Totem Auckland Ltd (Roslie Capper & her father, Colin Josephson) failed to survive until Christmas after creditors & shareholders voted in July to support a debt-compromise scheme.
It traded with reasonable success until November but didn’t have strong enough December earnings and was placed in liquidation on 20 December. Jeff Meltzer & Lloyd Hayward (Meltzer Mason Heath), who ran the debt-compromise scheme, were appointed liquidators.
The company set up a reception venue in the rebuilt former Apex building across Customs St West from the Sebel Hotel, Viaduct Harbour in 2002. Ms Capper wanted to establish an entrepreneurs’ club in 2001, with corporate & individual memberships, but was dogged by the receivership of the original builder (Hartner Construction Ltd), which caused a year’s delay.
Totem Auckland leased its premises from Totem on the Viaduct Ltd, owned by Ms Capper. It stopped trading on 17 December. The fixed assets will be auctioned. Totem Auckland had nearly $1 million of fittings, equipment & leasehold improvements, owed more than $34,000 in tax (including Paye), $399,000 on a first debenture, $703,000 to unsecured creditors and had $1.16 million in ordinary shares (including $590,000 held by the directors).
The demise of Totem raised some public-interest issues before the debt-compromise scheme was approved. Although I wrote about a shareholder’s application to wind the company up in April, Associate Judge Graham Lang prevented me from writing further about it until the papers for the debt-compromise scheme were posted out in June.
There was one obvious reason for that: Publicity could jeopardise the rescue of the business.
There were also obvious reasons why I shouldn’t have been silenced: Apart from the interests of people who were involved in the business & knew it was in dire straits, newcomers (such as chefs & other staff) & new suppliers could be prejudiced by working for or trading with a company which was either insolvent or was propped up by loans which were unlikely to be repaid, and there were property issues.
The order preventing me from writing about the company was of short duration and I was happy not to jeopardise the rescue attempt.
But 2 issues remained: Should a court suppress public knowledge of a process â€“ a liquidation application â€“ which comes long after distress has become apparent? This is a separate issue from advertising of an application, which also enables public knowledge but is more to do with the formal processes of the court.
Secondly, should a court try to order a commercial future, or should it let market forces apply? Allowing market knowledge â€“ instead of suppression – to affect the company’s outcome would probably have resulted in immediate closure at a cost to those involved roughly similar to their cost now. It might also have enabled a new business operator to enter the premises at a good price (for the newcomer) and to set up a successful business several months earlier than will now be possible.
As I saw the judge’s ruling affecting me and the shareholder seeking liquidation, he was favouring one set of investors (those already affected) over another set, those who might have gained by picking up the premises as a result of the company’s demise.
There is no question that the judge was entitled to do what he did. And, as is often the case where a troubled business has a better-than-50% chance of survival if given time to refinance or re-order affairs, a court would seem unreasonable (and commercially unaware) if it stomped on the rescue attempt.
Court processes often interfere with market forces; it’s an essential feature of the court’s reason for being. But, in a case like this one, is it right for the court to take it out of the public eye?
Earlier stories, 18 July 2004:Totem Auckland scheme approved
28 June 2004: Totem Auckland’s debt compromise goes to vote on 8 July