Ipsofactoj.com: International Cases [2004] Part 8 Case 12 [NZCA] 


COURT OF APPEAL, NEW ZEALAND

Coram

Carter Holt Harvey Ltd

- vs -

McKernan

RICHARDSON P

GAULT J

HENRY J

BLANCHARD J

TIPPING J

4 JUNE 1998


Judgment

Richardson P

(delivered the judgment of the court)

THE ISSUES

  1. The question of law to be determined as a preliminary issue and removed into this Court for hearing pursuant to s64 of the Judicature Act 1908 is as follows: 

    Does the contract of guarantee which the defendants granted to John Edmond Ltd, in respect of the liabilities of Pioneer Builders Ltd continue in respect of liabilities incurred by Pioneer Builders Ltd to the plaintiff [Carter Holt Harvey Ltd] after John Edmond Ltdís amalgamation on 1 December 1995 with the plaintiff?

    FACTS

  2. Pioneer was incorporated on 5 July 1995. The defendants, Mr. McKernan and Mr. OíNeil (the guarantors), were its directors and shareholders. On 21 July Pioneer opened a trade account with John Edmond Ltd (JEL), a subsidiary of Carter Holt Harvey Ltd (CHH). As a condition of approving credit JEL required each guarantor to execute in its favour a form of personal guarantee of past and future credit given or to be given to Pioneer by JEL. The liability of each guarantor was limited to $30,000. No mention was made of assigns or successors of JEL. Each guarantor reserved the right to revoke the guarantee as it related to future transactions by giving one months notice in writing. (There was a principal debtor clause but it does not appear helpful to CHH which does not rely upon it).

  3. On 1 December 1995 JEL and two other subsidiaries were amalgamated with CHH pursuant to Part VA of the Companies Act 1955 (as it stood from 1 July 1994) utilising s209D(1) which provided for a process of short form amalgamation. (The Companies Act 1955 has now been repealed. The equivalent provisions in the Companies Act 1993 are Part XIII and s222). JELís name was then removed from the register of companies but CHH continued on that register. From a time shortly before the amalgamation retail stores which had previously traded under the "John Edmond" name were re-branded under the "Carters" trading name. After the amalgamation their business records, including customer invoices and statements, contained a reference to "a division of Carter Holt Harvey Ltd", instead of the previous reference to John Edmond Ltd. No separate notice of the amalgamation was given to customers like Pioneer.

  4. Pioneerís trade account was in credit in February 1996 but by 12 July of that year there was a debt of $473,422.53, all of which related to building products supplied to Pioneer from the Manchester Street branch of "Carters" since 1 March 1996, and thus after the amalgamation became effective. At the end of July 1996 Pioneer was placed in liquidation. CHH sought to enforce the defendantsí guarantees. It issued these proceedings on 19 November 1996 seeking summary judgment against each defendant for $30,000 together with interest in terms of the Judicature Act. The only ground for opposing judgment was that the guarantees had been "discharged" by the amalgamation of JEL with CHH.

    THE COURSE OF THE PROCEEDINGS

  5. The application for summary judgment was dismissed by the Master. He referred to the well established general rule that, unless the parties have agreed otherwise, any change in the identity of the creditor terminates the liability of a guarantor under a continuing guarantee so far as it applies to future transactions. He held that the amalgamated company was a different entity from the individual companies which amalgamated to constitute it and that the guarantee did not apply in respect of transactions entered into after the amalgamation became effective.

  6. The Masterís refusal of summary judgment was appealed to this Court where there was a hearing in the Civil Appeal Division by a Court of three Judges. An oral judgment was given on 21 May 1997 dismissing the appeal. Like the Master, the Court was satisfied that there was nothing in the terms of the contracts of guarantee which expressly or impliedly preserved them for the benefit of CHH after the amalgamation. (That point is not now pursued by CHH.) Having regard to the common law relating to the enforcement of guarantees, the Court concluded that "clear statutory language would be needed before a Court could say that the statute expressly or impliedly provided for an amalgamated company to be entitled to rely after the date of amalgamation on contracts of guarantee entered in prior to the date of the amalgamation when the company to which the guarantees was given has been deemed to be dissolved", as s209G(c) directed.

