STEGGALL NUTRITION PTY LIMITED v HAYWARD [2015] NZHC 413

STEGGALL NUTRITION PTY LIMITED v HAYWARD [2015] NZHC 413 [10 March 2015]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2014-404-003163[2015] NZHC 413BETWEEN STEGGALL NUTRITION PTYLIMITEDApplicantAND LLOYD JAMES HAYWARD andJEFFREY PHILIP MELTZER asliquidators of South Pacific BrandsLimited (In Liquidation)RespondentsHearing: 3 March 2015Appearances: D D Vincent for ApplicantC A Murphy for RespondentsJudgment: 10 March 2015JUDGMENT OF ASSOCIATE JUDGE OSBORNEas to inspection of liquidated company recordsA creditor's application to inspect the records of the company in liquidation[1] South Pacific Brands Ltd (SPB) is in liquidation. Lloyd Hayward and Jeffrey Meltzer have been its liquidators.[2] A creditor, Steggall Nutrition Pty Ltd (Steggall), applies under s 256(1)(a)(ii) Companies Act 1993 for an order permitting Steggall to inspect records of SPB.SPB's liquidators oppose the application. If an order of inspection is made, the liquidators ask that the Court imposes conditions to protect the commercial sensitivity of some documents.What Steggall wants to inspect[3] Steggall seeks an order permitting it to inspect:(a) a copy of the sale and purchase agreement and all attachments relating to any asset of SPB sold to Davies Foods (2006) Limited (Davies) and businesses and any contingent contract/agreements SPB or any related company or any director of those companies has with any member of the Davies Foods group of companies or businesses. Such documents to be without any redaction;(b) a copy of SPB's secured creditor debt security documentation and all related settlement statements such documents to be without any redaction; and(c) a copy of any 2014 SPB financial performance statements including any trial balance, balance sheet, such documents to be without any redaction including the 2013 comparative detail (if any) on those documents.[4] The requested inspection was explained for Steggall by Mr Vincent in his written synopsis in this way:The Applicant wishes to inspect the company records in order to assess for itself the sale and purchase agreement with [Davies], the amount of funds received, how it was allocated on receipt and why such a large number of creditors remain unpaid. It does not expect to receive any distribution from the liquidators so wishes to assess what other options it has to recover what it is owed.[5] Mr Vincent accepted, notwithstanding the formal application to inspect the sale agreement in unredacted form, that commercial sensitivity issues raised by SPB are required to be addressed, in relation to any order of inspection, by appropriate conditions.Inspection under s 256(1)(a)(ii) Companies Act 1993The statutory provision[6] Section 256(1)(a)(ii) Companies Act provides:256 Duties in relation to accounts(1) Subject to subsection (2) of this section, the liquidator of a company must—(a) Keep accounts and records of the liquidation and permit those accounts and records, and the accounts and records in the company, to be inspected by—(i) (ii) If the Court so orders, a creditor or shareholder;The principles[7] The judgment of the Court of Appeal in Levin v Lawrence establishes the following principles in relation to the threshold test under s 256:1(a) The default or starting position is that there is no inspection in the absence of the Court order, but there is also no presumption against ordering inspection.2(b) Mere suspicion or assertion by a creditor that a liquidator has not undertaken – or is not undertaking – the liquidator's statutory taskproperly is not sufficient.3(c) It is not permissible for a creditor to apply merely in order to embark on a fishing expedition in order to sift through the accounts and records of the liquidation to see if something might turn up.4(d) As a minimum, the applicant must put forward some persuasive, tangible or concrete reason why inspection should be granted. An example might be where the creditor, from its own dealings with the company in liquidation, has a genuine concern about a particularaspect of the company's affairs. If the liquidator declined to1 Levin v Lawrence [2013] NZCA 394.2 At [27].3 At [53](a).4 At [53](b).investigate this area, or declined to say whether it had been investigated, the s 256(1)(a)(ii) threshold would be crossed.5[8] The Court of Appeal recognised that these principles constitute an elaboration of a "good reason" test enunciated by Toogood J in the same case at first instance:6[56] That is not to say that there should be a high threshold for permitting inspection, but there must be some good reason for the Court to order inspection in circumstances where the statutory scheme does not ordinarily permit it. The test of "good reason" does not require any further elaboration;whether the Court will exercise its discretion to order access to the records will depend on the particular circumstances of each case.[9] The Court of Appeal saw little difference between "good reason" and "just"as expressions of the threshold test.7[10] Finally, the Court of Appeal upheld Toogood J's conclusion that a Court, in dealing with a s 256(1)(a)(ii) application, should have regard to any prejudice caused by inspection – as a factor but not the sole criterion – in the exercise of the discretion to make an order.8Factual background[11] SPB manufactured and marketed beverages. Its directors were Steven Shaw and Andrew Smith whose interests also held all SPB's shares. At a so farunidentified point before 21 April 2014 (but established by the liquidators as being April and September 2013), SPB became insolvent.[12] On 28 January 2014, SPB through Messrs Shaw and Smith as its directors,entered into an agreement to sell SPB's assets to Davies for $2,600,000. The salewas not disclosed at the time to SPB's suppliers. The sale was settled on 31 March2014.[13] SPB was placed in voluntary liquidation by its shareholders on 21 May 2014.5 At [53](c).6 At [53], citing Levin v Lawrence [2012] NZHC 1452.7 Levin v Lawrence, above n 1, at [52].8 At [60]–[61].