COX v GREEN GECKO LIMITED CA598/2013 [2014] NZCA 404

COX v GREEN GECKO LIMITED CA598/2013 [2014] NZCA 404 [19 August 2014]IN THE COURT OF APPEAL OF NEW ZEALANDCA598/2013[2014] NZCA 404BETWEEN JOHN ANDREW REGINALD COXAppellantAND GREEN GECKO LIMITEDRespondentHearing: 30 June 2014Court: Miller, Ronald Young and Cooper JJCounsel: K M Burkhart and J M Keating for AppellantD M Connor and T C Wu for RespondentJudgment: 19 August 2014 at 4.00 pmJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay the respondent's costs on a band A basis as for a standard appeal together with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Cooper J)[1] This is an appeal from a judgment of Woodhouse J delivered on 12 August 2013 in which he awarded summary judgment in favour of the respondent, Green Gecko Ltd, against the appellant, John Cox, on a claim made under s 37(6) of the Securities Act 1978 (the Act).11 Green Gecko Ltd v Cox [2013] NZHC 2034.[2] There were two causes of action, in which the same allegations were made in respect of two separate purchases of shares in a company called Riscoveri Ltd.When Green Gecko purchased the shares they were registered in Mr Cox's name as atrustee for the RMS Property Trust (the Trust). Mr Cox and Mr Denis Fetherston, who was also a trustee of the Trust, signed the share transfers.[3] It was alleged that both sales were allotments of a security offered to the public for subscription and that, contrary to s 37(1) of the Act, the allotments were made at a time when there was no registered prospectus. That being the case, s 37(4) of the Act provided that the allotments were invalid and of no effect. Consequently,"the issuer" had an obligation under s 37(5) to repay the subscriptions as soon as reasonably practicable.[4] Green Gecko claimed that because the subscriptions were not repaid, s 37(6) applied to create a joint and several liability on the part of the issuers to repay thesubscriptions, together with interest. The Judge accepted Green Gecko's claim, andheld Mr Cox liable accordingly. Mr Fetherston is bankrupt.[5] Mr Cox contends that:(a) Woodhouse J erred in finding that he was an offeror pursuant to s 6(7) of the Act and therefore an issuer for the purposes of s 37(6).(b) Even if he was an issuer for the purposes of s 37(6), the Judge should have found that he was also a director pursuant to sub-para (e) of thedefinition of "director" in s 2 of the Act. As a director, Mr Cox would be entitled to the protection afforded by the proviso of s 37(6) which provides that: a director shall not be liable if he or she proves that the default in the repayment in the subscriptions was not due to any misconduct or negligence on his or her part.(c) The Judge should not have interpreted the relevant provisions of the Act so as to impose a higher degree of liability on Mr Cox, who was abare trustee of the RMS Property Trust, than would be imposed by the Act on a director of an issuer.The High Court judgment[6] Woodhouse J recorded that there was no dispute that there was no prospectus, or that the completed agreements for sale and purchase of the shares constituted allotments of securities. It was also accepted that the purchase by Green Gecko wasa "subscription" for the shares.2 The principal matters in contention were whetherthe shares were "previously allotted securities", whether they had been offered to the public and whether Mr Cox was liable under s 37(6) of the Act.Previously allotted securities[7] The Judge found that the shares sold to Green Gecko had previously been allotted by Riscoveri to the trustees of the Trust (the Trustees) with a view to those shares being offered for sale to the public of New Zealand.[8] Riscoveri was incorporated on 2 September 2008. It was in the business of developing and marketing software for management of risk and compliance by businesses. Mr Fetherston had been involved in the development of the software since about 2000, initially through a company called Risk Management Services Ltd. However, that company went into liquidation on 26 September 2008.[9] When Riscoveri was incorporated, Mr Fetherston was its sole director and at the date of registration owned all the shares. Woodhouse J found that on 6 April 2009 Riscoveri issued and allotted 10,000,000 shares to the Trust. Mr Cox, who is a solicitor, prepared the trust deed for the Trust, which was dated 3 May 2008 and recorded that the Trust had been created on 18 February 2008. Mr Fetherston was the settlor of the Trust and, in the original trust deed, its sole trustee. Both Mr Fetherston and Mr Cox said that the software was owned by the Trustees as at April 2009. They claimed that the software and associated business assets were transferred by the Trustees to Riscoveri in exchange for the 10,000,000 shares.2 At [33].[10] On 17 July 2009, 5,841,000 shares in Riscoveri that had been issued to the Trust were registered in Mr Cox's name. The balance of the 10,000,000 shares wastransferred to another trust, the Riscoveri Trust, and to directors of Riscoveri who replaced Mr Fetherston as the director after he had been adjudicated bankrupt in October 2008.