  7. Counsel then appearing for CHH had not fully alerted the Master or this Court to the significance of the case. No request was made for a Full Court nor even for the hearing to be before a Bench of permanent Appeal Judges. The case was argued and dealt with in the judgment as a matter of construction of the particular contracts of guarantee and of the relevant amalgamation provisions of the Companies Act. It was only when an application was made by CHH for conditional leave to appeal to the Privy Council that the wider significance of the decision emerged. According to an agreed statement of facts now before the Court, CHH has carried out a programme of more than 150 amalgamations taking advantage of the Part VA procedures with the object of simplifying its group structure. Further, the new amalgamation procedures have, we are told, been widely utilised by groups of companies and the decision of the Civil Appeal Division is therefore likely to have a considerable impact on the New Zealand commercial community. It was also suggested to the Court hearing the application for conditional leave that the reasoning in the Civil Appeal Division judgment appeared to extend beyond contracts of guarantee to other commercial contracts which did not provide for assignability, and in particular contracts of insurance.

  8. As it was thought desirable that the Judicial Committee should have available the reasoning of New Zealand Judges on certain wider arguments which it was intended to advance on behalf of CHH, it was suggested that the appropriate course would be for counsel to request the High Court, to which the matter had been remitted following the dismissal of the appeal against the refusal of summary judgment, to enter judgment in favour of the defendants or state a question of law. Either procedure would allow for the wider issues to come before this Court and be heard by five Judges. CHHís application for leave to appeal was accordingly adjourned sine die.

  9. The defendants were agreeable to a means being found to enable another hearing in this Court. An order was made in the High Court by consent for the agreed preliminary question of law to be determined in this Court. It should be noted that, had it not been for the sensible co-operation of the parties, we would have felt difficulty in reviewing the decision of the Civil Appeal Division.

    THE STATUTORY PROVISIONS

  10. The first section in Part VA authorises the process of amalgamation:

    209A

    Amalgamations

    Two or more companies may amalgamate, and continue as one company, which may be one of the amalgamating companies, or may be a new company incorporated under the Companies Act 1993.

  11. Section 209B sets out the detail which is to be contained in an amalgamation proposal. This requires, inter alia, identification of the "amalgamated company" and its capital structure. Section 209C requires the board of each amalgamating company to resolve that in its opinion the amalgamation is in the best interests of the company and also requires a statement concerning the solvency of the amalgamated company immediately after the amalgamation becomes effective. The directors are obliged to sign a certificate as to these matters and the grounds for that opinion. When the short form amalgamation procedure is not being used the board of each amalgamating company has to send to each member of the company a copy of the amalgamation proposal and the certificates given by the directors of each board as well as certain other material. The board of each amalgamating company has also, not less than 30 days before the amalgamation is proposed to take effect, to send a copy of the amalgamation proposal to every secured creditor of the company and to give public notice of the proposed amalgamation.

  12. The provisions of s209D relating to a short form amalgamation between a holding company and one or more of its subsidiaries are as follows:

    209D

    Short form amalgamation

    (1)

    A company and one or more other companies that is or that are directly or indirectly wholly owned by it may amalgamate and continue as one company (being the company first referred to) without complying with section 209B and section 209C of this Act if-

    (a)

    The amalgamation is approved by a resolution of the board of each amalgamating company; and

    (b)

    Each resolution provides that -

    (i)

    The shares of each amalgamating company other than the amalgamated company will be cancelled without payment or other consideration; and

    (ii)

    The memorandum and articles, if any, of the amalgamated company, will be the same as the memorandum and articles, if any, of the company first referred to; and

    (iii)

    The board is satisfied on reasonable grounds that, immediately after the amalgamation becomes effective, the amalgamated company will be able to pay its debts as they become due in the normal course of business.

