Court-appointed
liquidators were reinstated after allegations that voting on the appointment of
a replacement liquidator was rigged to curtail an investigation into alleged wrongdoing
by management of a company previously trading as CP Holdings Ltd. One creditor owed $1.04 million alleges
management stripped assets out of the company to defeat their claim.
CP Holdings, now known as NZ Properties,
was controlled and managed by Mr Charles Pandy, his wife Jaswanti and his son
Prakash. The court was told Brian and
Bridgit Lawrence sued CP Holdings in 2006.
They had bought into a motel business operating from premises owned by
CP Holdings. Their business failed after
a series of plumbing failures caused flooding in and around the motel. CP Holdings as landlord admitted liability
but disputed the level of damages to be paid.
Arguments over damages payable dragged on. It wasn’t until 2011 that damages were fixed
at $1.04 million in a court hearing where no-one from CP Holdings turned
up. When they were not paid, the
Lawrences went back to court and had CP Holdings put into liquidation with two
insolvency practitioners appointed as liquidators: Damien Grant and Steven
Khov.
In the intervening five years,
the court was told, assets owned by CP Holdings had been transferred to new companies
leaving CP Holdings assetless. The
Lawrences allege these new companies are related parties controlled directly or
indirectly by interests associated with Mr Pandy.
After the liquidation commenced,
steps were taken to replace the court-appointed liquidator. Creditors by majority vote can appoint a
replacement liquidator. A vote was
pushed through with a majority of votes which seemed to be held by creditors
associated with the Pandy family. Claims
held by allegedly related party creditors totalled $2.03 million. The Court of Appeal questioned the validity
of some of these claims: one; a debt claimed for an allegedly unpaid salary for
someone who appeared to be the employee of another company; others being debts
owed by CP Holdings but now more than six years old and no longer recoverable.
The original court-appointed
liquidators indicated they were willing to continue with their investigation
into alleged wrongdoing by former management, even though the company had no
assets to fund an investigation. By
contrast, the liquidators voted in by creditors said anything beyond a limited
initial investigation would need to be funded by creditors or some other third
party before they would commit resources to a detailed investigation.
In particular the new liquidators
expressed no interest in challenging the validity of debts claimed by related
party creditors. At the same time, these
very interests had offered to advance an unspecified amount of money to the new
liquidators to help fund the costs of the liquidation.
The Court of Appeal said it was
incongruous that interests likely to be the subject of any investigation were
offering to dictate the funding and hence its scope and depth.
The court ruled that the
creditors’ resolution voting out the court-appointed liquidators was not in the
interest of unsecured creditors. The
Lawrences’ $1.04 million debt was by far the largest debt owed to an external
creditor. All the creditors who voted
for a replacement liquidator were associated with the Pandey family. The Lawrences were entitled to as thorough an
investigation as possible of CP Holdings’ activities, the court ruled.
Damien Grant and Steven Khov were
reinstated as liquidators.
Grant
v. CP Asset Management – Court of Appeal (30.09.13) & Supreme Court
(25.02.14)
14.010