WAIPAREIRA INVESTMENTS LIMITED v DAMIEN GRANT and KIRSTEN SMITH as liquidators of West Harbour Holdings Limited (in liq) [2013] NZHC 3281

WAIPAREIRA INVESTMENTS LIMITED v DAMIEN GRANT and KIRSTEN SMITH as liquidators of West Harbour Holdings Limited (in liq) [2013] NZHC 3281 [10 December 2013]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV2013-404-3477[2013] NZHC 3281UNDER Section 3 of the Declaratory Judgment Act1908 and Part 18 of the High Court RulesIN THE MATTER OF the liquidation of West Harbour HoldingsLimited (in liq)BETWEEN WAIPAREIRA INVESTMENTSLIMITEDPlaintiffAND DAMIEN GRANT and KIRSTEN SMITHas liquidators of West Harbour HoldingsLimited (in liq)DefendantsHearing: 4 November 2013Appearances: M A Muir QC and T J G Allan for plaintiffD E Smyth and B J Norling for defendantsJudgment: 10 December 2013JUDGMENT OF ALLAN JIn accordance with r 11.5 I direct that the Registrar endorse this judgmentwith the delivery time of 12.30 pm Tuesday 10 December 2013Solicitors/counsel :M A Muir QC, AucklandGrove Darlow, AucklandD E Smyth, AucklandWaterstone Insolvency, AucklandIntroduction[1] This case is concerned with the circumstances in which a creditor will be deemed to have surrendered its security in a liquidation by voting at a creditors'meeting.[2] The plaintiff (Waipareira), is a creditor of West Harbour Holdings Ltd (in liquidation) (West Harbour). Its debt is partially secured. At a meeting of creditors called by the defendant liquidators, Waipareira's agent both participated in the proceedings at the meeting, and voted on Waipareira's behalf. The liquidatorssubsequently contended that by voting, Waipareira is deemed by law to have surrendered its security, and that it ranked as an unsecured creditor.[3] Waipareira brings these proceedings under s 3 of the Declaratory Judgments Act 1908, seeking a declaration that it was not a creditor of West Harbour for the purposes of s 240 of the Companies Act 1993 (the Act), and not entitled to vote at the relevant meeting, so that any vote by or on its behalf was of no effect. Adeclaration in those terms would preserve Waipareira's security.[4] The statement of claim raises other issues pertaining to the relevant creditors'meeting, but counsel are agreed that those matters no longer require attention.Background[5] West Harbour was placed in liquidation on 4 March 2013 by special resolution of its shareholders. The defendants were appointed joint and several liquidators. Waipareira and West Harbour had been parties to protracted litigation involving a joint venture to redevelop an apartment complex at Clearwater Cove, West Harbour Marina. Much of the legal work for Waipareira was carried out by Mr H D Morrison, a principal in Grove Darlow & Partners, solicitors for Waipareira.[6] On 6 March 2013, two days after West Harbour went into liquidation, Mr Morrison advised the liquidators that Waipareira had entered into possession of three townhouses, pursuant to the terms of a mortgage held by Waipareira over the townhouses and two apartments owned by West Harbour. The liquidatorsacknowledged that advice, confirming that they would execute letters to the tenants of the townhouses, requiring them to pay the rental to Waipareira, and further requesting from Mr Morrison a copy of Waipareira's Property Law Act Notice.[7] On 11 March, the liquidators wrote to Waipareira, C/- Grove Darlow & Partners, in the following terms:Please be advised that the above named company went into liquidation on 4 March 2013, appointing Damien Grant and Kirsten Smith as joint liquidators.Records that we have obtained indicate that you may be a creditor of the company. Please find enclosed a proof of debt form. If you are a creditor of the company please complete and return with the necessary documentation to support your claim.If you are a secured creditor, please be advised that under s305 of theCompanies Act 1933 ("the Act") you must now exercise one of the threerights conferred on you under that section, these being:(a) Realise the property subject to a charge, if entitled to do so; or(b) Value the property subject to the charge and claim in the liquidation as an unsecured creditor for the balance due, if any; or(c) Surrender the charge to the liquidator for the general benefit of creditors and claim in the liquidation as an unsecured creditor for the whole debt.Please note that this letter constitutes written notice for the purposes of s 305(8) of the Act. Failure to exercise one of the three options noted above within 20 working days will result in the surrender of your charge to the liquidator for the general benefit of creditors.Please provide all relevant account information and security documentation along with your election under s305.[8] It is common ground that by mid March 2013, the liquidators were aware that Waipareira intended to exercise the power of sale under its mortgage securities, by selling the townhouses.[9] On 13 March 2013, Mr Morrison along with other counsel met the liquidators for the purpose of providing them with Waipareira's view of the background to theWest Harbour proceedings and certain other disputed issues.