KEXIN MENG v REGISTRAR OF COMPANIES [2023] NZHC 2093

KEXIN MENG v REGISTRAR OF COMPANIES [2023] NZHC 2093 [9 August 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2022-404-1275[2023] NZHC 2093UNDER the Companies Act 1993IN THE MATTER OF an application to reverse a liquidator's finalreport and to restore SOUTH PACIFIC ITLIMITED to the Companies RegisterBETWEEN KEXIN MENGPlaintiffAND REGISTRAR OF COMPANIESDefendantHearing: 17 July 2023Appearances: Cherie Holland for the PlaintiffGuy Caro for the Registrar of CompaniesJudgment: 9 August 2023JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR[Reversing liquidator's final report and restoring company to the register]This judgment was delivered by me on 9 August 2023 at 3:00pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors:Turner Hopkins (Cherie Holland), Takapuna, Auckland, for the PlaintiffCompanies Office (Guy Caro), Auckland, or the defendantIntroduction[1] Ms Kexin Meng (Ms Meng) applies for orders reversing a liquidator's finalreport and for subsequent restoration of South Pacific IT Limited (South Pacific) tothe New Zealand Register of Companies (the register).Background[2] South Pacific was incorporated as a company on the register on 26 April 2017.It operated an internet café comprising about 70 computers. Ms Meng was SouthPacific's sole director and shareholder.[3] On 20 November 2017, South Pacific entered a lease, with Ms Meng asguarantor, for premises at Level 2, 144 Hobson Street, Auckland Central. Thereafter,there were a number of water ingress issues including a major water ingress event onabout 25 December 2018, which ultimately led to South Pacific's cessation of tradingand liquidation. The landlord of the premises, the Jedi Family Trust (the Landlord),continued to invoice South Pacific for the rent, which South Pacific refused to pay,before terminating the lease on 8 February 2019.[4] South Pacific was placed into voluntary liquidation on 8 February 2019 byspecial shareholder resolution pursuant to s 241(2)(a) of the Companies Act 1993. Theliquidator, Daran Nair (Mr Nair), in his first report on 14 February 2019 disclaimedthe lease before filing a final report on 12 July 2019 (the final report).[5] South Pacific was subsequently removed from the register on 30 August 2019.Ms Meng then brought this proceeding to have South Pacific restored to the register.[6] On its call before me on 19 August 2022, I noted in a subsequent minute, thatthe Court could not make a restoration order without Ms Meng first applying for anorder under s 284(1)(b) of the Companies Act reversing Mr Nair's final report.1 Thisjudgment deals with orders for both reversal and restoration.Ms Meng's applications[7] Ms Meng seeks orders:2a. reversing the liquidator's final report, being in this case the report of DarnNair, the liquidator, dated 12 July 2019; andb. an order restoring South Pacific IT Limited ("the company") to the NewZealand Companies Register.[8] The grounds on which the orders are sought are:32. The grounds on which the order reversing the liquidator's final report,being in this case the report of Daran Nair, the liquidator, dated 12 July2019 is sought are pursuant to s 284(1)(b) Companies Act 1993, beingthat the court may reverse a decision of the liquidator.3. The grounds on which the order restoring South Pacific IT Limited ("thecompany") to the New Zealand Companies Register is sought are pursuantto s 329(1)(a) and (b) Companies Act 1993, being that at the time thecompany was removed from the register:a. The company was a party to legal proceedings;b. The company was in liquidation; andc. For any other reason it is just and equitable to restore the companyto the register.Affidavit of Kexin Meng dated 16 September 2022[9] Ms Meng has made an affidavit in support of her application to reverse theliquidator's final report and restore South Pacific to the register.4[10] Ms Meng accepts that she placed South Pacific into liquidation by way ofspecial resolution upon the recommendation of her solicitor at the time. However, shedeposes she did not fully comprehend the quality of that advice.1 Re Meng HC Auckland CIV-2022-404-1275, 26 August 2022 (Minute of Associate Judge Taylor).2 Originating application by applicant to reverse the liquidator's final report and to restore companyto New Zealand companies register dated 16 September 2022 at [1].3 At [2] and [3].4 Affidavit of Kexin Meng in support of originating application to reverse the liquidator's finalreport and to restore company to New Zealand companies register dated 16 September 2022.[11] Ms Meng deposes that the liquidator's final report should be reversed as isrequired before restoring South Pacific to the register. Ms Meng says that SouthPacific entered the deed of lease on 22 November 2017 (the lease) with the Landlordfor the internet café premises. Ms Meng signed the lease as guarantor, guaranteeingthe obligations of South Pacific. She deposes that there was significant water damagecaused at the premises and that South Pacific stopped paying rent while in discussionwith the Landlord.