LIN v THE REGISTRAR OF COMPANIES [2016] NZHC 395

LIN v THE REGISTRAR OF COMPANIES [2016] NZHC 395 [7 March 2016]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2015-404-3153[2016] NZHC 395UNDER the Companies Act 1993IN THE MATTER of Emily Projects Limited (In Liquidation)BETWEEN TAN LEE LINApplicantAND THE REGISTRAR OF COMPANIESDefendantHearing: 29 February 2016 (in Court), 2 March 2016 (by telephoneconference)Appearances: AAH Low for ApplicantNo appearance for DefendantJudgment: 7 March 2016JUDGMENT OF WHATA JThis judgment was delivered by Justice Whata on9 March 2016 at 5.00 p.m., pursuant tor 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Solicitors:Alexandra Low & Associates, AucklandCopy to:G Sheriff (for the Liquidators of Emily Projects Ltd), Grant Thornton New Zealand Ltd, AucklandThe application[1] This is an application for an order that Emily Projects Ltd (in Liquidation) (EPL) not be removed from the Register of Companies and for recall of theliquidators report pursuant to ss 321(1)(f) and 284 of the Companies Act 1993 ("the Act"). Ms Tan Lee Lin makes this application on behalf of the owners of CelestionApartments. She says that the apartments' owners, including herself, are creditors ofthe company and that upon the purchase of the apartments they were given a rental guarantee by the company which has not been met. This has led, she says, to significant losses for all of the apartment owners. She also says that the Serious Fraud Office (SFO) is presently investigating the company director, Mr Leonard John Ross, in respect of allegations of fraud in relation to activities of the company.[2] The present liquidators, Gregory John Sherriff and Timothy Wilson Downes, of Grant Thornton, do not wish to pursue these allegations or further delay the winding up of the company until the SFO has concluded its investigation. However, Ms Lin says that if Mr Ross is shown to have acted fraudulently or improperly in breach of his duties to the company, the apartment owners as creditors of the company intend to pursue a derivative action against the director or, alternatively, intend to seek an order requiring the liquidator to pursue these claims.[3] In a minute dated 12 February 2016, Woodhouse J refused to grant the application sought on the basis that the following matters needed to be addressed:1(a) The defendant is the Registrar of Companies. Has the Registrar of Companies been served?(b) What are the facts and circumstances requiring an order that Emily Projects Ltd (in liquidation) not be removed from the register? Assumptions might be made in that regard but there is nothing on the file which assists the Court. The only information filed is the affidavit of the plaintiff which does not deal in any way with this issue.(c) The grounds for an order that the liquidators' final report be reversedmust be set out in a memorandum for counsel which adequately addresses the relevant matters of fact and law. The fact that theliquidators have advised that they will abide the Court's decision1 Emily Projects Ltd (in liq) v Lin & Anor HC Auckland CIV-2015-404-3135, 12 February 2016 at [3].does not relieve the plaintiff of the need, in the usual way, to put the relevant matters before the Court.(d) The advice to the liquidators in the letter of 4 February 2016 may inadvertently have been misleading. It is stated in paragraph 2 that an order preventing Emily Projects Ltd being removed from theregister was "granted" on 18 January 2016. That is not correct. Theorders on 18 January 2016 were as recorded above. This may makeno difference to the liquidators' position but that point needs to bemade clear to the liquidator.(e) In her affidavit the plaintiff states that she made the affidavit forherself "and on behalf of the other apartment owners" and theoriginating application purports to be made for other owners as well as the plaintiff. This bare statement is insufficient to provide grounds for one person to bring proceedings on behalf of others. This may not have a material bearing on the application for the orders now sought, but this point also needs to be addressed. And it will need to be addressed again if the plaintiff gets to the position of applying for leave to bring a derivative action under s 165 of the Companies Act.[4] Ms Low for the applicant responded firstly by apologising insofar as her advice to the liquidator was incorrect. She also confirms that the registrar was served with the application.[5] More broadly, Ms Low, responds:(a) The Serious Fraud Office (SFO) is investigating the director of the company, Mr Lenard John Ross in relation to the activities of the company.(b) The SFO has indicated to counsel that it can neither confirm nor deny the investigation.(c) The affidavit of Blair Campbell Brooks dated 24 February 2016 provides evidence of the basis for that investigation and to show that this is ongoing.(d) Where an investigation is ongoing and may result in findings that could lead to a personal action being taken against the director of the company by its creditors, it is not just and equitable to remove the company from the Register while the investigation continues.(e) It is accepted that an application could be filed to reinstate the company at a later date. The creditors wish to ensure that any necessary action can be taken immediately if this is required.(f) At this point, the applicant does not wish to criticise the actions of the present liquidator. The application to set aside the final report is taken so that the company will continue to be in liquidation.(g) The liquidator does not wish to take part in these proceedings and has indicated that he will abide the decision of the Court.[6] I have also read the affidavit of Blair Campbell Brooks. He is the sole director and shareholder of Brooks Capital Ltd. He says that Brooks Capital Ltd is one of the creditors who submitted a proof of debt in respect of EPL. He is the person who instigated a SFO investigation and says that he has reason to believe that the director of EPL fraudulently obtained funding for the development of Celestion Apartments and also used company funds to build his own house at 10 Rata Road, Cheltenham Beach. He refers to a number of matters which he suggests show that Mr Ross acted in a fraudulent manner: in particular, that he fabricated the pre-sales and that he must have used his own funds to show relevant deposits in the project.