[10] On 14 March 2013, Mr Morrison wrote to the liquidators' solicitors requesting a creditors' meeting. The letter read as follows:West Harbour Holdings Limited (in liquidation) ("West Harbour")As you are aware, we act for Waipareira Investments Limited ("WIL"). WILis a substantial creditor of West Harbour.Pursuant to WIL's rights arising under section 243 of the Companies Act1993, we hereby give notice that our client requires a meeting of creditors. The purpose of the meeting will be to replace Damien Grant and Kirsten Smith as liquidators of West Harbour and to appoint Anthony McCullough and Stephen Lawrence as replacement liquidators.[11] The letter from Grove Darlow was written by Mr Morrison, who says that he did not, at the time, turn his mind to the question of whether or not Waipareira was acreditor for the purposes of the creditors' meeting provisions of the Act.[12] On or about 15 March 2013, on behalf of Waipareira, Mr Morrison completed the proof of debt forms sent to Waipareira by the liquidators for completion. There were two separate forms. In the first, Mr Morrison inserted a figure of $1,311,997 as the amount of the debt. He further advised that Waipareira held a mortgage security in respect of that debt over 13 and 15 Clearwater Apartments, and 7A-7C Clearwater Cove.[13] The printed form required the creditor to insert the "Estimated value of guarantee/property secured". Mr Morrison inserted a figure of $1,800,000. He had already supplied to the liquidators copies of the security and title documents.[14] In the second proof of debt form, Mr Morrison provided precisely the same information, save that the amount of the debt was $3,298,748.55. The same security was identified and again he indicated that he had already supplied security and title documents to the liquidators.[15] As requested by Mr Morrison, the liquidators duly called in the creditors on 25 March 2013. The meeting itself was held on 5 April 2013. On the preceding day, Grove Darlow & Partners had received from the liquidators two letters confirmingreceipt of "your claim", agreed to be a reference to the completed proofs of debtform. In each case the letters recorded Waipareira as being wholly secured for the debt owed by West Harbour. In other words, the liquidators recorded Waipareira as a secured creditor for the whole of the debts of $3,298,748.55 and $1,311,997.00 respectively.[16] The creditors' meeting was chaired by Mr Grant, one of the liquidators. A verbatim transcript, agreed to be accurate, was prepared following the meeting. After a number of other matters had been discussed, Mr Grant came to the questionof Waipareira's resolution to replace the defendants as liquidators with Mr Anthony McCullough and Stephen Lawrence. The relevant portion of the verbatim transcript reads:1DG Alright, alright are there any further questions before we move to the, no? Ok. Alright so the resolution is that to replace Damien Grant and Kirsten Smith as liquidators of West Harbour, to appoint Anthony McCullough and Stephen Lawrence as replacement creditor,(sic) so.DM: Waipareira votes in favour of that as does Corban Revell, Damien.DGG Ok, ok just slow down. So, so if you are voting, so to vote "yes" is to vote PKF and to vote "no" is to vote Waterstone. So I will run through, maybe I'll run through who I know is with the Marine so. Alright David you're voting, you're voting Waipareira's debt?DM: Yes.DG: How much are you voting? Waipareira have claimed for.DM: We'll vote full.DG: Four point five million dollars, ok. And on what basis are you doing that? This is an unsecured creditors meeting.DM: As a creditor, I'm entitled to vote, it doesn't matter whether, whether it's unsecured or secured.DG: Ok, So you, Waipareira votes "yes".DM: Yes.1 The initials DG denote Mr Grant and DM denote Mr Morrison.[17] The resolution ultimately failed and the defendants remain liquidators of West Harbour.[18] On 26 April 2013, Mr Grant wrote to Waipareira C/- Grove Darlow, drawingWaipareira's attention to the provisions of reg 22 of the Companies Act LiquidationRegulations 1994 (the Regulations). In the letter, Mr Grant contended thatWaipareira's actions in voting " the entire debt" of Waipareira " vacated thesecurity of [Waipareira]". Waipareira was asked to discharge its mortgages over thesecured properties and to relinquish its rights as mortgagee in possession of the three townhouses.[19] A detailed correspondence followed between Mr Morrison and the liquidators and their solicitors. In a letter of 2 July 2013 the liquidators confirmed that they regarded Waipareira as a secured creditor until, by voting on 5 April, Waipareira elected to waive its security.[20] The three townhouses have been unconditionally sold by Waipareira. Arrangements have been made to hold the eventual sale proceeds pending the outcome of this proceeding.The legislative scheme[21] The rights and obligations of creditors in a liquidation are governed by interlocking provisions in the Act, and in the Regulations. Claims by unsecured creditors are governed by s 304(1) which provides:304 Claims by unsecured creditors(1) A claim by an unsecured creditor against a company in liquidation must be made in the prescribed form and must—(a) Contain full particulars of the claim; and(b) Identify any documents that evidence or substantiate the claim.[22] The rights and obligations of secured creditors, on the other hand, are governed by s 305. It is necessary to set the section out in its entirety.305 Rights and duties of secured creditors(1) A secured creditor may—(a) Realise property subject to a charge, if entitled to do so; or(b) Value the property subject to the charge and claim in the liquidation as an unsecured creditor for the balance due, if any; or(c) Surrender the charge to the liquidator for the general benefit of creditors and claim in the liquidation as an unsecured creditor for the whole debt.