McMillan v McMaster

[2020] NZHC 3065

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2020-485-345

[2020] NZHC 3065

UNDER

the Companies Act 1993

IN THE MATTER

of

MARLBOROUGH COUNTRY LIMITED (IN LIQUIDATION)

BETWEEN

MARCUS JAMES McMILLAN and JOHN

HOWARD ROSS RISK, as liquidators of Marlborough Country Limited

(in liquidation) Applicants

AND

GARY RICHARD McMASTER, JAYNE MARIE GALE, PETER SCOTT MURPHY and STEPHEN JOHN GALE

First Respondents

AND

VUELTA INVESTMENTS LIMITED

Second Respondent

continued…2

Hearing:

19 November 2020

(By way of telephone conference)

Counsel:

K L B Eichelbaum for the Applicants

S A Barker for First, Second, Third and Fourth Respondents M Robinson for Fifth Respondent
A Low for Ninth and Tenth Respondents

Interim Judgment:

19 November 2020

INTERIM JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 19 November 2020 at 3.15 pm

pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar 19 November 2020

McMILLAN v McMASTER [2020] NZHC 3065 [19 November 2020]

AND

ANNIE CHAN and JACK CHAN

AND AND AND AND AND AND AND AND

AND

Third Respondents

H HAHN LIMITED
Fourth Respondent

FREDERICK PAUL PEREIRA
Fifth Respondent

DOMINIC CHANDRAN
Sixth Respondent

YOU SEO LIAN
Seventh Respondent

CHUAH KIM SENG
Eighth Respondent

SONIA JANE PEREIRA
Ninth Respondent

MARCUS PAUL PEREIRA
Tenth Respondent

YONG SIEW LENG
Eleventh Respondent

FRANCIS BRIGGED

Twelfth Respondent

[1]                 This proceeding is an application by the liquidators of Marlborough Company Limited (in liquidation) (Marlborough).

[2]                 The  applicants,  having  completed  their  duties  as  liquidators,  now  hold  a surplus which would, in the ordinary course of events, be distributed pro rata to the shareholders in Marlborough.

[3]                 A group of shareholders, being the first to fourth respondents, known by the parties  as  “the  Wellington  respondents”,  opposed  the  liquidators  distributing  the surplus in accordance with the Companies Office Register, they taking the view

that some of the shareholders were not properly listed as shareholders on the company’s register and on the basis they have claims against the fifth respondent arising from events leading to them becoming shareholders. In short, the Wellington respondents seek a direction that the liquidators distribute all of the surplus to them (after liquidators’ costs).

[4]                 Part of the allegations made by the Wellington respondents against the fifth respondents are that the fifth respondent was involved in fraudulent activity in relation to the affairs of the company and/or the allocation of shares and/or the process by which the Wellington respondents became shareholders. The Wellington respondents seek to establish in this application, that improper conduct they claim occurred in order to support their claim is that the surplus should be paid only to them.

[5]                 In aid of that argument, counsel for the Wellington respondents has, by memorandum, sought three directions in relation to the conduct of the liquidators’ hearing.

[6]                 Firstly, a direction is sought that an affidavit filed at the time Marlborough was placed into liquidation be read in this proceeding, secondly, that the fifth respondent be summonsed to appear before the Court for cross-examination, and thirdly, that the hearing of the liquidators’ application for directions scheduled for 23 November 2020 be adjourned to permit adequate hearing time to be allocated for the full issues to be explored.

[7]                 I held a telephone conference on 19 November 2020 to address Mr Barker’s applications and to address concerns raised by counsel for the fifth respondents that the liquidators’ application for directions was not the appropriate forum for which, what were essentially disputes between the shareholders, to be aired. In particular, Mr Robinson, counsel for the fifth respondent, highlighted the usual rule that allegations of fraud or dishonesty must be pleaded with care and particularity, referring to Schmidt v Pepper New Zealand (Custodians) Ltd.1

1      Schmidt v Pepper New Zealand (Custodians) Ltd [2020] NZCA 565 at [15].

[8]                 I commenced the conference by suggesting that the Wellington respondents were in effect attempting to run what would otherwise require a full  hearing with  the benefit of comprehensive pleadings and the usual interlocutory steps, under the umbrella of the liquidators’ application. I also raised that it appeared, at least in part, that the Wellington respondents were seeking to freeze funds that would otherwise have gone to the fifth (and other) respondents.

