Baker v Baker
[2023] NZHC 3844
•21 December 2023
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2018-470-125
[2023] NZHC 3844
UNDER the Companies Act 1993 BETWEEN
LLOYD JOHN BAKER and PETER DOUGLAS BAKER
Plaintiffs
AND
VALERIE JEAN BAKER
First Defendant
FLORENCE VALERIE BAKER
Second DefendantGLENVILLE PROPERTIES (KATIKATI LIMITED)
Third Defendant
Hearing: On the papers Appearances:
Memorandum filed by the Liquidators dated 15 November 2023
Judgment:
21 December 2023
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
[Approval of Liquidators’ Remuneration]
This judgment was delivered by me on 21 December 2023 at 10 am pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
PriceWaterhouseCoopers, Hamilton
BAKER v BAKER [2023] NZHC 3844 [21 December 2023]
Introduction
[1] The liquidators of Glenville Properties (Katikati Limited) (in liquidation) (Company), Wendy Somerville and Malcolm Hollis of PriceWaterhouseCoopers, have applied for approval of their liquidators’ fees of $504,206 plus GST.
[2] The liquidators have attached their draft final report to their memorandum together with copies of the liquidators’ seven previous six-monthly reports.
[3] I set out the relevant legal principles before setting out the background and applying these principles to this liquidation.
Relevant legal principles
[4] The Court’s power to approve liquidators’ remuneration is provided for in s 284 of the Companies Act 1993. The principles that apply in considering applications for approval are set out in the full High Court decision, Re Roslea Path Ltd (in liq).1
[5] Heath and Venning JJ held that in fixing a liquidator’s remuneration, the Court is determining the fairness and reasonableness of what is being charged when measured against the work undertaken and the result achieved. The Court held that fair and reasonable remuneration reflects the value of the services rendered to the creditors of the company and, if a surplus is achieved, its shareholders. The decision describes “value” as an elusive concept which goes beyond mathematical application of hourly rates to hours spent by individuals involved in administering the company’s affairs.2 The Court emphasised the need for a proportionate approach, both in terms of the remuneration paid but also the information required by the Court to justify the remuneration paid.3 One of the suggested ways of ensuring that a reasonable and proportionate approach is taken is for the liquidators to voluntarily disclose in their six-monthly reports the amount of fees charged, such that creditors have an opportunity to ask questions as the liquidation progresses.4
1 Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC) at [102].
2 At [102].
3 At [108].
4 At [151].
[6] The Court of Appeal in Madsen-Ries v Salus Safety Equipment Ltd (in liq) recently confirmed the approach set out in Re Roslea Path Ltd.5 The Court approved counsel assisting’s summary of the principles that apply to the determination of retrospective applications (for approval of liquidators’ remuneration) as follows:6
(a)Liquidators are fiduciaries and their fundamental obligation is a duty to account. There is a conflict between the interests of the liquidator (fiduciary) in receiving remuneration and the interest of the creditors (those to whom the fiduciary duties are owed) who bear the cost of that remuneration.
(b)Liquidators are officers of the Court and are subject to its general supervisory function. They must attend diligently to their tasks and make all proper reports and inquiries. They have the same responsibilities as barristers and solicitors.
(c)Liquidators must justify their claims for remuneration. They bear the onus in this regard and the benefit of any doubt due to inadequate information must be resolved in favour of the creditors.
(d)Fixing liquidators’ remuneration requires judicial judgment. It is more akin to an administrative task. It is implicit that the judicial officer can draw on his/her own experience in performing this role.
(e)In fixing liquidators’ remuneration the Court is making a determination of the fairness and reasonableness of the proposed fees compared to the work undertaken and results achieved. The focus is on the value of services rendered to the creditors of the company.
(f)The Court will consider whether there has been unnecessary work or over servicing as this would not represent time reasonably expended at a reasonable rate.
(g)A broad brush approach is acceptable provided that there is an exercise of judicial judgment as opposed to an arbitrary choice of amount.
(h)The process of fixing remuneration needs to be proportionate. It should not be unduly prescriptive; nor should it unnecessarily add costs to creditors.
[7]The Court of Appeal held: 7
… even where there is no challenge to the liquidator’s remuneration this does not absolve the Court from the obligation to be satisfied that the remuneration approved reflects the value of the services rendered to the creditors of the company.
5 Madsen-Ries v Salus Safety Equipment Ltd (in liq) [2022] NZCA 101.
6 At [15].
7 At [54].
Factual background
[8] The Company was placed into liquidation following the settlement of proceedings between shareholders, the terms of which included the possibility of liquidators being appointed if certain circumstances arose. When those circumstances did arise, orders were made by consent appointing Wendy Somerville and Malcolm Hollis as liquidators on the terms and conditions set out in their consent to act dated 21 February 2020.8
[9] The liquidators report in their draft final report that while the liquidation followed a High Court application, the request for liquidation came from the shareholders and it was intended to provide an orderly sale of assets and distribution of proceeds. The Company has been solvent throughout.
[10] The draft final report records that when the liquidators were appointed, the Company was continuing to operate as a dairy farm as well as leasing tenanted residential properties.
[11] As at the date of the liquidation the Company owned several residential properties, land and buildings making up the dairy farm, livestock, term deposit investments, motor vehicles, other farming plant equipment and a related party advance account.
[12] The liquidators arranged for an on-farm specialist to assess animal welfare and health and safety and, following that, made the decision to continue trading for a short period to maximise the return for shareholders.
[13] Shortly after their appointment the lockdowns and restrictions imposed as a result of COVID-19 meant that all auction and sale processes were delayed for the period of the lockdown. The liquidators were also required to work through additional on-farm health and safety measures and to work with the manager to put in place new practices. The liquidators report that they were also required to seek specific advice around legal updates impacting residential tenants.