(2) A secured creditor may exercise the power referred to in paragraph (a) of subsection (1) of this section whether or not the secured creditor has exercised the power referred to in paragraph (b) of that subsection.(3) A secured creditor who realises property subject to a charge—(a) May, unless the liquidator has accepted a valuation and claim by the secured creditor under subsection (6) of this section, claim as an unsecured creditor for any balance due after deducting the net amount realised:(b) Must account to the liquidator for any surplus remaining from the net amount realised after satisfaction of the debt, including interest payable in respect of that debt up to the time of its satisfaction, and after making any proper payments to the holder of any other charge over the property subject to the charge.(4) If a secured creditor values the security and claims as an unsecured creditor for the balance due, if any, the valuation and any claim must be made in the prescribed form and—(a) Contain full particulars of the valuation and any claim; and(b) Contain full particulars of the charge including the date on which it was given; and(c) Identify any documents that substantiate the claim and the charge.(5) The liquidator may require production of any document referred to in subsection (4)(c) of this section.(6) Where a claim is made by a secured creditor under subsection (4) of this section, the liquidator must—(a) Accept the valuation and claim; or(b) Reject the valuation and claim in whole or in part, but—(i) Where a valuation and claim is rejected in whole or in part, the creditor may make a revised valuationand claim within 10 working days of receiving notice of the rejection; and(ii) The liquidator may, if he or she subsequently considers that a valuation and claim was wrongly rejected in whole or in part, revoke or amend that decision.(7) Where the liquidator—(a) Accepts a valuation and claim under subsection (6)(a) of this section; or(b) Accepts a revised valuation and claim under subsection (6)(b)(i) of this section; or(c) Accepts a valuation and claim on revoking or amending a decision to reject a claim under subsection (6)(b)(ii) of this section,—the liquidator may, unless the secured creditor has realised the property, at any time, redeem the security on payment of the assessed value.(8) The liquidator may at any time, by notice in writing, require a secured creditor, within 20 working days after receipt of the notice, to—(a) Elect which of the powers referred to in subsection (1) of this section the creditor wishes to exercise; and(b) If the creditor elects to exercise the power referred to in paragraph (b) or paragraph (c) of that subsection, exercise the power within that period.(9) A secured creditor on whom notice has been served under subsection (8) of this section who fails to comply with the notice, is to be taken as having surrendered the charge to the liquidator under subsection (1)(c) of this section for the general benefit of creditors, and may claim in the liquidation as an unsecured creditor for the whole debt.(10) A secured creditor who has surrendered a charge under subsection (1)(c) of this section or who is taken as having surrendered a charge under subsection (9) of this section may, with the leave of the Court or the liquidator and subject to such terms and conditions as the Court or the liquidator thinks fit, at any time before the liquidator has realised the property charged,—(a) Withdraw the surrender and rely on the charge; or(b) Submit a new claim under this section.(11) Every person who—(a) Makes, or authorises the making of, a claim under subsection (4) of this section that is false or misleading in a material particular knowing it to be false or misleading; or(b) Omits, or authorises the omission, from a claim under that subsection of any matter knowing that the omission makes the claim false or misleading in a material particular—commits an offence, and is liable on conviction to the penalties set out in section 373(4) of this Act.[23] Section 305(1) must be read together with s 240 of the Act which provides:240 Interpretation(1) In this Act, unless the context otherwise requires,—Creditor means a person who, in a liquidation, would be entitled to claim in accordance with section 303 of this Act that a debt is owing to that person by the company; and includes a secured creditor only—(a) For the purposes of sections 241(2)(c), 247, 250, and 289 of this Act; or(b) To the extent of the amount of any debt owing to the secured creditor in respect of which the secured creditor claims under section 305 of this Act as an unsecured creditor:[24] It is to be noted that unless the context otherwise requires, the term "creditor"in the Act includes a secured creditor only to the extent of the amount of any debt owing to the secured creditor, in respect of which that creditor claims under s 305 as an unsecured creditor.2 In line with s 240, s 248(2) of the Act confirms the right of a secured creditor, subject to s 305, to take possession of and realise or otherwise deal with property of the company over which that creditor has a charge.