NEW ZEALAND MAIL LIMITED V EXNZOSL LIMITED (FORMERLY KNOWN AS NEW ZEALAND OFFICE SUPPLIES LIMITED HC NAP CIV-2010-441-501

NEW ZEALAND MAIL LIMITED V EXNZOSL LIMITED (FORMERLY KNOWN AS NEW ZEALAND OFFICE SUPPLIES LIMITED HC NAP CIV-2010-441-501 17 August 2010IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY CIV-2010-441-501IN THE MATTER OF the Companies Act 1993 BETWEEN NEW ZEALAND MAIL LIMITED Plaintiff AND EXNZOSL LIMITED (FORMERLY KNOWN AS NEW ZEALAND OFFICE SUPPLIES LIMITED Defendant Judgment: 17 August 2010 at 11.30 amJUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLThis judgment was delivered by me ______________________ on 17 August 2010 at 11.30 am pursuant to r 11.5 of the High Court Rules. ___________________________________Solicitors: Hucker Associates, Solicitors, PO Box 3843, Shortland Street, Auckland[1] On 12 August 2010, the plaintiff, New Zealand Mail Limited, filed a Without Notice Application for the Appointment of an Interim Liquidator to the respondent company, EXNZOSL Limited (formerly known as New Zealand Office Supplies Limited). The application was made pursuant to s 246 Companies Act 1993. [2] Yesterday, 16 August 2010, an undertaking as to damages has been provided by the applicant. [3] The Without Notice Application is supported by affidavits of Mr Robin Alker, the New Zealand General Manager for the plaintiff and by Mr David Allan, the New Zealand Sales Manager for the plaintiff. [4] In addition, a statement of claim to place the defendant into liquidation was filed on 12 August 2010 with a further supporting affidavit of Mr David Allport, a director of the plaintiff. [5] Section 246 Companies Act 1993 authorises the Court to appoint an interim liquidator of a company and its assets if the Court is satisfied that: (a) An application has been made to the Court to place the company into liquidation; and (b) It is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company for an interim liquidator to be appointed. [6] In considering s 246 Companies Act 1993, Brookers Company and Securities Law at para CA246.02 sets out the preconditions to appointment of an interim liquidator in the following way:CA246.02 Preconditions to appointment of interim liquidatorThere are three main preconditions to the liquidator's appointment: (a) A liquidation application must have been filed in the Court disclosing good grounds for putting the company into liquidation. An interim liquidator is unlikely to be appointed unless there is a good prima facie case for liquidation. If a company is not in fact put into liquidation, it follows that the Court has no power to appoint an interim liquidator and any existingappointment will come to and end: Re a Company [1973] 1 WLR 1566; [1974] 1 AllER 256; J C Scott Constructions v Mermaid Waters Tavern Pty Ltd [1983] 2 Qd 243; (1984) 2 ACLC 35; (1983) 8 ACLR 687; Re Highfield Commodities Ltd [1984] 3 AllER 884. (b) The Court must be satisfied that there is the need for urgency. Normally, ex parte applications for the appointment of an interim liquidator will not be successful unless special circumstances can be demonstrated. An undertaking as to damages will be required in such cases: Re Clearwater Pty Ltd (1981) 1 ACLC 129; Re Gasbourne Pty Ltd (1984) 2 ACLC 103; 8 ACLR 618; Re Highfield Commodities Ltd [1984] 3 AllER 884. (c) The circumstances must not only be urgent – they must also justify the appointment of an interim liquidator: CA246.04.[7] As Brookers Company and Securities Law goes on to note at para 246.04, the circumstances justifying appointment of an interim liquidator were considered by the High Court in Robert Bryce & Co Limited v Chicken & Food Distributors Limited(1990) 5 NZCLC 66, 648. The Court there stated that in determining whether there is a need for interim control of the company in question, the following factors need to be considered: a) Whether the company's assets are in jeopardy; b) Whether the status quo should be maintained; and c) Whether the interests of creditors are safeguarded. [8] An important aspect with respect to these factors is the need to maintain the value of the assets owned or managed by the company. [9] As I have noted at para. [6] above Brookers Company and Securities Law at para. CA246.02 indicates that normally ex parte applications for the appointment of an interim liquidator will not be successful unless special circumstances of urgency can be shown and an undertaking as to damages provided. Here an undertaking as to damages