OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF DAVID HUGH BARRIE MCHAFFIE v REGISTRAR OF COMPANIES [2016] NZHC 1176

OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF DAVID HUGH BARRIE MCHAFFIE v REGISTRAR OF COMPANIES [2016] NZHC 1176 [2 June 2016]IN THE HIGH COURT OF NEW ZEALANDINVERCARGILL REGISTRYCIV-2016-425-000038[2016] NZHC 1176UNDER the Companies Act 1993BETWEEN OFFICIAL ASSIGNEE INBANKRUPTCY OF THE PROPERTY OFDAVID HUGH BARRIE MCHAFFIEPlaintiffAND REGISTRAR OF COMPANIESFirst DefendantAND BEN CRUACHAN LIMITED (STRUCKOFF)Second DefendantHearing: 2 June 2016Representation: C R Vinnell for plaintiffR G R Eagles for DHB McHaffieNo appearance for the first and second defendants(All attendances excused)Judgment: 2 June 2016JUDGMENT OF ASSOCIATE JUDGE OSBORNEon registration of company to Register and on liquidationIntroduction[1] The second defendant, Ben Cruachan Limited (BCL), was struck off the Register of Companies in 2015, having failed to file its annual return. The plaintiff, the Official Assignee in bankruptcy of the property of David Hugh Barrie McHaffie (Mr McHaffie), seeks orders that BCL be restored to the Register and be put into liquidation.[2] The documents in the proceeding have been served in accordance with directions previously obtained.1 No person served has filed a defence. Mr Eagles has on behalf of Mr McHaffie filed an address for service and applied for an adjournment of the hearing. I will return to that adjournment application at [7] below.The factual background[3] Robert McDonald, a Deputy Assignee with personal knowledge of therelevant matters, has provided the Assignee's evidence. BCL was incorporated in July 2004. Its directors and 50 per cent shareholders were respectively Mr McHaffie and his wife, Helen May McHaffie (Ms McHaffie). Mr McHaffie was adjudicated bankrupt on 6 June 2013. His 50 per cent shareholding vested in the Official Assignee.2 Ms McHaffie became the sole director of BCL and remained a 50 per cent shareholder.[4] In September 2014, BCL sold certain properties as a result of which it deposited net sale proceeds of $309,442.41 (BCL's funds) into its solicitors' trustaccount. BCL ceased trading upon the sale of the properties. Ms McHaffie died on 23 September 2014 before BCL's funds were distributed. Mr McHaffie and RogerSmail were appointed executors of Ms McHaffie's estate. A replacement director was not appointed to BCL.[5] The Assignee sought the agreement of the executors of Ms McHaffie's estateto place BCL into voluntary liquidation by special resolution. She was unable to obtain the agreement of Mr McHaffie to sign the necessary documentation. While the Assignee was awaiting progress, BCL was struck off the Register on 17 July 2015. As a consequence of the striking off, the property and rights of BCL are deemed to have vested in the Crown, with the Treasury administering bona vacantiaproperty.1 Official Assignee in bankruptcy of the property of David Hugh McHaffie v Registrar of Companies [2016] NZHC 643.2 Insolvency Act 2006, s 101.[6] Mr McDonald deposes that BCL's funds remain in its solicitors' trustaccount. The Assignee is unaware of any creditors of BCL, with the consequence that the surplus in funds is payable to the shareholders. Mr McDonald deposes thatthe proofs of debt in Mr McHaffie's bankrupt estate totalled $1,181,374.89 at 18February 2016. Accordingly, any share of the funds to be received for MrMcHaffie's estate would contribute to the reduction of debts owed to Mr McHaffie'screditors.An application for an adjournment[7] On 31 May 2016, Mr McHaffie filed (through Mr Eagles) an address for service. With that document, Mr Eagles filed a memorandum in which he requestedan adjournment of today's hearing to the next available date. The memorandumexplained that Mr McHaffie had experienced serious health issues since an accident in 2007. Mr McHaffie provided initial instructions to Mr Eagles on 27 May 2016. Mr Eagles has not yet been able to meet Mr McHaffie to discuss matters. Mr Eagles noted that he required further information before deciding whether to file a notice of opposition or a defence. Accordingly, the request for an adjournment also contained, by implication, an application for an extension of time for opposition and/or defence.[8] In the circumstances, I convened a telephone conference yesterday to elicit from Mr Eagles the particular concerns of Mr McHaffie which required further research on the part of Mr Eagles. Mr Eagles indicated that Mr McHaffie's concernsrelate to his adjudication in bankruptcy and the possibility that he might havegrounds to revisit the appropriateness of his adjudication. Mr McHaffie's concern isto ensure that, while he explores this matter with Mr Eagles, he is not prejudiced (in advance of any release from bankruptcy) by an intervening distribution of funds to others (particularly the Assignee) out of BCL.[9] At the conclusion of yesterday's conference I orally declined the applicationfor adjournment and confirmed that today's hearing would proceed. I declined theadjournment because:(a) the direct subject-matter of this proceeding is the status of BCL;(b) the interests of the shareholders of BCL will be affected only consequentially by any orders made in this proceeding;(c) where the affairs of a company have ceased to be properly administered, this Court, in its Companies Act jurisdiction, should promptly deal with any application which will enable therecommencement of the administration of the company's affairs,unless there is demonstrated good reason not to do so; and(d) any remaining, distinct interest of Mr McHaffie in relation to his personal estate is capable of being addressed within coming weeks without causing unfair prejudice to Mr McHaffie.