Commissioner of Inland Revenue v J and J Watt Limited

[2019] NZHC 531

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2017-419-239

[2019] NZHC 531

BETWEEN

THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

J AND J WATT LIMITED

Defendant

Hearing:	On the papers
Counsel:	M Hollis and W Somerville for Liquidators of Defendant
Judgment:	25 March 2019

JUDGMENT OF WHATA J

This judgment was delivered by me on 25 March 2019 at 3.00 pm, pursuant to Rule 11.5 of the High Court Rules.

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

Solicitors:           PricewaterhouseCoopers, Hamilton

THE COMMISSIONER OF INLAND REVENUE v J AND J WATT LIMITED [2019] NZHC 531 [25 March 2019]

[1]                   The liquidators of J. and J. Watt Limited (the company) seek the Court’s final approval of the liquidators’ fee, totalling $101,615, excluding GST, including costs and disbursements.

Background

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

[3]                   The company was incorporated on 26 March 1958 and operated a dairy farm. To maintain the welfare of the animals on the farm, the liquidators continued operations on the farm until its sale on 9 May 2018 by auction. The farm was sold via mortgagee sale, with the sale price being $11.1m.

[4]                   The directors also placed a residential property owned by the Company on the market during the time of the liquidation. The liquidators agreed to continue with the sale of this residential property and it sold on 16 June 2018 via auction with the liquidators settling the sale.

[5]                   The directors had placed a number of pieces of machinery on the market prior to the liquidators’ appointment. During the course of the liquidation, the liquidators sold one slurry tanker. The other items of machinery remain under the control of the directors.

[6]                   All debtors outstanding at the commencement and throughout the liquidation have been collected in full.

[7]                   The shareholders of the company later advised they wished to apply to the Court for termination of the liquidation and the liquidators provided an affidavit confirming the facts of the liquidation to date. The Court granted an order on 18 September 2018 to remove the company from liquidation. The liquidators have returned the remaining funds to a solicitor's trust account as per the shareholders' instructions.

Creditors

[8]                   A total of $6,336,744 was paid to mortgage holders with a further $72,303 paid to secured creditors, equating to distributions of 100 cents in the dollar. In terms of unsecured creditors, two preferential claims totalling $179,778 were received, and twenty non-preferential unsecured claims totalling $2,249,930 were received. A distribution of 100 cents in the dollar was made to both preferential and non- preferential unsecured creditors.

Liquidators’ fees

[9]                   The liquidators’ fees are $101,615 excluding GST for the period of the liquidation, which relate to:

(a)Initial procedures and tasks following appointment, including notifying the Registrar, applicant creditor and other creditors;

(b)All matters relating to assessing the viability of the liquidators trading the farm, including cash flow projections and considerations for creditors;

(c)Communication with FIDUS as to the welfare of animals on the farm and their recommendations on continued trading;

(d)All negotiations with parties relevant to the continued trading and drafting agreements regarding same;

(e)All matters in respect of employee contracts;

(f)All matters pertaining to the mortgagee sale of 85 Maungatautari Road, including numerous attendances to ensure adequate oversight of the process;

(g)All matters pertaining to the sale of 97 Maungatautari Road at the request of the directors;

(h)All matters in respect of assessing and admitting 23 secured, preferential and unsecured claims;

(i)All work in relation to full distributions to each class of creditor.

(j)Al work in relation to the potential distribution as requested by shareholders, including tax review, distribution analysis and communications with the shareholders and their advisors; and

(k)All attendances with the directors and their advisors during the course of the liquidation.

[10]This list is not exhaustive.

Statutory framework

[11]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.

[12]               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

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

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

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

(a)The rates are calculated in accordance with the ordinary rates charged by Pricewaterhouse Coopers in liquidations similar to that of the Defendant in the Waikato region, being the rates approved by the Court on 18 April 2018;

(b)While a significant proportion of the work was completed by senior staff members, this was necessary given the negotiations that the liquidators faced, and the liquidators have attempted to reduce costs by delegating work to staff at less senior levels where appropriate;

(c)Significant work was required to ensure the sale process of a company property, undertaken by the third ranking mortgagee, was appropriate and that the mortgagee's security was valid. The liquidators were also required to undertake further works, with haste, after learning the directors had placed a second Company property on the market for sale;

(d)The Inland Revenue Department has stated that the Commissioner has no objection to the level of fees sought; and

(e)The company shareholders have stated they have no objection to the level of fees sought.

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