[14] In their Second Report dated 18 February 2015, the liquidators summarised the consequences of the company trading on and of the sale process in this way:By the date of liquidation, Company creditors were owed a total of $1.8 million (including the liability to Energy Products Limited, a related company). During the period when the Company failed the balance sheet solvency test, but continued to trade, the level of total creditor indebtedness was reduced by $3.7 million (creditor debts as at March 2013 were $5.5 million).The material reduction in the level of creditors (some 67% of total indebtedness) was achieved by the Company continuing to trade and arranging an orderly sale of its business inventory and notably its active brands. The sale of inventory and brands realised a significant sum which was applied toward creditor indebtedness.[15] The liquidator's First Report, written on the day of the liquidation (21 May2014), provides further information about SPB's financial circumstances in the firstquarter of 2014. It states:Events Leading to AppointmentThe company underwent a process of sale of its business which ultimately was successful and the sale settled 31 March 2014. The company had expected the sale price and profitable trading leading up to the settlement ofthe sale to enable the company's creditors to be paid however poor trading results across February & March 2014 and an unexpected inventory write down leading up to settlement have resulted in a shortfall.[16] It is to be inferred that the information in the paragraph just quoted was included by the liquidators in their report from what Messrs Shaw & Smith had said as directors, since the 21 May 2014 report goes on to record that:The Liquidators will examine the company's available books and records and conduct a brief review of the company's affairs.(emphasis added)[17] The liquidators' reports indicate that SPB no longer had secured creditors by the time of its liquidation. Evidence has not been provided as to exactly what was paid to creditors claiming security or to what entities it was paid. Nor is there evidence as to payments made to unsecured creditors during the period in which the company traded or continued trading while insolvent.[18] During the period of its insolvency, SPB purchased products from Steggall. It purchased goods at a cost of $22,574.65, invoiced on 13 February 2014 and delivered on 14 February 2014, with payment due on 13 March 2014. Steggall has received no payment whatsoever for the goods and remains an unsecured creditor for the full sum.[19] In their First Report the liquidators observed that it was unlikely that there would be a distribution to creditors. They proposed pursuant to s 245 Companies Act to dispense with a meeting of creditors.[20] Steggall promptly filed its proof of debt and called for a meeting of creditors, with meetings subsequently being held on 8 and 27 August 2014.[21] In the meantime, Steggall learned that payments had been made before SPB'sliquidation to ASB Bank and to some entities related to Messrs Shaw and Smith, all on the basis that they held securities. By their subsequent Second Report (dated 18 February 2015), the liquidators have now confirmed that three parties related to Messrs Shaw and Smith were the recipients of debt repayments.[22] Steggall, which is an Australian based company, had Chris Sanson, as its agent, pursue enquiries of the liquidators. The liquidators took the position (which appears to be correct in terms of s 254(1)(a)(ii) of the Act) that it was not for them to provide any documents for inspection without order of the Court. Mr Sanson repeatedly took issue with that position and asked for copies of documents. On 25 June 2014, he wrote to the liquidators, recording this request:Please produce copies of:a) The relative sale and purchase agreement and the settlement statement you refer to.b) All the ASB bank's loan documentation including but not limited to, the debenture, any chattel security, and any collateral security such as mortgages over any real estate. I should tell you there is no record of any charge on the PPSR to the ASB in respect of SPB.c) The ASB bank's settlement statement/s for the $2.3m as set out in your email.d) All of the "secured shareholders loans" documentation includingsettlement statement/s but not limited to, the debenture, any chattel security, and any security in favour of the shareholders.e) Full detail including of how the "$300,000" payment in favour of "secured shareholders loans" is worked out and justified in hindsight byyou.[23] The liquidators maintained their position that they were unable to provide inspection of documents to a creditor without order of the Court. Further exchanges occurred around that issue.[24] On 7 July 2014, Mr Hayward (as one of the liquidators) stated to Mr Sanson in an email:If you apply for a court order the liquidators will not oppose your application, we can confirm that for the Court if that is required.[25] The liquidators' approach to a Court order changed shortly afterwards. In a letter dated 18 July 2014, Mr Hayward wrote directly to Mr Steggall. Mr Hayward recorded that the liquidators had been led to query whether Mr Sanson's persistentinterest in accessing to SPB's materials included wider motivations, the liquidators understanding that Mr Sanson is associated with an entity which competes directly with Davies (as purchaser of SPB's business). Mr Hayward stated that neither Steggall nor Mr Sanson had identified any grounds on which the ability or willingness of the liquidators to properly discharge their role could sensibly be questioned. Mr Hayward recorded an intention to now oppose any application for an inspection order. He said that in such an event the liquidators would seek an immediate order for security for costs, because the liquidators were of the view that they could properly carry out all necessary and appropriate investigations.