[11] The Judge found that Riscoveri issued the shares with a view to them being offered for sale to the public in due course.3 In reaching this conclusion the Judge relied in part on the evidence of Mr Neil Barker, the managing director of a company called Barker Business Brokerage Ltd (BBBL), who said his company had been approached by Mr Fetherston in early 2008 to find investors for Risk Management Services Ltd. The Judge also referred to evidence given by Mr Gordon Rendell whowas Green Gecko's sole director. Mr Rendell and his solicitor, Mr Richard Austin, owned 99 of the 100 shares in that company, in their capacity as trustees of Mr Rendell's family trust, the Gracefield Trust.[12] Mr Rendell gave evidence about finding a website advertisement placed byBBBL seeking investors for a "world leading software package". The advertisementread as follows:INVESTORS REQUIREDEither working or passive investors required to complete a world leading software package which can be used in hand held devices across the globe.There is a strong possibility of the business being involved with one of theworld's leading software suppliers.Minimum investment of $100,000 up to $4.5 Million required.This opportunity really has the makings to be a world leader in their field. This business is well established and has been the work of the founder for many, many years. Take advantage of this, the returns may be incredible.This is your opportunity to invest at the ground level. [13] Mr Rendell responded to this advertisement by making contact with Mr Barker. After discussion and correspondence between Messrs Rendell, Austin, Barker and Fetherston Green Gecko paid $200,000 into the trust account of3 At [37].Mr Cox's firm on 17 November 2009 to purchase 200,000 shares in Riscoveri Ltd. A second payment, of $500,000 for 500,000 shares, was made on 26 March 2010.[14] In the case of each transaction the share transfers recorded the transferor as the Trust, and both Mr Fetherston and Mr Cox signed the transfers as Trustees. There can be no doubt that the shares purchased by Green Gecko were previouslyallotted securities and the Judge's finding has not been challenged on appeal.Offer to the public[15] The Judge found that there had been an "offer of securities to the public",having regard to the wide definition of that term in s 3(1) of the Act.4 An issue had been raised as to whether the exception in s 3(2)(a)(ii) applied. Under that provision, an offer to persons whose principal business is the investment of money, or who habitually invest money in the course of and for the purposes of their business, is said not to constitute an offer of securities to the public.[16] The Judge referred to evidence given by Mr Fetherston that the Trust had been advised by BBBL that the plaintiff was registered as an habitual investor. He rejected that suggestion on the basis of evidence given by Mr Barker and Mr Rendell. He considered that Mr Fetherston's evidence was implausible andcontrived.[17] This issue too was not pursued directly on appeal. Although Mr Cox gave evidence as a result of subsequent inquiries that BBBL had been instructed to seek offers from habitual investors, there is no suggestion now that Green Gecko was in that category.Liability under s 37(6)[18] The Judge identified as the central issue the question whether Mr Cox was an"issuer" of the shares sold to Green Gecko.4 At [40].[19] Mr Cox argued that he was a "bare trustee" and not a trustee for the purposesof receiving money. The Judge thought it was reasonably arguable that Mr Cox was a bare trustee, but considered it was unnecessary to decide that point.5 This was because, since the shares were previously allotted securities, s 6(7) of the Act applied.[20] Section 6(7) provides:Notwithstanding anything in section 2, in this Act, unless the context otherwise requires, in relation to a security to which subsection (2) or subsection (2AA) or subsection (2A) or subsection (3) applies, the termissuer means the original allotter of the security, and, except for the purposes of sections 51 to 54, also includes the offeror of the security.[21] The Judge considered Mr Cox was an "offeror" in terms of that provision.He said:6[47] "Offeror" is not defined. However, the word "offer" is defined in s 2 as including "an invitation, and any proposal or invitation to make an offer" with "to offer" having a corresponding meaning. The word "offeror" in theAct therefore does not necessarily have the same meaning as that word has under the general law of contract.