On 2 August 2024 interim receivers were appointed to a number of entities in the Du Val group. On 21 August 2024, this was followed by the appointment of statutory managers to various entities in the Du Val group. This is an extraordinary development, and leads to the question – what is statutory management?

An explanation of statutory management

Statutory management is a process that exists under the Corporations (Investigation and Management) Act 1989 (CIMA). The process is designed to accommodate complex insolvency situations where a corporation has been operating fraudulently, recklessly, or where it has extraordinary problems.[1]. A “corporation” under CIMA is defined as “a body of persons, whether incorporated or not, and whether incorporated or established in New Zealand or elsewhere”.[2]

The ultimate purpose of statutory management is the preservation of value to shareholders and stakeholders. In McDonald v Australian Guarantee Corporation (NZ) Limited the court said[3]:

The Act is intended to take over where the ordinary law cannot cope and stronger measures are needed. Situations where those measures are needed will include a major collapse of a large and interlocking group of companies with complex rights amongst creditors, shareholders and beneficiaries.

In Aramiru Farms and Investments Limited v Slotter, the Court of Appeal stated that “the scheme of the Act is designed to deal with corporate collapses of such magnitude that the normal legal procedures available to a corporation, its members or creditors are totally inadequate”.[4]  Similarly, in Crawford v Pardington it was said that CIMA’s “overarching purpose and intent is to preserve the viability of poorly managed companies and thereby the interests of the wider commercial network”.[5] It is an extraordinary remedy because it usurps the rights of the corporation, the rights of the creditors, and rights usually available to access the courts. In addition, the statutory managers are conferred an exceptionally broad indemnity.[6]

Statutory management is not a regime available to private individuals; it is an insolvency and management regime available exclusively to the Crown. A corporation can only be placed into statutory management by the Governor General, on the advice of the Minister of Consumer and Market Affairs (Minister), in turn on the recommendation of the Financial Markets Authority (FMA). It is for this reason it is very rarely used; the last time was on the collapse of South Canterbury Finance and before that groups like Equiticorp were subject to the regime. Only the Governor-General may terminate statutory management.[7] Liquidation also brings it to an end.[8]

The FMA must not make a recommendation that a corporation be placed into statutory management unless satisfied on reasonable grounds that the corporation is operating fraudulently or recklessly, or that there are other complex reasons, that mean there is a need to take protective measures.[9] Liquidation is not an inevitable consequence of statutory management, but it is an available remedy. In most cases, liquidation will be a likely outcome.

History of statutory management

Statutory management (or statutory receivership) has been around for many years. CIMA repealed the Companies Special Investigations Act 1958, and that legislation in turn had its genesis in the Companies (Special Investigations) Act 1934, the Companies (Temporary Receivership) Act 1934, and the Companies (Special Liquidations) Act 1934-35. In Hawkins v Minister of Justice, Richardson J said:[10]

The original Companies Special Investigations Act 1958 was rushed legislation.  It was passed through all stages in the House and enacted in one night. That course was taken in order to preserve the assets and provide for the orderly investigation of the affairs of a large number of intertwined companies by the appointment of a statutory receiver with wide powers, and the institution of a moratorium on the commencement or continuation of proceedings without the leave of the Court; and also to confer extended powers on the Court in winding up proceedings so as to provide for the equitable distribution of the remaining assets. It was special legislation enacted in response to a particular commercially disastrous situation and fortuitously the House was sitting at the time the emergency arose.

In Wilson v Aurora Group Limited, Master Williams QC said that CIMA was enacted “following the report of a Commission of Inquiry into, amongst other things, the raising by companies and corporations of capital and loan funds in New Zealand in general and the protection of those who invested in such companies”.[11]

The statutory history shows that it is a remedy of last resort, saved for the most complex collapses and insolvency situations. It is also only used when ordinary precepts of our law governing insolvency prove inadequate for the task at hand.

Questions remain

There are undoubtedly questions about what has happened at the Du Val Group that has led to the appointment of statutory managers (and the antecedent interim receivership). This is likely to become clearer when, in time, the veil of secrecy lifts and sunlight begins its process of disinfection. But there may also be questions about the process as to how the Crown got to the point of deciding to appoint statutory managers.

[1]               Corporations (Investigation and Management) Act 1989 [CIMA], s 4.

[2]               Section 2.

[3]               McDonald v Australian Guarantee Corporation (NZ) Limited [1990] 1 NZLR 227 (HC) at 238.

[4]               Aramiru Farms and Investments Limited v Slotter [1993] MCLR 1 (CA) at 6.

[5]               Crawford v Pardington [2012] NZHC 1829 at [44].

[6]               CIMA, s 63; Crawford v Pardington [2012] NZHC 1829.

[7]               CIMA, s 62(1).

[8]               Section 62(3).

[9]               Section 39.

[10]             Hawkins v Minister of Justice 1991] 2 NZLR 530 (CA) at 536–537 (emphasis added).

[11]             Wilson v Aurora Group Limited [1990] 1 NZLR 61 (HC).