IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-001920

BETWEEN	GDF-I LLP Plaintiff

AND	LIGHTER QUAY HOTEL MANAGEMENT LTD Defendant

Hearing:	30 June 2010

Appearances: M Davies for Plaintiff
P Skelton for supporting creditors
B D Gray QC for Defendant

Judgment:	30 June 2010

ORAL JUDGMENT OF ASSOCIATE JUDGE BELL

Solicitors/Counsel:
Meredith Connell, PO Box 2213, Auckland
Kensington Swan (D Hughes), Private Bag 92101, Auckland
Anderson Creagh Lai (J Lai), PO Box 106-740, Auckland

B D Gray QC, PO Box 4338, Shortland Street, Auckland
P G Skelton, PO Box 4314, Shortland Street, Auckland

GDF-I LLP V LIGHTER QUAY HOTEL MANAGEMENT LTD HC AK CIV-2010-404-001920  30 June 2010

[1]       In my minute of 9 June 2010, when this matter was last called before me, I heard submissions against the further adjournment of the matter.   At that stage, I made factual findings that the plaintiff’s proposal under Part 14 of the Companies Act was doomed to fail because there were enough creditors in opposition to the proposal that any meeting held under Schedule 5 of the Companies Act was unlikely to pass or approve the defendant’s proposal.  I noted also in my decision that there were still procedural matters that needed to be attended to and therefore it was not possible to make an immediate order on the plaintiff’s application.

[2]       Since then, there have been further developments.   On 25 June 2010, an application was made for interim liquidators to be appointed.  That application was made on notice to be  called today.   On 28  June 2010, the defendant made an application to this Court for the  approval of a compromise under s 236 of the Companies Act and, in addition, it applied for a stay of the present proceeding until its application for approval of its compromise under s 236 could be determined.  It also sought a stay of the application for appointment of interim liquidators.

[3]       That matter was considered by Allan J as Duty Judge at short notice.  I note from his minute that he made his decision at 3:50 pm.   That was when he was confronted with, in effect, an ex parte application from the defendant.  The plaintiff and the supporting creditors did not have any opportunity to appear and submit against the making of the orders. The order was made in the face of evidence from Mr  McKenna  deposing  that,  if  an  order  for  stay  were  not  made,  then  secured creditors  would  be  taking  immediate  steps  to  have  the  defendant  put  into receivership.   The order he made was necessarily an interim order although, as drawn up, the order does not reflect that.  Mr Gray today conceded that the order was necessarily an interim one.

[4]       Since then, there has been an application filed to rescind the order of Allan J. The  plaintiff  and  supporting creditors  have  also  filed  documents  to  address  the matters that were outstanding as at 9 June 2010.

[5]       There are some other changes that have occurred.   I was advised that the defendant intended to have its meeting for creditors to consider its proposal under

Part 14 of the Companies Act on 28 June 2010, but I was also informed that that meeting did not take place and was instead cancelled.   I observe that I am not surprised at the cancellation because it always seemed to me that, given the strength of opposition by the plaintiff and the supporting creditors, any meeting would not result in a positive outcome for the defendant.

[6]       Today, Mr Davies advised that his clients have now sold the units they held in the Lighter Quay hotel building but they still retained their rights  as unpaid creditors for unpaid rent that had accrued due before the date of sale.

[7]       Mr Skelton advised that the number of supporting creditors has now grown to

110.  I note that he acts for 110 of the owners of units in the building, and Mr Davies acts for a further 23 units, so that together they represent 133 out of the 172 units in the Lighter Quay building.

[8]       Today, Mr Gray submitted that the application under s 236 of the Companies Act for the Court’s approval of the compromise promoted by his client should be allowed to run in the sense that there should be timetabling directions on that matter and a date should be allocated – necessarily an early date where the application could be considered on its merits.   The issue I have to determine today is whether time should be given to allow that to happen or whether the matter is so cut and dried that I can refuse to give that application any further opportunity.

[9]       I record some further matters.   In its proposal under Part 14, the defendant listed sums owing to creditors whom it called investor creditors.   These are the people who own accommodation units within the hotel block.   Crudely, the total sums due as shown in that schedule come to some $6,100,000.  I have not been given the date when those figures were taken but I note that Mr Davies’s client is recorded as   being   owed   approximately   $195,000   and   that   would   make   his   client approximately 3% of the total.   Also appearing in that list is Melview Viaduct Harbour Ltd, the company associated with the defendant, which itself owns accommodation units.  The sum shown due to it is $1,281,000 and that would make it owed approximately 21% of the debts shown.

[10]     The proposal by the defendant is that the sum of $1,400,000 be applied towards  the  payment  of  these  arrears  of  $6,100,000.  I also  understand  that  the Melview Viaduct Harbour Ltd units would not be included within this proposal.  The proposal is that this $1,400,000 would be paid out over six years, 25% per year with the first payment beginning in the third year, and 25% made in each of the following years.  It was also proposed that arrears in rates would also be paid.  There are other permutations to the proposal but that is the broad outline of it.

[11]     It is also helpful to note the various interests in the hotel operation.   The creditors we are concerned with in this case are owners of accommodation units within the hotel block.   The building is in a unit title ownership and the various creditors in this case own accommodation units which they lease to the defendant of Lighter Quay Hotel Management Ltd.   Also within the block there is commercial space.    The  commercial  space  is  owned  by Melview  Viaduct  Harbour  Ltd,  the McKenna company which also owns some of the accommodation units.  Melview Viaduct Harbour Ltd also leases its commercial space to the defendant.  There are secured creditors – the Bank of Scotland International and a finance company.  Their securities are primarily over the commercial space but they also hold securities over the defendant company.

