Commissioner of Inland Revenue v Entra Scaffolding Limited (in liquidation)
[2022] NZHC 2056
•18 August 2022
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2020-470-122
[2022] NZHC 2056
UNDER the Companies Act 1993 IN THE MATTER
of the liquidation of ENTRA SCAFFOLDING LIMITED (in liquidation)
BETWEEN
THE COMMISSIONER OF INLAND REVENUE
Plaintiff
AND
ENTRA SCAFFOLDING 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 Liquidators’ 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 ENTRA SCAFFOLDING LTD (in liq) [2022] NZHC 2056
[18 August 2022]
Introduction
[1] The liquidators of Entra Scaffolding Limited (in liquidation), Ms Elizabeth Helen Keene and Ms Janet Sprosen, both of KPMG, apply for approval of their overall remuneration of $18,675 in this liquidation.
[2] Ms Vivian Judith Fatupaito of KPMG was originally appointed together with Ms Keene on 15 February 2021. Ms Fatupaito resigned on 8 March 2022 and was replaced by Ms Sprosen.
[3] The liquidators have attached to their memorandum their draft final report to the Registrar of Companies, prepared on the basis that their fees have been approved. They have also provided copies of their first, second and third six-monthly liquidators’ reports.
[4] I set out the background and work undertaken in the liquidation below, before setting out the applicable legal principles and applying those to the circumstances of this liquidation.
Background and work undertaken
[5] The company was incorporated on 29 March 2018. It operated as a scaffolding company. Following appointment on 15 February 2021, the liquidators spoke with the registered director, Mr Bradley van der Heyden. Mr van der Heyden advised that although he was recorded as the director of the company, he had not been involved since 2019 and the former director, Mr Rewi Hamilton, was in control of the business. Mr van der Heyden advised that he was unable to resign as he was the sole director recorded on the Companies Register.
[6] Communications with third parties confirmed that Mr Hamilton was in control of the business. Despite multiple attempts to contact Mr Hamilton, the liquidators were unsuccessful.
[7] An employee of the company advised the liquidators that it was still trading at the date of liquidation and that it had active scaffolding sites across Tauranga arising out of a contract with Golden Homes Limited.
[8] The liquidators therefore contacted Golden Homes to obtain information before attending the company’s premises in Papamoa where the liquidators:
(a)met the landlord of the company at the premises;
(b)met the employees and terminated their employment;
(c)received a company vehicle returned by one of the employees;
(d)recorded the assets of the premises;
(e)reviewed and collected relevant company records from the office;
(f)met the auctioneer to view assets and discuss sale options; and
(g)secured the site.
[9] The liquidators then considered whether they could complete the company’s work in progress but determined there would be no benefit to the creditors to do so. This decision was based on the company’s financial position and the requirements under the relevant health and safety legislation. The liquidators therefore ceased trading the company’s business on 19 February 2021 and terminated all employment contracts.
[10] Information requests were made to third parties to identify any assets, recoveries or potential claims in the liquidation. This identified that Heartland Bank held a security over the company’s Holden Colorado and that the Bank of New Zealand held a specific security over a vehicle and a General Security Agreement over the company’s assets.
[11] The liquidators arranged for the sale of the Holden Colorado, with Heartland receiving a full distribution in respect of their secured creditors’ claim (releasing their security over the vehicle). The liquidators also identified and located a Toyota Hilux
which was sold on an “as is, where is” basis at auction. The liquidators then identified other assets including scaffolding leased from Entra Solutions Limited. BNZ’s consent was obtained to deal with all assets under their security, including the scaffold. The assets were valued and sold by auction, including several vehicles which had significant outstanding road user charges that needed to be brought up to date for sale. The liquidators then made a distribution to the BNZ in the amount of $105,081.26 in partial settlement of the loan secured by the General Security Agreement.
[12] While the company had scaffolding at various sites under the Golden Homes contract, the liquidators determined it was not cost effective to disassemble and remove it for sale due to the relatively minimal volume at each site and the health and safety requirements involved in removal. The company’s onsite scaffolding was therefore disclaimed by the liquidators pursuant to s 269 of the Companies Act 1993 and not dealt with pursuant to the BNZ’s security.
