Shareholders have 10 working days from service of a liquidation application to appoint a liquidator unilaterally. Once the 10-day window has expired, they need to get the applicant creditor’s consent to any appointment.
A recent judgment, delivered by the High Court in Commissioner of Inland Revenue v The Pop-up Globe Foundation, provides a welcome clarification for creditors, shareholders and liquidators alike following an amendment last year to the Companies Act (the Act). The change was part of a package of changes to insolvency law and came into effect in September.
Section 241AA of the Act 1993 had allowed the company’s shareholders or the board to appoint a liquidator without the applicant creditor’s consent within 10 working days after service of a liquidation application. Once the 10 day opportunity had expired, the shareholder could not appoint a liquidator, even if the creditor agreed to it.
The amended version introduced a subclause (section 241AA(2)) permitting appointment by shareholders after the 10 day window where this is consented to by the applicant creditor.
It was common ground in this case that the shareholders had appointed a liquidator within 10 working days of service of the creditor’s liquidation application. In dispute was the correct construction of section 241AA(2).
The applicant creditor took the view that, because the new subclause specifically referred to creditor applications, it was the only means of appointment available in the face of a creditor application. In other words, as amended section 241AA now required the applicant creditor to consent to a shareholder appointment, even if it was within 10 working days.
The shareholders’ view was that the change provided for two alternatives:
- appointment by shareholders within the 10 working day window, or
- appointment by shareholders with the consent of the applicant creditor. Practically, the second option would only be used after the 10 working day window had passed.
The Court agreed with the two option interpretation, finding that shareholders can make the appointment by themselves if they do it within 10 working days, after which they will need the consent of the applicant creditor.1
The decision is sensible and helpful. It is consistent with the plain words of the section, and particularly the inclusion of the word “or” in section 241AA(2).
From a policy standpoint, it ensures that shareholders remain incentivised to appoint liquidators promptly, while resolving the problem of an appointment made after 10 working days being void, even if the applicant creditor agreed. The decision is also consistent with legislative intent behind the change to section 241AA.2
Had the applicant creditor’s position prevailed, it would have required shareholder appointments to have creditor consent even when made within the 10 working day timeframe and it would have treated shareholders differently to any other type of applicant (such as directors, shareholders, administrators, regulators or the Registrar of Companies).
Such inconsistency would have been very unusual and undesirable.
Removal of Court review of liquidator’s appointment
Section 241AA has also been amended to remove the ability for creditor applicants to ask the Court to review the shareholders’ choice of liquidator, in order to address concerns that a liquidator may not be sufficiently independent or may be inappropriate in some other way.
An applicant creditor now needs to take a different approach if it is concerned about the choice of a liquidator validly appointed in the face of an application to the Court to liquidate the company. The creditor may need to identify a breach on the part of the liquidator, and bring an application under section 286 (as amended), or insist on a first meeting of creditors and seek to have the meeting appoint a new liquidator.
Our thanks to Nathan Whittle for writing this Brief Counsel.
1 Commissioner of Inland Revenue v The Pop-up Globe Foundation Limited  NZHC 515 at .
2 Ministry of Business, Innovation and Employment Insolvency Practitioners Bill Supplementary Order Paper No 45 – Departmental report to the Economic Development, Science and Innovation Committee, 19 October 2018.