[48] In conventional contractual terms, in relation to agreements for the sale and purchase of shares, the offeror could either be the person offering to sell shares, and who will therefore be the vendor if an agreement is made, or the person offering to buy the shares. In the present context, s 6(7) of the Act is obviously directed to the party in the former position – the party who will become the vendor if an agreement for sale and purchase is entered into. Analysed in this way, the offeror of the shares in Riscoveri was the party capable of transferring title to the shares to Green Gecko if an agreement for sale and purchase was made. At the time of both the 2009 and the 2010 transactions, the registered holder of the shares sold to Green Gecko was Mr Cox. On the face of it that made him the offeror. And he would be the offeror notwithstanding the fact that all of the negotiations with Mr Rendellwere conducted mainly by Mr Barker and with Mr Barker's instructionscoming from Mr Fetherston. Those facts do not exempt an offeror from liability arising from s 6(7) when applied to s 37(6).[22] It followed that whether Mr Cox was a trustee or a bare trustee was irrelevant. He was liable as an offeror, and it did not matter that he had signed the share transfer as a trustee: a trustee entering into a transaction is personally liable, and there was no provision in the Act that limited his liability under s 37 because he5 At [50].6 Footnote omitted.was a trustee.7 The Judge considered this outcome to be in accordance with the underlying policy objective of the Act to protect investors.8[23] In the result there was summary judgment for Green Gecko against Mr Cox in the sum of $700,000 together with interest.The appeal[24] The principal argument advanced on appeal was that the Judge was wrong to hold that Mr Cox was an offeror pursuant to s 6(7) of the Act, and therefore liable to repay the subscriptions under s 37(6).[25] The second issue raised was that since Mr Cox was also a "director" withinthe meaning of that term in s 2, he should have been entitled to the benefit of the proviso of s 37(6). A related issue was that the Judge should not have applied the Act so as to create a greater liability for Mr Cox than would have been imposed on him as a director of an issuer.[26] We deal with each of these issues in turn.Was Mr Cox an offeror pursuant to s 6(7) of the Act?[27] The Judge's reasoning has earlier been set out. In summary, he consideredthat Mr Cox was an "offeror" because he was the registered holder of the shares andthe person capable of transferring title to the shares, together with Mr Fetherston.[28] At [20] we set out s 6(7) of the Act. Section 37 relevantly provides:37 Void irregular allotments(1) No allotment of a security offered to the public for subscription shall be made unless at the time of the subscription for the security there was a registered prospectus relating to the security.7 At [52].8 At [53], referring to Shelley Griffiths "The Primary Market" in J Farrar and S Watson (eds)Company and Securities Law in New Zealand (2nd ed, Brookers Limited, Wellington, 2013) 1043 at [34.1].(3) An allotment of a participatory security offered to the public for subscription must not be made unless, at the time of allotment, a written statement from the subscriber authorising the subscription for that particular security has been received by—(a) the statutory supervisor; or(b) a person appointed by the statutory supervisor to receive, on the statutory supervisor's behalf, that written statement or written statements of that class.(4) Any allotment made in contravention of the provisions of this section shall be invalid and of no effect.(5) Where subscriptions for securities are received by or on behalf of an issuer, but, by virtue of this section, the securities may not be allotted, or for any reason the securities are not allotted, the issuer shall ensure that—(b) The subscriptions, together with such interest (if any) as has been earned thereon, are repaid to the subscribers as soon as reasonably practicable.(6) If any subscriptions to which this section applies are not so repaid within 2 months after the date on which the subscriptions were received by or on behalf of the issuer (or, in any case to which subsection (2) of this section applies, within 5 months after the date of the registered prospectus), the issuer and all the directors thereof shall be jointly and severally liable to repay the subscriptions, together with interest at a rate prescribed from time to time by regulations made under this Act from the date on which the subscriptions were received by or on behalf of the issuer:provided that a director shall not be so liable if he or she proves that the default in the repayment of the subscriptions was not due to any misconduct or negligence on his or her part.Appellant's submissions[29] Ms Burkhart's argument had several strands. First she submitted that Mr Coxcould not be an issuer, having regard to the definition of "issuer" in s 2 of the Act as"the person on whose behalf any money paid in consideration of the allotment of thesecurity is received". She argued that this could not apply to Mr Cox, because hehad received the money on behalf of the Trustees of the Trust.[30] Next, Ms Burkhart referred to s 6(7) of the Act. She noted that the subsection extended the meaning of "issuer", in the case of previously allotted securities, toembrace both the original allotter of the security and the "offeror of the security".She argued that even if the Trust was found to be an issuer because it was an offeror, Mr Cox was not an issuer: the term "offeror" did not apply to him because he couldnot be an offeror as a bare trustee.