8 Baker v Baker HC Auckland CIV-2018-470-125, 2 March 2020 per Associate Judge Andrew.
[14] The liquidators engaged livestock agents to sell the majority of livestock at a “in-calf” auction with a number otherwise disposed of on the advice of the farm adviser. The equipment, motor vehicles and remaining livestock feed were all sold at public auction.
[15] The liquidators sought marketing proposals from three real estate agents and then sold both land titles attached to the farm property as well as six other residential properties and land sections with gross sale proceeds being approximately $9,000,000.
[16] As part of the land sale, the liquidators were made aware of a contamination issue on one parcel of land. The site was adjacent to a related company’s property with a similar issue. Together with the related party, the liquidators engaged environmental experts to assist with a resource consent application to best prepare the property for sale. A resource consent was granted in July 2021 and the liquidators entered into a formal agreement with the related party company to market and sell the adjoining properties of both entities to maximise the return to shareholders. Twelve tenders were submitted during a five-week marketing campaign. The offer selected and executed was dependent on the sale of the related party company land to the same party. The related party was unable to reach an agreement on negotiated terms and as a result the liquidators’ sale and purchase agreement was cancelled.
[17] The liquidators then reverted to the unsuccessful parties in the original tender process and entered into an agreement later in 2021.
[18] The liquidators record in their draft final report that as detailed in their previous report the liquidators rejected a portion of a related party employment claim. The employee sought leave from the High Court to have the decision reversed or modified. A substantive High Court hearing was set for July 2023. Shortly before the proposed hearing date the Employment Relations Authority (ERA) released a decision on a similar matter between a related company and the same party. After seeking legal advice on the ERA decision, the liquidators made the decision to settle the matter out of Court.
[19] The share portfolios have also been sold in the normal course engaging the appropriate parties to complete the sales. The related party advance was distributed as part of an in-species distribution during the course of the liquidation.
Creditor claims
Secured creditors
[20] There was one secured interest registered against the Company at the date of liquidation. The secured creditor discharged their security shortly after appointment but also held a mortgage over properties owned by the companies. The liquidators repaid the mortgage in full to facilitate the sale process.
Preferential creditors
[21] The applicant creditor in the liquidation filed a claim in the liquidation for court awarded costs of $2,622. This claim has been distributed in full.
Employee claims
[22] The liquidators received one claim totalling $5,685 from an unrelated employee in relation to unpaid wages and holiday pay. The employee received a distribution of 100 cents in the dollar in relation to this claim.
Inland Revenue claim
[23] The liquidators received a preferential claim of $5,054 from Inland Revenue in relation to unpaid GST and PAYE. Inland Revenue has received a distribution of 100 cents in a dollar for this claim.
Unsecured creditors
[24] Twelve unsecured claims totalling $231,527 were received. Of the total claims received, 10 claims totalling $24,542 received distributions of 100 cents in the dollar.
[25] Two remaining claims were settled following High Court proceedings and received distributions totalling 83 cents in the dollar for the total claim.
Receipts and payments
[26] The draft final report attaches as ‘Appendix B’ a statement of receipts and payments covering the period of the liquidation. The total receipts and total payments (including the payment of $8,615,000 to shareholders) amount to $10,401,307.
Does the remuneration in this case reflect the value of services rendered to the creditors?
[27]The liquidation has lasted for three and a half years and has distributed
$8,615,000 to shareholders. The memorandum filed on behalf of the liquidator records that a significant proportion of the work in the liquidation was completed by staff members at manager level and above. The liquidators submit that this was necessary given the complexity of issues faced in the liquidation.
[28] The average hourly charge out rate for the liquidators is approximately $375 per hour which is high compared to most liquidations. The outcome of the liquidators’ work however has been of significant value to the creditors and shareholders as it has resolved all differences between the parties in what appears to have been a difficult sale and distribution process.
[29] The liquidators confirm that they have been conscious of the fees incurred and have made an effort to reduce the costs by delegating work to staff at associate and support levels where appropriate. The liquidators have provided disclosure of the liquidators’ fees incurred in their six-monthly reports sent to the Company’s creditors and shareholders. As part of that disclosure, they advised creditors and shareholders of their right to review the fees under s 284 of the Companies Act 1993. To date the liquidators confirm that they have received no objection to any of the liquidators’ fees charged in liquidation.
[30] In the memorandum filed the liquidators submit that the rates which were approved by the Court allow the liquidators to charge a fee of up to $577,683.50 plus GST for the liquidation referring to these as the “Consented Rates.” The liquidators submit that the fees and disbursements of $504,206 for which the liquidators are seeking approval are below these “Consented Rates”. I do not accept that this is a
useful comparison. The consent to act sets out a range of hourly rates for each staff member level. This means the Court approved charging in that range, not just at the top of that range for each staffing level. The fees charged however appear to be within the range of hourly rates which the Court approved.
[31] At the level claimed, although the liquidators’ overall remuneration is high, the distribution to shareholders is also significant. The fees charged have been disclosed in each six-monthly report as the liquidation has progressed with significant breakdown into tasks and staffing level. Those reports have all referred to the ability to apply to the Court for review of the charges and there has been no such application.
[32] The liquidators have also attached as ‘Appendix B’ to their memorandum a final breakdown of the hours worked at each staffing level and the relevant charging rates together with a narration of the work carried out. The narration shows the work undertaken is extensive and highlights the complexity of the liquidation.
[33] I am satisfied that the remuneration for which approval is sought reflects the value of the services rendered to the creditors and shareholders of the Company. On this basis it is appropriate to approve the remuneration claimed.
Result
[34]The liquidators’ remuneration of $504,206 plus GST is approved.
Associate Judge Sussock
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