Poor accounting in the ERA: Menzies v Corrigan and the liquidator disclosure problem
26 July 2024 was a bad day for my client Mr Menzies. He was ordered to pay, or take steps to put Prime Focus Security Limited in funds to pay, $33,103 to former employee Mr Corrigan after the Employment Relations Authority found the liquidation of his company was a sham. That is under further challenge. Read the 26 July 2024 Authority determination.
It was also a bad day for the liquidator, Ms Nayacakalou. She was struck off after findings described as a "complete dereliction of duty" involving her renting out her licence to a person who did not meet the "fit and proper" test for RITANZ membership, which is a requirement for a liquidator's licence. She was ordered to pay about $40,000 in costs to the Disciplinary Tribunal.
Nobody took us aside and told us about that development. After an interim non-publication order lapsed, we found out on the street in October 2024, after our Employment Court challenge and two affidavits had already been filed. The man with the pixelated face, who I cannot name, was the first person Mr Menzies spoke to in September 2022 when he bit the bullet and decided to liquidate a company that had tax arrears and was technically insolvent.
I call him the "shadow liquidator". Ms Nayacakalou was the licensed proxy. She was struck off after four unrelated complaints were upheld, but the damage caused by the shadow liquidator and licensed proxy was not limited to those four complainants. It affected my client too.
Key documents
- Corrigan v Prime Focus Security Limited (in liquidation) [2023] NZERA 253 - costs determination
- Corrigan v Prime Focus Security Limited (in liquidation), and Menzies [2024] NZERA 448 - compliance determination
- Directions of the Authority dated 22 March 2024
- Email chain about the liquidator documents, March to June 2024
The liquidator's comment that drove the case
The first liquidator's report contained a defamatory and untrue comment:
"In the statement of affairs, the Director stated that director too[k] excessive drawings from the business. The company has also incurred substantial debt and due to not sufficient working capital, it cannot trade out the debt."
That statement was not repeated in the next liquidator's report 7.5 months later. Mr Corrigan, poorly advised by three lawyers, still came after Mr Menzies and filed in June 2023. I got involved in July 2023.
The "excessive drawings" comment became the hook. Catherine Stewart Barrister's team, including senior staff barrister Daniel Church, relied heavily on it to allege that Mr Menzies siphoned funds to avoid Mr Corrigan's personal grievance liability and then moved into similar security-business activity after liquidation. In plain English, that was effectively a phoenix-business narrative. I reject it.
The cost of pursuing paper remedies
In the May 2023 costs determination, the Authority recorded: "Counsel says Mr Corrigan has been invoiced and has paid total legal costs of $20,143.02." The representative recorded was Javana Schiphorst, counsel for Mr Corrigan, from Catherine Stewart Barrister. Read the 2023 costs determination.
That matters. Mr Corrigan had a paper win, paid more than $20,000 in legal costs, and still appears to have recovered nothing. That is why I say he was sold a pup. The problem was not that the original grievance was imaginary; it was that the enforcement strategy depended on pushing liability through a liquidated company and onto a director personally, using liquidation material that needed far more testing.
The Authority ordered the liquidator to produce documents
Ms Nayacakalou was generally evasive. By March 2024, she had failed to respond to earlier directions, so the Authority issued further directions under s 160 of the Employment Relations Act 2000. Read the 22 March 2024 directions.
The Authority directed her to provide financial statements and interim financial statements for the two financial years ending 31 March 2022 and 31 March 2023, the statement of affairs referred to in the first liquidator's report, any documentation which informed the "excessive drawings" phrase, and bank account transactions and balances for 1 May 2022 to 14 September 2022. If she did not comply, the Authority said it may consider a compliance order and a penalty for obstructing or delaying the investigation.
The documents came through the Catherine Stewart Barrister's office
The direction was to the liquidator. But on 25 March 2024, Daniel Church emailed the Authority saying he had received the attached documentation from the liquidator over the weekend and asked that it be passed to the Member. He also said he was taking over because Javana Schiphorst was leaving the practice. Read the email chain.
