SECURITIES MANAGEMENT LTD v THE REGISTRAR OF COMPANIES [2017] NZHC 46 [31 January 2017]

SECURITIES MANAGEMENT LTD v THE REGISTRAR OF COMPANIES [2017] NZHC 46 [31 January 2017]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV-2017-409-29[2017] NZHC 46UNDER s 101 of the Limited Partnership Act 2008and s 329 of the Companies Act 1993IN THE MATTER OF an application by the company known asSECURITIES MANAGEMENTLIMITED for an order that the limitedpartnerships known as ENERGYSECURITIES LP, NZ INVESTMENTSECURITIES LP, PEARSONSECURITIES LP, POWERSHARES LPand CARLYLE SECURITIES LP berestored to the New Zealand register oflimited partnershipsBETWEEN SECURITIES MANAGEMENTLIMITEDApplicantAND THE REGISTRAR OF COMPANIESRespondentHearing: 30 January 2016 (On the papers and Teleconference)Appearances: R K Smyth for ApplicantB T Whimp (in person)Judgment: 31 January 2017JUDGMENT OF NICHOLAS DAVIDSON JThe application before the court[1] The applicant, Securities Management Ltd, has been the General Partner to what were a number of limited partnerships registered on the New Zealand Register(the Register). On 1 August 2016, these limited partnerships1 were struck off the Register for non-compliance with reporting obligations. In particular, the applicant, in its role as General Partner, failed to file in time annual returns for those partnerships for the 2016 financial year.[2] On 25 January 2017, the applicant filed in this court an originating application without notice, which seeks to have restored to the Register those limited partnerships. The primary purpose of the application is to have the limited partnerships restored so that the applicant may commence proceedings against third parties alleging losses caused by wrongful failure to register share transfers.[3] Mr Bernard Whimp, the sole shareholder and director of the applicant, swore an affidavit in support dated 24 January 2017. Following a teleconference on 30 January 2017, Mr Whimp filed a further affidavit which describes in greater detail the circumstances in which this application is made, including the claims which the limited partnerships are said to have against the third parties.[4] An urgency in this application arises from the fact that the earliest of these claims is said to have arisen between 31 January 2011 to 2 February 2011. Accordingly, the six-year limitation period which is likely to apply to those claims will have run its course by the corresponding dates in 2017.[5] Mr Whimp deposes that the failure to file the relevant returns was an oversight, resulting from his pre-occupation with unspecified financial and property matters. Previous experiences with filing documents with the Registrar had led him to believe that non-compliance here would not be fatal to continued registration. The limited partnerships have been registered since 2010, and this is the first incidence of non-compliance with reporting obligations. As to the delay in prosecuting the outstanding claims, which has made an order today critical, Mr Whimp explains that in the past six years he has spent lengthy periods residing overseas which made difficult his practical participation in proceedings here in New Zealand.1 Energy Securities LP, NZ Investment Securities LP, Pearson Securities LP, Powershares LP, Carlyle Securities LP.The legal framework[6] Restoration by court order of a limited partnership to the Register is governed by s 101 of the Limited Partnership Act 2008, which in turn directs that, for relevant purposes, s 329 of the Companies Act 1993 applies, with all necessary modifications. Therefore, principles arising from case law dealing with restoration of companies to the Companies Register are applicable.[7] Ultimately, the matter is one of discretion, although the case law provides guidance as to the principles relevant to its exercise.[8] The starting point is the court will seldom decline to restore a company to the register. This is particularly so where other proceedings are at stake, except where the proposed claims are "nugatory" or without merit.2[9] However, legal commentary to s 329 records the author's opinion that:3The Court will not simply restore a company to the register because it is asked to, even if it is purportedly for the purpose of allowing the company to pursue litigation against a third party.[10] There have been cases where the court has considered whether or not to restore a company to the Register after it has failed to file annual returns. InRe Ghuznee Securities Ltd,4 restoration was not granted. In that case, the company had failed to file annual returns for a number of years, and there had been no adequate explanation given to the court about the reasons for the failure to file the relevant returns. Significant default may be relevant to the exercise of the court'sdiscretion.[11] I consider the present case to be distinguishable. There has been a failure to file in only one year, and an explanation, albeit one lacking in any particularity, has been provided.2 John Hammonds & Co Ltd v Registrar of Companies [1999] 3 NZLR 690 (HC) at [57]-[59].3 Company Law – A to Z of New Zealand Law (online ed, Thomson Reuters) at CA329.08.4 Re Ghuznee Securities Ltd (1983) 1 NZCLC 98-097 (HC).