Commissioner of Inland Revenue v Architectural Hardware Solutions Limited (in liquidation)
[2022] NZHC 2054
•18 August 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-0208
[2022] NZHC 2054
UNDER the Companies Act 1993 IN THE MATTER
of the liquidation of ARCHITECTURAL HARDWARE SOLUTIONS LIMITED (in
liquidation)
BETWEEN
THE COMMISSIONER OF INLAND REVENUE
Plaintiff
AND
ARCHITECTURAL HARDWARE
SOLUTIONS LIMITED (in liquidation) Defendant
Hearing: On the papers Counsel:
Memorandum filed by the Liquidator dated 23 June 2022
Judgment:
18 August 2022
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
[Approval of Liquidator’s Remuneration]
This judgment was delivered by me on 18 August 2022 at 4pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
KPMG, Auckland
THE COMMISSIONER OF INLAND REVENUE v ARCHITECTURAL HARDWARE SOLUTIONS LTD (in liq) [2022] NZHC 2054 [18 August 2022]
Introduction
[1] The liquidator of Architectural Hardware Solutions Limited (in liquidation), Ms Janet Sprosen of KPMG, has applied for approval of the liquidator’s overall remuneration of $108,917.97.
[2] Ms Vivian Judith Fatupaito of KPMG was originally appointed as liquidator on 25 May 2018. On 8 March 2022, Ms Sprosen was appointed upon the resignation of Ms Fatupaito.
[3] The liquidator has attached her draft final report to the memorandum, prepared on the basis that the liquidators’ fees have been approved. In addition, copies of the nine six-monthly reports issued by the liquidator since the company was put into liquidation are attached.
[4] The background and work undertaken are set out below. I then outline the legal principles applying to approval of liquidators’ remuneration and apply those principles to the circumstances of this liquidation.
Background and work undertaken
[5] The company was incorporated on 6 March 2013 and operated as a hardware retailer in Auckland.
[6]Liquidators were appointed on 25 May 2018 as set out above.
[7] On 11 June 2018, Mr Boris van Delden and Mr Iain McLennan were appointed as receivers of the company pursuant to a General Security Agreement in favour of Mr Alfred Daniel Paterson and Ms Maureen Paterson.
[8] The liquidator liaised with the receivers and requested information from them. Requests were also made to the company’s advisers for any information detailing assets, potential recoveries or claims in the liquidation.
[9] After reviewing the company’s documents and having discussions with the company’s director and advisers, the liquidator’s staff undertook an extensive investigation into the potential assets of the company and reconstructed the company’s accounts.
[10] The liquidator agreed to the company completing contracts entered into prior to the liquidation with wages paid to the employees during this period. Once all current contracts had been completed, the liquidator organised for the company to cease trading.
[11] Following issues arising, and on the basis of legal advice received, the liquidator brought High Court proceedings against the receivers and the Patersons in respect of the General Security Agreement. The Patersons applied to join additional parties to those proceedings, including the solicitor who acted on their behalf in drafting the General Security Agreement and the company director.
[12] One week before the trial date, a settlement was reached between the parties for the repayment of company assets sold during the receivership, with a settlement deed executed on 16 September 2019. The settlement sum has been paid in full. Given the timing of the settlement, the liquidator and their counsel had already spent a significant amount of time and resources in preparation for the trial.
[13] In addition to the proceedings, analysis of the company’s financial statements identified accounts receivable for which demands were made and a total of $78,490 recovered. The director/shareholder was adjudicated bankrupt by the High Court on 29 October 2020, however the Official Assignee has been unable to engage with the director and has recorded that a dividend is unlikely. The liquidator has now concluded there are no further avenues of recovery and therefore intends to finalise the liquidation.
[14] The liquidator records in her memorandum that she has received funding from a third party to refer the director to MBIE for prohibition under s 385 of the Companies Act 1993. The director has since been prohibited from acting as a director, effective from 3 March 2020 to 3 March 2027.
Creditors and distributions
[15] There are three secured creditors with claims totalling $48,577 plus two preferential unsecured creditors (employees for $17,057 and Inland Revenue for
$194,607). In addition, there are non-preferential unsecured creditors with claims of
$204,996.
