THE AVENUE BUILDERS LIMITED (IN LIQUIDATION) V 11 THE AVENUE LIMITED HC AK CIV-2005-404-1096

THE AVENUE BUILDERS LIMITED (IN LIQUIDATION) V 11 THE AVENUE LIMITED HC AK CIV- 2005-404-1096 23 December 2005IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2005-404-1096IN THE MATTER OF the Companies Act 1993 BETWEEN THE AVENUE BUILDERS LIMITED (IN LIQUIDATION) Plaintiff AND 11 THE AVENUE LIMITED Defendant Hearing: 28 November 2005 Appearances: Ms D Watson for plaintiff Mr G Bogiatto for defendant Judgment: 23 December 2005 at 11.30 amJUDGMENT OF ASSOCIATE JUDGE DOOGUESolicitors:Stephen McDonald, P O Box 3383, Auckland Mr G Bogiatto, P O Box 106-120, AucklandCounsel:Ms D Watson, P O Box 3886, AucklandBackground[1] On 30 June 2005 Associate Judge J A Faire made an order under s 241(4) appointing a liquidator on the ground that the company was unable to pay its debts. The creditor seeking the order was The Avenue Builders Limited (In Liquidation). The Judge's notes confirmed that the defendant did not appear at the hearing of the proceeding for appointment of a liquidator. The Judge also appointed Callum Macdonald liquidator. The order of the Court was sealed on 1 July 2005. [2] On 2 August 2005 Mr W A Ritchie filed an application seeking an order:1. Giving directions that William Alexander Ritchie has been validly appointed as liquidator of the defendant.[3] The grounds contained in the application were that on 29 June 2005 a special resolution of all shareholders entitled to vote and voting on the question was passed and signed appointing Mr Ritchie as liquidator. [4] Ground (c) of the application reads:(c) In accordance with s 241 of the Companies Act 1993, William Alexander Ritchie has therefore been validly appointed as liquidator of the defendant.[5] Various affidavits, including an affidavit from Mr Ritchie were filed. [6] On 22 August 2005 Mr Macdonald filed a notice of opposition in his capacity as "the Court Appointed Liquidator of the Defendant". The grounds on which the opposition was based were these:(a) At all relevant times Brent Douglas Clode was not the only shareholder of the defendant for the purposes of the Companies Act 1993. That no effective Special Shareholders Resolution was passed by the shareholders of the defendant pursuant to s 241(2)(a) of the Companies Act 1993.[7] It will be observed that the proceedings do not explicitly purport to seek the removal of Mr Macdonald as liquidator but that is the obvious intention of theapplication for directions. Further, the application does not seek to end the liquidation, for example, pursuant to the power of the Court to terminate a liquidation under s 250 of the Companies Act 1993. In substance, what the order seeks is that I should revise the order made by Associate Judge Faire to the extent of endorsing Mr Ritchie as the liquidator. I interpolate that would only seem to be possible if, at the same time, I remove Mr Macdonald as the liquidator. [8] In essence the position of the applicant was that the Court ought not to have made an order putting the company into liquidation and appointing a liquidator when that had already been accomplished by means of a special resolution under s 241(2) of the Act. [9] The respondent did not question whether or not there was jurisdiction of the Court to make an order of the kind sought but, rather, challenged the grounds on which that application was made. In other words, the respondent questioned whether or not there had been as a matter of fact an appropriate resolution of the shareholders. [10] The grounds upon which the applicant invites me to take these steps is to be found in Part XVI of the Companies Act 1993, specifically, under s 284(1)(g). The section so far as relevant reads:284 Court supervision of liquidation(1) On the application of the liquidator, a liquidation committee, or, with the leave of the Court, a creditor, shareholder, other entitled person, or director of a company in liquidation, the Court may— (g) Declare whether or not the liquidator was validly appointed or validly assumed custody or control of property: Jurisdiction to make the order sought[11] I raised with counsel at the hearing the question of whether or not a power to make directions gave me the right to revise the order made by Associate Judge Faire when he appointed a liquidator pursuant to s 241 of the Companies Act 1993. I mentioned this because it seemed doubtful to me that the legislature would haveintended that I could review a decision of a Judge of co-ordinate jurisdiction. It seemed still less likely that such a power would be conferred in a section of the Companies Act which seemed to be directed to the Court's control of the course of a winding up. [12] I also raised with counsel whether the correct means of determining whether the order made by the Judge on 30 June 2005 was valid, was by bringing an appeal against his decision or by some other means. One possibility is to invoke r 486 of the High Court Rules.486 Judgment following non-appearance may be set aside Any verdict or judgment obtained where one party does not appear at the trial may be set aside or varied by the Court on such terms as may seem just if it appears to the Court that there has, or may have been, a miscarriage of justice[13] I note that the authorities are not unanimous on whether or not that rule can properly be invoked in relation to winding-up orders – at least so far as the Companies Act 1955 is concerned; Bridon NZ Ltd v Tent World Ltd [1992] 3 NZLR 645. There is authority to the effect that because r 486 is inconsistent with the provisions of Part IXA of the High Court Rules. The argument is (as Thomas J stated it in Bridon, p. 648)that the procedure in (Part IXA) being more restrictive, did not allow for a review of winding-up order except as provided in s 250.