[25] As in this case, the starting point will usually be a notice by a liquidator given under s 305(8), requiring a secured creditor within 20 working days after receipt of the notice to elect which of the options set out in s 305(1) the secured creditor wishes to elect. Where the creditor elects to exercise either of the options in s 305(1)(b) or (c), then the election itself must be made within that same period. If a secured creditor fails to comply with an election notice, it is to be taken as having surrendered its charge to the liquidator under s 305(1)(c) for the general benefit of the creditors and in consequence may claim the liquidation only as an unsecured creditor for the whole debt.32 It is common ground that s 240(1)(a) is irrelevant for the purposes of this case.3 Section 305(9).[26] The effect of the legislative scheme was explained by the Court of Appeal inDunphy v Sleepyhead Manufacturing Co Ltd.4[43] The scheme of Part 16 of the Companies Act is to exclude from the ambit of the liquidation property which is subject to a charge. The Act contemplates that secured creditors will operate independently of the liquidation, unless they decide to surrender their security in terms of s 305(1)(c). The definition of "creditor" in s 240(1) makes it clear that se- cured creditors are excluded except for very limited purposes, none of which are relevant in the present case. Section 248(2) makes it clear that the liquidation does not limit the secured creditors' rights of enforcement, and s 253 provides that the liquidator's principal duty is to take possession of the assets and distribute them or their proceeds to "creditors" (which, for this purpose, excludes secured creditors). Similarly, ss 312 and 313, which provide for the payment of creditors by the liquidator, exclude from their ambit secured creditors.[27] It is common ground that most secured creditors will proceed to realise their securities, leaving open the option of proving later in the liquidation as an unsecured creditor in respect of any shortfall. But where a secured creditor elects to participate in the liquidation as an unsecured creditor under s 305(1)(b) or s 305(1)(c), then a carefully stipulated procedure must be followed. A secured creditor that wishes to surrender its security under s 305(1)(c), must file a claim in form one of the Schedule to the Regulations, pursuant to s 304(1) of the Act. That form requires the creditor to state either that it holds no security for the amount claimed, or that the security is surrendered and that the creditor claims as an unsecured creditor.5[28] Section 305(1)(b) applies where a secured creditor wishes both to rely on its security and to claim as an unsecured creditor for the balance of any shortfall. In such cases, the creditor must complete form two, pursuant to s 305(4) of the Act.6[29] Detailed provision is made for the conduct of meetings of creditors. Regulation 19 provides:19 Creditors entitled to voteA person shall not be entitled to vote as a creditor unless, by the time the vote is taken, the creditor has made a claim under section 304(1) or section 305(4) of the Act and either—4 Dunphy v Sleepyhead Manufacturing Co Ltd [2007] 3 NZLR 602 at [43].5 Companies Act 1993 Liquidation Regulations 1994, reg 6.6 Form two is prescribed by reg 7.(a) The liquidator has admitted the claim wholly or in part either for payment or for voting purposes; or(b) The chairperson of the meeting of creditors allows the person to vote in accordance with regulation 20 of these regulations.[30] Regulation 20 is an associated provision. It provides:20 Admission and rejection of claims by chairperson of meeting of creditors for purposes of voting(1) The chairperson of a meeting of creditors shall have power to admit or reject a claim for the purposes of voting at that meeting, but his or her decision shall be subject to appeal to the Court.(2) If a chairperson is uncertain whether a claim may be admitted or rejected, he or she must allow the creditor to vote subject to the vote being declared invalid in the event of the claim being rejected for the purposes of voting.[31] Finally, reg 22, which lies at the heart of this case, sets out the circumstances in which a secured creditor may vote at a meeting of creditors. It provides:22 Votes of secured creditors(1) A secured creditor shall be entitled to vote—(a) For the whole debt if he or she surrenders the charge to the liquidator for the general benefit of creditors; or(b) In respect of the balance of the debt if he or she values the charge and claims as an unsecured creditor under section 305(4) of the Act for the balance due; or(c) In respect of the balance of the debt if he or she realises property subject to a charge and claims as an unsecured creditor under section 305(3)(a) of the Act for any balance due after deducting the net amount realised.(2) Subject to the Act, if a secured creditor votes in respect of the creditor's whole debt, the creditor shall be taken to have surrendered his or her charge.(3) A creditor who is not entitled to vote may with the leave of the liquidator attend and speak at a meeting of creditors.Competing contentions[32] The case for the liquidators is that Waipareira duly made an election pursuant to s 305(1)(b) to rely on its security but to prove in the liquidation for the shortfall. Thereafter it was treated by the liquidators as a secured creditor until 5 April 2013 when its agent voted at a meeting of creditors. By so doing, Mr Smyth submits, Waipareira is deemed to have surrendered its security by virtue of the operation of reg 22(2). Indeed he goes further, by arguing that reg 22(2) is wide enough to catchany creditor who votes at a creditors' meeting, irrespective of whether that creditorhas proved in the liquidation.