RE BLACK DOG CONSULTING LIMITED [2023] NZHC 573

RE BLACK DOG CONSULTING LIMITED [2023] NZHC 573 [20 March 2023]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2023-485-132[2023] NZHC 573UNDER Part 15A of the Companies Act 1993 andPart 19 of the High Court RulesIN THE MATTER of BLACK DOG CONSULTING LIMITED(administrator appointed) a dulyincorporated company having its registeredoffice at Level 2, 40 Lady Elizabeth Lane,WellingtonANDIN THE MATTER of an application pursuant to section239AT(3) of the Companies Act 1993 byHEATH LESLIE GAIR of Porirua,administrator, for an order extending theconvening period of the voluntaryadministration of BLACK DOGCONSULTING LIMITEDHearing: On the papersAppearances: D G Dewar for ApplicantDate of Result: 20 March 2023Reasons: 21 March 2023JUDGMENT OF McQUEEN J[1] The applicant is the appointed administrator of Black Dog Consulting Ltd(BDCL). He has applied on a without notice basis for orders:(a) granting leave to make this application without notice;(b) extending the maximum period of 20 working days under s 239AT(2)of the Companies Act 1993 during which the applicant must convene awatershed meeting for BDCL up to and including 19 June 2023;(c) granting leave to any person who can demonstrate a sufficient interestto apply to the Court to modify or discharge these orders on appropriatenotice being given to the applicant and the Court;(d) determining that the costs of this application are an expense incurredby the applicant in the administration of the company; and(e) directing notice of these orders is to be emailed to BDCL's creditors attheir last known email address and advertised once in the DominionPost newspaper.[2] I granted the application on 20 March 2023. My reasons for doing so nowfollow.Background[3] BDCL carries out construction, carpentry, concreting and earthquakestrengthening services throughout the Wellington region. The applicant was appointedadministrator on 21 February 2023 by directors' resolution in view of BDCL's poorfinancial position. BDCL commenced trading in 2006 and since 2018 has grownsignificantly in size due predominately to commercial seismic work in the WellingtonCBD. BDCL has one director, Mr Peter Jones, who is also the 100 per centshareholder. The company made a net profit for the year ending 2021 of $894,404 anda net loss for the year ending 2022 of $74,322. It currently trades with 16 staff andfour contractors.[4] Mr Gair, the administrator of BDCL, is an experienced insolvency practitioner.In his affidavit in support of the application, Mr Gair explains that he is seekingadditional time to convene the watershed meeting so that he can complete hisinvestigation into BDCL, resolve outstanding receivables and undertake an asset sale,as discussed further below. His goal is to repay creditors in full and return the companyto its director, or alternatively, put forward a deed of company arrangement to creditorsat the watershed meeting.[5] Mr Gair says that BDCL's financial position is not what he would considertypical or usual. The company appears to be balance sheet solvent and there is onlyone overdue creditor, albeit with a significant amount owed, which is Inland Revenue.[6] Mr Gair says that upon his appointment the company's financial positionshowed a positive balance sheet of net $843,411. Total assets are $1,782,404, and totalliabilities are $938,996. Mr Gair notes that the Inland Revenue liability includespreferential PAYE and GST payments dating back to June and September 2022respectively totalling $208,647. The more significant component is the income taxowing for the year ending 2021 of $339,912 plus penalties and interest.[7] Mr Gair notes that there are substantial accounts receivable owed of $583,955.Two of those receivables are in arrears. One relates to a residential renovationundertaken in Plimmerton which is in arrears to the amount of $347,818. No disputehas been raised with respect to this invoice and Mr Gair understands that finance ispresently being sought to pay the invoice in full in the short term. The other receivablein arrears is for $105,863 for work completed in November 2022. This is currently innegotiation with amounts outstanding dating back to the middle of 2022. Mr Gairstates that it is safe to assume that had these receivables been paid when due, thecompany would have paid its due debts (without the resulting penalties and interest).[8] Mr Gair is also in the process of reviewing the current trading and considersthat there is a surplus of vehicles, plant and equipment with respect to current tradingrequirements. These assets are valued at approximately $751,111 and subject tofinance charges of $210,411. Accordingly, Mr Gair believes that there is significantequity that can be realised without affecting the company's ability to continue to trade.He is in the process of commencing a sales programme through a third-party saleagent, Manheim Auctions.[9] Mr Gair states that with regard to continued trading during administration, itappears BDCL can cover its weekly and monthly costs including wages and tradecreditor suppliers. As a result, BDCL is continuing to trade while it is inadministration, undertaking construction work. Mr Gair indicates that the director isassisting him from an operational point of view and is highly motivated to keep thecompany from liquidation. Given that there appears to be cash available in the shortterm to repay the liabilities, Mr Gair believes that this is the best way forward forcreditors.[10] Mr Gair says that the first creditors meeting of BDCL (as required unders 239AN of the Companies Act) was held on 2 March 2023 via Zoom following noticeby advertisement in the Dominion Post newspaper and by email to all creditors on23 February 2023. It was unanimously resolved that Mr Gair continue as administratorand that a creditors' committee not be formed.[11] Mr Gair is of the view that significant progress can be made during the periodfor which the proposed extension of time is sought. He says that he is commencing theManheim sales campaign in respect of surplus plant and equipment as soon aspossible, which is likely to be within the next 14 days. He says that Manheim hasadvised that the sale campaign process could take approximately two months. In termsof the outstanding receivables, Mr Gair states that BDCL was working with a quantitysurveyor and had proposed a construction lawyer to engage in relation to theoutstanding receivables, prior to his appointment. Mr Gair believes it will be clearwithin the next 90 days whether repayment of these outstanding amounts is likely inthe short term.