Continued related-party funding would only deepen debt and entrench one director's control
The High Court of New Zealand ordered two deadlocked, insolvent trustee companies into liquidation, rejecting a shareholder's plan to keep them trading.
In Nakhle v Karaka Estate Ltd [2026] NZHC 2295, the court considered applications to liquidate Byerley Park Ltd and Karaka Estate Ltd, two companies acting as trustees of family trusts. A director of both applied under s. 241 of the Companies Act 1993 (the Act), arguing they were insolvent and that liquidation was "just and equitable," a statutory ground based on fairness.
The court found that the two companies were deadlocked, meaning their directors could not agree and the businesses could not be run properly. It said the relationship between the applicant and the opposing shareholder, who each held half the shares, had broken down beyond repair, and formed part of wider family litigation. The opposing shareholder accepted the deadlock at the hearing.
On insolvency, the court found that neither company could pay its debts as they fell due without outside support, and that both owed more than they owned. It noted that one company had never made a profit from its horse-breeding and training operations and, as at 31 March 2024, recorded net liabilities of $2.773 million, while the other recorded $0.77 million.
To avoid liquidation, the opposing shareholder proposed that the court instead appoint receivers to manage the trusts under the Trusts Act 2019, funded by continued lending from an entity he controlled. The court rejected the proposal. It found that he had given no detail of the funding terms, and that further related-party lending would only increase the companies' debts and erode the trusts' assets.
The court rejected an argument that the applicant had approached the court with "unclean hands." It found no evidence that she had caused the breakdown, and said that questioning how the companies had earlier been run was consistent with her duties as a director.
The court also found that appointing receivers would keep the applicant shut out of management and strengthen the opposing shareholder's position. It said a receiver could not be expected to act independently, because that shareholder was both the source of the companies' funding and a beneficiary of the trusts.
An insolvent company acting as a trustee should almost always be liquidated so the trust can be properly administered, the court said. It concluded that liquidation was the only appropriate outcome, appointed liquidators to both companies, and ordered the opposing shareholder to pay the applicant's costs.