[10] The last of the four grounds identified above is reinforced by a memorandum since filed by Mr Vinnell. Following yesterday's conference, Mr Vinnell contacted one of the liquidators proposed by the Assignee. Mr Vinnell records that the proposed liquidators have confirmed in writing that they will not make any distribution to shareholders within four weeks of their appointment. That provides reasonable time for Mr McHaffie to fully instruct Mr Eagles and for any appropriateapplication to be made in relation to Mr McHaffie's bankruptcy.Grounds of restoration[11] The Court may order the restoration of BCL to the Register under s 329 Companies Act 1993 (the Act) on the application of (among others) a shareholder. The Assignee, as assignee of the property of Mr McHaffie, is a shareholder of BCL.[12] Section 329(3) of the Act provides:329 Court may restore company to New Zealand register(3) Before the court makes an order restoring a company to the New Zealand register under this section, it may require any provisions of this Act or any regulations made under this Act, being provisions with which the company had failed to comply before it was removed from the register, to be complied with.[13] The requirement which BCL failed to meet before its removal was the filing of an annual return. The Assignee seeks, coincidental with the restoration of BCL to the Register, BCL's immediate liquidation. Assuming such liquidation is to be ordered, no material advantage would be obtained by the Court making an order under s 329(3) for the completion of the annual return. The liquidators, as officers of the Court, will determine the appropriate and responsible steps to be taken in relation to the liquidated company.[14] I will therefore make an unqualified order that BCL be restored to the Register.Liquidation of BCLThe claim[15] The Assignee pleads two grounds for the making of a liquidation order:(a) BCL is not complying with s 10 of the Act; and(b) it is just and equitable that the company be put into liquidation.Failure of BCL to comply with an essential requirement: s 10 Companies Act[16] By s 10 of the Act a company, as an essential requirement, must have one or more qualifying directors. The required qualifications are set out in s 10(d) of the Act. The failure to comply with s 10 is a ground on which the Court may appoint a liquidator under s 241(4)(c) of the Act.[17] Mr McDonald deposes that BCL does not have a director. He observes that, while the impasse continues between Mr McHaffie and the Assignee through MrMcHaffie's refusal to sign documentation as executor of Ms McHaffie's estate, therewill be no director of BCL in place.[18] As a matter of law, it matters not why there is no director in place. Section 10 of the Act makes it essential that there be a director. I am satisfied in the circumstances that this ground alone justifies the immediate appointment ofliquidators who will be able to properly deal with BCL's assets without continuingand unnecessary delay.The just and equitable ground: s 241(4)(d) Companies Act[19] As an alternative ground of liquidation, the Assignee invokes s 241(4)(d) of the Act. She asserts that it is just and equitable that BCL be put into liquidation. The Assignee relies on the matters which I have summarised along with the inability ofthe shareholders of BCL to work together despite the Assignee's attempts to resolvematters before commencing this proceeding. Finally, the Assignee pleads that the liquidation will allow BCL's funds to be distributed between the plaintiff and Ms McHaffie's estate as BCL's two shareholders.[20] It is just and equitable that BCL be immediately wound up. The impasse or deadlock between shareholders is a classic ground for the winding up of the company. There is no competing principle of equity which would render liquidation inappropriate. To the contrary, liquidation will enable the shareholders' legal entitlements to be dealt with equitably.[21] BCL ought therefore to be liquidated on this ground also.Costs[22] The Assignee seeks costs. It would be inappropriate and unjust that the Assignee, representing the interests of a 50 per cent shareholder in BCL, absorb within Mr McHaffie's estate any portion of the costs of achieving the necessary outcome effected by this judgment. An award of scale costs would usually leave the plaintiff to bear some of the costs. Such an outcome would be unjust in the circumstances of this case.[23] An award of indemnity costs is justified under both r 14.6(4)(c) and r 14.6(4)(f) of the High Court Rules. First, there is a close analogy between theavailability of BCL's funds in this case to pay for the costs of the litigation and thesituation directly addressed by r 14.6(4)(c) where costs are payable from a fund and the claimant is a necessary party to the proceeding affecting the fund. If thosecircumstances were not viewed as falling within the express words of r 14.6(4)(c),they are matters which for "some other reason" (under r 14.6(4)(f)) justify the making of an order of indemnity costs.Order[24] I order:(a) There is an order restoring Ben Cruachan Limited to the Register of Companies;(b) There is an order liquidating Ben Cruachan Limited;(c) The liquidators appointed are Peri Micaela Finnigan and Boris van Delden;(d) The liquidators' remuneration is approved in accordance with theconsent of the liquidators dated 15 April 2016, subject to s 284 Companies Act 1993;(e) The liquidators are allowed to exercise their powers individually pursuant to s 242 Companies Act 1993;(f) The second defendant is to pay to the plaintiff the plaintiff'sreasonable solicitor/client costs in relation to the proceeding, together with disbursements, both to be fixed by the Registrar upon presentation of a memorandum of counsel and an affidavit as to the components and total of the costs and disbursements;(g) This order is timed at 11.53 am today.Associate Judge OsborneSolicitors:Anthony Harper, ChristchurchEagles-Eagles and Redpath, Invercargill