Commissioner of Inland Revenue v Attractum Limited (in liq)
[2022] NZHC 3597
•21 December 2022
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2016-470-146
[2022] NZHC 3597
UNDER the Companies Act 1993 IN THE MATTER
of the liquidation of ATTRACTUM LIMITED (in liq)
BETWEEN
THE COMMISSIONER OF INLAND REVENUE
Plaintiff
AND
ATTRACTUM LIMITED (in liq)
Defendant
Hearing: On the papers Counsel:
Memorandum filed by Liquidator dated 7 December 2022
Judgment:
21 December 2022
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
[Approval of Liquidator’s Remuneration)
This judgment was delivered by me on 21 December 2022 at 4pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Deloitte, Auckland
THE COMMISSIONER OF INLAND REVENUE v ATTRACTUM LTD (in liq) [2022] NZHC 3597 [21
December 2022]
Introduction
[1] The liquidator of Attractum Limited (in liq) (Attractum), Mr Henry David Levin, has applied for approval of the liquidators’ fees in this liquidation totalling
$100,900 (plus GST and plus disbursements). This is slightly more than the exact amount of current fees of $100,841 to allow for minor variances against estimated future cashflow.
[2] Mr Levin and Vivien Judith Madsen-Ries of Deloitte were first appointed as liquidators of Attractum on 13 February 2017.
[3] On 14 December 2021, this Court made an order discharging Ms Madsen-Ries as liquidator and leaving Henry David Levin as sole liquidator.1
[4] The liquidation is now complete and so the liquidator applies for approval of their remuneration. Mr Levin has attached his draft final report to the Registrar of Companies, prepared on the basis that the liquidators’ fees have been approved. In addition, the liquidator has attached his first report plus a letter on behalf of the Commissioner of Inland Revenue confirming that the Commissioner accepts the proposal for approval of remuneration of $100,900 (plus GST and disbursements) and email correspondence from ACC abiding the decision of the Court.
[5] The disbursements in this liquidation are significant as the liquidators were required to bring legal proceedings against the directors and shareholders of the company in liquidation and were charged $146,288 (excluding GST) for legal fees and disbursements. There is a further $3,254 (excluding GST) of other disbursements.
[6] I therefore describe the background and work undertaken in some detail below as it assists in understanding the reasons for the level of liquidators’ fees. Next, I set out the legal principles applying to approval of the liquidators’ remuneration before applying those principles to this liquidation.
1 Madsen-Ries v 32267 Ltd (in liq) HC Auckland CIV-2021-404-2256, 14 December 2021 (sealed order).
Background and work undertaken
[7] The company was incorporated on 11 February 2008 and traded as a website developer. The company ceased trading on the date of the liquidation.
[8]Two creditors had unsecured creditor claims admitted in the liquidation:
(a)Inland Revenue had a preferential claim of $42,296.88 plus a non-preferential claim of $18,164.11 for a total of $60,460.99; and
(b)another creditor had a non-preferential claim for $4,821.30.
[9] In addition, Inland Revenue, as the petitioning creditor, was awarded petitioning creditor costs of $4,406.80.
[10] The liquidators faced a number of challenges in realising the debts owing and the assets of the company, including the following difficulties:
(a)realising trade debts which were largely irrecoverable due to asserted inadequacies in the provision of services;
(b)recovering the current account debt and enforcing shareholders’ resolutions to inject funds into the company in the event of insolvency, requiring more protracted than usual legal proceedings; and
(c)in relation to recovery and eventual sale of a Toyota Landcruiser, the ownership of which was uncertain.
[11] The liquidator records that “[w]hile the level of costs required to obtain the recovery was extremely disappointing, the level of costs was caused by the respondents’ actions”, the respondents being the shareholders/directors.
[12] The liquidator’s memorandum further records, in addition to pursuing the shareholders/directors, the liquidators undertook their statutory duties including:
(a)advertising the appointment of the liquidators;
(b)updating the Companies Officer Register to record the liquidation and changed the registered office and address for service;
(c)maintaining records of the liquidation including filing and archiving records;
(d)preparing accounts for the liquidation;
(e)preparing and filing GST Returns; and
(f)preparing the first and subsequent six-monthly reports to creditors.
Legal principles
[13] 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).2
[14] 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.3 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.4 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.5
2 Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC) at [102].