    ....

    (3)

     

    The board of each amalgamating company must, not less than 30 days before the amalgamation is proposed to take effect, give written notice of the proposed amalgamation to every secured creditor of the company.

    (4)

    The resolutions approving an amalgamation under this section, taken together, shall be deemed to constitute an amalgamation proposal that has been approved.

    (5)

    The directors who vote in favour of a resolution required by subsection (1) or subsection (2) of this section, as the case may be, must sign a certificate stating that, in their opinion, the conditions set out in subsection (1) or subsection (2) of this section are satisfied, and the grounds for that opinion.

    (6)

    A director who fails to comply with subsection (5) of this section commits an offence and is liable on summary conviction to a fine not exceeding $5,000.

    Subsection (2) contains provision for the amalgamation of two or more subsidiaries and subs (3) to (6) also apply in that situation.

  13. Section 209E provides for the delivery of certain documents to the Registrar of Companies for the purpose of effecting an amalgamation. These include the amalgamation proposal, the directorsí certificates and a certificate signed by the board of each amalgamating company stating that the amalgamation has been approved in accordance with the Act and the memorandum and articles of the company. (The parallel section in the 1993 Act refers to the constitution of the amalgamating company).

  14. Section 209F requires the Registrar to issue a certificate of amalgamation and, if the amalgamated company is a new company, to enter particulars of it on the register and issue a certificate of incorporation.

    Section 209G is as follows:

    209G

    Effect of certificate of amalgamation

    On the date shown in a certificate of amalgamation,-

    (a)

    The amalgamation is effective; and

    (b)

    If it is the same as a name of one of the amalgamating companies, the amalgamated company has the name specified in the amalgamation proposal; and

    (c)

    The amalgamating companies, other than the amalgamated company are deemed to be dissolved; and

    (d)

    The amalgamated company succeeds to all the property, rights, powers, and privileges of each of the amalgamating companies; and

    (e)

    The amalgamated company succeeds to all the liabilities and obligations of each of the amalgamating companies; and

    (f)

    Proceedings pending by, or against, an amalgamating company may be continued by, or against, the amalgamated company; and

    (g)

    A conviction, ruling, order, or judgment in favour of, or against, an amalgamating company may be enforced by, or against, the amalgamated company; and

    (h)

    Any provisions of the amalgamation proposal that provide for the conversion of rights and interests (including any rights and interests in any shares in the capital of the companies) of the members of the amalgamating companies have effect according to their tenor.

    Section 209GA(2) states:

    209GA

    (2)

    The presentation to any Registrar or other person of any instrument (whether or not comprising an instrument of transfer) by the amalgamated company -

    (a)

    Executed or purporting to be executed by the amalgamated company; and

    (b)

    Relating to any property held immediately before the amalgamation by an amalgamating company; and

    (c)

    Stating that that property has become the property of the amalgamated company by virtue of this Part of this Act-

    shall, in the absence of evidence to the contrary, be sufficient evidence that the property has become the property of the amalgamated company.

    In the 1993 Act references to dissolution are replaced by references to removal from the New Zealand register.

    SUBMISSIONS FOR PLAINTIFF

  15. We have had the benefit of differently focused and much more comprehensive submissions than were made to the Civil Appeal Division.

  16. It was submitted that the Master and the Civil Appeal Division had failed to give effect to the concept in Part VA that amalgamating companies "continue" as one company. The Master had said that s209A did not do more than identify the means whereby amalgamating companies may carry on their operations and that, regardless of the chosen method, the amalgamated company is a different entity. The Civil Appeal Division appeared to proceed on the same reasoning. But s209A provided that the companies continue as one company even where the choice is made to use a new company as the vehicle for the continuing entity. The Legislature intended that the amalgamated company be treated as if it were the amalgamating companies for the purpose of determining rights, powers and liabilities.

