Commissioner not restrained from advertising liquidation proceedings

Summary

The companies unsuccessfully applied to restrain the Commissioner from advertising his liquidation proceedings.

Impact of decision

The decision is an application of corporate insolvency jurisprudence to the 1993 Companies Act. Of interest is the reaffirmation of the principle that creditors' statutory rights and the "wider public interest" are paramount in liquidation proceedings.

Facts

Three Christchurch companies ("the companies") controlled by Mr David Henderson, a property developer, collected and self-assessed, but had not paid goods and services tax ("GST") on the sale of certain properties to the Christchurch City Council. The Commissioner sought to liquidate the companies as the debt was unpaid and it seemed the GST collected had been otherwise applied within Mr Henderson's group of companies.

Liquidation orders were applied for in August and shortly thereafter the companies applied for a stay of advertising and liquidation on the grounds that a compromise proposal could well satisfy creditors. The Commissioner agreed not to pursue the liquidation until an interlocutory application to consider the compromise had been heard. However, by early November the creditors' meeting had not taken place. Instead, the companies were granted leave to seek orders for a compromise under section 236 of the Companies Act 1993, rather than by vote of creditors. This application was to be heard in February 2010.

Decision

His Honour, Pankhurst J referred to a brief affidavit filed by Mr Henderson which set out the structure and business of his various companies. Mr Henderson deposed as to the adverse effect advertising would have on the business of the group as a whole. In dismissing the companies' application, Pankhurst J referred to the Court of Appeal Authority of Anglian Sales v South Pacific Manufacturing Co Ltd [1984] 2 NZLR 249 (CA) where the court's inherent jurisdiction to grant a stay was contrasted with a creditor's statutory right to petition for winding-up. The Court of Appeal had held that a "balance of convenience" test was inappropriate and that a stay could only be granted upon a serious challenge being raised, such as that of the petitioners' very status. This jurisdiction was to be exercised with "great circumspection".

His Honour did not find the affidavit evidence persuasive to the extent that it raised the requisite serious challenge. He considered the "wider public interest" test stated by Randerson J in CIR v Sigatoka Investments No 3 (1988) 12 PRNZ 678. He found the facts of that matter similar to the present one and, notwithstanding "collateral damage" likely within the debtor company's group, the creditors' statutory rights prevailed.

The application by the companies to stay advertising was refused with an award of costs to the Commissioner.