IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV-2022-404-495
[2022] NZHC 1642	

BETWEEN	BENJAMIN CHARLES SMITH
Plaintiff	
AND	ECOLIBRIUM BIOLOGICALS HOLDINGS LIMITED
Defendant	

Hearing:	23 June 2022	
Appearances:	Plaintiff in person
M C Brugeyroux for Stephen Ford in opposition
L C Sizer for creditor Chemovateq Swiss AG abiding decision No appearance for Defendant	
Judgment:	12 July 2022	

JUDGMENT OF HINTON J

This judgment was delivered by me on 12 July 2022 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date: ………………………….

Solicitors:	McVeagh Fleming, Auckland

SMITH v ECOLIBRIUM BIOLOGICALS HOLDINGS LIMITED [2022] NZHC 1642 [12 July 2022]

[1]	This brief judgment relates to an application by Benjamin Smith to appoint interim liquidators of the defendant company (Ecolibrium). Mr Smith is self-represented.

[2]	Mr  Smith  was  appointed  as  an  independent  director  of  Ecolibrium  on 26 October 2021. On 4 April 2022 he filed an application seeking to put Ecolibrium into liquidation on the grounds that the company is insolvent and one or more of the directors are not complying with the Companies Act 1993.

[3]	Ecolibrium is deadlocked and so unrepresented. Stephen Ford, the founding director of Ecolibrium and currently  its  CEO,  opposes  the  application.  He  and Mr Smith are currently the only two directors.

[4]	Raguver Wallabh was appointed a director of the company on 19 July 2018 and is also a founder under the company’s constitution. He was removed as a director in early 2022.

Background

[5]	On 13 May 2022 three applications for the liquidation of Ecolibrium were called in the High Court, being by Zone Law Limited (Zone Law), the trustees of the Summerville Trust and Mr Smith.1 All three matters were adjourned to allow the company to pay undisputed debts owing to Zone Law and the Summerville trustees.

[6]	By the second call of the three liquidation applications on 3 June 2022 the undisputed debts owing to Zone Law and the Summerville Trust had been paid in full. At that call, those parties were given leave to withdraw their liquidation applications. Chemovateq Swiss AG (Chemovateq) who filed an appearance in support of Zone Law’s liquidation application was substituted in the Zone Law proceeding. Associate Judge Sussock set a timetable for hearing the defended liquidation applications brought by (now) Chemovateq and Mr Smith. The defended proceedings are set down to be heard on 30 September 2022.

1	CIV-2022-404-332: Zone Law Limited v Ecolibrium Biological Holdings Limited; CIV-2022-404- 375: Summerville v Ecolibrium Biologicals Holdings Limited; CIV-2022-404-495: Smith v Ecolibrium Biologicals Limited.

[7]	Also at the second call, Mr Smith informed the Court that he had filed an application seeking appointment of interim liquidators. This application had not made its way to the Court file and was on a without notice basis. Associate Judge Sussock considered it should be on a with notice basis and directed Mr Smith to serve the application on Mr Ford and Chemovateq.

[8]	The question before me is whether it is necessary or expedient to appoint interim liquidators for the purpose of maintaining the value of assets owned or managed by the company.

Legal principles relevant to appointment of interim liquidators

[9]	The legal principles that apply to applications to appoint interim liquidators are summarised in Worldclear Limited v T1 Holdings Limited.2 The relevant paragraphs of that judgment are set out below:

[32]	Section 246 of the Act provides:

246 Interim liquidator

(1)       If an application has been made to the court for an order that a company be put into liquidation, the court may, if it is satisfied that it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company, appoint a named person, or an Official Assignee for a named district, as interim liquidator.

(2)	…

[33]	Rule 31.23 of the High Court Rules states:

31.23 Power to appoint interim liquidator

(1)	When a proceeding for putting a company into liquidation has been commenced under rule 31.3, the plaintiff and any person entitled to apply to the court for the appointment of a liquidator under section 241(2)(c) of the Companies Act 1993 may apply to the court for the appointment of an interim liquidator.