  17. The Master had relied upon Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 but Mr. Galbraith QC argued that the interpretation given in that case to the English legislation - equivalent to the former s207 (repealed as from 1 July 1994) - is inappropriate to the 1993 amending legislation, which was intended to allow parties to achieve a legal result they could not achieve by agreement. Anyway, counsel said, the position in relation to guarantees, which are per se assignable, is different from that of employment contracts with which Nokes was concerned. Mr. Galbraith urged the Court to adopt a purposive interpretation, noting that we have already recognised in Wellington City Council v Rasch [1995] 2 ERNZ 91, that Parliament may legislate away the right of an employee to choose his or her employer provided the statutory intention is clearly stated.

  18. The object of Part VA, counsel said, is best met by regarding the amalgamated company as fully "stepping into the shoes" of the amalgamating companies. It cannot be the convenient method of achieving amalgamation intended by the Law Commission and by Parliament if the amalgamated company is not entitled to enforce the contracts of the amalgamating companies and to treat references in them as references to itself. Section 209G(e) is consistent with a broader approach in its statement that the amalgamated company "succeeds" to the liabilities and obligations of the amalgamating companies - a result which, under the general law, is not possible without the consent of the other contracting party.

  19. The New Zealand legislation, it was pointed out, was based by the Law Commission mainly on the Ontario Business Corporations Act and the Delaware Corporations Act (NZLC R9, para 628). The Canadian Courts have regarded the concept of continuity as of overriding importance in determining the effect of amalgamation. Minor differences in wording do not indicate any contrary intent.

  20. Mr. Galbraith submitted that continuity is not affected by the provision for deemed dissolution as that is merely an administrative step to clear up the register. In the Canadian cases the Judges talk of the amalgamating companies ceasing. The New Zealand legislature has simply made this explicit.

  21. Substitution of the expression "succeeds" in s209G(d) and (e), instead of "possess" in the Canadian statutes, was said by counsel to be of little moment. The interpretation of that word must be made in the light of the concept of continuity in s209A. It is used in a non-technical way, as can be seen from para (e), for a person cannot generally succeed to liabilities. The idea of succession is reasonably consistent with continuity.

  22. It could not have been the intent of the Law Commission and Parliament that every contract held by any of the companies needs to be examined to see if it is personal to an amalgamating company, with the potential for the other contracting party to refuse consent and thereby block the amalgamation. It would also be very curious, counsel said, if by reason of s209D(1) requirement for the parent company to be the amalgamated company its prior contracts were fully enforceable but not those of its subsidiaries.

  23. If it is a question of looking at the apparent risk to a guarantor resulting from an amalgamation, Mr. Galbraith submitted that a risk exposure exists in any event because amalgamation can be effected by the method of takeover without the guarantorís consent and without releasing the guarantor. If the interpretation contended for by the defendants were to prevail, companies might be forced to achieve armís length mergers by that means. There was little risk to a guarantor or other contracting party arising from a short form merger because it is only a rationalisation process within a corporate group. It was said that Parliament has recognised the absence of such risk which is why the companies are not required to give public notice in that circumstance.

    SUBMISSIONS FOR DEFENDANTS

  24. Mr. Jones argued that there has been a change in the identity of the creditor which has not been agreed to by the guarantors and therefore they are not liable for subsequent advances. All pre-amalgamation debt has been paid.

  25. The concept of continuance, counsel said, can mean two things - continuance of the corporate identity or continuance of the undertaking and operations of the company. The Master correctly thought it was the latter. To the extent that the concepts in s209A and s209G conflict, the latter, as a particular provision, should prevail over the more general s209A.

  26. It was submitted that features of s209G indicate that there is a change of creditor and distinguish the New Zealand position from the Canadian: the amalgamating companies (the predecessors) are "dissolved" and the amalgamated company "succeeds" to their property and other rights and to their liabilities. The idea of succession connotes a transfer of possession and an acquisition by the successor. JEL has ceased to be. CHH is a different legal entity from JEL, although not different from the CHH which formerly was the parent company.