[12] Ms Meng deposes that the Landlord brought proceedings against her asguarantor in about March 2020. She says that at the time South Pacific was placedinto liquidation those proceedings had been issued against her. She believes theLandlord has breached its obligations under the lease which gives South Pacific a real,valid and substantial right to claim against the Landlord for breach of the lease anddamage of its assets. Ms Meng concludes that South Pacific will be unable to pursueits claim unless the liquidator's final report is reversed, and South Pacific is restoredto the register. She says her decision to liquidate South Pacific was somewhatmisguided.Registrar of Companies' opposition[13] The Registrar of Companies (the Registrar) opposes the application on thefollowing grounds:5a. South Pacific IT Limited ("the company") was not a party to legalproceedings at the time it was removed from the New Zealand register.b. The company was not in liquidation at the time it was removed from theNew Zealand register as the liquidator had previously filed the finalliquidation report.c. There is no other reason why it is just and equitable for the company tobe restored to the New Zealand register or why the final liquidation reportshould be cancelled. The applicant wants the company restored and thefinal liquidation report cancelled in order for the company through theliquidator to bring proceedings in respect of a lease. The applicant'sevidence is that the liquidator previously disclaimed the lease. Thedisclaimer brought to an end the rights, interests, and liabilities of thecompany in relation to the lease.5 Notice of opposition dated 10 May 2023 at [1]–[3].Affidavit of Sheree Evelyn McDonald dated 10 May 2023[14] Ms McDonald, Deputy Registrar of Companies since 20 December 2021, hasmade an affidavit in support of the Registrar's opposition to Ms Meng's application.She deposes that South Pacific was incorporated on 26 April 2017 and removed fromthe register on 30 August 2019.[15] Ms McDonald says Daran Nair was appointed as liquidator, as registered in his10 February 2019 notice of appointment. She says his final report was registered on12 July 2019 and attaches the notice, report and correspondence between Ms Meng'sand the Registrar's solicitors regarding this proceeding.Legal principles[16] Section 284(1)(b) of the Companies Act 1993 (the Act) relevantly provides:284 Court supervision of liquidation(1) On the application of the liquidator, a liquidation committee, or, withthe leave of the court, a creditor, shareholder, other entitled person, or directorof a company in liquidation, the court may—(b) confirm, reverse, or modify an act or decision of the liquidator:[17] Section 329 then 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 the NewZealand register be restored to the register if it is satisfied that,—(a) at the time the company was removed from the register,—(i) the company was carrying on business or a properreason existed for the company to continue inexistence; or(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 have regard tothe reasons for the company's removal and whether those grounds existed atthe time of removal or exist at the time of the hearing of the application.(2) The following persons may make an application under subsection (1):(a) any person who, at the time the company was removed fromthe New Zealand register,—(i) was a shareholder or director of the company; or(ii) was a creditor of the company; or(iii) was a party to any legal proceedings against the company;or(iv) had an undischarged claim against the company; or(v) was the liquidator, or a receiver of the property of, thecompany:(b) the Registrar:(c) with the leave of the court, any other person.(3) Before the court makes an order restoring a company to the NewZealand register under this section, it may require any provisions of this Actor any regulations made under this Act, being provisions with which thecompany had failed to comply before it was removed from the register, to becomplied with.(4) The court may give such directions or make such orders as may benecessary or desirable for the purpose of placing the company and any otherpersons as nearly as possible in the same position as if the company had notbeen removed from the New Zealand register.Analysis[18] Before dealing with the substantive issues in this judgment of whether theliquidator's final report should be reversed and South Pacific restored to the register,I deal with the following preliminary matters as follows:(a) I accept the submissions of Mr Caro, for the Registrar, thatss 329(1)(a)(ii) and (iii) are not grounds upon which Ms Meng'sapplication can be sustained, as South Pacific was not a party to legalproceedings or in liquidation at the time of its removal. The liquidator'sfinal report had been filed, ending the liquidation.6 Accordingly, theapplication is dealt with in this judgment as an application unders 329(1)(b) of the Act, being an application that South Pacific shouldbe restored to the register on the grounds that it is just and equitable todo so.