[14] The contrary line of authority to which Thomas J referred in Bridon includes Neazor J.'s judgment in Kensington Swan v N.Z. Fisheries Ltd (1989) 2 PRNZ 141. Neazor J that a winding up order cannot be set aside or varied in reliance on r 486 because that rule is inconsistent with other rules in Part 7 which govern winding up proceedings. Also it was inconsistent with the Companies Act 1955. In the view of Neazor J, the position was therefore covered by Rule 700A(3) which provides(3) The other Parts of these rules, and the general practice of the Court, apply to applications to which subclause (1) applies and notices to which subclause (2) applies except in so far as they are modified by or inconsistent with this Part or the Companies Act ..1993..[15] The reasoning that the two parts of the rules are inconsistent is equally applicable today. However, the wider considerations under the Companies Act which the Judge referred to may no longer apply. Neazor J was of the view that the application of r 486 was inconsistent with the provisions of the Act because the Act did not "provide for review of a winding-up order once made except in s 250, and with the general principle that once entered a winding-up order cannot be recalled or reheard". [16] S 250 in the then Act provided for a stay of a winding-up only. The position has arguably changed with the enactment of the new s 250. There is now explicit power to terminate a liquidation if the court is satisfied that it is just and equitable to do so. Authority stated in such wide terms would seem to represent a curtailment of the former policy of treating winding-up orders as being beyond recall or rehearing.The use of s250 to obtain appointment of fresh liquidator[17] The Act confers no power for the shareholders to appoint a new liquidator after the commencement of the winding-up. Therefore, any change in liquidator at the behest of the company shareholders in this case would seem to inevitably involve an application to the Court for termination of the liquidation pursuant to s 250 of the Act. The short point is that a power to do exactly what the shareholders want to do in this case has been supplied by the enactment of s 250 of the Act.Summary to this point[18] The foregoing suggests to me that there is no justification for reading s 284(1)(g) as conferring a power on a Judge to review an earlier Court order made appointing a liquidator. Such a construction of the Act would seem to be quite unnecessary given the unequivocal power of s 250 of the Companies Act and, possibly, the power to set aside or vary a judgment under r 486 of the High Court Rules. [19] But the strongest consideration which tells against the applicant grounding its application on s 284 of the Companies Act is that it cannot clearly demonstrate what need there is for interpreting s 248(1)(g) in such a way as to give the Courtsubstantial powers to review and if necessary correct an earlier judgment of the same Court. [20] The power to make a declaration of the kind empowered by s 284(1)(g) appears to be conferred in order to give the court authority to enquire into the appointment of a liquidator which has occurred by a non-curial act. That is, it is concerned with appointment of a liquidator in circumstances other than where a judge has made the appointment. It is understandable that a power should be conferred on the court to provide a procedurally simple method of enquiring into the legitimacy of the appointment of a liquidator by, for example, a shareholders resolution. The alternative would be for a proceeding in the form of an action being commenced, the objective of which would be to obtain a declaration and related relief. [21] I would certainly not be prepared to conclude in circumstances where there has been only limited argument on the point that the legislature intended that s 284 should confer power on a judge to enquire into the propriety of an order made by another judge of the same court.Discretionary issues[22] The Liquidator has now been appointed for some five months. I can envisage reasons why it would be unsatisfactory to substitute a new Liquidator when the Liquidation is as far advanced as this one is. As a matter of discretion, I would not have been prepared to make the order sought unless some compelling necessity was made out. The applicant's affidavits do not establish what, if any, advantage would follow from making the order sought. [23] No complaint seems to be made that the Liquidator appointed by Judge Faire has been approaching his duties in an unsatisfactory manner.Conclusion[24] In my view the application is misplaced and it must be dismissed. The applicant will pay costs to the respondent on a 2B basis.J P Doogue Associate Judge