Liquidators may demand information from overseas shareholders, Supreme Court rules...

In an appeal to the Supreme Court regarding jurisdictional powers of the liquidators of the failed property development Ormiston Rise, the Supreme Court has held that overseas shareholders can be subject to the liquidators’ demands for company information.

Ormiston Rise was a 727-home development in Auckland placed into receivership in May 2021 by Arena, one of its two international shareholders, citing slow progress.  In September 2021, the receivers sold the development to a related party of the shareholders. 

High Court

In 2022, the liquidators brought proceedings in the High Court after Arena and Quaestor, a security trustee for Arena holding a general security agreement and mortgage over the land, refused the liquidators’ requests to provide the Ormiston development company’s accounts and information. 

Arena and Quaestor opposed the application, arguing instead that New Zealand courts did not have jurisdiction to determine the issue since Arena and Quaestor were based overseas, and that the New Zealand-based liquidators’ powers would not have extra-territorial effect.

The High Court dismissed the liquidators’ application in May 2022, citing defective service of proceedings on Arena.

Court of Appeal

In 2023, the Court of Appeal overturned the High Court’s decision, citing that the relevant laws in New Zealand’s Companies Act did have extra-territorial application by implication.  

The rationale for this finding was that if extra-territorial effect wasn’t implied, then directors and shareholders could avoid their obligations under the Companies Act by fleeing New Zealand jurisdiction.

Supreme Court

Arena and Quaestor sought leave to appeal the Court of Appeal’s ruling to the Supreme Court. 

The Supreme Court declined the application, citing that Arena and Quaestor had submitted to the New Zealand jurisdiction through the substantial connection they built by financing the Ormiston Rise development and later appointing receivers to it.  

Ultimately, with the close connection to their business activities related to Ormiston Rise in New Zealand, the Court did not think the proposed leave to appeal was justified.

This judgment provides a clear reminder that shareholders and directors cannot circumvent obligations imposed on them under New Zealand company law by fleeing the country.  These obligations are likely to have extra-territorial effect. 

Just as directors and shareholders should take note that being outside of New Zealand may not protect them from creditors, creditors should take note that their rights are not rendered unenforceable simply because a debtor is overseas.

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Guy Goodwin and Raiyan Azmi

Guy Goodwin and Raiyan Azmi