IN THE Court of appeal OF new Zealand

I TE KŌTI PĪRA O AOTEAROA	
 CA61/2018
 [2018] NZCA 455

	
BETWEEN	
CHESTERFIELDS PRESCHOOLS LIMITED (IN INTERIM LIQUIDATION)
First Appellant

THERESE ANNE SISSON
Second Appellant	
	
AND	
THE COMMISSIONER OF INLAND REVENUE
Respondent	

Hearing:	
4 October 2018	

Court:	
Miller, Woolford and Collins JJ	

Counsel:	
B M Russell and J C Wedlake for First Appellant
Second Appellant in person
S M Kinsler and C L Russell for Respondent	

Judgment:	
4 October 2018 at 11.54 am	

Reasons:	
26 October 2018	

JUDGMENT OF THE COURT

A	The appeal is dismissed.
B	No order for costs.
____________________________________________________________________

REASONS OF THE COURT

(Given by Woolford J)
[1]	On 15 December 2017, Associate Judge Matthews made an order, on the application of the Commissioner of Inland Revenue, appointing interim liquidators of Chesterfields Preschools Ltd (the company) for the purpose of maintaining the value of its assets pending the hearing of the Commissioner’s application to liquidate the company.
[2]	Therese Anne Sisson was formerly a director of the company.  She was adjudicated bankrupt on 23 June 2017 and is therefore disqualified from holding office as a director by s 151(2)(b) of the Companies Act 1993.  Notwithstanding her disqualification, Ms Sisson appealed against the order appointing interim liquidators of the company, relying on a High Court decision dated 29 October 2015, which joined her as a party to the liquidation proceedings to facilitate an earlier appeal.  The interim liquidators and the Commissioner opposed her appeal. 
[3]	We heard the appeal on 4 October 2018 and dismissed it with reasons to follow.  These are our reasons.
Background
[4]	This matter has an extensive litigation background, which is unnecessary to traverse.  The company has just two assets.  First, it owns a property at 854 Colombo Street, Christchurch (the land).  Secondly, it owns an insurance policy over a building which was previously on the land.  The insurer has already paid out a substantial sum, but there remains disagreement between Ms Sisson and the insurer as to what, if any, further payout is due to the company.
[5]	The Commissioner has a longstanding application to liquidate the company.  She claims that the company owes her at least $1,120,566.15, principally in income tax and GST arrears.  The company was previously placed in liquidation by the High Court, but the Supreme Court set that order aside in a judgment dated 23 November 2017 and remitted the Commissioner’s application to the High Court for rehearing.
High Court
[6]	On 5 December 2017, the Commissioner made an application to appoint interim liquidators of the company.  The Commissioner served it on the three persons named on the Register of Companies as directors, two of whom, Ms Sisson and Mr Hampton, are undischarged bankrupts and therefore disqualified as directors.  The third and sole remaining director took no steps to oppose the Commissioner’s application for the appointment of interim liquidators.  Ms Sisson opposed the Commissioner’s application but the Associate Judge ruled that she could not represent the company.
[7]	The Associate Judge found that the company’s assets were in jeopardy.  First, Ms Sisson appeared to have been negotiating a sale of the land to the adjacent landowner for the purposes of a comprehensive development of both plots of land, without the knowledge of the liquidators, who were in office at the time.  This factor coupled with uncertainty about the value of the land and the terms of its sale prima facie established that this asset was in jeopardy.
[8]	Secondly, the Associate Judge also referred to evidence that Ms Sisson had been negotiating a mortgage over the land to secure an advance sufficient to pay approximately $109,000 to the Commissioner, this being the sum in relation to which this Court imposed a condition on the termination of the liquidation.  For this reason too the Judge found that the land may be in jeopardy.
[9]	Finally, the Associate Judge noted that the proposed transaction with the adjacent landowner appeared to involve the company’s other asset, as the scheme Ms Sisson proposed involved reaching agreement with the insurer that it would fund the purchase of an alternative building on another site.  The Associate Judge was, therefore, satisfied that the assets of the company were in jeopardy.
Ms Sisson’s position
[10]	Ms Sisson submitted that both assets of the company were protected.  She submitted that they were protected by a freezing order made by the High Court on 15 August 2017.  That followed this Court’s judgment dated 10 August 2017 conditionally allowing the appeal against the order for liquidation.  She further argued the assets were protected by a caveat lodged over the land by the Commissioner of Inland Revenue on 17 August 2013.  With these protections in place, Ms Sisson submitted that neither asset was in jeopardy or at serious risk of dissipation or deterioration.
[11]	Ms Sisson also submitted that the order appointing interim liquidators of the company seriously prejudiced the rights of the company.  It did so because it had the effect of removing the company’s standing to engage the statutory challenge procedures under the Tax Administration Act 1994, prior to the High Court’s rehearing of the Commissioner’s application to liquidate the company.  It also had the effect of removing the company’s right to clarify and advance its claim to the balance of its right to full entitlement under the terms of the insurance policy in relation to the option to replace the lost property.
[12]	Finally, Ms Sisson submitted that the interim liquidation order seriously harmed her daughter Olivia, the beneficiary of the equitable ownership of shares in the company, who has special accommodation needs previously met by the home which had been lost.
Discussion
[13]	At the outset, we noted that the Commissioner’s application to liquidate the company was due to be heard in the High Court at Christchurch on 29 October 2018, just over three and a half weeks from the appeal hearing.  Ms Sisson was unable to articulate why she or the company would be disadvantaged if the order of interim liquidation continued for another three and a half weeks.  
[14]	In any event, we promptly reached the view that the Associate Judge was clearly right to appoint interim liquidators to preserve the status quo and maintain the value of the company’s assets, pending hearing of the Commissioner’s application to liquidate the company.  Ms Sisson acknowledged that she had been negotiating with the adjacent land owner over sale of the land and had sought finance from a second-tier lender to be secured over the land.  This despite being disqualified from acting as a director of the company at the time.  The High Court decision dated 29 October 2015, which joined her as a party to the liquidation proceedings to facilitate an earlier appeal, clearly did not enable Ms Sisson to deal with the company assets as an undischarged bankrupt.
[15]	As to Ms Sisson’s submission the company’s assets were sufficiently protected by the freezing order and caveat, we note Ms Sisson had, through a memorandum filed with the Court dated 30 November 2017, sought to remove the caveat on the basis the freezing order had been discharged.  The Associate Judge declined to release the caveat based on a memorandum and stated that a formal application to the Court with notice to other parties was required.
[16]	The interim liquidation regime is designed to preserve the status quo.  If the application for the company’s liquidation was declined following the hearing on 29 October 2018, then those who had the statutory right to manage the company’s affairs (which did not include Ms Sisson) would be able to engage the statutory challenges procedures under the Tax Administration Act and negotiate with the insurer about any further payout under the insurance policy.  The company’s rights have not been prejudiced in that regard. 
[17]	We note, for completeness, that Ms Sisson has been permitted to participate in the hearing scheduled for 29 October 2018.  
Conclusion
[18]	We therefore dismissed Ms Sisson’s appeal largely because of her continued attempts to deal with company assets when she was by law disqualified from doing so, but also because of the imminence of the substantive hearing of the Commissioner’s application to liquidate the company.
Result
[19]	The appeal is dismissed.
[20]	We make no order for costs.

Solicitors:
Lane Neave, Christchurch for First Appellant
Crown Law Office, Wellington for Respondent