[9]                 Mr Barker, counsel for the Wellington respondents, submitted in substance that my concerns were misplaced. He submitted that the fifth respondent in particular was aware of the nature of the allegations again him, which he said had been raised in the past, but the fifth respondent had not responded to. He also resisted the suggestion that there was any element of a “freezing order” in what his clients sought.

[10]              I raised the possibility that the interests of all parties concerned could be met by the liquidation being brought to an end, the liquidators allowed their reasonable costs to date, the surplus being held by a stakeholder (and if one cannot be found, that the money be paid into Court), and that the Wellington respondents’ issue proceedings in the ordinary way that meet the stringent requirements for the pleading of fraud. All counsel, other than Mr Barker, supported that approach.

[11]              Mr Barker, with reference to Ruscoe v Cryptopia Ltd (in liq), said there was no reason why involved issues could not be included in a liquidation application for directions.2 I accept what Mr Barker says as far as it goes. While the background to the Cryptopia decision was that the company had been the subject of fraudulent hacking of the cryptocurrency it held, the Court was not concerned with making findings in relation to such activity or even whether the company had been at fault in some way in the loss. The Court had a specific sequence of questions to work through of a quite different character to the allegations of actual fraud made in this case.

[12]              In whatever forum the Wellington respondents’ concerns are to be addressed, it will be after the allegations against the fifth respondent and any other respondent said to be involved in the improper conduct, are properly related. It is not for the Wellington respondents to sift through allegations made in the 2017 liquidation

2      Ruscoe v Cryptopia Ltd (in liq) [2020] NZHC 728.

proceedings or elsewhere to identify exactly what allegations are made against them. That is a matter for pleading.

[13]              Even on Mr Barker’s view of matters, the substantive hearing could not proceed on the scheduled hearing date.

[14]              Nor is there any point in the liquidators remaining involved, given that at the moment they are effectively only a stakeholder. There was no criticism from any counsel of the liquidators for having brought this application.

[15]              While I can understand Mr Barker’s clients’ desire to advance matters, the fact is they have been aware of their claims for an extended time and have not issued proceedings in relation to their concerns. The matters they raise require there to be proper pleadings which will require those shareholders of the company, who it is said are not entitled to receive a distribution, to be named as defendants and the basis upon which it is said those shareholders are not entitled to share in the surplus, to be identified. Those shareholders will then have a chance to plead any positive defences available to them.

[16]              Similarly, the Court’s determination of those issues will be greatly assisted by a proper pleading process.

[17]              Accordingly, I do not allow Mr Barker’s applications as set out above. I intend to make directions when the liquidators’ application is called on 23 November 2020, along the lines that I have set out above, namely, that the surplus after the liquidators’ costs will be paid to a stakeholder or into court. Upon that being done, the liquidation can be brought to an end. That step alone will save the further costs of the liquidators being involved in adjourning the application for directions.

[18]              Mr Barker is to advise how long he requires to file proceedings setting out the relief his clients seek in relation to the surplus from the liquidation.

[19]              Counsel for the liquidators are to file a proposed form of direction that will give effect to the above. If counsel are able to agree on an appropriate stakeholder,

then such is to be incorporated into the directions, otherwise the funds will be paid into Court. The funds will be held undistributed for the time specified by Mr Barker for the issuing of his proceedings, which I would not expect to take any longer than to the end of January 2021. If those proceedings have not been filed by that time, the surplus will be distributed in accordance with the shareholders of the company as shown on the Companies Register. If those proceedings are issued prior to the end of January 2021, then the surplus will be held subject to further order of the Court.

[20]              If counsel can agree the form of directions then I will make them on the basis of a consent memorandum, otherwise any issues can be addressed when the application is called on Monday 23 November 2020.

[21]              The   appearance   of   counsel   for    the    liquidators    is    excused    on   23 November 2020, if they do not wish to appear.

Associate Judge Lester

Solicitors:

Chapman Tripp, Auckland (for the Applicants)

Buddle Findlay, Wellington (for the First, Second, Third and Fourth Respondents) Alexandra Low & Associates, Auckland (for the Ninth and Tenth Respondents)

Copy to counsel:

M Robinson, Barrister, Auckland (for the Fifth Respondent)