has now been given to the Court by the applicant. [10] Turning to the three pre-conditions for the appointment of an interim liquidator noted at paragraph [6] above, in the present case an application has been filed by the plaintiff to have the defendant company placed into liquidation in terms of s 241 Companies Act 1993. This relates to accounts provided by the plaintiff to the defendant for services and products supplied during the period 3 May 2010 to19 July 2010 which were invoiced and totalled $233,419.12. According to the plaintiff, demand has been made on the defendant for payment of these invoices including demands made on 20 July 2010, 2 August 2010 and 3 August 2010 but the defendant has failed to make payment of any of the outstanding monies. [11] On this basis, and considering the material presently before the Court, I am satisfied that there is a good prima facie case here for liquidation of the defendant. [12] As to the requirement that the situation here demands urgency, the plaintiff refers to several matters: (a) The plaintiff contends there is a serious risk that assets of the defendant are being transferred to an unrelated entity and not applied in satisfaction of the defendant's creditors, thus putting them out of reach of those creditors. (b) It appears that on 2 July 2010 Mr Michael Manikas ("Mr Manikas") who is the General Manager of the defendants incorporated a new company called Ledge Company 21 Limited (being Company 3006720) of which Mr Manikas was the sole director and a shareholder. (c) On 6 August 2010, the defendant company changed its name from New Zealand Office Supplies Limited to EXNZOSL Limited. Also on that same day, Ledge Company 21 Limited changed its name to New Zealand Office Supplies Limited. Around that time discussions took place between Mr Manikas and Mr Allport, Mr Manikas and Mr Allan and Mr Manikas and Mr Alker. No explanation or reasons for the name change were provided by Mr Manikas. (d) Instead from the affidavit evidence before the Court it appears that Mr Manikas made the following statements:(i) "From the 20 July the defendant then known as New Zealand Office Supplies Limited stopped ordering from the plaintiff, New Zealand Mail and switched its ordering of postal services to Croxley. (ii) Croxley had a commercial ownership to deal with Aqualine (Aqualine Holdings Limited being the sole shareholder of the defendant company) and have been paid that is why they are continuing to supply NZOS. (iii) Mike mentioned that Aqualine had been taking all the available fund reserves from the company for some time. (iv) Mike said the bank withdrew all the funds to pay suppliers about a week ago. Mike stated that he was only told of the situation at this time. .......". (e) In addition, Mr Manakis, in a communication with Mr Allport at 5.35 pm on 6 August 2010, apparently stated:Mike said that he was very sorry for what had happened to NZ Mail. He said that the bank had walked in and closed them down. Mike went on to ask if NZ Mail had continued to supply NZOS on a cash up front basis. ...... Mike explained that he was taking over the NZOS trading brand, that he had faith in the company. That it was a good profitable company, he said otherwise he would not be risking his family money on it. ....".[13] What appears clear from the evidence which has been provided to the Court is that the defendant company has ceased to trade and the defendant has endeavoured to dispose of its assets, brands and trading names to Mr Manakis or the new company, Ledge Company 21 Limited (being Company 3006720) now called New Zealand Office Supplies Limited on 6 August 2010. [14] In this case there is a substantial sum of money at stake so far as the plaintiff is concerned. The amount claimed in its statement of claim is over $230,000.00.[15] From the evidence before me, it seems clear that Mr Manakis in early August 2010 requested that new services be provided by the plaintiff to the new company he had incorporated, and also confirmed that he had taken over the New Zealand Office Service Limited brand and assets. [16] On this basis I am satisfied that there is a real risk that company assets of the defendant are being or have been dissipated to the new business established by Mr Manakis and if a liquidator is not appointed on an interim basis, there is a real risk that there may be few or no assets left by the time the substantive liquidation application is heard in this Court. [17] I am satisfied therefore that