[26] In the meantime, on Mr Sanson's urgings, the liquidators called a creditors'meeting to consider a motion that a Liquidation Committee be elected. At an initial meeting on 8 August 2014, the motion was defeated. It had emerged that Energy Products Ltd (EPL) had come forward as a creditor of SPB although it had not been listed as a creditor by Messrs Shaw and Smith. It transpired that EPL is owned and controlled by Messrs Shaw and Smith. The EPL debt has subsequently been investigated by the liquidators in a preliminary way, with some evidence found tosupport it. However the liquidators have not fully investigated the debt as Messrs Smith and Shaw have subsequently indicated that EPL will not claim a share in any distribution, rendering further analysis of the debt irrelevant. In the meantime,however, EPL voted at the creditors' meeting against the motion to appoint aliquidation committee, and its vote was determinative.[27] However, a second creditors' meeting was convened on 27 August 2014resulting in the election of a Liquidation Committee. Mr Sanson failed in an endeavour to become a member of that committee.[28] Mr Hayward has deposed that he viewed Mr Sanson's interest in relation tothe Liquidation Committee as being motivated by an intention/desire to obtain accessto SPB's records without having to make an application to the Court. It appears clear from the coincidence of Mr Sanson's efforts to have a meeting called for the purpose of voting on a Liquidation Committee and the liquidators' change ofposition, in deciding to oppose any Court order, that the conduct of Mr Sanson asSteggall's agent had become a major factor in the liquidators' approach.This application and the liquidators' opposition[29] Steggall filed its application in this proceeding on 2 December 2014.[30] Before the proceeding was filed, Mr Vincent forwarded a copy of the drafted documents to the liquidators. The liquidators decided to formally oppose theapplication. Mr Hayward has deposed as to the liquidators' principal concerns at that time and identified the following four in particular:(a) confidentiality obligations owed to Davies under the sale agreement;(b) Mr Sanson's role as Steggall's agent when Mr Sanson is a competitorof Davies;(c) unfairness to other SPB creditors in asking the liquidation to bear the costs burden of steps for the benefit of one creditor only; and(d) the need for security for costs on any application.[31] In response to Steggall's letter before action, the liquidators had counsel (MsMurphy) reply to Mr Vincent. Ms Murphy recorded that the application, if pursued, would be opposed on six grounds being:(a) the liquidators have experience and competence to complete any necessary investigation;(b) a properly constituted Liquidation Committee is interested inoverseeing the liquidators' activities (the three members on the Committee representing $287,000 of debt, as compared withSteggall's $22,574.65);(c) an investigation by Steggall would duplicate the liquidators'considerations, adding costs to the liquidation;(d) Steggall had not indicated an intention to serve Davies with the application although Davies would likely be impacted by any order;(e) the draft application did not satisfactorily address the costs of access, with preparation of records having to be carefully and closely supervised. The interests of other creditors in avoiding unnecessary expenditure and the potential for Davies to claim damages for breach of confidentiality need be protected by adequate Court directions; and(f) Steggall needed to provide security for the costs application.The liquidators' notice of opposition[32] The liquidators filed a notice of opposition.[33] The notice initially included (in addition to grounds of opposition) two applications, one for security for costs and one for directions as to service on Davies and on Messrs Smith and Shaw as affected parties. Ms Murphy confirmed at thehearing that neither application is pursued. The parties have informally dealt with security for costs between themselves; Davies has provided a letter as to its position which has been produced by Mr Hayward. Messrs Smith and Shaw were provided with copies of the proceeding but have elected to take no steps.[34] The liquidators in the balance of the notice of opposition set out grounds of opposition which reflect those identified in Ms Murphy's letter.[35] However, the notice also recorded:The liquidators do not, in principle [sic], object to a creditor obtaining access to Company records provided that:(a) There is no prejudicial effect on the company and its other creditors; and(b) Any costs of access are met by the petitioning creditor.[36] I was informed at the hearing that counsel then engaged in discussions not only as to the provision of security but also as to terms relating to confidentiality which might attach to any order of inspection. Similarly, the liquidators obtained from Davies a statement as to its position in relation to inspection of documentsincluding the sale and purchase agreement and SPB's financial records, Davies being "agreeable" to inspection but subject to redactions of what it viewed as commercially sensitive information.The liquidators' position through written submissions[37] Ms Murphy, in her written synopsis, identified "the five principal reasons"which caused the liquidators to oppose the application. She explained that the liquidators: would ordinarily take minimal issue with a creditor wanting to pursue its own lines of enquiry at its own cost, in this instance the proposed access creates risk for the Company, its other creditors and the liquidators.[38] Significantly, Ms Murphy then recorded:The liquidators are content to be guided by the Court in respect of access but submit that it is essential that all relevant matters be taken into account.