[33] For Waipareira, Mr Muir submits that although Waipareira is plainly a creditor of West Harbour in the ordinary sense, it does not qualify as a creditor for the purposes of the meeting of 5 April 2013, because it is not caught by the definitionof the term "creditor" in s 240. Under that section, a secured creditor will become acreditor for present purposes only to the extent of the amount of any debt in respect of which the creditor claims under s 305 as an unsecured creditor. A creditor which chooses to rely entirely upon its security will not prove in the liquidation, and is plainly outside the scheme of the Act.7 An unsecured creditor or a creditor whichchooses to surrender its security, will fall within the definition of the term "creditor"for the purposes of s 240, but Waipareira does not fall within that subsection. The only way in which Waipareira will be caught by s 240 is by valuing its security and claiming as an unsecured creditor for the balance.8[34] Mr Muir accepts that the liquidators may treat Waipareira as a creditor which has valued its security and claimed as an unsecured creditor for the balance due where Waipareira has completed Form two in the Schedule to the Regulations.9 But, he submits, that did not occur here because the proof of debt form completed on behalf of Waipareira at the behest of the liquidators did not comply with the requirements of the stipulated form; neither can it be saved by reg 4 or s 26 of theInterpretation Act 1999, because the form's deficiencies were fundamental.7 Section 305(1)(a).8 Section 305(1)(b).9 Pursuant to s 305(4).[35] Waipareira is not therefore a s 305(1)(b) creditor, Mr Muir argues, because it has not validly proved in the liquidation as an unsecured creditor for any part of the sum owing to it.10 It was therefore unable to vote at the creditors' meeting, and thevote it purported to cast must be treated as a nullity. The provisions of reg 22(2) were therefore not engaged.The arguments examinedWas regulation 22 engaged?[36] Regulation 22 commences with the phrase "Subject to the Act, ". Theeffect of this opening phrase is to subordinate reg 22(2) to the requirements of the Act. Where there is no inconsistency between the Act and the Regulations, the phrase is not engaged at all. But if there a clash between the Act and the Regulations then the Act must prevail.11[37] Regulation 22(2) can apply therefore only to a creditor who is caught by s 240. As explained by the Court of Appeal in Sleepyhead, a creditor who is secured remains outside the liquidation process unless it proves wholly or in part as an unsecured creditor, or alternatively is deemed to have surrendered its security.12[38] I accept Mr Muir's submission that the scheme of the Act requires that asecured creditor consciously and voluntarily take steps to bring itself within thedefinition of the term "creditor" under the Act, and so be entitled to participate in the liquidation.[39] The argument for the liquidators is that Waipareira has elected to be treated as a s 305(1)(b) creditor, in that it proposes both to rely on its security so far as it can, and to prove in the liquidation for the shortfall. Waipareira for its part argues that it has done no such thing and that it remains a secured creditor which, at least for the time being, stands outside the liquidation process.10 As required by s 240(1)(b).11 Clark (C & J) Ltd v Inland Revenue Commissioner [1973] 1WLR 905 at 911; Re Tasman Pacific Airlines of NZ Ltd (In receivership and in liquidation) [2002] 1 NZLR 688 (HC) at [29].12 Pursuant to s 305(9).[40] For Waipareira to become a s 305(1)(b) creditor as claimed by the liquidators, it was required to value the property subject to the charge and claim in the liquidation as an unsecured creditor for the balance due.13 In doing so, it was required to value the security and any claim in the prescribed form, providing full particulars of the valuation and the claim, and of the charge including the date on which it was given. It was also required to identify any documents that substantiated the claim and the charge.14 It is common ground that prior to lodging the proof of debt form, Waipareira had provided full particulars of the charge and indeed had provided documents evidencing the charge. But it had not provided a valuation.[41] The prescribed form is Form two of the Schedule to the Regulations.15Mr Muir submits that the form presented to Waipareira by the liquidators and completed on its behalf is fatally deficient. Mr Smyth submits that any discrepancies or differences between the prescribed form and the form completed by Waipareira are immaterial and saved by reg 4 and s 26 of the Interpretation Act 1999.[42] Section 305(4) stipulates that " the valuation and any claim [by as 305(1)(b) creditor] must be made in the prescribed form ". The use of the imperative form "must" indicates in my view that the Legislature intended that the form completed by the creditor be in precise language of Form 2 in the Regulations, although minor variations will not matter. Section 26 of the Interpretation Act relevantly provides:A form is not invalid just because it contains minor differences from the prescribed form as long the form still has the same effect and is not misleading.