[31] While acknowledging there is no definition of "offeror" in the Act, she drew an analogy to the definition of "offeror" in the Financial Markets Conduct Act 2013, emphasising the part of the definition that refers to:9 the person who has the capacity, or who agrees, to transfer the financialproducts if the offer is accepted.[32] Ms Burkhart submitted that definition places an emphasis on the capacity and intention of the person transferring the securities, and the mere fact of having legal title to the securities being offered did not mean that Mr Cox was the offeror. She referred to Burns v Steel in which Randerson J discussed the concept of "baretrustees", by reference to definitions in Halsbury's Laws of England and Laws of New Zealand.10 She claimed in this respect that Mr Cox had never been formally appointed as a trustee of the Trust. Although it is plain that Mr Cox was registered as the owner of the shares subsequently transferred to Green Gecko, and he was clearly in the position of a trustee in respect of those shares, Ms Burkhart submitted he was a bare trustee in the sense that he had no power over the shares or personal beneficial interest in them, he had no involvement in negotiations for their sale and his only duties were to hold the shares and transfer them at the direction of the Trustees of the Trust.[33] Further, Ms Burkhart noted that s 37(5) imposes an obligation to repay the subscriptions to which it applies and s 37(6) creates joint and several liability for"the issuer and all the directors" if the repayment is not made within two months.She submitted that the drafting assumes an ability to repay, implying that the persons caught must be those who have the beneficial interest in the money once it is received.9 Financial Markets Conduct Act 2013, s 6.10 Burns v Steel [2006] 1 NZLR 559 (HC) at [41]–[49], citing Halsbury's Laws of England (4th ed, reissue, 2007) vol 48 Trusts at [755]; Laws of New Zealand Trusts (online ed) at [120]; andHerdegen v Federal Commissioner of Taxation (1988) 84 ALR 271(FCA) at 281.[34] In oral argument, Ms Burkhart made a further submission that there is significance in the fact that s 6(3) of the Act draws a distinction between a "holder" and an "offeror". That subsection enacts that all the provisions of the Act apply in respect of an equity security:if the holder or offeror, not being the original allotter, offers the securityfor sale to the public and the original allotter advises, encourages, or knowingly assists the holder or offeror in connection with the offer or sale of the security.[35] Ms Burkhart submitted that Mr Cox should be viewed as a "holder" in distinction to an "offeror" and that he was not caught by s 6(7) for that reason.Respondent's submissions[36] In response, Mr Connor submitted that the definition of "issuer" is irrelevant,since s 6(7) of the Act applies in the case of previously allotted securities. He emphasised that the effect of s 37(1) is to proscribe the making of an allotment. Because of s 6(2) and (7), "issuer" includes the original allotter and the offeror. Hesubmitted that the reasoning of Woodhouse J was correct,11 and that Mr Cox was an offeror because he was the person capable of transferring the shares to Green Gecko.[37] Although the definition of "offeror" in the Financial Markets Conduct Act didnot apply, Mr Cox would in any event be an offeror as defined in that Act as well: he had in fact signed a transfer of the shares, and had and purported to have capacity to transfer them. To allow Mr Cox to escape liability on the basis that he was a bare trustee would defeat the protective purpose of the Act: subscribers of shares in the position of Green Gecko could not be expected to be familiar with who the beneficial owners of the shares might be, and to have to go behind what was said on the share transfer form.11 Green Gecko Ltd, above n 1, at [47]–[48].Discussion[38] The rival arguments must be considered against the background of the Act's objective of protecting investors. As was said in this Court's decision in Securities Commission v Kiwi Co-operative Dairies Ltd:12The Securities Commission argues, and counsel for Kiwi accepts, that the principal purpose of the Securities Act is to place controls upon the issuance of securities to the public and that those controls are for the protection of the public. In Re AIC Merchant Finance Ltd [1990] 2 NZLR 385 at p 391 Richardson J was of that view:The pattern of the Securities Act and the sanctions it imposes make it plain that the broad statutory goal is to facilitate the raising of capital by securing the timely disclosure of relevant information to prospective subscribers for securities. In that way the Act is aimed at the protection of investors. That aim is achieved by regulating the conduct of issuers of securities and by providing sanctions for infringement by those issuers and their officers.And at p 392:It is perhaps true to say that the premise underlying the Securities Act, as with much commercial law, is that the best protection of the public lies in full disclosure of the company's affairs and of the security it is offering. That then allows the investor to make an informed investment decision, which in turn facilitates the functioning of financial markets.It is, I think, for reasons of that kind that the Act places such emphasis on clear and accurate disclosure....