[39] I asked Ms Murphy to explain this position further at the start of the hearing.I indicated that the invitation for "Court guidance" did not sit squarely with theformal opposition. The submissions did not refer to any abiding of outcome but inits terms "invited guidance". I suggested to Ms Murphy that her submission could be taken to indicate that, notwithstanding the formal opposition, the liquidators intended the Court to view them as adopting a "relatively neutral position". A wayof expressing that relatively neutral position would be to say that, provided the threshold requirements under s 256(1)(a)(ii) of the Act are found to be met, theliquidators will accept the Court's dismissal or, if granting the application, theconditions upon any order of inspection. Ms Murphy accepted that summary as accurately stating the liquidators' position on this application.The issues for determination[40] The issues for determination fall into two groups.[41] First is whether Steggall has met the threshold test under s 256(1)(a)(ii) of the Act.[42] Secondly, should the Court determine that there is good reason to order access, the liquidators identify a number of matters which they say should be addressed by conditions attaching to any order for inspection.Issue 1 – has the threshold test under s 256(1)(a)(ii) of the Act been met?[43] In terms of the judgment in Levin v Lawrence, the Court of Appeal'sminimum requirement is that an applicant must put forward some persuasive, tangible or concrete reason why inspection should be granted.9[44] In examining whether there is a tangible or persuasive reason for inspection, it is helpful to identify what about the conduct of SPB has caused Steggall concern.[45] The conduct of SPB which directly affected Steggall was SPB's purchase of goods from Steggall in early 2014. At the time SPB was insolvent. It had a month9 Levin v Lawrence, above n 1, at [53](c).earlier entered into an agreement to sell its business with the consequence that approximately two weeks after its invoice became due for payment it would no longer have income from trading. These matters were not disclosed to Steggall at the time SPB purchased its product. Equally, SPB did not disclose to Steggall that the amount to come from the proceeds of sale would be sufficient to pay secured creditors only (including parties related to SPB's directors/shareholders). Unsecured creditors would be left unpaid. That would include businesses, such as Steggall, who became creditors while SPB was purchasing stock with a distinct likelihood that it would not be in a position to pay the debt incurred or at least to pay it in full.[46] The circumstances raise a number of obvious and legitimate concerns for a creditor such as Steggall. They include:(a) Messrs Smith and Shaw had apparently decided to have SPB trade on while insolvent from a date which may have been as early as April 2013, but no later than September 2013.(b) Through the trading on, the secured creditors (which include Messrs Shaw and Smith or their interests, for unspecified sums) had been fully repaid, while fresh, unsecured debt was incurred with apparently little or no prospect of payment.(c) The basis upon which Messrs Shaw and Smith seek to justify their decision to trade on cannot be meaningfully tested by Steggall or by this Court on the evidence adduced. The absence of testing arises in two ways:(i) In their Second Report the liquidators state that SPB reduced its debt by $3,700,000 at the start of the insolvent trading period (from $5,500,000 at the start to $1,800,000 at liquidation) but there is no evidence as to what the unpaid debt would have been through an earlier market sale of the business.(ii) Messrs Smith and Shaw explained to the liquidators at the timeof liquidation that SPB's failure to clear all its debt had twocauses, namely "poor sales in January to March 2014" and "an unexpected stock write off". But no evidence has been adduced to indicate whether the directors' earlier expectationsin these regards were realistic and reasonable.[47] Steggall's concerns in this case have a much sounder foundation than those of the applicants in Levin v Lawrence. In that case, Mr Levin was seeking inspection of records of Waterman Buildings Supplies Limited (in liq). But the courts found he already would or should have had access to the same records of trading betweenWaterman and the company of which Mr Levin was liquidator as Waterman'sliquidators had. Despite his access to such material, Mr Levin had been unable to identify any aspect of concern in the relationship which might justify an order for inspection. Counsel appearing for him conceded that Mr Levin had no basis beyond suspicion for applying for inspection.10 In short, Mr Levin was looking for a transaction, he was not looking at a transaction. It was, as both Toogood J and the Court of Appeal found, both mere suspicion and a fishing expedition.11[48] By contrast, the course of conduct on the part of SPB's directors which isdeserving of investigation is clearly identified. Although the liquidators haveattacked the motivation of Steggall's agent, Mr Sanson, the Court has no reason to doubt the genuineness of Steggall's concerns. Equally, they are tangible concerns.[49] In her written synopsis of submissions, Ms Murphy articulated amongst thefive principal reasons of the liquidators' opposition one which related to thethreshold test. Ms Murphy identified that ground of opposition as being:Steggall has not identified any issue regarding Company or director activities which has not already been examined or will be examined by experienced liquidators completing their usual investigations in conjunction with an independently appointed Liquidation Committee.10 At [55]-[56].11 Levin v Lawrence, above n 6, at [56]-[58].[50] In Levin v Lawrence, the Court of Appeal gave two examples of when the s 264(1)(a)(ii) threshold would be crossed in relation to a creditor's genuine concerns about an aspect of a company's affairs.12 First is where a liquidator declines to investigate the aspect. The second is where he or she declines to say whether the aspect has been investigated.13 The two examples given might be said to involve adereliction of liquidators' duties. The Court of Appeal was giving examples. It did not suggest that the two situations were an exhaustive list of good reasons for inspection.