[13] The liquidators received a payment of $20,869.50 from Golden Homes for work completed. The liquidators investigated possible claims against the director(s) and shareholders but this did not reveal any claims that warranted recovery action.
[14] As a result, the liquidators have determined there are no further avenues for recovery and have finalised the liquidation.
Creditors and distributions
[15] As referred to above, there were two secured creditors, BNZ ($145,912.30) and Heartland Bank ($14,531.88). BNZ received a distribution of $105,081.26, which amounted to 72 per cent of its claim, while Heartland received a full recovery.
[16] There were three preferential unsecured creditors, the petitioning creditor ($1,758.10), employees ($2,520) and Inland Revenue ($205,001.56) plus non- preferential unsecured creditors with claims of $280,450.96.
[17] There will be no funds available to make a distribution to the preferential unsecured creditors or to the non-preferential unsecured creditors.
Legal principles
[18] 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
[19] 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
[20] 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.
1 Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC) at [102].
2 At [102].
3 At [108].
4 At [151].
5 Madsen-Ries v Salus Safety Equipment Ltd (in liq) [2022] NZCA 101.
6 At [15].
(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.
[21]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.
[22] I am therefore required to be satisfied that the remuneration reflects the value of the services rendered to the creditors of the company.
Discussion
[23] The memorandum and draft final report attached set out the background to the appointment of the liquidator, the steps taken during the liquidation, and a schedule of liquidators’ receipts and payments for the period from 15 February 2021 to 9 May 2022 (attached at Appendix A). In addition, the liquidators have provided copies of their three six-monthly reports to the company’s creditors and shareholders. Each of these reports sets out the fees incurred up to the date of the report and invites creditors’ feedback in respect of fees charges at any time during the liquidation.
7 At [54].
[24] The liquidators have included in their memorandum a breakdown of the time records and remuneration and confirmed the applicable hourly rates applying were those approved by the Court when the liquidators were first appointed. The liquidators incurred fees of $18,494 plus disbursements of $1,310 in dealing with the secured creditor’s assets. Those fees have been deducted from the sale of the secured assets and are not included as a cost of the liquidation. The liquidators’ application is for approval of remuneration of $18,675. An amount of $1,329.50 has been written off as the liquidators have made insufficient recoveries.
[25] The report records that 58.5 hours were worked, meaning that the average hourly recovery rate is $313.93 (excluding GST). The breakdown of hours worked by staffing level shows that 30 per cent of the hours worked were at partner or liquidator level at an hourly rate of $550 per hour, while 62 per cent was at analyst or senior analyst level ($172 to $330 per hour). The remaining six per cent was at manager or senior management level ($400 to $500 per hour) and two per cent at support staff level ($100 to $170 per hour).
[26] The memorandum records that the time incurred by the liquidators and their staff can be further broken down as follows:
(a)49.91 per cent was spent on secured assets and creditors during the liquidation.
(b)28.87 per cent was spent on statutory reporting and administering the liquidation.
(c)20.04 per cent was spent on ceasing the company’s operations, investigating, realising other assets and communicating with creditors.
[27] The disbursements charged include expenses relating to advertising and to dealing with the secured assets. An administration charge has also been incurred of five per cent of the overall remuneration.
Commissioner of Inland Revenue letter
[28] The liquidators sought approval from the petitioning creditor, the Commissioner of Inland Revenue, for the level of fees and expenses for which approval is sought from the Court. A letter is attached to the memorandum confirming the Commissioner is satisfied with the outcome of the liquidation and the fees claimed of $18,675 plus GST and disbursements. The Commissioner appreciates that the liquidators determined quickly that there was no benefit to creditors to continuing trading and that the best solution was to sell the available assets.
Result
[29] 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 liquidators’ remuneration appropriately reflects the value of the services rendered to the creditors of this company. As a result, I grant the application for approval of liquidators’ fees totalling $18,675 excluding GST plus disbursements of $2,842.90.
Associate Judge Sussock
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