(b) Mr Caro has made the point that the application does not specificallyseek a reversal of the liquidator's decision to disclaim the lease.Ms Holland, for Ms Meng, submits that the request in the applicationto reverse the liquidator's final report, which refers to the first reportwhich in turn refers to disclaiming of the lease, is sufficient as apleading for reversal under s 284(1)(b) of the Act of the liquidator'sdecision to disclaim the lease.My view on this point is that while the application could have beenbetter drafted to specifically refer to reversal of the liquidator's decisionto disclaim the lease, the intention of the application was clear.Accordingly, under r 1.9 of the High Court Rules 2016, I am preparedto treat Ms Meng's application as seeking an order reversing theliquidator's decision to disclaim the lease (as part of the order to reversethe liquidator's final report).However, as will become clear later in this judgment, reversing theliquidator's decision to disclaim the lease is not necessary.[19] Having dealt with these preliminary matters, I now turn to the main questionto be determined in this judgment, namely whether the liquidator's final report anddecision to disclaim the lease, should be reversed and South Pacific restored to the6 Registrar of Companies v Body Corporate 3077030 [2014] 2 NZLR 623 at 626 and Williams vRegistrar of Companies [2015] NZLR 3217 at [13] to [19].register. Having heard the submissions of Ms Holland for Ms Meng and Mr Caro, inmy view the essential issue as to whether it is just and equitable to restore South Pacificto the register, turns on whether or not South Pacific, if restored to the register, canbring counterclaim proceedings under the lease against the Landlord for breach of thelease. If such counterclaim proceedings are successful, then South Pacific's liabilityto the Landlord may be reduced or extinguished and Ms Meng's liability as guarantorunder the lease reduced accordingly. This issue involves examination of the effect ofthe liquidator disclaiming the lease prior to South Pacific being removed from theregister.[20] Mr Caro submits that under s 269(3)(a) of the Act, the effect of the disclaimeris that it:"brings to an end on and from the date of the disclaimer the rights, interests,and liabilities of the company in relation to the property disclaimed."He submits that South Pacific, through the liquidator, is no longer able to issueproceedings in respect of the lease because following the disclaimer the company hasno rights or interests in the lease.[21] Mr Caro refers to the decision of the Court in Millennium Securities Ltd vParekura Bay Vineyard Estates Ltd (in liq).7 He submits in that case Moore J madean order restoring the company to the register so that property could be sold to satisfya mortgage liability, although His Honour did not order a cancellation of the finalliquidation report. The Registrar restored the company but then removed it again asthe final liquidator's report remained registered. The matter was referred back toMoore J who made the following comments:8The only appropriate, indeed the only possible cause of action, is forMillennium to bring a fresh application if it chooses to do so. However, theRegistrar has also made a helpful submission as to the wisdom of this step.She points out that the effect of the liquidator disclaiming the property was tovest it in the Crown. She thus argues that even if Parekura was restored to theRegister it would no longer have this property to sell. In any event, she alsopoints out that the mortgagee has its own separate remedy under s 269(5) ofthe Act which can be invoked in preference.7 Millennium Securities Ltd v Parekura Bay Vineyard Estates Ltd (in liq) [2016] NZHC 2873.8 Above n 7, at [19].[22] In this instance, as it is an important point, the Court has carried out its ownresearch into the effect of the disclaimer of the lease on South Pacific's right to bringan action against the Landlord for breach of the lease. It is common ground the leasewas disclaimed in accordance with s 269(1) of the Act. However, the important pointhere is that the liquidator did not disclaim South Pacific's litigation right against theLandlord under the same section. As the District Court summarised in DowntownHouse (No.2) Ltd v Batistich:9[Section 269 of the Companies Act 1993] is unambiguous so far as the positionof the Lessee where its liquidator has disclaimed liability. In that event, thelease comes to an end. The lease does not spell out what the position of theGuarantor will be in the event of a disclaimer. Section 269(3)(b) does howeverindicate that any liability that any other person has will not be affected. Thesubsection does not create a liability where none would otherwise exist. Theonly effect of the subsection is to maintain a pre-existing liability on the partof a third party after the event of disclaimer has occurred whether or not sucha liability continues.