[12] The judgment in Re Saxpack Foods Ltd5 discussed principles relevant to restoration under the 1955 Act.6 Some of those principles are pertinent to the present case, and are engaged by the affidavits provided. These include:(a) The court must be provided with "full and frank disclosure" as to thecircumstances leading up to the striking off.(b) Personal circumstances of the applicant may be considered (these include illness and ignorance of the striking off).(c) If there are countervailing public/private considerations to be weighed, these should be identified and assessed.[13] As well as an overall discretion whether to make the order sought, the court has a discretion in terms of what it can require prior to granting an application to have the body restored to the relevant register. Section 329(3) of the Companies Act 1993 provides:(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.References to "provisions of this Act" are to references of the Limited PartnershipsAct 2008, which include those provisions requiring the filing of annual returns.[14] In his affidavit of 24 January 2017, Mr Whimp has undertaken on behalf of the applicant to file the overdue returns for 2016, and to continue to meet the obligation to file annual returns in the future. Compliance is a necessary incident of any order. The legislation leaves it to discretion as to whether compliance must be achieved before or after the fact.5 Re Saxpack Foods Ltd [1994] 1 NZLR 605 (HC).6 These provisions, barring some differences as to time periods for application and the ability to require payment for costs, are similar to those under the 1993 Act.[15] Under s 329(4) of the Companies Act, the court:may give such directions or make such orders as may be necessary ordesirable for the purpose of placing the company and any other persons as nearly as possible in the same position as if the company had not been removed from the New Zealand register.[16] These directions and orders can include "winding back the clock" provisions,which affect when limitation periods run/start/stop. Most of the time these are used to protect the interests of creditors who have claims against the company but who,because of the company's de-registration, are unable to sue the company.[17] In cases where pending claims have been considered a relevant factor, they have usually related to claims by creditors against the company which has been struck off. The justice of the case directs that the company should be restored to protect such claims.[18] The position here is the reverse. It is the limited partnership which purport to have claims against third parties, and the considerations of the interests of justice are arguably different. The claims against third parties are not related in any way to the striking off of the limited partnerships. Mr Whimp has largely been the architect of the problems which the applicant and the affected limited partnerships now face. His omission led to the limited partnerships being deregistered, and he delayed the prosecution of any claims he says he has against third parties. This is very different to a case where, through no fault of their own, creditors have been unable to pursue their claims, or where a company has been struck off for other reasons, but has real and legitimate claims which have not been delayed by its own conduct.[19] I have some detail about the nature of the intended proceedings. They are based on the non-registration of share ownership by Mr Whimp's interests, forvarious reasons. These share transactions stem from the so-called "low ball" offersto shareholders to purchase shares below market price. It is, however, not for this Court to embark on any extensive inquiry into the merits of those proceedings. Theyappear to be tenable, or, as the case law demonstrates, not "nugatory".[20] There is clearly an issue of enforceability of such contracts but this is not the forum for determination.[21] Considering all the circumstances, including the factual background leading to the limited partnerships being struck off the Register, and the claims which may now become statute-barred, the application should be granted. I might have seen fit to decline the application sought without evidence that the overdue financial reports are now completed, however, the ramifications of now delaying such an order just tip the balance in favour of granting the order sought.[22] I therefore intend to make an order restoring the specified limited partnerships to the Register. However, the applicant's administration, in this respect,has been poor, and a condition of the order will be swift compliance with the outstanding reporting requirements.The Order[23] Accordingly, this Court orders that the following limited partnerships be restored to the Register, effectively immediately: Energy Securities LP NZ Investment Securities LP Pearson Securities LP Powershares LP Carlyle Securities LP[24] This Order is conditional on the applicant, through its officer, Mr Whimp, filing the overdue 2016 returns by Friday 3 January 2017, and providing the court with evidence to that effect. Failing that, the Order will be set aside.[25] This Order is further conditional on the applicant serving The Registrar ofCompanies today (31 January 2017) and the Registrar may refer any matter of concern to the Court which extends to any issue which might be relevant to the Order made.Nicholas Davidson JSolicitors:Currie Lawyers Ltd, ChristchurchMr B T Whimp, Christchurch