[16] There will be no funds available to make a distribution to any of the classes of creditor due to insufficient recoveries made.
Legal principles
[17] The Court’s power to approve liquidators’ remuneration is provided 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
[18] 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 a 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 has been 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].
[19] The Court of Appeal in Madsen-Ries v Salus Safety Equipment Ltd (in liq recently confirmed the approach adopted in Re Roslea Path Ltd.5 The Court approved counsel assisting’s summary of the principles that apply to the determination of retrospective applications as follows:6
(a)Liquidators are fiduciaries and their fundamental obligation is a duty to account. There is a conflict between the interest 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 the creditors.
[20]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].
[21] I am therefore required to be satisfied that the remuneration reflects the value of the services rendered to the creditors of the company.
Discussion
[22] The memorandum and the attached draft final report set out the background to the appointment of the liquidator and the steps taken during the liquidation. Attached to the draft final report at Appendix A is a schedule of liquidator’s receipts and payments for the period 25 May 2018 to 22 May 2022.
[23] Each of the six-monthly reports by the liquidators to the company’s creditors and shareholders sets out the charge out rates, fees incurred up to the date of the report and the average hourly rate. The report records that the liquidator welcomes creditor feedback in respect of the fees charged at any time during the liquidation.
[24] The liquidator has included a breakdown of the time records and remuneration in both the memorandum filed and the draft final report, the latter in more detail. These confirm the applicable hourly rates were those approved by the Court when the liquidator was first appointed, ranging from $100 to $170 for support staff, and up to
$550 per hour for the liquidator.
[25] The fees incurred in the liquidation came to a total of $130,328.50. However, the fees billed only amount to $108,917.97 with $21,410.53 written off by the liquidator as insufficient recoveries were made. The average hourly recovery rate is therefore only $267.78 (excluding GST).
[26] The summary of the staffing level at which fees were incurred reveals that 10 per cent of the hours worked were at liquidator level, 31 per cent at senior manager or associate director level, 57 per cent at graduate, analyst or senior analyst level and the final 2 per cent at support staff level. The liquidator confirms that in her opinion, the most suitable level of staffing was employed according to the work required. The time incurred by the liquidator and her staff can be further broken down as follows:
(a)11 per cent on general enquiries, initial discussion with the director and creditors, and administration of the liquidation;
(b)5 per cent on statutory reporting;
(c)19 per cent on asset realisation;
(d)22 per cent on litigation;
(e)43 per cent on investigating, issuing claims, litigation, negotiating and attending on settlement of claims in the liquidation.
[27]I note that there appears to be some overlap in categories (d) and (e).
[28]The summary of disbursements records $6,030.04 recovered as compared to
$7,095.61 incurred, made up of $5,450.86 recovered for administration charges,
$553.57 for advertising and $25.61 for other expenses.
Letter from Commissioner of Inland Revenue
[29] The liquidators sought confirmation from the petitioning creditor, the Commissioner of Inland Revenue, that the Commissioner was satisfied with the level of fees and expenses for which approval is sought. A letter has been provided on behalf of the Commissioner confirming that they have reviewed the memorandum and the draft final report, and acknowledging the amount of work that was undertaken to investigate and identify claims in this liquidation. The Commissioner accepts that the fees charged reflect the significant amount of time and resources the liquidator and her legal counsel spent preparing for the trial in respect of the General Security Agreement and the company’s director. As a result, the recoveries made during the liquidation were insufficient to make a distribution to any class of creditor including the Commissioner. The Commissioner confirms that, although they did not receive anything towards their claim, they are satisfied with the outcome of the liquidation and the fees charged of $108,917.97 plus GST and disbursements.
Result
[30] I am satisfied having regard to the memorandum filed and its attachments, including the letter on behalf of the Commissioner of Inland Revenue, that the liquidator’s remuneration appropriately reflects the value of the services rendered to the creditors of the company. As a result, I grant the application for approval of the liquidator’s fees totalling $108,917.97 excluding GST plus disbursements of
$6,030.04.
Associate Judge Sussock
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