That created a real disclosure problem. The Authority ordered the liquidator to produce documents. The production instead came through Mr Corrigan's barrister's office. We could see what had been forwarded, but we could not confirm whether the liquidator had produced everything ordered, whether there had been other communications, or whether disclosure was full, filtered, or incomplete. That was part of the basis for seeking non-party discovery from Ms Stewart.
So the non-party discovery issue was not some random rabbit hole. The liquidator documents were used to support serious allegations against Mr Menzies, including allegations about siphoning funds, avoiding personal grievance liability, and phoenix-like business activity. If those documents were incomplete or unreliable, the whole foundation was unsafe.
How the documents were used
On 14 June 2024, Daniel Church told the Authority the documents were of limited utility, but submitted that the balance sheets and P&L showed the company was still profitable between April and September 2022. He said it was evident Mr Menzies had withdrawn $194,588.20 in drawings, which he said matched Mr Corrigan's evidence that money was withdrawn to avoid potential legal liability. Read the 14 June 2024 email in the chain.
Mr Church also said the annual report for the year ended 31 March 2022 had not been provided, that the liquidator had said the five documents were all she had, and that the respondents had not been helpful. He invited the Authority to draw inferences. The documents were therefore not neutral background. They became ammunition.
Quick note: Daniel Church was already actively involved in the case against Mr Menzies as Mr Church had drafted the paperwork and attended a second Authority Case Management Conference to speak to the documents that he had written for Ms Schiphorst. That came about because the claims against Mr Menzies personally had difficulties that the Authority wanted to be addressed for example seeking against Mr Menzies under s 142 of the Act for minimum entitelements where the money awarded was not minimum entitlements but a personal grievance only. During the call Mr Church also expressed that there were other cases which he was pursuing company directors personally against. When the case came before the Employment Court, during that First Directions Conference with Judge Beck, Mr Church then told the Court that he had no prior involvement in the case.
The accounting problem
The liquidator's purported financials were a mess. For the year ended 31 March 2022, there was a $56,700 discrepancy in both the balance sheet and profit and loss compared with the annual report provided by a Chartered Accountant, which the liquidators also had. I also say the April to September 2022 accounts were false or at least materially unreliable, and that this helped cover the false "excessive drawings" comment.
I never took accounting at high school, so my accounting skills are basic. I asked for a forensic accountant to be brought in. That was refused. But nobody else seemed to know more about accountancy than me, so the false accounting unwittingly produced the 26 July 2024 determination.
The Authority relied on the liquidator's financial information to conclude that in the five months before liquidation Mr Menzies took drawings of $194,588, that those drawings were excessive, and that they aligned with the first liquidator report. That is exactly why the quality, provenance, completeness, and reliability of the liquidator disclosure mattered.
The non-publication problem
The non-publication order also caused real problems in the Employment Court challenge. We could not gather evidence that shed light on why Ms Nayacakalou was struck off. Evidence surfaced too late, after the challenge had been discontinued because the awards could not be stayed. That was $33,103 plus $4,571 costs. With Court costs, the amount owed now exceeds $50,000.
Mr Menzies simply could not pay. In early 2025, Mr Corrigan, who had already parted with his counsel, must have realised this.
Non-party discovery and costs
Ms Stewart applied for costs against me despite knowing that Mr Menzies had applied for judicial review with another advocate, Mr Price. The Court ordered me to pay costs of $2,531 to Ms Stewart, which I paid the same day. But that did not change the fact that, in my view, her firm had sold its client a pup.
Mr Price has intermediate accounting skills and a reputable liquidator in his corner. Recent submissions will presumably reflect that. Hopefully we will see a judgment by the end of the year. The shadow liquidator issue should not disappear either. In my view, the shadow liquidator should be prosecuted.