[51] The Court of Appeal's approach in Levin v Lawrence reflects the Court'srecognition that, except in unusual circumstances amounting to material omission or the like, the courts (and the community) look to professionally qualified liquidators for the diligent and efficient investigation of the affairs of companies in liquidation. But that properly respectful approach is not a charter for liquidators through which the Court and affected creditors are required to accept without demur every conclusion of a liquidator. Where there is a s 256(1)(a)(ii) application it is proper to consider the soundness of reasons given by a liquidator for a conclusion that no further investigation is required.[52] If some significant, material consideration has been omitted, and thecreditors' concerns appear tangible, such may be a further example of good reason to allow a creditor to inspect the relevant records.[53] What, then, have the liquidators explained of their investigations in this case? Mr Hayward provided all the evidence of the liquidators. In relation to investigations he deposed:5. Upon our appointment, I undertook the usual steps for gathering records, ascertaining assets and compiling a list of creditors. I alsocommenced investigations of the Company's affairs including as to:5.1 The status of secured creditors;5.2 The value obtained from the sale of assets pre-liquidation;5.3 The distribution of the sale proceeds;12 Levin v Lawrence, above n 1, at [53](c), summarised at [7](d) above.13 At [53](c).5.4 Consideration of proofs of debts filed by creditors;5.5 Directors' duties; and5.6 Insolvent trading.6. These investigations are ongoing but, to date, I have not discovered any issue which would warrant the commencement of a formal claim either on behalf of the Company or by us in our capacity as liquidators.Interaction with the applicant7. In or around late June 2014 (shortly after we had been appointed) I received the first communication from Christopher Alexander Sanson (Mr Sanson). Mr Sanson is not a creditor of the Company but purported to represent an Australian based creditor, namely the applicant.8. Mr Sanson quickly made clear that he took issue with the manner in which the directors had operated the Company and on or about 26 June 2014 he demanded that I hand over the Company records and information so that he could satisfy himself of the validity of theCompany's pre-liquidation dealings.[54] Mr Hayward does not, in his sworn evidence, provide his reasoning in relation to any of the issues raised by Steggall.[55] Mr Hayward's First Report was in evidence. But having been written at the time of liquidation (before the liquidators had examined the company's availablebooks and records let alone investigated any issues arising) that Report does not provide any information as to the reasoning of conclusions later reached through subsequent investigation.[56] On the other hand, the liquidators' Second Report dated 18 February 2015, and filed in the Companies Office shortly before this hearing, is before me by agreement. In that report, Mr Hayward helpfully sets out three areas of investigation undertaken by the liquidators being in relation to:(a) Reckless trading.(b) The validity of securities held by related parties.(c) The validity of the EPL debt.[57] Although Steggall initially sought documents, in addition to those relating to the possibility of reckless trading, also those relating to the allegedly secured creditors and to EPL. As Mr Vincent, for Steggall, accepted the investigations and conclusions recorded by the liquidators into the secured debts and EPL debt cut across any need for inspection of those records to be pursued.[58] This leaves the Court to focus on the reckless trading issues.[59] In his Second Report, Mr Hayward recorded this:Reckless Trading1 To establish reckless trading under section 135 Companies Act 1993 we must be in a position to show that a director or directors:a. Agreed to the business of the Company being carried on in a manner likely to create a substantial risk of serious loss to theCompany's creditors; orb. Caused or allowed the business of the Company to be carried on in a manner likely to create a substantial risk of serious loss tothe Company's creditors.2 Establishing a breach of the Companies Act 1993 involves a two- step process: (1) ascertaining the timing of the Company'sinsolvency; and (2) assessing the actions taken by director(s) after that point and the impact of the same on creditors.3 Our review of the Company's financial position in the monthsleading up to its formal liquidation suggest that the Company would have failed the balance sheet solvency test at some point between April and September 2013.4 The Company was liquidated on 21 May 2014. The issue is therefore whether the continued trading of the Company between say around mid-2013 and May 2014 was likely to (or did) create a substantial risk of serious loss to the Company's creditors.5 By the date of the liquidation, Company creditors were owed a total of $1.8 million (including the liability to Energy Products Limited, a related company). During the period when the Company failed the balance sheet solvency test, but continued to trade, the level of total creditor indebtedness was reduced by $3.7 million (creditor debts as at March 2013 were $5.5 million).6 The material reduction in the level of creditors (some 67% of total indebtedness) was achieved by the Company continuing to trade and arranging an orderly sale of its business inventory and notably its active brands. The sale of inventory and brands realised a significant sum which was applied toward creditor indebtedness.7 The failure to clear creditor indebtedness in whole following the sale appears to be due to poor sales in January to March 2014 and an unexpected stock write off. Unless it could be demonstrated that thedirectors' belief that that sale proceeds would in fact clear creditor