  27. Counsel said that when Parliament wanted in the company law reform package to make it clear that there was to be no new legal entity, it said so explicitly: s12 Companies Reregistration Act 1993.

  28. Mr. Jones accepted that Nokes is distinguishable, because contracts of service are not assignable at law, but submitted that the case itself was still good law and showed that very clear words are required to preserve a liability which would otherwise be extinguished or discharged at law. He argued that Part VA ought to be read as vesting in the amalgamated company only pre-amalgamation contractual obligations.

  29. It was submitted that there was nothing unworkable about the interpretation given by the Master - the guarantee can be expressed to be assignable or to enure on amalgamation (as in First National Finance Corp v Goodman [1983] BCLC 203).

  30. Mr. Jones said that there are two competing interests. The first is that of the corporate group which will be benefited by what counsel called an efficient interpretation of the statute. The second is that of the other parties to the groupís contracts, like guarantors, insurers and employees. The consequences for them may be "draconian" if their obligations become enforceable by a different entity without their knowledge and consent. The efficient interpretation must bow to an interpretation which provides an appropriate safeguard for the other contracting parties. At least in s209C(4) there is a requirement for public notice, though it may not come to their attention, but there is none required for a short form amalgamation. The corporate group has all the information about its own contracts. It can manage its risk exposure. The other contracting parties can not.

    REASONS

  31. Part VA commences with a general conceptual statement in s209A. Two or more companies are to be permitted under the Part to amalgamate. But they will "continue" as one company. It can be one of the continuing companies. Or it may be a new company incorporated under the Companies Act 1993; in that case all are to continue in that new company.

  32. The concept of continuance of every company involved in the amalgamation is apparent also in s209D. Under subs(1) the amalgamating parent and wholly owned subsidiaries are to continue as one company, which is to be the (former) parent. Under subs(2) the amalgamating subsidiaries are to continue as one.

  33. Continuance is of the corporate entities, not of the undertakings and operations of those entities. They merge into one corporation which is to be regarded as their equivalent or, more loosely, their successor. Section 209G speaks of the amalgamated company succeeding to all the property, rights, etc and all the liabilities and obligations of each of the amalgamating companies. In a short form amalgamation involving a parent (under s209D(1)), the entity "succeeds" to property and liabilities which have been its property and liabilities beforehand, as well as succeeding to those of the other entities. But, as the parent continues and is not deemed to be dissolved, it is clear that "succeeds", a word used in Canadian case law though not in the legislation in that country to which we have been referred, is not to be read as requiring that there be a predecessor and a successor. The merged entity succeeds to the assets and liabilities because that is where they are to be recognised as being or remaining as a result of the continuance of all parties to the amalgamation.

  34. Section 209G also states that the amalgamating companies other than the amalgamated company are deemed to be dissolved. They are not said to have actually dissolved, which might have been considered inconsistent with the continuance which is directed by ss209A and 209D. They are merely treated as if dissolved. The deeming process enables the Registrar to take the sensible administrative action of removing their discarded carapaces from the register. (The current Companies Act in s225(c) directs the Registrar to remove them from the register.)

  35. The issue of the certificate of amalgamation under s209F is merely the mechanical step whereby the process of amalgamation (including deemed dissolution) becomes effective but it does not affect or impinge upon the continuance of all corporate identities in the amalgamated company.

  36. Lastly in our consideration of the language used in Part VA, we find nothing which requires the drawing of any distinction between pre and post-amalgamation rights or liabilities.

