Commissioner of Inland Revenue v Generis Software Limited (in liquidation)

[2019] NZHC 723

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2016-419-83

[2019] NZHC 723

BETWEEN

THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

GENERIS SOFTWARE LIMITED (IN LIQUIDATION)

Defendant

Hearing:	On the papers
Counsel:	W Somerville for Liquidators
Judgment:	5 April 2019

JUDGMENT OF WHATA J

This judgment was delivered by me on 5 April 2019 at 4.00 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date: ………………………….

Solicitors:           PricewaterhouseCoopers, Christchurch

THE COMMISSIONER OF INLAND REVENUE v GENERIS SOFTWARE LIMITED (IN LIQUIDATION) [2019] NZHC 723 [5 April 2019]

Introduction

[1]                  The liquidators of Generis Software Ltd (Generis) seek the Court’s final approval of the liquidators’ fee, totalling $9,046.49, excluding GST plus disbursements. The liquidators have advised creditors and shareholders of their right to have the fees reviewed under s 284 of the Companies Act 1993 if they object to the amount of the fees. To date, no objection has been received.

Background

[2]                  The following is based on the liquidators’ draft final report dated 22 November 2018.

[3]                  The company was incorporated on 19 February 2002 and operated in the software industry with the responsibility for developing database management software. The reason for the company’s insolvency was due to the failure of one particular project. The database management software design was incompatible with Apple Mac computers. Therefore, the resulting product was of minimal value.

[4]                  As at the date of liquidation the Company's assets consisted of three old computers which were of minimal value. In addition, the Company was still receiving a limited stream of income in respect of the hosting and maintenance of database management software developed for former clients of the Company.

[5]                  After a review of the company’s records, the liquidators confirmed that Company expenditure and the director’s personal expenditure were intermingled in a bank account belonging to the Company whilst the Company was trading. The Liquidators reached a full and final settlement with the director, which covered all potential claims against the director, and included an amount to cover the value of any Company assets retained by the director in respect of ongoing maintenance and hosting. That amount was calculated with reference to the potential sale price of Company assets, bearing in mind the niche market for resale of the Company’s database management system, along with the fact that any existing streams of income were dependent on the director's continuing involvement and familiarity with software developed for former clients of the Company.

[6]                  The Liquidators have received all payments due under the settlement agreement. Whilst the final payment of $2,500 was due in March 2017, the Liquidators did not receive this final sum until June 2018, following protracted discussions with the director regarding non-payment, and during which the Liquidators had considered the possibility of formal recovery action.

[7]                  The Liquidators conducted further necessary investigations into the Company's affairs but did not uncover any other breaches of the Companies Act 1993 that were likely to result in recovery of assets (e.g. voidable transaction claims).

Creditors

[8]                  There were no known secure creditors at the date of liquidation. In terms of unsecured creditors, the High Court awarded applicant creditor costs of $3,791.72. No distribution has been made in respect of these costs. One preferential claim totalling

$28,456.90 was received from the Inland Revenue Department relating to claims for unpaid GST and PAYE. One non-preferential unsecured claim totalling $16,538.90 was received from the Inland Revenue Department. No distribution has been made to preferential or non-preferential unsecured creditors.

Liquidators’ fees

[9]                  The liquidators' fees are $9,046.49 for the period of the liquidation, comprising:

(a)20 percent - initial investigation information gathering;

(b)60 percent - negotiations with director regarding settlement of claims; and

(c)20 percent - general investigation and administration.

Statutory framework

[10]Section 284(1)(e) of the Companies Act, provides:

(1) On the application of the liquidator, a liquidation committee, or, with leave of the Court, a creditor, shareholder, or other entitled person, or director of a company in liquidation, the Court may -

(e)In respect of any period, review or fix the remuneration on the liquidator at a level which is reasonable in the circumstances.

[11]              As stated in Flynn v McCallum,1 the appropriate test of reasonableness is whether the time spent would have been undertaken by a reasonably prudent person faced with the same situation. In addition, as noted by Toogood J in Levin v Lawrence,2 the statutory regime under the Companies Act favours allowing liquidators to make decisions which they, as the persons appointed to exercise these responsibilities, are better qualified than the courts to make.

Assessment

[12]I am satisfied that the costs incurred were reasonable:

(a)The fees were calculated in accordance with the rates fixed by order of the Court on 2 May 2016;

(b)The work was appropriately delegated between staff of different seniority;

(c)$1,324.51 in fees were written off.

[13]              It is also relevant that in each of the six-monthly reports prepared by the liquidators, the creditors and shareholders are advised of the fees incurred to date and their right to have the fees reviewed and no objection to the fees has been raised.

[14]              I note however the application for the fees approval was in the form of a memorandum rather than in the form of an interlocutory application without notice. The latter would certify that the applicant has made all reasonable inquiries and taken all reasonable steps to ensure that the application and all supporting documents contain all relevant material, including any defence that might be relied on by any other party

1      Flynn v McCallum [2013] 1 NZLR 207 at [47].

2      Levin v Lawrence [2012] NZHC 1452 at [54].

and any facts that would support the position of any other party.3 Because a without notice application is in some ways a denial of natural justice rights expected in litigation, this certification is important. The liquidators have since provided that certification.

[15]Accordingly, I order that approval for the fees should be granted.

3      High Court Rules 2016, r 7.23.