[12] Mr Gair also states that should the watershed meeting be required to beconvened within the 20 working day statutory timeframe, he would not be in a positionto make a recommendation to creditors as required under s 239AU of the CompaniesAct. He says that this would lead to a liquidation of the company, increasing liabilities(e.g. staff notice and redundancy) and create uncertainty in relation to receivables andretentions which may lead to a shortfall to creditors.Without notice application[13] The application is made on a without notice basis. As I address below, therelevant time periods are short. In my view, requiring service of the application on anyinterested parties at this interim stage would cause unnecessary delay. As noted above,Mr Gair, as administrator, considers that interested parties (particularly creditors) arelikely to benefit from the extension sought, and that there will be no prejudice to them.Notably, if any party considers they are prejudiced, they will have the right tochallenge the orders made on notice. In these circumstances, I was satisfied it wasappropriate to dispense with service and accordingly I granted the application.Extension of the convening period under s 239AT of the Companies Act 1993[14] Section 239AT(1) of the Companies Act requires an administrator to convenea "watershed meeting" within the "convening period", which is the period of20 working days after the date of the administrator's appointment and includes anyperiod for which it is extended.[15] A watershed meeting is a creditors meeting called by the administrator todecide the future of the company and, in particular, whether the company and the deedadministrator should execute a deed of company arrangement.1[16] The administrator must give notice to creditors of the watershed meetingduring the convening period. That notice must be accompanied by a number of otherdocuments, including a report from the administrators, as set out in s 239AU of theCompanies Act.[17] In the present context, the convening period is 20 working days following21 February 2023, which was the day on which the administrator was appointed. Thus,the watershed meeting must be convened by no later than 21 March 2023. Thewatershed meeting must be held within five working days following expiry of theconvening period, as required by s 239AV of the Companies Act. Thus in this case,without the extension, the administrator would have to hold the watershed meeting by28 March 2023.[18] Section 239AT(3) of the Companies Act permits the Court to extend theconvening period on the administrator's application. This Court has confirmed that the1 Companies Act 1993, s 239AS.power to extend should be exercised in light of the purpose of the voluntaryadministration regime and the duties imposed on administrators.2 Those objectives areset out in s 239A of the Act and include the administration of a company in a way thatmaximises the chances of the company continuing in existence, or results in a betterreturn for the company's creditors and shareholders that would result from animmediate liquidation of the company.[19] This Court has held that this approach requires a balance between theexpectation that administration will be a relatively speedy and summary matter on theone hand, and the requirement that undue speed should not be allowed to prejudiceactions directed towards maximising the return for creditors and any return forshareholders.3 Courtney J held in Re DSE (NZ) Ltd that the appropriateness of anextension is, self-evidently, a fact-specific determination. I have had regard to thefactors described by Courtney J in determining the current application.4 Courtney Jalso noted that a review of recently decided cases at that time demonstrated thatperiods of extension of the convening period had been quite variable.5[20] I am satisfied on the affidavit evidence filed by Mr Gair in support of theapplication that the three factors particularly relevant in the present case relate to:(a) the time needed to execute an orderly process of disposal of assets;(b) the time needed for thorough assessment of a proposal for a deed ofcompany arrangement; and(c) more generally, where time is likely to enhance the return for unsecuredcreditors.[21] I accept the applicant's submission that these factors apply to the objective ofallowing the company to continue to operate after a deed of company arrangement is2 Re Nylex New Zealand Ltd, HC Auckland, CIV-2009-404-1217, 11 March 2009; Re DSE (NZ) Ltd[2016] NZHC 36; Re Kumfs Group & Ors [2019] NZHC 2552; and Re Advanced Building andConstruction Ltd [2021] NZHC 937.3 Re Kumfs Group Ltd & Ors, above n 2, at [13].4 Re DSE (NZ) Ltd, above n 2, at [14].5 At [15].entered into. It is significant that BDCL is owed a substantial amount of money fromits customers and the applicant is taking steps to recover those receivables. Theapplication is also selling company plant and equipment excess to the requirements ofthe company's current operation, to receive funds.[22] I consider that the 90 day extension sought in this case appropriately takes intoaccount the factors described above. The 90 day extension period will allow sufficienttime for BDCL to recover funds from its customers and also to sell plant andequipment. An extension of the convening period will also permit sensible steps to betaken in an orderly manner and allow a meaningful report to creditors once more isknown about the effectiveness of actions taken. I am satisfied that the extendedtimeframe is necessary for the administrator to effectively undertake these steps andtherefore this is consistent with the speedy and summary objectives of administration.I also accept that it is likely that the availability of funds to the company would tendto benefit the creditors as it will improve creditor returns, whatever the outcome of thewatershed meeting.[23] The grant of an extension of time to the convening period was madeaccordingly.Result[24] Accordingly, I made the following orders:(a) granting leave to make this application without notice;(b) extending the maximum period of 20 working days under s 239AT(2)of the Companies Act 1993 during which the applicant must convene awatershed meeting for BDCL up to and including 19 June 2023;(c) granting leave to any person who can demonstrate a sufficient interestto apply to the Court to modify or discharge these orders on appropriatenotice being given to the applicant and the Court;(d) determining that the costs of this application are an expense incurredby the applicant in the administration of the company; and(e) directing notice of these orders is to be emailed to BDCL's creditors attheir last known email address and advertised once in the DominionPost newspaper.McQueen JSolicitors:Thomas Dewar Sziranyi Letts for Applicant