  37. We discern in the legislation a Parliamentary intent that the benefits and burdens of the contracts of all merging companies are to continue in force for all purposes. The amalgamated company is to enjoy all advantages previously conferred on any of the amalgamating companies and to have their liabilities. It is not to be treated as a different entity or as a new party to the contractual arrangements. It is not the equivalent of an assignee. Accordingly, in the case of a guarantee, neither amalgamation of the creditor nor of the debtor will discharge the guarantor in respect of post-amalgamation advances, any more than it would discharge pre-amalgamation advances. The amalgamated company simply stands in the shoes of the amalgamating company.

  38. This view is consistent with Canadian authority. In Stanward Corporation v Denison Mines Ltd (1966) 57 DLR (2d) 674, a decision of the Court of Appeal of Ontario, a mineral royalty was payable only if certain mining claims had been "acquired" as a result of a merger. Section 96(4) of the Corporations Act 1953 declared that "the amalgamated company possesses all the property, rights, privileges and franchises and is subject to all liabilities, contracts, disabilities and debts of each of the amalgamating companies." Delivering the judgment of the Court Kelly JA said (p681):

    Returning to the view that the amalgamated companies do not form a new company but continue to subsist as one, the conclusion that there is no acquisition is, if anything, more apparent. The language of s96 is in my opinion unambiguous in providing that the two amalgamating companies shall continue as one company. While it may be difficult to comprehend the exact metamorphosis which takes place, it is within the Legislatureís competence to provide that what were hitherto two shall continue as one. Having done so it is apparent that there was no acquisition by a new entity; the corporate entities were continued in the amalgamated corporation. Acquisition connotes a beginning of title or possession in the acquirer, and since the corporate entities continued there was not acquisition by Can-Met of the Consolidated Denison group.

  39. R v Black & Decker Manufacturing Co. Ltd (1974) 43 DLR (3d) 393, was a decision of the Supreme Court of Canada. It concerned the effect of amalgamation under the Canada Corporations Act 1970 on the criminal liability of one of the amalgamating companies for acts done before the amalgamation. The charge had not been laid (by the swearing of an information) until after the amalgamation. The Act stated, like s209A, that the companies "continue as one company". The Court agreed with the view taken in Stanward. It said that no "new" company was created and no "old" company was extinguished. The controlling word was "continue". The word "possesses" reinforced the concept of continuance but we do not understand the Court to have thought that word to be crucial to its interpretation. The Courtís conclusion was expressed in this way: The effect of the statute, on a proper construction, is to have the amalgamating companies continue without subtraction in the amalgamated company, with all their strengths and their weaknesses, their perfections and imperfections, and their sins, if sinners they be. (p400-401)

    The Court held that the criminal prosecution could proceed against the amalgamated company.

  40. A recent example of the position consistently taken by the Canadian Courts is to be found in Heidelberg Canada Graphic Equipment Ltd v Arthur Anderson Inc (1992) 7 BLR (2d) 236. A financing statement had been registered in respect of a conditional sales contract under the Personal Property Securities Act 1990 of Ontario. The debtor company had then amalgamated with its parent under the Ontario Business Corporations Act without any further financing statement having been registered by the creditor. It was held that the creditor continued to enjoy a perfected security interest. There had been no transfer by the debtor of its interest in the collateral.

  41. The final Canadian authority to which we refer is a decision of the Trade Marks Opposition Board in Molson Breweries (A Partnership) v Labatt Brewing Co. Ltd (now standing in the name of John Labatt Ltd) (1994) 56 CPR (3d) 107. Labatt filed an application to register a trade mark. Section 30(b) of the Trade-marks Act 1985 required the application to include the date from which the applicant or named predecessors in title had used the mark. Amalgamations had taken place in the Labatt group. The mark had been used by one of the amalgamating companies. The argument was over whether that company was a predecessor in title. After referring to Black & Decker and stating that "amalgamation does not constitute a transfer or an assignment of trade mark rights", the Board concluded that an amalgamating company was not a predecessor, which it referred to as the correlative of a successor. A predecessor was a separate entity. An amalgamating corporation and an amalgamated corporation were not separate entities.

