facing bankruptcy proceedings. [50] Mr Branch submitted that it was not for this Court, in those circumstances, to interfere with the directors' powers to manage the company and that any injunction would inappropriately impede their ability to act in what they regarded as the best interests of the company. [51] It is not for me today to make any judgment on the allegations that have been made against Mr Slavich by his fellow shareholders and Mr Donovan. However, I accept for the purpose of this application that the perception of the fellow shareholders and Mr Donovan has led to an irretrievable breakdown of trust and confidence between them and Mr Slavich. As a matter of fact that is the basis upon which the application should be considered.Analysis of competing submissions[52] I am prepared to assume, without deciding the point, that a seriously arguable case exists and that it meets, if necessary, the Mareva threshold. In my view there are certainly technical issues relating to the issue of shares that are worthy of furtherconsideration, either on an application for summary judgment or at a substantive hearing, should oral evidence be required. [53] As I said earlier, this is a battle for control of Pacesetter. That is clear from the information placed before me. As I pointed out earlier, the shareholding before and after the issue of new shares has left each of the shareholder interests with a 25% stake in the company. The extent of the trustee's interest in Pacesetter did not change as a result of the way in which new shares have been allocated. That, I discern, was a result contemplated when the shares were initially issued. [54] However, Mr Slavich contends that the trustees are now 75% stakeholders in the company because he is the only person who has subscribed for the new shares in cash. The way in which that position is reached is as follows:Old Structure New ShareholdingNo. of shares % No. of shares % PaidMr Maurd 30,000 25.0% 30,000 8.1% 0 Mr and Mrs Baird 30,000 25.0% 30,000 8.1% 0 Slavich Trust 30,000 25.0% 280,000 75.7% 100,000 Nicholson and Cuff jointly 12,000 12,000 3.2% 0 Mr Cuff 10,000 25.0% 10,000 2.7% 0 Nicholson and Cuff jointly 8,000 8,000 2.2% 0 120,000 370,000[55] In my view, even taking account of a seriously arguable case, the balance of convenience favours refusal of the injunction for the following reasons. [56] First, there has been an irretrievable breakdown of trust and confidence as between Mr Slavich and the remaining shareholders, for the reasons that were developed by Mr Branch. [57] Mr Slavich's application for an interim injunction can be seen as an opportunistic attempt to put pressure on fellow shareholders and the directors ofPacesetter and to restrict them in the way in which they may deal with assets of the company pending resolution of the issues he has raised. [58] Second, the appropriate status quo, in my view, is the retention by the trustees of a 25% stake in the company. To issue an interim injunction at this stage would remove appropriate managerial powers that must be exercised in the best interests of Pacesetter to improve Pacesetter's financial position or to maximise the return to all shareholders. [59] Decisions that are in the interests of one group of shareholders should equally be in the interests of others. The position of the trustees is protected by the way in which the law approaches the need for minority interests to be considered. In my view the trustees of the Trust would have an appropriate remedy, should their claims succeed. [60] I emphasise, as an added factor in reaching that conclusion, that the existing directors of Pacesetter will need to make further decisions in respect of the company's future with regard to the best interests of the company as a whole. Any decision that may be taken to dispose of assets of the company, to invite a debenture holder to appoint a receiver, or to place the company in voluntary liquidation, if made with the intention of defeating the interests of the trustees of the Trust or to gain a benefit for one or more of the remaining shareholder groups at the expense of others or the company, would almost inevitably be regarded as a fraud on the minority. [61] Any sale of assets to existing shareholders or directors would need to be for full market value. I have no doubt that all directors appreciate the duties imposed upon them by law in that regard. [62] Third, I am more sanguine than Mr Crossland in relation to the benefits gained by Pacesetter from the way in which shareholders other than the trustees subscribed the new shares.[63] Both the Baird and Cuff/Nicholson interests paid $100,000 into Pacesetter's bank account in early August 2005. That had two consequences. First, the money was available to meet existing debt, most likely including the debt disclosed in the Staples Rodway report as at 31 July 2005. Second, it created a debt in favour of the Baird and Cuff/Nicholson interests payable by the company. [64] When new shares were issued the debt to the Cuff/Nicholson and Baird interests was converted to equity, thereby extinguishing the company's debt to those interests and subordinating the claims of the Baird and Cuff/Nicholson interests to those of creditors should a liquidation occur. [65] Whatever may be the outcome of the claim that the conversion of debt to equity was insufficient consideration to enable new shares to be issued to those shareholders, the company did in fact gain some benefit from the transaction. [66] The position may well be less clear with regard to the debt with the company associated with Mr Maurd, although if Mr Maurd's contention that the debt owed to his company was payable at the relevant time, the same reasoning would apply equally as to the Baird and Cuff/Nicholson interests. [67] Mr Maurd's company is shown in the management financial reports for Pacesetter for the period ended 30 November 2005 as being owed $1,283,737 by Pacesetter. As I understand it, that takes into account a reduction of $100,000 through conversion of that part of the debt to equity in order to meet Mr Maurd's obligation to subscribe for new shares. [68] Accordingly, whatever the merits may ultimately be of the argument in favour of invalidity of the issue of new shares and the consequence that Mr Slavich's interests hold a 75% stake in the company I am not satisfied that the company, has been detrimentally affected financially in the meantime. That weighs against the grant of an interim injunction. [69] Fourth, whatever disputes may exist about shareholding, there is a desperate need for this company to be managed appropriately in the short to medium term.Directors should not be restrained from acting in what they perceive to be the best interests of the company by Court order unless absolutely necessary. I do not regard this as a case in which it is necessary to interfere with managerial powers to the extent submitted by Mr Crossland. [70] A fifth point, although I do not place particular weight on this, is the possibility of a remedy for the shareholders for whom Mr Branch acts if Mr Crossland's argument that the issue of new shares was invalid succeeds. Although the point was not dealt with fully in argument and I have only had a brief opportunity to consider the issue there may well be an argument that the Illegal Contracts Act 1970 would apply: generally, see Re AIC Merchant Finances Ltd[1992] 2 NZLR 385 (CA) and NZI Bank Ltd v Euro National Corporation Ltd[1992] 3 NZLR 528 (CA). I simply mention the point, without placing much weight on it, so that counsel may consider it in advance of any further hearing. [71] In those circumstances, I hold that the factors weighing in favour of the defendants on the balance of convenience outweigh the arguability of the case demonstrated by Mr Crossland. [72] Applying the well known test as to the issue of interim injunctions set out inKlissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142, the question whether there is a serious issue to be tried and the balance of convenience are two broad factors providing a framework for analysis of the question whether an injunction should issue. The overall interests of justice, in my view, require refusal of the application for interim injunction.Result[73] For those reasons, the application for an interim injunction is dismissed. The defendants are released from the undertakings given to the Court before determination of their injunction application. [74] Given that the interim injunction application is a discrete step in this proceeding it is appropriate that costs be fixed in relation to it at this stage.[75] Having heard from counsel, I make an order that costs be awarded in favour of the defendants on a 2B basis together with reasonable disbursements to be fixed by the Registrar. One set of costs shall be ordered against the trustees who may have recourse to the Trust assets in meeting those costs. I certify for second counsel on the application. [76] I thank counsel for the quality of the arguments they presented and the way in which the evidence was presented, both of which were difficult to achieve at short notice. _______________________ P R Heath J