[39] It is clear that Mr Cox was not the "original allotter" of the security. Thequestion is whether he was an offeror within the meaning of s 6(7) of the Act, so as to become a deemed issuer. As Woodhouse J observed there is no definition of"offeror" in the Act, but "offer" is defined as including "an invitation, and any proposal or invitation to make an offer". An offeror, then, is any person who extendsor makes any such invitation or proposal.[40] We need not decide whether a bare trustee is an "offeror". In Herdegen v Federal Commissioner of Taxation, Gummow J said:13Today the usually accepted meaning of 'bare' trust is a trust under which the trustee or trustees hold property without any interest therein, other than that12 Securities Commission v Kiwi Co-operative Dairies Ltd [1995] 3 NZLR 26 (CA) at 31.13 Herdegen, above n 10, at 281. See the discussion in Burns v Steel, above n 10, at [41]–[49].existing by reason of the office and the legal title as trustee, and without any duty or further duty to perform, except to convey it upon demand to the beneficiary or beneficiaries or as directed by them, for example, on sale to a third party.[41] Having regard to the protective purpose of the Act, we consider that a holder could claim the status of a bare trustee only if someone else acted as offeror and the purchaser was made aware that the holder was a bare trustee, responsible only for transferring the shares to the purchaser on settlement. That would preclude any role in the offer and subsequent negotiations.[42] The facts establish sufficiently for summary judgment purposes14 that Mr Cox was not a bare trustee. On the contrary, he took an active role in relation to the transactions by which Green Gecko acquired the shares in Riscoveri. We note that:(a) After his preliminary discussions with Mr Barker and at a point where he had decided to invest in Riscoveri, Mr Rendell received from Mr Barker an email dated 5 November 2009, with attached correspondence which Mr Barker said was from "the solicitor".Mr Rendell understood this to be a reference to Mr Cox and indeed,Mr Barker's email invited Mr Rendell to get in contact with Mr Cox. The attachments included a resolution made by the directors of Riscoveri for the transfer of 200,000 shares from the RMS Property Trust to Gracefield Trust.(b) On 9 November, Mr Barker sent a further email to Mr Rendell correcting the resolution of directors by substituting a reference to Green Gecko for the incorrect reference to the Gracefield Trust. It also attached a share transfer signed by Mr Cox and Mr Fetherston as trustees.15 Mr Barker asked Mr Rendell to execute the share transfer14 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].15 We were not referred to any explanation in the evidence of why Mr Fetherston signed the share transfers in addition to Mr Cox. As the shares were in Mr Cox's name and Mr Fetherston was not a holder, this was unnecessary. However it was consistent with the fact that the transfers referred to the Trust as the party from which the shares were to be transferred to Green Gecko.on behalf of Green Gecko as the transferee, and "send the funds direct to John Cox the solicitor".(c) Prior to completing the purchase of the first tranche of the shares Mr Rendell put a number of questions to Mr Barker which were answered by him on 13 November 2009; Mr Barker said that theanswers had been "prepared by Riscoveri". One of the questions asked was whether the sale of shares would be a "transfer", to whichthe response was in the affirmative. It was then asked whether Mr Cox was the principal shareholder selling his stock; Mr Rendell inquired what happened to the funds once they had been transferred to Mr Cox. The answer given, by Mr Barker in an email dated Friday 13 November, was that:John Cox is the independent Trustee for the RMS Property Trust, the trust is selling up to $4.5 Million of its shareholding to fund the completion of the software and go to market. It has raised currently $300,000 and we estimate we can get the first stage to market within $500,000. The Trust will apply the funds it receives to this purpose.In this email, which he sent both to Mr Rendell and Mr Austin, Mr Barker told the latter that he was "more than welcome to ring and discuss any aspect of this offer with John Cox (solicitor)". We inferthat Mr Cox would in fact have responded to any questions directed to him as envisaged by this email.[43] Mr Austin asked Mr Barker in a further inquiry by email dated 16 November 2009:If John Cox is selling stock to fund Riscoveri's development, how dothe funds actually get from John C into the company so that the company can pay for the development? Is it being treated as a loan by [the RMS trust] to Riscoveri (similar to the $4.5M already on the books)?If so, where is the value to the new shareholder? His equity in the company is immediately off-set by the debt John C lends to the Coy?