[23] In this case the object of Ms Meng's application to reinstate ``South Pacific isto have it pursue a counterclaim as lessee against the Landlord for breach of the leasein order to offset the Landlord's current claim against her personally as guarantor. Soit is the litigation right against the Landlord which Ms Meng wishes to pursue andwhich has not been disclaimed.[24] Mr Caro, for the Registrar, says that South Pacific need not be restored to theregister as the correct remedy is for Ms Meng to apply to have the disclaimed leasevested in her personally under s 269(5) of the Act, which can occur if such a vestingis shown to be "just" under s 269(6). However, importantly, subsection (5) onlypermits Ms Meng to "apply to the Court for an order that the disclaimed property bedelivered to or vested in [her]". The disclaimed property is the cancelled lease - whichis of little use to Ms Meng. The disclaimed property is not the breach of contract causeof action which arose before the lease was disclaimed. In other words, s 269(5) cannotgive Ms Meng any effective remedy as it does not allow the Court to vest in her SouthPacific's litigation right which was never disclaimed in the first place.9 Downtown House (No.2) Ltd v Batistich [1999] DCR 1155 at 1160.[25] Company Law in New Zealand makes this very point, where the learnedauthors stated:10... whilst future performance of the contract must be discharged, a right toclaim damages in respect of a pre-disclaimer breach of contract must remainenforceable by both parties, as would any debts arising out of the contract thathave accrued before the disclaimer.[26] Expanding on the point made by the learned authors, in Pitfield v DorchesterFinance Ltd the Court noted:11[Section 269(5)] is designed to enable those who have suffered loss as a resultof a disclaimer to claim in the liquidation for that loss. The claim is for theamount of the loss suffered as a result of the disclaimer and not the losssuffered under the contract disclaimed.South Pacific's litigation right to claim against the Landlord is not something that canbe said to be a loss or damage arising as a consequence of the disclaimer, nor is itdisclaimed property – it is a pre-disclaimer litigation right which was not disclaimed.Hence s 269(5) yields Ms Meng no remedy.[27] In conclusion on this point, it is necessary that South Pacific be restored so thatSouth Pacific can bring its claim against the Landlord for breach of the lease, being aclaim that arose prior to the disclaimer and not disclaimed. In addition, Ms Mengwould not have any effective remedy under s 269(5) as submitted by Mr Caro, as therights to claim for breach of the lease by South Pacific against the Landlord have notbeen disclaimed and therefore could not be vested in her.[28] Mr Caro also referred to the decision in Millennium Securities.12 In my view,the comments in that decision are of little assistance here. The object of the restorationapplication in that case was to sell the disclaimed property to pay off the mortgageeand the property sought was itself disclaimed and so vested in the Crown, which meansthe loss resulted from the disclaimer and the mortgagee could possibly receive vestingof the disclaimed property from the Crown under s 269(5). In the present case10 Company Law in New Zealand (Peter Watts, Neil Campbell and Christopher Hare, (2nd ed.,LexisNexis Wellington 2015) at 903 citing Christopher Moran Holdings Ltd v Bairstow [2000]2 AC 172 (HL), and Pitfield v Dorchester Finance Ltd [2004] 3 NZLR 237 (HC) at [35].11 Pitfield v Dorchester Finance Ltd [2004] 3 NZLR 237 (HC) at [32].12 Above, n 7.however, South Pacific's litigation right was never disclaimed, the right arose prior tothe disclaimer, and the guarantor could not receive vesting of that non-disclaimedproperty under s 269(5).[29] As a final point, I note that South Pacific's litigation right against the Landlordfor breach of the lease, as it was property not distributed or disclaimed when SouthPacific was removed from the register, would have vested in the Crown by operationof s 324(1) of the Act. However, if South Pacific is restored to the register, then inaccordance with s 331(1), that litigation right will "vest in the company as if thecompany had not been removed from the register".Result[30] As a result of the conclusions I have reached at [27] and [29], the liquidator'sfinal report should be reversed pursuant to s 284(1)(b) of the Act, and South Pacificshould be restored to the register under s 329(1)(b) of the Act on the grounds that it isjust and equitable to do so.Orders[31] I make the following orders:(a) The liquidator's final report dated 12 July 2019 in the liquidation ofSouth Pacific is reversed pursuant to s 284(1)(b) of the Companies Act1993;(b) South Pacific is restored to the Companies Register pursuant tos 329(1)(b) on the grounds that it is just and equitable to do so;(c) No order is made as to costs...Associate Judge Taylor