[43] Regulation 4 provides that a form in the Schedule may be varied as the circumstances of any particular case may require, but there is no evidence of any special circumstances which might govern this particular case. In my view, the proper approach is that reflected in s 26 of the Interpretation Act.13 Section 305(1)(b).14 Section 305(4).15 Regulation 7.[44] I turn to an examination of the proof of debt form completed on behalf of Waipareira in order to identify and assess the differences between that form and theprescribed form. The prescribed form incorporates a heading "Secured Creditors' Valuation and Claim". The liquidators' form contains no heading.[45] The prescribed form includes the following advice:Under s 305(4) of the Companies Act 1993 the valuation claim made by a secured creditor claiming as an unsecured creditor against a company in liquidation for the balance due must be in this prescribed form and must:(a) Contain full particulars of the valuation and any claim, and(b) Contain full particulars of the charge including the date on which it was given; and(c) Identify any documents that substantiate the claim and charge.[46] That advice does not appear in the form completed by Waipareira.[47] Next, and crucially in my view, form two incorporates a box requiring the following to be completed by the complainant:I claim that after valuing the security as at the date the company was putinto liquidation the above-named creditor is an unsecured creditor of the company for the sum of $ [48] No such provision appears in the form completed by Waipareira.[49] Form two continues with a section in which the liquidator is required to either accept or reject a claim. There is no such provision in the form completed by Waipareira in this case.[50] Finally, at the foot of the prescribed form two, there are several boxes whichappear under the heading "Valuation of Security" and which require the claimant toprovide particulars of the charge and of any valuation, including the amount at which the creditor values the security. That does not appear in the form executed by Waipareira either, although that form does make provision for:(a) The total amount of the debt;(b) The type of security and details of the property secured; and(c) "Estimated value of guarantee/property secured", together with thedate upon which the security was given.[51] The proof of debt form utilised by the liquidators and completed by Waipareira appears to be an amalgam of part of Forms one and two, although it does not comply with Form one either.[52] The process of valuing charged property and proving for a shortfall in value under s 305(1)(b) carries with it important practical implications as explained by Mr G Slevin:16Valuing the charged property and proving for the shortfall in value under s 305(1)(b) is no impediment to the right to realise it. A secured creditor who has lodged a value and claim which has been accepted by the liquidator is bound by that election and may not claim for any greater shortfall if the property sells for less than the accepted valuation, but must in all cases account to the liquidator for any surplus on realisation after repaying its debt, interest, costs of realisation and the proper claims of any other person with security over the property. A creditor who does not prove in the liquidation is entitled to recover interest until the date of satisfaction, whereas a creditor who does prove is restricted, as are unsecured creditors, to recovering interest up to the date of liquidation.The secured creditor is obliged to provide certain information with any valuation and claim it chooses to submit and the liquidator is empowered either to accept them both or to reject them, in whole or in part. Having accepted a valuation and claim, the liquidator is entitled to redeem the security by paying the accepted value to the creditor.[53] The proof of debt form completed on behalf of Waipareira falls well short of the requirements of Form two. Instead of valuing the property, the claimant issimply required to provide the "estimated value" and there is no provision requiringthe stipulated value to be supported by a formal valuation. Neither does the form provide for a creditor to claim as an unsecured creditor for the difference between the amount of the valuation and the total debt. Unless and until those aspects of the requirements of form two are complied with, the various practical consequences outlined by Mr Slevin in his article are not triggered.16 G Slevin "Liquidation and Secured Creditors – the Purpose and Effect of s 305 of theCompanies Act 1993" (2013) 19 NZBLO 61 at 61.,.[54] In my view the form submitted on behalf of Waipareira does not amount to an election by Waipareira to value the security and prove as an unsecured creditor for the balance. The deficiencies are so serious that they go to the fundamental validity of the document.[55] Mr Smyth says that the document is sufficiently similar to that utilised by the Ministry of Economic Development. But the form to which he referred is intended for proofs by unsecured creditors. There is no evidence that the Ministry uses a form similar to that utilised by the liquidators in cases where a creditor proposes to value the security and prove for the difference.