debts was unreasonable or unfounded, their actions in trading through to achieve the sale appears to fall short of the level of conduct required to establish reckless trading.8 In the circumstances, we consider it unlikely that a court would holdthat the Company's directors acted in a reckless manner and/or thatthey contributed to creditor losses by continuing to trade the Company after mid-2013. Instead, it appears that the decision to continue trading allowed the Company to retain value in its asset base and achieve a market rate when those assets were sold. In our experience, it is unlikely that the same returns would have been achieved if the assets had been sold via the liquidation process.9 For the above reasons, we have concluded that a claim for reckless trading is unlikely to succeed and that there is little chance that anorder would be obtained that the Company's directors mustcontribute to the assets of the Company.Discussion[60] In the light of the Second Report, I find there are three good reasons to allow Steggall and its advisers to inspect the relevant records.[61] First, the liquidators' global focus is on "creditors" and on the reduction of"creditor indebtedness".14 This broad focus may lose sight of the interests of unsecured creditors. If the trading of the directors was likely to create a substantial risk of serious loss for the unsecured creditors as a group, remedies may lie. In this case, the directors' decision to trade on through insolvency saw the entire debt to unsecured creditors paid, while the company incurred fresh debt to unsecured creditors who have not been paid. According to Mr Hayward, the apparent benefit of trading on lay in what he describes as a "material reduction in the level ofcreditors".15 But such reductions did not apply to unsecured creditors. Analysis of the interests of the unsecured creditors and the impact of the trading upon them isomitted from the liquidators' report.[62] Secondly, there is no provided analysis of the likely realisation achievablehad the company's business been marketed for sale at the time SPB was becoming14 See, for example, Mr Hayward's paragraph [5], above at [59].15 Mr Hayward's paragraph [6], above at [59].insolvent on a balance sheet basis. The nearest Mr Hayward comes in the report to a comparison between what was achieved at the end and what may have been achieved at the start is his concluding sentence in his paragraph [8] which I repeat:In our experience, it is unlikely that the same returns would have been achieved if the assets had been sold via the liquidation process.[63] That is, in its terms, not an indication of analysis of the likely return from the financial records of SPB available to the liquidators but is rather a statement based on Mr Hayward's general experience of liquidations. It also assumes that the directors of the company who were prepared to trade on while insolvent for six months or more would not have been able and prepared to arrange funding lines for a short period in mid-2013 to put the business, still trading, on the market, and without the stigma of a liquidation process. The liquidators do not provide any comment on what the financial information available to them (but not to Steggall or the Court) indicated was realistically achievable on that scenario.[64] Thirdly, the liquidators pick up again (as Mr Hayward had in the First Report published at the point of liquidation) the directors' own explanation for their failureto achieve a full clearance of debt through trading on. In his First Report, MrHayward cited the directors' two-fold explanation (poor trading results in the first quarter of 2014 and an unexpected inventory write-down). In the Second Report, thefirst sentence of Mr Hayward's paragraph [7] essentially reproduces that explanation as the apparent cause of the failure to clear indebtedness.16 Mr Hayward follows that observation with the recognition that reckless trading would not be established"unless it could be demonstrated that the directors' belief that the sale proceedswould in fact clear creditor debts was unreasonable or unfounded". The reportcontains no suggestion that the soundness of the directors' belief has in fact beeninvestigated. One obvious source for analysis of whether the directors' expectationswere either realistic or reasonable lies in the financial information which Steggallseeks to inspect. Mr Hayward's subsequent conclusion, namely that in the circumstances the liquidators consider it unlikely that the Court would hold thatSPB's directors acted in a reckless manner or contributed to creditor losses, does not16 Above at [59].logically follow.17 That is because Mr Hayward's own report indicates that noconclusion has been reached as to whether the directors' expectation of clearingdebts was unreasonable or unfounded.Conclusion[65] There is substance in the issues raised by Steggall in relation to the possibility of reckless trading. There are tangible concerns. Beyond those identified by the liquidators, there are further matters that reasonably invite further analysis and investigation by someone prepared to incur the time and expense. The time and expense involved in investigating the concerns raised by Steggall have clearly been of concern to the liquidators when balancing the interests of other creditors.