RE ZHENG [2023] NZHC 202

RE ZHENG [2023] NZHC 202 [16 February 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2023-404-57[2023] NZHC 202IN THE MATTER of an application under s 382 of theCompanies Act 1993 and r 19.5 of the HighCourt Rules 2016BETWEEN SHIJIA ZHENGApplicantHearing: On the papersAppearances: P Dacre KC for ApplicantG S Caro for Registrar of CompaniesJudgment: 16 February 2023JUDGMENT OF LANG JThis judgment was delivered by me on 16 February 2023 at 3 pm.Registrar/Deputy RegistrarDateSolicitors:P Dacre KC, AucklandMinistry of Business, Innovation & Employment, Auckland[1] In this proceeding the applicant, Mr Shijia Zheng, applies for leave to applyagainst disqualification from managing a company. As counsel for the Registrar ofCompanies points out, the order that Mr Zheng actually seeks is to be granted leave tobe a director of the following companies:ANCO Construction LimitedANCO International LimitedANCO Properties Development LimitedKCC Construction LimitedKCC Holding LimitedHLG Construction LimitedHLG Holdings Limited[2] I grant Mr Zheng leave to amend his application to reflect that fact.Jurisdiction[3] The application is necessary because, following a lengthy Judge-alone trial, MrZheng was convicted in October 2022 on two charges of obtaining by deception unders 240 of the Companies Act 1993.1 His convictions triggered the operation of s 382(1)of the Companies Act 1993 (the Act), which automatically prohibited him from actingas a director of any company and from taking part, directly or indirectly, in themanagement of any company for a period of five years.[4] It is well established that the prohibition imposed by s 382 is not intended tobe a punitive measure. Rather, the policy underlying the section is the protection ofthe public from further harm at the hands of the offender.2 In Re Weston, Asher Jobserved:3[8] The fundamental question that the Court must ask is whether thepublic will be at risk if leave is granted. The onus of satisfying the Court ison the applicant. The presumption behind s 382 is that those convicted of theparticular stated offences will pose an unacceptable risk to the public if they1 R v Zhang [2022] NZHC 2541.2 Re Minimix Industries (1982) 1 NZCLC 98, 381; Ramsay v Sumich [1989] 3 NZLR 628 (HC) andRe Weston HC Auckland CIV-2006-404-773, 18 August 2006, Asher J.3 Re Weston, above n 2.have a significant role in companies. The logic is that if they have been guiltyof misconduct in the recent past, there is a risk that they will be guilty ofmisconduct in the future. The nature of the particular qualifying offence isrelevant. If the offence has involved a deliberate act of dishonesty, this mayindicate more of a propensity towards offending than if the misconduct hasbeen of a lesser standard of culpability. While errors due to deliberatedishonesty generally indicate a disposition not suited to a managerial roleerrors due to poor judgment or greed that fall short of dishonesty may not carrythe implication with the same force.[9] Weight can be given to the personal position of the applicant, and anyhardship to him or third parties. However, this is to be balanced against theprimary object of protecting the public. The Court is unlikely to beparticularly swayed by circumstances particular to an applicant, that mightotherwise provoke sympathy, if the public remains at clear risk. The exercisethat the Court carries out is different from a sentencing exercise. Protectionof the public is the object, and not punishment or deterrence. Factors personalto an offender that might persuade a Court to impose a lesser penalty may notbe persuasive if the public remain at significant risk. Even if innocent thirdparties may suffer as a consequence of leave not being granted, this may notprove persuasive. The Court still has an overriding concern that the public areprotected. The Court may consider the business history of the applicant to seewhether fraud or losses to the public are a feature of that business history. TheCourt will also look at the most recent conduct of the applicant. That is alsorelevant to see whether the qualifying offending is likely to reoccur. In theend the Court must look forward and consider whether the applicant hassatisfied it that there is an acceptable prospect of rectitude on the part of theapplicant or, to put it the other way, no unacceptable risk of misconduct.Decision[5] The offending that led to Mr Zheng's convictions related to donations he madeto the National Party in 2017 and 2018 in breach of disclosure requirements imposedby the Electoral Act 1993. Mr Zheng breached those requirements by transferringfunds to friends and members of his family, who then gave the money to the NationalParty by way of donations. In that way the public disclosure of the total amountprovided by Mr Zheng was avoided. This deceived the National Party Secretary andled to incorrect disclosure by the party to both the Electoral Commission and thepublic. As counsel for the Registrar of Companies points out, the offending wasunusual in that the immediate victim of the offending was the beneficiary of thepayments made.[6] In sentencing Mr Zheng to five months community detention Gault J noted thatthe aggravating features of the offending were the extent of the harm and the level ofpremeditation and planning required to implement the scheme.4 By way of mitigationthe Judge took into account the fact that Mr Zheng has no previous convictions and,prior to the present offending, he had been of good character and standing in thecommunity.5[7] The companies of which Mr Zheng seeks to be a director have more than 25employees. They have around 60 housing projects currently under construction. Theircombined turnover was in excess of $20 million last year. The Registrar accepts thatthere is nobody else within Mr Zheng's family with the necessary experience andknowledge to be appointed as director of those companies.[8] Like the Registrar, I consider there is little risk, if any, to persons dealing withthe companies if Mr Zheng is granted leave to continue in his position as their director.Furthermore, the offending had nothing to do with the companies other, perhaps, thanthat they may have provided the means by which Mr Zheng acquired the funds that hearranged to be transferred to the National Party. In those circumstances it isappropriate that he be permitted to act as a director of the companies.Result[9] The application for leave to act as director of the nominated companies isgranted. I make an order under s 382(1) of the Companies Act 1993 grantingMr Zheng leave to act in that capacity.Lang J4 R v Zhang [2022] NZHC 3168 at [69].5 At [75].