[56] The use of the imperative expression "must" in s 305(4) leaves only limitedroom in my view for departures from the prescribed form. In New Zealand Institute of Agricultural Science Inc v Ellesmere County,17 a case in which the relevantrequirement was that the form "shall" be in a particular form, Cooke J (as he thenwas) observed that whether non-compliance with a procedural requirement is fatal will turn on a consideration of its place in the scheme of the Act or Regulations and the degree or seriousness of the non-compliance.[57] Adopting that approach here, I am satisfied that the deficiencies in the form are fundamental; that Waipareira has not in fact valued its security and proved as an unsecured creditor for the balance, and that in consequence, it is not a creditor which falls within s 305(1)(b). It is essential that a proof of debt form under which a creditor values its security and proves as an unsecured creditor for the balance be couched in the clearest terms, leaving the creditor in no doubt as to the consequences of its election. That is crucial, having regard to the important practical consequences of an election identified by Mr Slevin. The stipulated Form two achieves thatobjective. The liquidators' form does not.[58] I consider that the proof of debt form supplied by the liquidators was ineffective for its intended purpose, with the result that Waipareira remains a secured creditor which has not proved in the liquidation. Subject to the considerations17 New Zealand Institute of Agricultural Science Inc v Ellesmere County [1976] NZLR 630 (CA), at 633.discussed below, it follows that Waipareira is not relevantly a "creditor", and that itwas not entitled to vote as such at the meeting of 5 April 2013. In those circumstances reg 22(2) is not engaged.[59] Having reached that provisional conclusion, I turn to a number of alternative arguments advanced by Mr Smyth. First he submits that even if Waipareira is to be regarded as a s 305(1)(a) creditor, or even a creditor that has not proved at all in liquidation, it is still caught by reg 22(2). That is because s 240 commences with thephrase "Unless the context otherwise requires". Mr Smyth maintains that in thepresent situation, which he characterises as unique, the circumstances require that Waipareira be treated as if it had lodged a valid proof of debt under s 305(1)(b).[60] I am unable to accept that submission. As Mr Muir observes, to adopt thatapproach would be to permit the behaviour of a creditor at a creditors' meeting togovern the creditor streaming exercise for the purposes of s 305(1). The legislative scheme is plainly aimed at ensuring certainty so that the liquidators on the one hand and creditors on the other may know precisely where they stand as a matter of legal entitlement. Regulation 22(2) applies to a creditor who has invoked the s 305(1)(b) option. It cannot, in my view, operate so as to deprive of its security a creditor who has chosen to rely entirely on that security. Section 240 places such a creditor outside the reach of reg 22.Creditor conduct[61] Next Mr Smyth steps beyond the proof of debt form itself and asks the Court to consider the overall conduct of Waipareira, and more particularly of Mr Morrison. At a practical level, Waipareira, through Mr Morrison, took an active interest in the liquidation. That is unsurprising, having regard to the complex litigation in which Waipareira and West Harbour had previously been engaged. Waipareira was vitally interested in the identification and recovery of certain assets claimed by Waipareira to fall within the liquidation. So it participated in meetings with the liquidators, undertook correspondence with them, intervened in proceedings in this Court, and of course participated in the meeting of 5 April 2013. However, none of those factors, considered together, can in my opinion convert Waipareira into a creditor which is tobe treated as having made an election of s 305(1)(b) and is therefore caught by reg 22(2).[62] Mr Smyth referred to several Australian authorities. Some care is required when considering the Australian cases. The legislation governing the lodging of proofs of debt is different, and there is no equivalent of s 240. But I accept that statements of general principle in the Australian cases can be useful. For example, I accept that it is possible for a party to undertake some action which is of such anature that, irrespective of that party's actual intention, the law will treat him ashaving exercised his election even where he does not intend to do so.18 The Courts in Australia will undertake a review of the overall conduct of the parties (and indeed the liquidators) for the purpose of determining whether or not a security has been surrendered. But any election by a secured creditor to surrender its security must be unequivocal, especially in the context of s 240.19[63] In my view, Waipareira did nothing that could amount to an unequivocal election to surrender its security. It did not do so in the proof of debt form which was supplied by the liquidators and which I have already held to be deficient. Indeed the liquidators confirmed in writing to Waipareira that it was regarded as entitled to rely on its security. Mr Morrison's actions in purporting to vote on behalfof Waipareira at the meeting of 5 April 2013 were legally erroneous but could not result in a deemed surrender of the security because Waipareira was not caught by reg 22(2). The main activities undertaken by or on behalf of