[66] My conclusion (that there is good reason to allow Steggall to inspect) doesnot stem from any finding of dereliction of the liquidators' duties as might be suggested by the Court of Appeal's two examples in Levin v Lawrence. Rather, it recognises that there are additional lines of enquiry which might inform a different decision as to the prospects of remedies in relation to reckless trading. As Steggall is apparently prepared, in the first place, to incur the cost of analysis and investigation, it becomes "just" (to adopt the other test recognised by the Court of Appeal) to give Steggall the opportunity to carry out its own investigation upon inspection of SPB'srelevant records.18Relevance of the Liquidation Committee[67] The liquidators have put some emphasis upon the fact that they have been assisted by a Liquidation Committee. Indeed, in her submissions as I have quoted, Ms Murphy identified its involvement in the principal ground of opposition.19 In suggesting that there is no good reason to inspect existed, she invoked the fact that investigation had been or would be carried out in conjunction with the Liquidation Committee. At the hearing, Ms Murphy went so far as to state that the LiquidationCommittee supported the liquidators' conclusions as to the unavailability of any remedies in relation to reckless trading.17 Above at [59], Mr Hayward's paragraph [8].18 Levin v Lawrence, above n 1, at [52].19 Above at [49].[68] The involvement of the Liquidation Committee does not cut across my conclusion that there is good reason for Steggall to inspect documents. Although Ms Murphy correctly noted that the Liquidation Committee represents the interests of creditors as a whole, and that the members of the Committee account for a far larger total sum of debt than Steggall does, there is no evidence as to whether there is a similarity of interest between the Committee's members and that of Steggall (apart from all being unsecured creditors). Steggall has been repaid none of its debt. There is no evidence before me as to what other trading creditors may have been paid during the period before liquidation. Creditors with different experiences of trading and payment may legitimately have very different views of the worth of further investigation.[69] Furthermore, the only direct reference I have as to the view of the Liquidation Committee is contained in Mr Hayward's Second Report. That report contains a statement that the Liquidation Committee has been fully apprised on "the matter" and agreed with the steps taken by the liquidators. But as Mr Vincent noted,that statement occurs in the part of the report headed and dealing with theliquidators' approach to "access to litigation records". In that section of the Report,Mr Hayward had recorded that the liquidators want the Court to impose suitable restriction on inspection so as to minimise risk to the company as further claimed. The passage goes on to state that the liquidators, with concern as to the significant costs arising, have seen no option but to oppose inspection without proper terms. Although the primary position of the liquidators on this application has been to formally oppose the application, the course which the Liquidation Committee was agreeing to was that there be opposition to any inspection without proper terms toprotect SPB. In short, to the extent the Liquidation Committee's position is known,it is a position which recognises that, with proper conditions, inspection might occur.Conditions of inspectionThe initial disagreements[70] It is apparent that the parties, through responsible discussions between counsel, both before and after this application was issued, sought to identify conditions which might make inspection acceptable to both parties. For somemonths, those discussions appear to have simply gone backwards and forwards. But remarkably, on the eve of this hearing, there was virtually no distance between the parties on what the conditions should apply if inspection were ordered.Resolved issues as to conditions[71] A number of issues have been fully resolved:(a) Mr Sanson would not be involved in any inspection.(b) Inspection would be limited, on undertakings of confidentiality and the subsequent return of inspected documents, to the legal representatives and experts assisting Steggall in relation to these matters and to Mr Jack Steggall himself.(c) The sale and purchase agreement would be included in the inspection materials but subject to redactions to protect the commercial sensitivity for Davies.(d) SPB's statement of financial position covering the 2013 and 2014years would be available for inspection unredacted.(e) At least some aspects of SPB's financial performance statementswould be available for inspection, but with parts having commercial sensitivity for Davies redacted.Conditions to be ruled upon[72] There are two possible areas of redaction of material on which the Court needs to rule:(a) The sale and purchase agreementDavies identified seven sections of the agreement for sale and purchase in relation to which they sought redaction on account of commercial sensitivity. Six of these sections are not in dispute asSteggall accepts their redaction. Davies seeks the redaction of one further section being cl 4.2 of the agreement which relates to satisfaction of the purchase price. It is common ground that remaining portions of the sale and purchase agreement will provide information as to matters such as the purchase consideration. Mr Vincent, for Steggall, opposes a condition which allows redaction of the contractual provision for satisfaction of the purchase price as such a provision may impact on the true value of consideration.Notwithstanding the logic of Mr Vincent's point, Ms Murphy was notin a position, understandably, to provide the liquidators' consent given that they had been the conduit for Davies' request for redaction of thatclause.The appropriate course is that the Court makes a ruling on whether there be redaction of cl 4.2. Having received a copy of the agreement for sale and purchase from Ms Murphy, I do not consider that there issufficient commercial sensitivity (from Davies' viewpoint) to outweigh the importance of Steggall's being able to fully assess thetrue value of consideration under the agreement, for which purpose inspection of cl 4.2 is required.I will therefore not be permitting the liquidators to redact cl 4.2.