REGISTRAR OF COMPANIES V MARINC LIMITED HC AK CIV 2008-404-003142

REGISTRAR OF COMPANIES V MARINC LIMITED HC AK CIV 2008-404-003142 6 June 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2008-404-003142IN THE MATTER OF the Companies Act 1993 BETWEEN REGISTRAR OF COMPANIES Plaintiff AND MARINC LIMITED Defendant Hearing: 4 June 2008 Counsel: S Wimsett for plaintiff Judgment: 6 June 2008 at 2pmJUDGMENT OF ASSOCIATE JUDGE ABBOTTThis judgment was delivered by me on 6 June 2008 at 2pm pursuant to Rule 540(4) of the High Court Rules.Registrar/Deputy RegistrarSolicitors: Meredith Connell, PO Box 2213, Auckland[1] The Registrar of Companies has applied for an order putting the defendant Marinc Limited into liquidation. The defendant (formerly named Ingot Holdings Limited) was involved with the failed "Blue Chip" investment scheme. The Registrar seeks appointment of a liquidator to protect the defendant's assets and allow a comprehensive investigation into its activities at the earliest possible time. [2] The application for liquidation is not due to be heard until 24 September 2008. The proceeding has come before me for hearing of an interlocutory application by the Registrar for orders abridging time for both applications, including the time for advertising the substantive application. The grounds for the interlocutory application were that it was in the public interest to deal with the matter expeditiously, and that the orders are needed to safeguard the interests of creditors. [3] Both applications were served on the defendant on 28 May 2008. On 3 June 2008 counsel acting for the defendant filed a memorandum, signed by the defendant's sole director, Mr Bryers, acknowledging service of the applications and a substantial supporting affidavit, and then stating:As the Defendant was a holding company for entities in the Ingot group and is no longer trading the Defendant does not oppose the Plaintiff's interlocutory application dated 27 May 2008 and the making of an order putting the Defendant into liquidation pursuant to the just and equitable grounds provided by s 241(4)(d) of the Companies Act 1993. While the Defendant denies that there is any basis for the making of an order putting the Defendant into liquidation on any other grounds, the Defendant does not intend to take any further steps in this proceeding and reserves its position and that of its sole director in all respects in relation to the allegations in the statement of claim dated 27 May 2008 and the affidavit of John Robert McPherson verifying allegations sworn on 27 May 2008.[4] In light of that memorandum, counsel for the Registrar made oral application at the hearing to vary the interlocutory application so that orders could be made to have both applications determined immediately. This included seeking orders for abridgment of time for filing notice of opposition to the interlocutory application and a statement of defence to the substantive application, and an order dispensing with advertising of the substantive application. In the alternative, counsel sought orders abridging the time for advertising and hearing of the substantive application to bring the hearing forward from the scheduled date of 24 September 2008.[5] The issues for the Court are whether it is appropriate to abridge time and dispense with advertising in the circumstances of this case.Background[6] There has been substantial publicity in all forms of media in recent months about the failure of the Blue Chip investment scheme. Several companies that were involved with the scheme are already in liquidation. [7] An Assistant Registrar of Companies, John Robert McPherson (who is also an investigating accountant with the Business Services branch of the Ministry of Economic Development) was granted authorisation in early May to inspect certain companies involved with the scheme, including the defendant. He has sworn the affidavit filed in support of the Registrar's applications, in which he sets out his findings on the defendant's involvement. His findings included: a) The defendant was the holding company of a number of subsidiaries which agreed to supply investment properties to the Blue Chip group of companies, for on-sale to investors. The properties were to be supplied pursuant to a supply agreement dated 1 April 2004 made between the defendant and Blue Chip New Zealand Limited. The defendant had by 31 December 2006 received payments of approximately $42,495,000 under that supply agreement. This sum comprised deposits on investment properties paid by investors to Blue Chip New Zealand Limited or other entities within the Blue Chip group of companies, which had then been on-paid to the defendant or its related companies for use in construction of the investment properties. b) It has not been possible to establish what has happened to all funds paid to the defendant due to lack of up to date financial statements and proper accounting records for the defendant.c) There is reason to believe that the defendant will be unable to fulfil its obligations under the supply agreement, and may be unable to meet any consequent liability to repay deposits.Orders sought[8] The orders originally sought on the interlocutory application were: a) Abridgment time for filing notice of opposition to three working days from service of the application; b) An urgent hearing of the application as soon as available after time for filing notice of opposition; c) Abridgment of time for a statement of defence to the substantive application to seven working days from service of the interlocutory application; d) Abridgment of time for advertising to allow that to occur immediately after hearing of the interlocutory application; e) Hearing of the substantive application as soon as time was available after expiry of time for filing a statement of defence. [9] The issues for decision are whether the Court should grant the application as amended, so as to allow time for filing of the statement of defence to be abridged to today's hearing, and whether to dispense with advertising altogether. [10] The Court has a wide discretion in relation to abridgment of time under r 6(1) of the High Court Rules:Enlargement or abridgment of time(1) The Court may, in its discretion, enlarge or abridge the time appointed by these rules, or fixed by any order, for doing any act or taking any proceeding or any step in a proceeding, on such terms (if any) as the Court thinks just.