[12]     I note that the unit owners as lessors have powers to cancel their leases under the Property Law Act.  In fact their leases make scant provision for them to terminate but their rights are preserved under the Property Law Act.  It would have been futile for them to act individually in cancellation of the leases.  That would not be effective to protect their rights:  cancellation of an individual lease would give them nothing. Effectively, then, when the lessors are faced with a shortfall rent, the best option for them to take is the course they have in fact taken, which is to bring the matter before the Court.  The lessors have acted jointly to a large degree.  I have not been advised of any unit owners who have not taken part in the proceeding but it is quite apparent that the plaintiff and the creditors represented by Mr Skelton make up by far the majority of unit owners other than the units held by Melview Viaduct Harbour Ltd.

[13]     It is important to note that opportunity has been given for the lessors to consider the proposal made by the defendant.   Time was given for that to happen

when this matter was first brought before me in April and I note that in the course of promoting its proposal, the defendant has sent people to visit supporting creditors who primarily live in Malaysia and Singapore.   The supporting creditors have also set up a committee to enable communication between themselves and to form an effective liaison between the supporting creditors as a whole and the solicitors they have  instructed  in  Auckland.    I  note  that,  because  the  lessors  have  appointed solicitors in Auckland, that has given the defendant the opportunity to communicate directly with those solicitors and to promote the proposal with them.

[14]     It is against that background that I have considered the proposal that the application under s 236 of the Companies Act should be allowed to continue.  The problem is that there is quite clearly a very large majority of unsecured creditors who have been asked to compromise but who will not accept the compromise.

[15]     The defendant has tried to promote a proposal under Part 14 of the Act. There is resolute resistance from the class of creditors being asked to compromise.  It is not a case of there being a small number of dissenting creditors which would prevent an adequate majority being made up for a resolution to pass where a case can still be made out.

[16]     What the Court would be asked to do if this s 236 application were allowed to run would be for the Court to impose a solution on creditors as a whole, the majority of whom have shown that they are not interested in the proposal put to them.  It is not a case of the proposal being a close run thing where the Court’s approval might bridge a small gap.  Here, I am satisfied that these creditors, as a block, are generally opposed to the compromise which the defendant wishes to impose upon them.  In my view, this Court has no business in an application under s 236 to substitute its views for   those   of   the   creditors   who   are   adamantly  opposed   to   the   application. Accordingly I find that this application under s 236 is not arguable and is doomed to fail.  I therefore see no useful purpose in allowing the application to run.

[17]     On that basis then, the consequences are that the stay order made by Allan J will be set aside and there will be orders placing the company in liquidation and liquidators will be appointed.

Following adjournment

[18]     When I was delivering my decision before and got to the stage of announcing that I would make orders that the company be put into liquidation, Mr Gray asked for a short adjournment.   Following the adjournment, he announced that he had instructions  to  appeal  against  the order  I have  made setting  aside the  stay and against the order I would make that the company be put into liquidation.  In effect, he asks for time to exercise rights of appeal.

[19]     The issue facing any appeal against my decision is that, if I were to make an immediate order that the company be put into liquidation, that would effect a change of status and that change of status may be final and not able to be remedied by an appeal.   I accept that an appeal is not completely frivolous and is not just a time- wasting exercise.  An appeal would be pursued for good grounds.

[20]     On  the  other  hand,  I  accept  that  the  creditors  are  entitled  to  have  their position also protected ending the appeal.  I therefore indicate that, but for Mr Gray’s announcement that the defendant would appeal any decision I make putting the company into liquidation, I would have made that order, but I do not at present make that order.   However, I accept that there is still a need for the protection of the creditors.

[21]     There are matters that have been raised by Mr Skelton in submission that justify the creditors having interim protection pending any appeal being exercised. In particular, Mr Skelton pointed to the fact that this company has arrears in rates. That is, the defendant ought to have been paying rates.  His clients have been given statements showing that rates have been deducted from them in their rent payments but the City Council and Regional Council say that they are owed money for rates as well.  The question Mr Skelton has raised is “Where has the money gone?”  These, and related matters, make it appropriate that interim liquidators be appointed to enable liquidators to investigate the affairs of the company and to protect the assets against further deterioration.

[22]     Accordingly, I make an order appointing Shaun Neil Adams and Ian Charles Thursfield interim liquidators of  Lighter Quay Hotel Management  Ltd.   If it is material, I record the time of appointment at 4:50 pm.  This is made on the basis that the defendant has indicated that it will lodge an appeal to the Court of Appeal against the other decisions I have announced.

[23]     I decline  to  make a  final  order  putting  the  company into  liquidation  on condition that the defendant lodge its appeal promptly.  The appeal to be lodged in the Court of Appeal by Monday, 5 July 2010. The defendant is to prepare a case on appeal for the Court of Appeal by Friday, 9 July 2010, and is to apply for an urgent fixture consistent with the other commitments of the Court of Appeal.

[24]     Mr Skelton has raised with me the powers to be given to the liquidators.  The liquidators are to have the powers in paragraph 1.2 of the application by the plaintiffs and supporting creditors dated 25 June 2010.

[25]     Mr Davies has sought costs for the plaintiff.  He has submitted a schedule. The schedule is at the $1,880 rate on a 2B scale.  That rate only came into force on
24 May.    The  rate  before  that  was  $1,600  per  day.    His  schedule  needs  to  be amended.  He also advises that some of the matters were steps taken jointly with Mr Skelton and Mr Skelton’s clients.  I find that the plaintiff should have costs on the proceeding up until now.  The parties are to confer on costs and file a memorandum.
I confirm that the 2B basis is an appropriate way for calculating costs.

R M Bell
Associate Judge