(2)	If the court is satisfied, upon proof by affidavit, that there is sufficient ground for the appointment of an interim liquidator, it may make the appointment, and may limit the rights and powers of the interim liquidator in any manner it thinks just.

2	Worldclear Limited v T1 Holdings Limited [2018] NZHC 1234.

[34]	Generally, a Court dealing with an application for appointment of an interim liquidator must be satisfied:3

(a)	That the company's assets are in jeopardy;

(b)	Whether the status quo should be maintained;

(c)	Whether the interests of creditors are safeguarded.

[35]	In Truck & Trailer Holdings Ltd v Skelly Holdings Ltd, Associate Judge Osbourne said:4

[7]	Beyond the statutory criteria it has been recognised that there are three main preconditions to an interim liquidation:

(i)	There must be a valid winding up application underway;

(ii)	The application will in all probability succeed;

(iii)	The circumstances must be not merely urgent, but also justify the appointment of an interim liquidator.

[8]	The Court has recognised three important factors:

(a)	Whether the company assets are in jeopardy;

(b)	Whether the status quo should be maintained;

(c)	Whether the interests of creditors are safeguarded.

[9]	These various formulations are ways of measuring whether necessity or expediency are established. They are a 'litmus test', not exhaustive.

[36]	The Court must be satisfied as to the need for urgency, and normally ex parte applications for the appointment of an interim liquidator will not be successful unless special circumstances are demonstrated.5 An undertaking as to damages is usually required.

Preliminary matters

[10]	No doubt as a consequence of the fact Mr Smith represents himself, material parts of the evidence he has filed are not relevant, inadmissible as hearsay and/or unsubstantiated. Examples of this are:

3	Robert Bryce & Co Ltd v Chicken & Food Distributors (1990) 5 NZCLC 66 at 648.
4	Truck & Trailer Holdings Ltd v Skelly Holdings Ltd HC Christchurch CIV-2012-409-541, 11 May 2012.
5	Keet v Hidden Valley Ltd [2016] NZHC 2089.

(a)	Documents are exhibited with regard to related companies, not Ecolibrium itself. While they may be relevant, their relevance is not adequately explained.

(b)	An affidavit by an employee is wrongly produced by attachment to Mr Smith’s affidavit rather than being independently sworn and filed. It relates to Mr Smith’s behaviour with staff and generally. It is not clear that Ecolibrium is even the relevant employer, and evidence of employment issues (even if significant) has minimal relevance to an application for interim liquidation.

(c)	Mr Smith asserts that Mr Ford has mental health issues and he exhibits a doctor’s certificate which refers only to Mr Ford being unable to attend a hearing because of his ill-health.

[11]	I am also concerned, as Ms Brugeyroux submits, that information and documents that are commercially sensitive and confidential to the defendant may be included in the material filed by Mr Smith.

Should interim liquidators be appointed?

[12]	I am not persuaded that Mr Smith has met the onus on him to demonstrate that it is necessary or expedient to appoint interim liquidators to the company. At least on the admissible evidence presently put forward, he has not shown that:

(a)	his application for liquidation of the company will in all probability succeed;

(b)	the circumstances are urgent and justify the appointment of interim liquidators;

(c)	by not appointing interim liquidators, the company’s assets are being put in jeopardy; and

(d)	interim liquidators are required to maintain the status quo and to safeguard the interests of creditors.

[13]	The two extant  applications  for  liquidation  of  the  company  (including  Mr Smith’s) are disputed and Mr Ford says that the company has a set-off, counterclaim or cross-demand that exceeds the amount allegedly due to the applicant creditors. It would be premature to form a view that either application will in all probability succeed. It is not insignificant in this regard (and generally) that the company/Mr Ford has met the debts of two of the original liquidation applicants, those debts having been accepted.

[14]	Although there seem to be real concerns over the operation of the company and allegedly unauthorised transactions, Mr Smith has not put forward any, or any sufficient, evidence that the delay between the hearing of this application and the hearing of the defended liquidation proceedings will seriously erode the value of the company or prejudice any future liquidators from taking steps in relation to any transactions taken in the intervening period. As noted, the hearing of the liquidation applications is scheduled for September 2022, only a few months away.