[7] As to the SFO investigation, he says the last correspondence he had with them was in late 2015 during a telephone conversation in which they advised him that they had completed interviewing a number of the original pre-sales buyers and were moving to the next stage of the investigation, which was interviewing the key EPL members.[8] Mr Brooks also attaches to his affidavit a copy of Grant Thornton's liquidator's final report noting that unsecured creditors had received 11.8 cents in thedollar.Jurisdiction[9] Section 321(1)(f) of the Act provides that an order may be sought that a company not be removed from the Register on the basis that it is not "just andequitable". Section 284 empowers the Court to confirm, reverse or modify any act or decision of the liquidator. The central issue in this case is whether it is "just andequitable" to maintain the registration of the EPL notwithstanding the completion ofthe liquidation process. I am satisfied that the applicant has demonstrated a legitimate interest in maintaining the registered status of the EPL, namely to enable the commencement of any claim by EPL or a derivative action (if available)2 based on the outcome of the SFO investigation. While the applicant could later seek to have the company reinstated for that purpose under s 329 of the Act, to follow that route would simply defer to another date the step now being taken.[10] The remaining issue is whether I should also reverse the liquidator's report. Ihave come to the conclusion that I must so as to avoid the prospect of two liquidations deplored by the High Court in Williams & Anor v Registrar of Companies & Ors3 and the Court of Appeal in Registrar of Companies v Body Corporate 307730.4[11] I am concerned, however, to avoid leaving EPL and the liquidators in an indefinite limbo while the SFO investigation is being completed - it not being entirely clear what stage the investigation has reached or will reach. Accordingly, this order will expire six months from the date of this judgment.Representation[12] For completeness I also invited Ms Low to elaborate on the representation issue raised by Woodhouse J. Rule 4.24 of the High Court Rules provides:4.24 Persons having same interestOne or more persons may sue or be sued on behalf of, or for the benefit of, all persons with the same interest in the subject matter of a proceeding—(a) with the consent of the other persons who have the same interest; or(b) as directed by the court on an application made by a party or intending party to the proceeding.2 Hedley v Albany Power Centre Ltd (In Liquidation) [2005] 2 NZLR 196 (HC) at [55]; Aladdin'sMotor Inn Ltd (in Liq) v Bowcorp Holdings Ltd [2015] NZHC 843 at [15].3 Williams & Anor v The Registrar of Companies & Ors [2015] NZHC 3217 at [21].4 Registrar of Companies v Body Corporate 307730 [2013] NZCA 659, [2014] 2 NZLR 623.[13] The identification of a sufficient common interest under r 4.24 is a relatively low threshold.5 The overarching consideration guiding the application of the rule isthe Court's need to take an approach consistent with the "just, speedy and inexpensive determination" of proceedings.6[14] Ms Low submitted that this is a representative action filed under r 4.24(a) of the High Court Rules. She noted:The Applicant is one of a number of the apartment owners of Celestion Apartments, 19–13 Anzac Avenue, Auckland. Each apartment owner:a. was given a rental guarantee by the Company which has not been met;b. has filed a proof of debt in respect of the liquidation of the Company.c. is a creditor of the Company;d. has consented to this action in accordance with rule 4.24 by contributing [to] the costs of these proceedings.[15] I accept that there is a commonality of interest enabling the applicant to commence a representative action for the reasons asserted by Ms Low, namely:(a) Each apartment owner has the same interest as creditor. Both the underlying basis for claim as creditor and the status of each owner as creditor supports the basis on which a representative action may befiled. The "dispute issues" for each apartment owner are identical.(b) In the circumstances the threshold common interest is made out.(c) A representative action in this case allows the applicant and those represented by her to seek determination of this matter in a way that is just, speedy and inexpensive.5 Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [12]; Strathboss Kiwifruit Ltd v Attorney-General [2015] NZHC 1596 at [6].6 Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [8] and [130].(d) The representative nature of this action will not deprive the respondent of a defence and there are no independent issues to be determined.(e) The interest of the applicant and those represented are entirely aligned and capable of a single determination by the court.(f) There is no opposition to the application in this case.[16] While I accept that the applicant may act in a representative capacity, I consider that the other affected owners should be advised of my judgment, with leave granted to them to address the Court about any concerns which they may have with the approach now proposed. I have not discussed the method by which this may be practicably achieved with Counsel and invite submissions from Ms Low on this aspect within 5 working days.Decision[17] Accordingly, I make the following orders:(a) The Liquidator's report is set aside with leave afforded to the liquidators to seek any consequential orders if necessary;(b) Emily Projects Ltd (in liq) is not to be removed from the Register of Companies for a period of six months from the date of this Judgment (the stay period);(c) Leave is granted to the Registrar, the applicant or the liquidators to apply to the Court for such relief as is considered necessary (if any) to finalise the liquidation of the company after the expiry of the stay period;(d) Leave is granted to the applicant to seek to extend the stay period; and(e) Ms Low is to make submissions on the method by which affected apartment owners may be advised of and address the Court, if necessary, on the above orders within five working days.[18] Costs are not sought.[19] A copy of this judgment must also be served on the Registrar of Companies and the liquidators.