[44] This inquiry was forwarded by Mr Barker to Mr Fetherston and Mr Cox. Later on 16 November Mr Barker wrote again to Mr Austin and Mr Rendell forwarding answers given by Mr Fetherston to Mr Austin's questions. The responsesincluded:1. As Trustee John Cox upon receipt of the funds into his trustaccount, will apply Gordon's investment as a term loan toRiscoveri Limited as working capital.2. The loan to Riscoveri is very small compared with currentvalue and investment already made by it's principle [sic] shareholder.[45] Although Ms Burkhart acknowledged that Mr Cox had "allowed" the proceeds of sale of the shares to be deposited into his firm's trust account inNovember 2009 and again in April 2010, she claimed on the basis of Mr Cox'sevidence that Mr Cox had seen himself effectively as the bare trustee for the Trustees of the RMS Property Trust. The moneys so received were disbursed on the instructions of Mr and Mrs Fetherston in brokerage and legal fees, and with the balance paid into the bank account of the vendor.[46] Mr Cox also claimed that he had made no representations to Mr Rendell nor authorised any person to make any representations on his behalf. While he was aware that there had been meetings between Mr Rendell, Mr Barker and Mr Fetherston he claimed he was not aware of the advertising that had been undertaken by BBBL. Mr Cox acknowledged that Mr Fetherston had advised him that he was proposing that the Trust sell some of its shares in Riscoveri: he understood the purpose to be to provide Mr Fetherston with some funds to live on, and to allow the Trust to advance further money towards Riscoveri and the finaldevelopment of the company's risk management software.[47] Mr Cox claimed that he had declined a request by Mr Fetherston that hebecome a trustee of the Trust in "early 2009". He further claimed that without hisknowledge Mr Fetherston had made a number of changes in the shareholding of Riscoveri, including to record Mr Cox as a sole shareholder in May 2009. He said:12. I subsequently discovered this registration, and questionedMr Fetherston. We agreed that the shares could remain in my namewith me to be a bare trustee for the trustees for the time being of the RMS Property Trust.[48] Mr Cox did not say when he made this "discovery", but it was plainly beforehe transferred the shares to Green Gecko. Meantime, the shares remained in his name with his agreement and anyone dealing with the company would not have known of his alleged status as a "bare trustee". As an experienced solicitor Mr Coxwould have been aware of that fact. Mr Cox was also aware that at the time of the transactions with Green Gecko Mr Fetherston was bankrupt, a fact of which Mr Rendell and Mr Austin were unaware. It is not without significance that Mr Coxsaid with reference to Mr Fetherston's bankruptcy:13. Mr Fetherston had became [sic] bankrupt by this time, and I presume that he preferred that his trusteeship of the RMS Property Trust be kept confidential.[49] Mr Cox also gave the following evidence:14. In late 2009 I was advised by Mr Fetherston that The RMS Property Trust had engaged Barkers Business Brokers to sell some of its shares in Riscoveri Limited. I was subsequently advised by Mr Fetherston that a Mr Gordon Rendell would be purchasing 200,000 shares for $200,000. I had not spoken to or met Mr Rendell, nor had any contact with Barkers Business Brokers whatsoever.15. As bare trustee I completed the share transfer to Green Gecko Limited, Mr Rendell's company, and the proceeds of sale of $200,000 was deposited by Mr Rendell's solicitors into my firmstrust account in November 2009.16. As instructed by Mr and Mrs Fetherston as Trustees of The RMS Property Trust, the monies were disbursed in brokerage, legal fees, and the balance paid into the bank account of the vendor, The RMS Property Trust.[50] It is plain not only that Mr Cox took an active role in his capacity as Mr Fetherston's solicitor, drafting the relevant company resolutions and transfer documents, but also that he acted as one of the trustees of the Trust, whose signature was necessary to effect the transfers, and received the payment. He facilitated a transaction under which Green Gecko unknowingly paid $700,000 for the benefit, ultimately, of an undischarged bankrupt. These facts are sufficient to exclude him as a bare trustee and establish him as an offeror of the shares. The things he didhappened after the offer was made to Green Gecko, but it is enough that they were done during the negotiations and before completion. We find nothing unjust in a conclusion that he should be liable as an issuer under s 37(6) of the Act.[51] We reject Ms Burkhart's argument that the drafting of s 37(5) and (6) assumes an ability to repay, with the necessary implication that the persons subject to the repayment obligation must have the funds to repay. The evident objective of this argument was to restrict liability to those who ultimately received the payment, contrary to the plain objective of the legislation.