[15]	I do not draw from the evidence that Mr Ford is trying to strip out or dissipate the assets of the company that he founded and continues to run. Rather, the company seems to be in a deadlock and facing a number of financial and other issues.

[16]	It may be that appointment of interim liquidators could even be a negative step for the company. Interim liquidators will be expensive and unlikely to be in the best position to preserve the remaining assets of the company which, at least according to Mr Ford, are its existing commercial contracts, particularly a commercial contract with Lincoln University.

[17]	While, in his affidavit of 20 June 2022, Mr Smith alleges that Mr Ford must be selling capital items because funds have come into the company, this assertion is unsubstantiated. In addition, he alleges that “the company continues to trade and dissipate assets” but he has not produced evidence in support of the allegation that the company assets are being dissipated.

[18]	It seems the company is able to continue to trade, notwithstanding the deadlock, because Mr Ford as CEO has the power to control day-to-day management of the company. The fact that the company is continuing to trade, incurring debts in

the ordinary course of business, and continuing to enter into transactions in the ordinary course of business does not mean that the company’s assets are being dissipated. To the contrary, as noted above, in the period since the liquidation proceedings were filed the company secured financial support that allowed for Zone Law and the Summerville Trust to be paid.

[19]	Mr Smith has also not provided an undertaking as to damages and an affidavit confirming he has the means to pay damages. Ms Brugeyroux submits that Mr Smith’s failure to provide an undertaking as to damages is fatal to his application, citing Halliday v Heavy Diesel Specialists Limited, as follows: 6
[8] Significantly, Brookers Company Law Act CA 246.02(b) (noted at paragraph [5] above) records that normally ex parte applications for the appointment of an interim liquidator will not be successful unless special circumstances of urgency can be shown. In addition an undertaking as to damages will be required in these cases. In the present case the applicants have filed an undertaking as to damages.

[20]	While I would not consider the absence of an undertaking fatal, especially where the application is made by an independent director, it is clearly material.

[21]	Finally, I note two matters:

(a)	Ms Brugeyroux submitted that Mr Smith does not have clean hands in his dealings with the company. I did not see any evidence of bad faith on the part of Mr Smith. Some of his actions and certainly some of his evidence may be somewhat misguided or even wrong, but that is far from the same thing as bad faith. The evidence put forward by him nonetheless clearly identifies issues with the company’s operation. A company does not face four liquidation applications when it is in good health.

6	Halliday v Heavy Diesel Specialists Limited HC Wellington CIV-2008-485-776, 16 April 2008. See also Warkworth Retail Limited v Warkworth Holdings Limited [2021] NZHC 2314 at [35] where the Court said:

A further issue arises as to the need for an undertaking as to damages. This was not addressed at the hearing. While r 7.54 does not apply directly, I am minded to require that an undertaking as to damages be given …

(b)	I would hope that every effort is being made by Mr Ford and Mr Smith or good advisers to restore equilibrium to the company. It is sad to see a recently appointed independent director now lined up with one of the company’s creditors seeking its liquidation.

Conclusion

[22]	The application for appointment of interim liquidators is dismissed. The applicant has not met the onus of satisfying me that it is necessary or expedient to appoint interim liquidators for the purpose of maintaining the value of assets owned or managed by the company and, in any event, that there is urgency to do so.

[23]	I record the order made at the conclusion of the hearing that Chemovateq not have access to this file until further order of the Court, given the allegation by Mr Ford that Mr Smith’s evidence includes information that is confidential and could put the company in breach of confidentiality obligations.

Costs

[24]	Under normal circumstances the applicant would be liable for costs on the failed application. It is not clear to whom costs should be paid, given Ecolibrium itself was unrepresented, or whether Mr Smith has some form of indemnity as an independent director. Costs are  therefore  reserved.  If  the  parties  cannot  agree, Mr Ford’s counsel should file a memorandum within 14 days and I will make such further directions for filing of memoranda as are required.

Hinton J