(b) Financial performance statementsDavies has sought redaction of any information in financialperformance statements which "contain commercially sensitiveinformation with respect to margins and pricing".As none of that financial information has been provided to the Court in any form, it is not possible now to impose any conditions as to redaction. As tentatively discussed with Ms Murphy at the conclusion of the hearing, I will be making a direction that Ms Murphy file a memorandum with an unredacted version of each documentcomprising financial performance statements together with her proposal for a version in which she has redacted such material as directly relates to margins and pricing. I deliberately draw a distinction between material which directly relates to margins and pricing and any material which has only an indirect relationship.Costs – the costs of Steggall's investigation[73] A concern of the liquidators, expressed more than once, was to avoid duplicated costs of investigation.[74] Steggall has not in fact sought any order in relation to its costs of inspecting documents and in due course carrying out investigations if warranted. There is nothing for the Court to address in this regard.Costs – the liquidators' costs in making inspection available[75] Mr Vincent indicated that Steggall accepts that the liquidators, as a condition of inspection, should be permitted to recover from Steggall the reasonable administrative costs of assembling the information for inspection and of providing it in redacted form. Given the express directions which will be contained in the order, I do not contemplate that there will be anything other than a modest sum in this regard. Leave will be reserved to apply for the fixing of reasonable costs and disbursements in the event of disagreement.The costs of this application[76] Counsel were unable to agree on the incidence of costs in the event I were togrant Steggall's application with conditions.[77] In Steggall's originating application, it recorded that it sought costs anddisbursements.[78] At the hearing, Mr Vincent indicated that Steggall was prepared to view the appropriate outcome as being that costs lie where they fall.[79] For the liquidators, Ms Murphy sought an award of costs (on a 2B basis) and disbursements. She observed that the plain meaning of s 256(1)(a)(ii) is that a creditor has to obtain inspection of documents through applying to Court (and notthrough the liquidators' voluntary delivery). Ms Murphy notes that the process ofworking through what might otherwise have eventuated as an agreed process wassignificantly complicated by Steggall's decision to engage Mr Sanson as its agent in dealings with the liquidators. It is an inescapable conclusion from the contemporary documents that Mr Sanson's involvement (while involving an assiduous pursuit ofpossible lines of investigation) brought with it complications which compromised the prospects of agreed terms of inspection.[80] On balance, I am not persuaded that it would be just to award the liquidators the costs of this proceeding. Steggall has been the successful party and would have had some justification for at least some award of costs in its favour. The just outcome, I am satisfied, is that costs lie where they fall.Orders[81] I order:(a) Lloyd James Hayward and Jeffrey Philip Meltzer (the liquidators), as liquidators of South Pacific Brands Limited (in liquidation) shall within 15 working days permit the following documents to be inspected by Steggall Nutrition Pty Limited, namely:(i) the agreement for sale and purchase between South Pacific Brands Limited and Davies Foods (2006) Limited; and(ii) documents setting out the financial position or "balance sheet"position of South Pacific Brands Ltd in 2013 and 2014.PROVIDED THAT:(1) the inspection by Steggall Nutrition Pty Limited shall be limited to those whom it retains as its legal andexpert advisers in relation to issues arising from the liquidation of South Pacific Brands Limited and to Jack Steggall; and(2) the liquidators shall redact from the copy of the agreement for sale and purchase to be inspected the following provisions namely: clause 5.2; Schedule 6, Schedule 7, Schedule 9; Schedule 10; and the Information Memorandum attached to the disclosure letter at Schedule 12.(b) On a date to be appointed by the Court, the liquidators of South Pacific Brands Ltd (in liquidation) shall provide for inspection by Steggall Nutrition Pty Limited documents setting out the financial performance of South Pacific Brands Ltd in 2013 and 2014.PROVIDED THAT:(i) counsel for the liquidators shall first, within five working days, submit to the Court by memorandum the financial performance documents in two schedules, the first to contain unredacted versions of the financial performance documentsand the second to contain counsels' proposals as to anyredactions on account of the commercial sensitivity for DaviesFoods (2006) Limited in specific relationship to margins and pricing;(ii) in such memorandum counsel for the liquidators shall either confirm that the liquidators will be in a position, upon the Court giving a Supplementary Judgment in relation to the proposed redactions, to provide inspection to Steggall Nutrition Pty Limited within 10 working days thereafter (or, if not, identify what reasonable period); and(iii) the same limitations upon the persons who may complete inspection as apply at [81](a)(1) will apply to the financial performance documents.(c) In relation to the provision of documents ordered to be made available for inspection, Steggall Nutrition Pty Limited shall pay theliquidators' reasonable costs and disbursements which shall includetheir reasonable administrative costs charged at their normal rates applicable on a liquidation and their actual and reasonable solicitor/client costs in relation to, from today, complying with these orders for inspection and any supplementary orders, including in relation to the redaction of material and the filing of the Memorandum directed at [81](b)(i) above (with leave to either party to apply for determination by the Court of any unagreed item).(d) Save to the extent ordered at (c) above, there is no order as to the costs and disbursements of and associated with the application.Associate Judge OsborneSolicitors:Thomas Dewar Sziranyi Letts, Lower HuttGregory Simon Law, Auckland