[11] In light of the defendant's advice that it does not intend to take any further steps in the proceeding, there cannot be any prejudice to it by abridging time to the four working days between date of service and date of this hearing, rather than the seven days referred to in the application (which it was not opposing). [12] The oral application to dispense with advertising is a little more complicated. As the substantive application is not being defended Part 9A of the High Court Rules, and in particular r 700V, applies to the interlocutory application. There is no express power under Part 9A of the High Court Rules to dispense with advertising. Leave is required to bring the application unless it can be regarded as an application to excuse non-compliance with the requirement for advertising: r 700V(1)(e). [13] I consider that an application for dispensation with advertising can be made under r 700V(1)(e). The order being sought is to dispense with compliance with r 700I. Even if I am wrong in that, I can still deal with the application by giving leave to bring the application or making an order under the inherent jurisdiction of the Court (r 700V(3)), although I would need to be satisfied as to special or exceptional circumstances: Sayer v Capital Aviation Ltd (1993) 6 PRNZ 401 and Churchill Group Holdings Ltd v Abel (1989) 4 NZCLC 64,830. [14] Notwithstanding the lack of an express power under the High Court Rules, there is authority for a power to dispense with advertising in exercise of the Court's power to control its own procedure: Re Burton & Co Ltd (1982) 1 NZCLC 98,313. In that case Barker J reviewed English and Australian authorities, and could find no authority against the proposition that he could dispense with advertising. He noted that the Supreme Court of Victoria in Re The Federal Land Company Ltd [1889] 15 VLR 135 took the view that the advertising rule was directory only. He considered that the Court had power but that it should be exercised only in exceptional cases. Although that case was decided under the Companies (Winding Up) Rules 1956, I can see no reason that the principles should not apply under the present High Court Rules. [15] As well as considering whether there are exceptional circumstances the Court must also consider what effect dispensing with advertising might have on otherparties. The purpose of advertising is to give notice of the application to parties who may have an interest in supporting or opposing it. This will usually be the company's creditors, but will also include contributories and shareholders. Their rights must also be considered.Application to the facts of present case[16] The principal factor in favour of dispensing with advertising is that an order for liquidation could be made immediately, and thus allow investigation of the trail of investors' funds through the defendant to start. The amount of money involved (deposits in excess of $42 million have to be traced) and the number of investors potentially affected (several hundred are listed in a schedule produced by Mr McPherson) make this matter an exceptional case. [17] This apparent value in moving as quickly as possible to preserve the assets of the company for the benefit of investors has to be weighed against the likely outcome of advertising. In my view advertising is unlikely to bring out any interests which will not be protected adequately by a liquidator, and will merely delay the inevitable. My reasons for coming to this view are: a) The defendant is a holding company only. Its sole director, Mr Bryers, says that it is no longer trading. As such it is unlikely to have trade creditors with a possible interest in opposing liquidation. b) Mr McPherson makes no mention of any person or persons with particular interests needing protection, other than the investors. c) Although he reserves his position on the allegations in the application and in Mr McPherson's affidavit, the defendant's sole director, who is also a director of other companies in the Blue Chip group and a substantial shareholder, does not oppose liquidation. d) Liquidation would appear to be inevitable in any event given the prima facie case put forward by the Registrar for failure to keepproper accounting records or fulfil financial reporting obligations and of the defendant's inability to honour obligations under the supply agreement and meet liability to repay some or all of the deposits. [18] I am satisfied after weighing all of these factors that they amount to exceptional circumstances justifying an order dispensing with advertising. I order accordingly.Application for liquidation[19] The defendant by its memorandum has indicated that it does not oppose abridgement of time for hearing the substantive application, and that it does not oppose the making of an order for liquidation. Having dispensed with advertising, I am able to determine the substantive application today. I am satisfied that it is just and equitable that the defendant be put into liquidation on the grounds set out in paragraph 4 of the statement of claim: a) On 1 April 2004, the defendant company entered into a supply agreement ("the agreement") with Blue Chip New Zealand Limited ("Blue Chip"). Pursuant to the agreement the defendant company agreed to procure the supply of properties to Blue Chip for the purposes of its property developments. b) Pursuant to the agreement the defendant company, as at December 2006, has received approximately $42,495,000 ("the deposits") by way of deposits paid by investors in Blue Chip New Zealand Limited and other entities with the "Blue Chip" group of companies. c) As at today's date the whereabouts of the deposits paid by investors is unknown as the defendant company has no financial reports detailing that information.d) Financial information and records to the extent that they exist relating to the investor deposits cannot be obtained by any method other than the appointment of a liquidator. e) There is a real risk that any funds held by the defendant company may be or have been disbursed to the detriment of investors. f) A number of the related entities within the Blue Chip group of companies have collapsed and have been placed into liquidation. g) The sole director of the defendant company has left the jurisdiction. h) The properties supplied or agreed to be supplied by the defendant company have been on sold and consequently the defendant company no longer has the capability to supply the properties. i) The defendant company has failed to prepare and file financial statements and is in breach of s10 of the Financial Reporting Act 1993.Decision[20] I make an order putting the defendant into liquidation pursuant to s 241(4) of the Companies Act 1993. The Official Assignee is appointed liquidator. This order is made at 2pm today, 6 June 2008. [21] The defendant is to pay the plaintiff its costs of and incidental to this application on a 2B basis together with disbursements as fixed by the Registrar._________________________Associate Judge Abbott