it is crucial here the status quo be maintained and that there is a real need for urgency which would justify the appointment of an interim liquidator. [18] Williams J in Elders Pastoral v New Zealand Ostriches Limited (High Court Rotorua, 8 February 1999, M2/99) did note that the appointment of an interim liquidator "trenches across directors' powers, effects a major irruption into the company's business, and to a large degree amounts to a pre-judgment on the winding up application itself." [19] Notwithstanding these comments, under all the circumstances prevailing in the present case, I am satisfied that it is expedient here for an interim liquidator to be appointed, that the circumstances are urgent and that they justify such an order. InCarter Halt Harvey v Timberloch New Zealand Limited (1997) 11PRNZ 435, the Court indicated that the word "expedient" in s 246 suggested that a relatively low threshold was required. As I see the position, that threshold has been met in the present case. [20] In saying this I am also satisfied that any third parties would not be unduly prejudiced by the appointment of an interim liquidator given the evidence before the Court which I have noted above.[21] In summary, I am satisfied the order sought for appointment of an interim liquidator is justified here as it is necessary to exercise some control over maintaining the value of the defendant's assets, to control any transfer or disposition of those assets and to protect the position of the general creditors of the defendant. [22] One slightly complicating factor does arise here, however. Late yesterday, 16 August 2010, counsel for the plaintiff, Mr Hucker, filed a Memorandum bearing that date, which stated at para 3:3. The latest search (of Companies Office records for the defendant) discloses that receivers were appointed on 10 August 2010 (the appointment now being notified within the statutory five working day period).[23] Brookers Company and Securities Law at para CA246.04 notes in part:An appointment (of an interim liquidator) is unlikely to be made if a receiver and manager of the company's assets is already in possession: Re A H Hodge & Sons Ltd (1984) 2 ACLC 707.This seems to be because in the words of Ryan J in Re A H Hodge & Sons Ltd at p 708:The critical question, however, is whether a need has been demonstrated to protect the assets of the companyand a receiver and manager of a company is generally in control and possession of the assets of the company over which s/he has been appointed, and no assets of the company are in jeopardy. [24] In the case before me, it is quite unclear whether the receivers appointed were appointed as receivers and managers of all the defendant company's assets. Which creditor may have appointed the receivers, and what security was held by that creditor, is not disclosed. [25] Under these circumstances, and notwithstanding the factors I have noted in paras [22], [23] and [24] above, I am satisfied that the proper course here is for an interim liquidator to be appointed to ensure that all assets of the defendant are protected as far as possible, but reserving leave for either party or the receivers of thedefendant to approach the Court on notice for additional or alternative orders, should these be appropriate here. [26] Appropriate consents to Act as interim liquidators of Aaron Leslie Heath and Michael Lamacraft, as I understand it, are available and are to be filed in this Court before the orders following are sealed. [27] The plaintiff's application therefore succeeds, subject to the leave reservation I note in paragraph [28](c) below. [28] Orders are now made as follows: (a) An order is made appointing Aaron Leslie Heath and Michael Lamacraft jointly and severally as interim liquidators of the defendant company, EXNZOSL Limited (formerly known as New Zealand Office Supplies Limited). (b) The costs of the interim liquidators and the costs of the plaintiff on this application on a Category 2B basis together with disbursements as fixed by the Registrar are to be paid from the assets of the defendant company. (c) Leave is reserved for either party or the receivers of the defendant company at any time to approach the Court on 48 hours' notice to seek additional or alternative directions or orders if these may be required and appropriate. (d) As far as it may be necessary, I note that these orders are timed at 11.30 am today, 17 August 2010. _______________________________________Associate Judge D.I. Gendall