  42. The Board expressed its unease at the result - one which could have been avoided by adopting a less literal interpretation of predecessor, as we would do in respect of "succeeds" in the New Zealand legislation.

  43. Decisions from the United States are not perhaps as helpful as the Canadian cases because the terminology used in the corporation statutes relating to mergers differs more from the New Zealand model. What is noticeable in them, however, is the readiness of the Courts to find that, notwithstanding statutory language about transfer of assets and liabilities and description of the merged entity as a "new" or "consolidated" corporation, the full benefit of a continuing guarantee is taken by the merged corporation. A leading case is W H McElwain Co. v Primavera 180 App. Div. 288,167 NYS 815 (1917), a decision of the New York Supreme Court. The relevant wording of s15 of the Stock Corporation Law providing for the merger of corporations was:

    Thereupon it shall acquire and become, and be possessed of all the estate, property, rights, privileges and franchises of such other corporation, and they shall vest in and be held and enjoyed by it as fully and entirely and without change or diminution as the same were before held and enjoyed by such other corporation ....

  44. The defendant had given to Morse & Rogers, a corporation, a continuing guarantee that one Henry would pay for any goods purchased by him from the corporation. Subsequently Morse & Rogers merged into and became part of the plaintiff corporation which thereafter, on the faith of the guarantee, sold goods to Henry for which he failed to pay. The Court held that the plaintiff could recover the price of the goods from Henry: The defendant gave his guaranty to a corporation charged with the knowledge that the law permitted the merger of that corporation with another, and the vesting in a merged corporation of all the "estate, property, rights, and privileges" belonging to its component parts. There was no assignment of the guarantee; none was made; none was required by law. By the merger it belongs to the merged corporation, and is effectual.

  45. This decision has been frequently applied and was, for instance, followed by the Court of Appeals of Oregon in Nike Inc. v Spencer 707 P.2d 589 (1985). A Nike subsidiary (BRS) took a guarantee from Spencer of any indebtedness "now or at any time hereafter" owing by Barefoot Sports Inc to BRS under a credit line relating to sports shoes. BRS subsequently merged into Nike which thereafter made supplies to Barefoot. Nike was successful in enforcing the guarantee for the credit given by the merged corporation. The statute provided for a surviving or new corporation to possess all the rights of each of the merging or consolidating corporations. (The critical wording is very similar to that in the Delaware statute which influenced the Law Commission.)

  46. The summary of the position in the United States in 19 Corpus Juris Secundum ß 809 reads:

    A surviving corporation can rely on the continued efficacy of guarantees given to its predecessor in interest prior to the merger or consolidation, and such a guaranty can be enforced by the surviving corporation.

  47. In our view the decision of the House of Lords in Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014, upon which the defendants relied, is distinguishable. The appellant in that case had been employed by Hickleton Main Co Ltd. A Court order was made under s154 of the Companies Act 1929 to effect the amalgamation of Hickleton with the respondent, Doncaster. Section 154 provided for an order to be made for the "transfer to the transferee company [Doncaster] of the whole or any part of the undertaking and of the property or liabilities of any transferor company ...." After that time the appellant absented himself from work in circumstances which would have made him liable under s4 of the Employers and Workmen Act 1875 if he could be regarded as under a contract of service with Doncaster. The Court held that he was not (Lord Romer dissenting), because that result would be inconsistent with the common law rule preventing the services of an employee under an employment contract being transferred from one employer to another without the consent of the employee. A purported transfer is a nullity unless the employee agrees to it.