3 At [102].
4 At [108].
5 At [151].
[15] The Court of Appeal in Madsen-Ries v Salus Safety Equipment Ltd (in liq) recently confirmed the approach adopted in Re Roslea Path Ltd.6 The Court approved the following summary of principles applying to the determination of retrospective applications:7
(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.
[16]The Court of Appeal further held: 8
… 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.
6 Madsen-Ries v Salus Safety Equipment Ltd (in liq) [2022] NZCA 101.
7 At [15].
8 At [54].
[17] So, although the Commissioner is satisfied the fees charged are reasonable, I am still required to be satisfied that the remuneration reflects the value of the services rendered to the creditors of the company.
Discussion
[18] The liquidator’s memorandum attaches a copy of the order putting the company into liquidation on 13 February 2017. The order records that the rates of remuneration for the liquidator and the staff working under their supervision and control are the rates set out in the liquidators’ consent dated 18 January 2017. A copy of that consent is attached to the memorandum and records that the rates of remuneration range from $95 for an administrator up to $475 plus GST per hour for a liquidator.
[19] The liquidator’s memorandum records that the liquidators’ fees have been charged at a rate between $475 to $550 per hour. This is in excess of the rates actually approved in the order. The order in fact reserved leave to the liquidators to apply from time to time for approval of rates other than those approved in the order, with such application being supported by affidavit evidence of the liquidators deposing to the rates, and of an independent expert deposing to their reasonableness. No such application appears to have been made, or leave granted. I am aware from other applications for approval of liquidators’ remuneration however that an hourly rate of
$550 for a liquidator is relatively standard for liquidators.
[20] In the circumstances of this already lengthy, complicated and expensive liquidation, I consider it appropriate to grant retrospective leave for the change in hourly rates, rather than require any further submissions or documents to be filed.
[21] Relevant to my decision to grant retrospective leave is the fact that during the course of the liquidation $9,631 was written off as related to training or inefficiency. The net time cost of the liquidation is therefore $100,841. The total hours worked after the write-off was allocated on a pro rata basis over the total time, were
355.7 hours for an average hourly recovery rate of $283.50 excluding GST per hour. This average is within the normal range.
[22] The breakdown in the memorandum shows that approximately 30 per cent of the hours worked were at liquidator level, six per cent were at associate director or manager level, 8.5 per cent were at senior analyst level, 38 per cent were at analyst level, and the remaining approximately 17 per cent were at administrator or office assistant level. This is a relatively high proportion at liquidator level compared to other liquidations but is likely to be the result of the difficulties with recovering the amounts owing from the shareholders/directors.
[23] The memorandum records that the parties affected by the level of the liquidators’ fees are the non-preferential creditors who are still owed $4,597.08, shared between Inland Revenue and ACC. The liquidators’ memorandum comments that if the liquidators’ fees were less, Inland Revenue and ACC would stand to gain as an increased distribution could have been made to them.
[24] As noted above, both Inland Revenue and ACC have been consulted in respect of the liquidators’ fees and confirmed in the case of the Commissioner that they accept the fees as proposed, and in respect of ACC, that they abide the decision of the Court (although on the basis that it will not affect ACC’s debt recovery).
[25] The fact that the Commissioner of Inland Revenue accepts that there were difficulties in recovering the current account debt and pursuing the breach of directors’ duties and has agreed that the remuneration for which approval is sought is accepted supports the view that the proposed remuneration reflects the value of the services rendered to the creditors of the company.
[26] The liquidator in his memorandum further refers to the fact that the six-monthly reports record that all creditors have the right to seek the leave of the Court under s 284(1)(e) of the Companies Act 1993 to review or fix the remuneration of the liquidator, which is at a level which is reasonable in the circumstances. I note that the notice in the six-monthly reports does not invite creditors to contact the liquidators if they have any issues in relation to fees. In my view this is preferable rather than simply referring to a possible right to apply to the Court for review pursuant to s 284. I do not therefore place significant weight on this submission by the liquidator.
Result
[27] After considering all of the above, I am satisfied that the liquidators’ proposed remuneration appropriately reflects the value of services rendered to the creditors of the company in liquidation. As a result I grant the application for approval of the liquidators’ fees totalling $100,900 (plus GST and plus disbursements), allowing for minor variances against estimated future cash flow as proposed by the liquidator.
Associate Judge Sussock
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