Left out in the cold after financial restructuring of Rotorua-based wood processor Claymark Group some five years ago, former director and now bankrupt Mark Clayton promises his company will fund an investigation into the restructuring achieved through a BNZ receivership.
The Court of Appeal was asked to rule whether liquidators of certain Claymark subsidiaries were validly appointed, with these appoinments a precursor to proposed forensic examination of BNZ’s receivership.
Whatever his plans five years ago to untangle Claymark from its then financial difficulties, Mr Clayton is contesting the outcome.
The Court of Appeal was told Mr Clayton, as Claymark’s then sole director, asked BNZ in December 2019 to put Claymark Group companies into receivership. This Group is now known as Ex-CM Group.
Not all receiverships result in death of a business. Receivership can be a useful legal vehicle to reorganise a business; jettisoning the bad, while setting the good on a new course with fresh funding.
BNZ was owed $64 million by Claymark. Receivers Calibre Partners recovered some $61 million by repackaging Claymark’s assets and selling to a new consortium. BNZ is still owed two million dollars. No payout is expected for unsecured creditors.
Mr Clayton alleges Claymark’s assets were undervalued on sale.
In November 2022, the remaining rump, now known as Ex-CM Group Trustee Ltd, was put into liquidation with Waterstone as liquidator then immediately voting to put a number of its Ex-CM subsidiaries into liquidation.
Receivers from Calibre Partners were on notice. Any examination of Claymark’s receivership will involve a close examination of Calibre Partners’ work.
BNZ’s security included control over the shareholding and voting rights in these subsidiaries. BNZ said it was not open for the Ex-CM holding company to exercise these votes. Consequently, Waterstone was not validly appointed as liquidators, it was argued.
Legal argument reached the Court of Appeal.
BNZ acknowledged that the subsidiaries in question no longer had any economic value (their assets had been sold) but the receivership was not yet complete (Calibre Partners as receivers still intended some legal housekeeping, putting all Ex-CM companies into liquidation, removing them from the active Companies Register).
The Court of Appeal ruled that the effect of receivership is for secured creditors to take control of mortgaged assets, taking away from directors their ability to deal with those assets.
But directors still retain limited control over mortgaged assets to be exercised where it does not ‘interfere’ with a receivership.
In this case, the subsidiaries remained as empty shells with assets sold off. The empty shells were no longer of any commercial value to BNZ. BNZ was not prejudiced by any shareholder voting for liquidation of these subsidiaries even where the right to vote was part of BNZ’s security, the court ruled.
Waterstone could continue as liquidator, the court ruled.
Grant v. BNZ – Court of Appeal (12.04.24)
24.092