  48. The Courtís evident concern about the exposure of an employee to a statutory penalty may have led it to overlook the disadvantages to employees in other circumstances if employment contracts do not vest in the merged entity. In our view employees in New Zealand would be seriously prejudiced if a similar interpretation were to be given to the amalgamation provisions in our Companies Act, since it is impossible for the obligations of the amalgamating employer to continue in and be binding upon the amalgamated company if at the same time it does not have the corresponding benefit of the employment contract. It would follow that if Nokes were good law in New Zealand, employees of an amalgamating company who were unwanted by the amalgamated company might find themselves without any ability to pursue a personal grievance claim because the amalgamating company was deemed to have been dissolved. Amalgamation could thus become a device whereby employees were abandoned without notice and without compensation

  49. Fortunately, New Zealand Courts are not bound by Nokes and, as we have indicated, the conception of amalgamations under the New Zealand companies legislation is very different. Rather than there being any transfer or assignment of rights and liabilities to the amalgamated company, it is, as the continuing entity, to succeed to them. A study of the legislation reveals a clear Parliamentary purpose of simplifying the process of amalgamation. That being so, it cannot have been intended to expose those using the process prescribed in Part VA (and in Part XIII of the Companies Act 1993) to the perils which would flow from the narrow interpretation contended for by the respondents. As the example of Nokes demonstrates, there would also be pitfalls for third parties. Nor can it have been intended to create the complications and attendant investigatory expense for users to which Mr. Galbraith referred in his argument.

  50. So far as guarantors are concerned, there would appear to be no significant risk arising out of an amalgamation, particularly one within a group, which they are not already exposed to by the availability of another means of effecting a merger, namely by takeover. A guarantee given to X Ltd in respect of the liability of Y Ltd is not discharged merely because either of those companies is taken over by Z Ltd. There may then be a complete change of management; and under the direction of Z Ltd the asset and financial position may change considerably. How can it be any more hazardous to the guarantor if the merger of economic interests with Z Ltd occurs by way of amalgamation?

  51. It is to be remembered that a guarantor under a continuing guarantee will ordinarily enjoy the ability to cancel the guarantee by notification to the creditor of unwillingness to be responsible for future transactions with the debtor. In this way the liability can be limited to existing obligations of the debtor. Part VA provides for public notification of armís length mergers. Most of them would also be readily apparent to outsiders. Even where that is not so, the risk can be little or no greater than that following upon a takeover. It must be even less in an amalgamation within an existing group, as Parliament has recognised by not requiring any public notification under the short form procedure.

    DECISION

  52. We are brought to the conclusion on a consideration both of the evident policy underlying the amalgamation provisions and of the particular words found therein, that the intention of the Legislature is that for all purposes an amalgamated company is to stand in the same position as each of the amalgamating companies in respect of all their rights and obligations. Accordingly, we hold that CHH after the amalgamation had the benefit of the defendantsí guarantees in respect of liabilities incurred to it by Pioneer Builders Ltd. The question of law is answered "Yes".

  53. In the circumstances there will be no order for costs.


Cases

Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014; Wellington City Council v Rasch [1995] 2 ERNZ 91; First National Finance Corp v Goodman [1983] BCLC 203; Stanward Corporation v Denison Mines Ltd (1966) 57 DLR (2d) 674; R v Black & Decker Manufacturing Co. Ltd (1974) 43 DLR (3d) 393; Heidelberg Canada Graphic Equipment Ltd v Arthur Anderson Inc (1992) 7 BLR (2d) 236; Molson Breweries, A Partnership v Labatt Brewing Co. Ltd. now standing in the name of John Labatt Ltd (1994) 56 CPR (3d) 107; W H McElwain Co. v Primavera 180 App. Div. 288,167 NYS 815 (1917); Nike Inc. v Spencer 707 P.2d 589 (1985)

Legislations

Companies Act 1955: s.209A, s.209B, s.209C, s.209D, s.209G, s.209GA

Companies Reregistration Act 1993: s.12

Ontario Business Corporations Act

Delaware Corporations Act

Authors and other references

New Zealand Law Commission Report, NZLC R9

19 Corpus Juris Secundum

Representations

A R Galbraith QC and R J C Partridge and N R Campbell for Plaintiff (instructed by Bell Gully Buddle Weir, Auckland)

G D Jones and A R J Bowers for Defendants (instructed by Lane Neave Ronaldson, Christchurch)


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