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Liquidators can have a “residual discretion” to deal with secured assets

A recent case[1] confirms that liquidators have a residual discretion under section 254 of the Companies Act 1993 (Act) to appoint themselves as liquidators of a subsidiary when they are already liquidators of the parent, and in circumstances where receivers have already been appointed.  The Court of Appeal also clarifies the scope of that residual discretion in circumstances where receivers are also appointed, and importantly, the nature of the prejudice a secured creditor must demonstrate before the Court will curb the liquidators’ use of that discretion.

The bank held security agreements over Ex-CM Group Trustee Ltd (GTL) and seven subsidiary companies.  The securities charged GTL’s shares in the subsidiaries, and GTL’s assets, but not the shares in GTL itself.  In December 2019, the bank appointed receivers over GTL and the subsidiaries.  The receivers realised the relevant assets, paid the bank what they could, and reported in February 2022 that there were no further assets to realise.

In August 2022, the receivers announced an intention to retire shortly thereafter, and the bank expressed an intention to appoint liquidators to GTL’s subsidiaries.

In November 2022, GTL’s shareholder appointed liquidators over GTL.  Immediately upon their appointment, and without notice to, or consent from the bank or the receivers, the liquidators, acting as shareholder of the subsidiaries, appointed themselves liquidators of those subsidiaries.  It appears the liquidators intended to investigate the affairs of the subsidiaries, including the conduct of the receiverships and the associated asset sales.

Pursuant to section 284 of the Companies Act 1993, the bank challenged the liquidators’ appointment over the subsidiaries .  The High Court found that the subsidiary appointments were invalid, and that, because the shares in the subsidiaries fell within the scope of the bank’s security (and the receivers’ duties) the liquidators had no power to exercise rights attaching to the shares without the bank’s consent.

The Court of Appeal overturned the High Court’s decision, focusing on the residual discretion under section 254 of the Companies Act.

The reasoning of the Court of Appeal was that the shares of the subsidiaries were secured property, over which the receivers, on appointment, were entitled to and did take immediate possession.  However, the assets did not vest in the receivers.

On the appointment of the liquidators, the liquidators had custody and control of GTL’s assets.  This did not affect the rights of the bank, as a secured creditor, to possess and deal with the shares in the subsidiaries (unless the bank’s charge was surrendered, which it did not do). 

However, the Court of Appeal confirmed that section 254 conferred a residual discretion on liquidators to take steps to realise assets subject to a charge.  This discretion would not be available if the liquidator had no good reason for intervening, and where the liquidator would be officiously intervening without good reason in a realisation, with increased costs for the liquidation[2].  On the other hand, a liquidator’s intervention could be justified where:

1.      the secured creditor has indicated that it would take no steps to realise the asset, but has not surrendered its charge; or


2.      there is a bona fide challenge to the security and/or the appointment of the receivers.

In either case, any intervention of a liquidator based on the residual discretion could not be an action that prejudices the legitimate interests of the security holder. 

In this case, the shares of the subsidiaries had no value, and the bank had made it clear that it anticipated no further recovery.  The bank had, in fact, intended to appoint liquidators over the subsidiaries.  The only relevant prejudice could be in relation to the secured creditor’s recovery of its debt, and the Court found that such prejudice did not occur here.  There was no interference with the rights of the receivers as they existed in November 2022, because the receivers’ legitimate purpose in dealing with the company assets had been achieved. 

The Court of Appeal therefore found that the residual discretion under section 254 did allow the liquidators to exercise rights held by the shares.

As to the decision of the liquidators to appoint themselves as liquidators of the subsidiaries, the Court of Appeal observed that this was reasonable given the responsibilities that attach, and supervision that applies to insolvency practitioners under the Insolvency Practitioners Regulation Act 2019.

[1] Grant v Bank of New Zealand [2024] NZCA 108

[2] Applying Gibbston Downs Wines Ltd v Property Ventures Ltd (in rec and in liq) [2013] NZCA 546

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