Court of Appeal rules on receivers and liquidators’ rights in subsidiary companies

The appellants' actions in appointing themselves as liquidators were within their rights: court

Court of Appeal rules on receivers and liquidators’ rights in subsidiary companies

In a recent ruling, the Court of Appeal addressed the complex interplay between receivers' and liquidators' rights in the context of subsidiary companies within the Claymark Group.

The central issue in Grant v Bank of New Zealand [2024] NZCA 108 (12 April 2024) was whether liquidators appointed by the parent company's director could validly act on behalf of wholly owned subsidiaries during a receivership initiated by a secured creditor.

The case's background centred around the Bank of New Zealand (BNZ), which, as the first-ranking secured creditor, had appointed receivers over the property of Ex-CM Group Trustee Ltd (GTL) and its subsidiaries in December 2019. This appointment followed a request by Mark Clayton, the sole director of GTL and the subsidiaries, acknowledging an event of default under their General Security Agreements (GSAs).

By 2021, the receivers reported minimal residual assets, anticipating their retirement after resolving final matters. Subsequently, in November 2022, liquidators Damien Grant and Adam Botterill were appointed by shareholder resolution of GTL—a move not contested by BNZ, as it did not hold security over GTL's shares. However, without notifying BNZ or the receivers, the newly appointed liquidators voted the shares of the subsidiaries to appoint themselves to those companies as well.

BNZ and the receivers challenged these appointments, arguing that under the GSAs, the liquidation of GTL’s property, including the subsidiaries' shares, required their consent, as they held the rights to exercise control over the subsidiaries as if they were the absolute owners.

The High Court had initially declared the liquidators' appointments invalid, leading to an appeal. The Court of Appeal analysed the rights and obligations under the GSAs, noting that liquidation does not inherently limit secured creditors' enforcement rights nor prevents liquidators from assuming custody and control of a company’s assets—albeit subject to secured creditors' rights.

During the appeal, the appellants argued that they were entitled to appoint liquidators to the subsidiaries, especially considering the receivers' indication of having no further assets to realise and their imminent retirement. They contended that their actions were not prejudiced against BNZ’s position as a secured creditor, especially since BNZ had expressed indifference towards the identity of the liquidators.

The Court of Appeal ultimately allowed the appeal, overturning the High Court's decision. The court concluded that the appellants' actions in appointing themselves as liquidators were within their rights, underlining that the receivers’ legitimate purpose had been fulfilled and the appellants’ intervention did not prejudice BNZ’s interests. The court’s ruling clarified the scope of powers between receivers and liquidators, especially in scenarios where the interests of secured creditors are deemed adequately protected or resolved.

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