By Jack Wass (Stout Street Chambers)
The Court of Appeal will this week hear an appeal on the question of whether s 261 of the Companies Act 1993 – which permits a liquidator to obtain documents and information about the affairs of an insolvent company – has extraterritorial effect. In Grant v Arena Alceon NZ Credit Partners LLC [2023] NZHC 3048, Associate Judge Gardiner held that the liquidators had not overcome the presumption against extraterritoriality, so that a liquidator could not make a demand under that section to a person who was overseas, and the court did not have the power to order an overseas person to comply with such a demand.
It is established that the court does have that power in relation to directors of the insolvent company, who by taking appointment have submitted themselves to New Zealand law: Grant v Pandey [2013] NZHC 2844.
The Associate Judge recorded that she was initially attracted to the idea that s 261(1)—which empowers the liquidator to demand documents that belong to the company—might have extraterritorial effect, while s 261(3)—which confers a broad power to require anyone “having knowledge of the affairs of the company” do things, including attending to be examined on oath—does not. But the Judge was ultimately satisfied that the liquidators could not overcome the presumption against extraterritoriality on either limb, emphasising that the liquidators’ powers were not conditioned by a need to obtain court permission first, and exposed the recipient to criminal sanctions. Where courts in England and Australia have been prepared to interpret similar provisions as having extraterritorial effect, they have emphasised the court’s power to decline to make an order where there is an insufficient connection with the jurisdiction to justify extraterritorial relief operates as a safety valve. Although under the New Zealand legislation the court has a role if the recipient refuses to comply and the liquidators seek an order under s 266, the Judge found that the logically prior question is whether s 261 has extraterritorial effect in the first place, which must involve a binary inquiry.
In its most recent consideration of cross-border statute problems, the Court of Appeal emphasised that legislation does not operate extraterritorially (in the sense used in Poynter v Commerce Commission [2010] NZSC 38, [2010] 3 NZLR 300) where the matter that is being regulated is within New Zealand, even if the defendant is (and acted) overseas: see Body Corporate No DPS 91535 v 3A Composites GmbH [2023] NZCA 647 at [70] where it was the supply of goods to New Zealand consumers that provided the necessary link. Likewise, the Court emphasised the importance of conducting the necessary statutory interpretation exercise in light of the choice of law rules or principles.
Here, one might argue that both of those principles might have a role to play in considering the distinction between s 261(1) and (3) suggested by the Associate Judge. As to the latter, there is much to be said for the proposition that a power that is essentially equivalent to an extraterritorial subpoena would have to conferred expressly by Parliament in circumstances where subpoenas themselves are not enforceable outside the territory. But so far as the power under s 261(1) to obtain documents of the company is concerned, there is room for argument: the fact that the recipient of the notice may hold the document overseas does not change the fact that it is a document that belongs to the New Zealand company, and the general choice of law rule is that the affairs of a company are governed by the law governing its incorporation (Hook & Wass at [10.17]). While there is an argument to be made, the better view may remain that remedies under the Model Law on Cross-Border Insolvency are a more principled way of dealing with the problem, and that if a gap still persists it is for Parliament to fill it expressly.