Waipareira post- liquidation (chiefly by way of close interaction with the liquidators) are explicable on the basis that Waipareira, knowing that its overall debt was likely to exceed the value of its securities, might in due course wish to prove in the liquidation for the shortfall.A floodgates argument[64] Next, Mr Smyth advances a floodgates argument. He says that many liquidators in this country use proof of debt forms that are similar to those employed18 Surfers Paradise Investments Pty Ltd (in liq) v Davoren Nominees Pty Ltd [2003] QCA 458.19 Health and Life Care Ltd (in liq) v South Australian Asset Management Corp (1995) 13 ACSR 153 at 159.by the present liquidators and that a decision in favour of Waipareira is likely to give rise to very wide and unforeseeable consequences in the course of many current and past liquidations. There is no evidence about this, but even if it was the position, it is difficult to see how it could affect the outcome in the circumstances of this case.[65] Mr Smyth refers to Rodewald v Acqua-Agriculture Farms Ltd.20 There, the resolution appointing liquidators had failed to include the time at which the resolution was passed. In this Court, the liquidation was held to be a nullity on that ground. The Court of Appeal disagreed. There was evidence before the Court of Appeal that only two out of 674 notices of appointment of liquidators between April and September 1999 had referred to the time of appointment. The Court of Appeal accepted the submission that the result of upholding the High Court judgment might well be that many hundreds of liquidations were nullities. In that case the relevant omission was nothing more than a mere technicality. This case is quite different. In my view there are fundamental deficiencies in the proof of debt form furnished to Waipareira by the liquidators. The result is that there has been no effective election by Waipareira. It is no answer to say that there may be cases in which other purported elections are likewise invalid. There is no evidence of that, as there was inRodewald.A late argument[66] The liquidators' position is not assisted by the fact that they wrote toWaipareira following receipt of the proof of debt form recording Waipareira as being fully secured. Mr Grant maintained that position at the meeting. It was not until the liquidators wrote to Waipareira on 26 April 2013 that it was first contended thatWaipareira's security had been lost by deemed surrender.[67] The argument that Waipareira had elected the s 305(1)(b) option was not advanced at all in the pleadings or supporting affidavits, and first saw daylight in Mr Smyth's synopsis of argument, prepared and exchanged following receipt ofMr Muir's synopsis, in which it was argued that reg 22(2) could catch only a20 Rodewald v Acqua-Agriculture Farms Ltd [2002] 3 NZLR 501 (CA).s 305(1)(b) creditor. The liquidators' initial position was that reg 22(2) could apply to any creditor who voted or purported to vote at a creditors' meeting.[68] Somewhat indignantly, Mr Muir asked the Court to reject out of hand theliquidators' argument that Waipareira was a s 305(1)(b) creditor, arguing that theliquidators' position at the hearing was opportunistic and represented a significantchange of position.[69] It is unnecessary to go that far. Mr Muir's argument stands on its own feet.Waipareira's alternative argument[70] These were the principal matters raised by Mr Smyth. They do not persuade me that the provisional conclusion to which I came earlier was wrong. The result is that Waipareira is a secured creditor, outside the reach of reg 22(2) by virtue of s 240. In the light of that finding, it is unnecessary to consider Mr Muir's alternativeargument in any detail. He submits that reg 22(2) could catch Waipareira only if Mr Morrison had voted the whole of Waipareira's debt. That did not occur, Mr Muir argues, because Mr Morrison purported to vote only $4.5 million being the quantum advised to him by Mr Grant. In fact, Mr Muir submits, the aggregate of the Waipareira debt was $4,610,745.55.[71] I would have rejected that argument. It is plain from a reading of the transcript that Mr Morrison intended to vote the whole of Waipareira's debt,whatever that proved to be.Result[72] For the foregoing reasons, I conclude that Waipareira has not surrendered its security by operation of law. It makes no difference that Mr Morrison erroneouslybelieved that he was entitled to vote Waipareira's debt at the meeting of 5 April 2013. By virtue of s 240, Waipareira was not a "creditor" for the purposes of Part 16of the Act, and in particular for the purposes of the creditors' meeting. The proof of debt form completed by Waipareira did not meet the legal requirements for a validproof and accordingly, Waipareira had made no election to become a s 305(1)(b) creditor, which would have triggered reg 22(2).[73] There will accordingly be declarations:(a) That Waipareira was not a creditor of West Harbour for the purposes of Part 16 of the Act, by virtue of the operation of s 240 of the Act;(b) Waipareira was not entitled to vote at the creditors' meeting of 5 April 2013;(c) Any vote cast on Waipareira's behalf at that meeting was of no legaleffect;[74] Having succeeded, Waipareira is entitled to costs. Counsel are asked to confer urgently in respect of quantum. If agreement cannot be reached, memoranda are to be filed on or before Tuesday 17 December 2013.C J Allan J