[52] For these reasons, we have concluded that the Judge was correct to find that Mr Cox was an offeror and therefore an issuer under s 6(7) of the Act.The proviso to s 37(6)[53] The proviso to s 37(6) exempts a "director" from the joint and several liability created by the subsection if the director is able to prove that the default in the repayment of the subscriptions was not due to any misconduct or negligence on the part of the director. Ms Burkhart argued that even if Mr Cox was correctly described as an issuer for the purposes of s 37(6), he was also a "director" having regard to the definition of "director" in s 2 of the Act. That definition reads asfollows:director means—(a) in relation to a company, any person occupying the position of a director of the company by whatever name called:(b) in relation to a partnership (other than a special partnership or limited partnership), any partner:(c) in relation to a special partnership or limited partnership, any general partner:(d) in relation to a body corporate or unincorporate, other than a company, partnership, or special partnership or limited partnership, any person occupying a position in the body that is comparable with that of a director of a company:(e) in relation to any other person, that person[54] Ms Burkhart accepted that the Trustees of the Trust could not be brought within paragraphs (a) to (d) of the definition. However, she submitted that theycould fall within the "catch all" paragraph (e) as "any other person". She submitted that the drafting of paragraph (e) showed a legislative intent to embrace any individual whose actions are governed by the Act, for example as an issuer.[55] Woodhouse J found that because the Trust was not a distinct legal entity it could not have directors.16 He thought it was preferable to regard Mr Cox as an issuer (on the basis already discussed). Further, although Riscoveri was also an issuer (as the original allotter of the security), there was no basis upon which it could be contended that Mr Cox was a director of Riscoveri at any material time. However, Ms Burkhart submitted that the Judge had wrongly failed to consider paragraph (e) of the definition.[56] There is an obvious tension between this part of the appellant's case and thecontention earlier discussed that at all relevant times Mr Cox was a "bare trustee". Be that as it may, the appellant's submission that the word "director" has beenextended by the definition to cover any person with responsibilities under the Act is artificial and strained. The language used in s 37(6) refers to "the issuer and all the directors thereof". There is no obvious reason why, in the case of an individual withresponsibility as an issuer, he or she should be treated also as within the concept of a director. The individual attracts any relevant liability as the issuer; it would be odd to conclude the legislature also intended such a person to be responsible as a"director". We can think of no justification for adopting that approach which, in thepresent circumstances, would mean that the relevant part of the subsection should beconstrued as referring to "the issuer and that person".[57] Further, the fact that there is reference both to the issuer and all the directors, in the main part of the subsection, but a reference solely to a director in the provisosuggests that insofar as the proviso is concerned, the omission to refer to the "issuer"was deliberate. This is explicable on the basis that while an individual director may appropriately escape liability on proof of the absence of misconduct or negligence, itwas not intended that someone within the definition of "issuer" should also be able16 Green Gecko Ltd, above n 1, at [44].to escape liability. Once again the Act's purpose of protecting investors is importantin this context.[58] We are satisfied for these reasons that Mr Cox is not properly described as a"director" for the purposes of s 37(6).Comparison between Mr Cox and an issuer[59] The final argument put forward in support of the appeal can be dealt with briefly, having regard to the foregoing discussion. It was Ms Burkhart's contentionthat it would be unduly harsh to deny Mr Cox, a bare trustee, defences that would have been available to him were he regarded as a director. She argued that there was no policy reason for Mr Cox to be put in a worse position than he would have been in had he been a director of Riscoveri or any other company which was acting as the issuer or offeror.[60] However, Mr Cox's liability arises because, for the reasons already discussed,he was an issuer. We have already held that as an issuer he should not be treated as if he were a director able to draw a distinction between himself in that capacity and as an individual.Result[61] None of the grounds of appeal succeeds and the appeal is dismissed.[62] The respondent is entitled to costs on a band A basis as for a standard appeal together with usual disbursements.Solicitors:Kennedys, Auckland for AppellantRennie Cox, Auckland for Respondent