Court of Appeal confirms a liquidator’s examination powers can reach overseas parties

Can a liquidator of a New Zealand company serve a section 261 notice requiring an overseas shareholder or creditor to produce documents or be examined on oath? The short answer: it depends.

The key question is whether section 261 has extraterritorial effect – that is, whether it applies to people outside New Zealand. The section is silent on this point, and there is a presumption against New Zealand legislation having that effect. However, in August, the Court of Appeal ruled in Grant v Arena that section 261 has extraterritorial effect by way of necessary implication.

Last week, the Supreme Court denied Arena permission to appeal. It ruled that, while the case raised a matter of general or public importance, Arena’s close connection to the activities of the New Zealand company meant that an appeal was unlikely to succeed.

That means that the Court of Appeal’s test stands. The Court did not apply a bright line test, and did not allow all overseas shareholders and creditors to be served. Instead, there must be a “sufficiently substantial” connection between the activities in New Zealand of the overseas shareholder or creditor and the activities of the company. Liquidators will therefore need to carefully assess whether to serve such a notice on a case by case basis.