Commissioner of Inland Revenue v Croydon Industries Limited

[2024] NZHC 3959

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2023-425-038

[2024] NZHC 3959

UNDER

the Companies Act 1993

IN THE MATTER

of the liquidation of CROYDON INDUSTRIES LIMITED

BETWEEN

THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

CROYDON INDUSTRIES LIMITED

Defendant

Hearing:	On the papers
Judgment:	20 December 2024

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 20 December 2024 at 11.00 am pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:

THE COMMISSIONER OF INLAND REVENUE v CROYDON INDUSTRIES LIMITED [2024] NZHC 3959

[20 December 2024]

[1]    The liquidators of Croydon Industries Limited (in liquidation), Wendy Somerville and Malcolm Hollis, have applied under s 284(1)(e) of the Companies Act 1993 (the Act) for approval of their remuneration of $83,000 plus GST.

[2]    The company was incorporated on 12 December 1996 and traded as Scott Sheetmetal Company, Gas and Tools Direct and Scott Innovation. It was put into liquidation by the High Court on 14 December 2023. Upon the making of the liquidation order, the liquidator’s rates of remuneration were approved subject to s 284 of the Act.

[3]    The liquidators have provided a copy of their first liquidators’ report, along with a draft final report prepared on the basis that their remuneration had been approved by the High Court.

[4]    The liquidators have undertaken a significant amount of work. They entered negotiations to prepare a licencing agreement so the director could complete any work in progress over the Christmas period and allow for a better recovery to creditors. This agreement has now concluded and been terminated.

[5]    The liquidators contacted the director and requested information to understand the company’s financial position and affairs. That information was assessed to determine available assets, including potential recoveries and claims.

[6]    The liquidators identified existing debtors and after issuing statements received payments totalling $26,389. The company’s assets were sold at auction for $368,695 (plus GST). The premises has now been vacated and the lease disclaimed.

[7]    The liquidators made investigations but identified no further claims that could be pursued for the benefit of creditors and have finalised the liquidation. They consider there will not be any other claims in the liquidation which would result in recovery to creditors.

[8]    The liquidators confirm there has been a final distribution. The liquidators facilitated the collection of assets by secured creditors or made distributions after the

sale of assets. A total of $18,302.52 was distributed to secured creditors. After the sale of one specific asset failed to cover the total amount owed, one secured creditor now holds an unsecured claim.

[9]    The Commissioner of Inland Revenue received $2,436 representing 100 per cent of their applicant creditor costs. The employees’ preferential claims were paid in full totalling $25,836. A distribution of $113,000 was then made to the preferential creditor representing 36 per cent of its preferential claim. There will be no funds available to make distributions to unsecured non-preferential creditors, which I understand are owed $1,123,011.33.

Legal principles

[10]   The Court’s power to approve liquidators’ remuneration is provided in s 284 of the Act. The principles that apply are set out in the full High Court decision, Re Roslea Path Ltd (in liq).1 The Court of Appeal in Madsen-Ries v Salus Safety Equipment Ltd (in liq) recently confirmed the approach adopted in Re Roslea Path Ltd.2 The Court held that the principles that apply to the determination of retrospective applications are as follows:3

(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.

1      Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC) at [102].

2      Madsen-Ries v Salus Safety Equipment Ltd (in liq) [2022] NZCA 101.

3 At [15].

(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.

[11]The Court of Appeal held:4

… 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.

[12]   I am, therefore, required to be satisfied that the remuneration reflects the value of the services rendered to the creditors of the company.

Discussion

[13]   I am satisfied the liquidators have pursued all avenues for recovery and that the liquidation should be concluded.

[14]   The creditors of the company were made aware in the liquidators’ first report of the liquidators’ and support staffs’ hourly rates approved by the Court.

[15]   The liquidators have provided a breakdown of time records and remuneration claimed. I am satisfied that the work was done by staff at appropriate levels to ensure that costs were limited and reasonable. Much of the work was carried out by staff at associate and support staff level. The average hourly recovery rate for all work undertaken was $373.09, which I consider reasonable and consistent with what is charged in the market.

4 At [54].

[16]   While there was no recovery for unsecured non-preferential creditors, that is not a reflection upon the work undertaken by the liquidators.

[17]   I am satisfied that work undertaken was necessary and the remuneration claimed appropriate and reasonable.

Result

[18]I grant the application for approval of the liquidators’ remuneration totalling

$83,200 excluding GST.

O G Paulsen Associate Judge

Solicitors:
Inland Revenue Legal Services, Christchurch