Commissioner of Inland Revenue v M L N Plasterers Limited (in liquidation)

[2018] NZHC 1954

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2016-419-34

[2018] NZHC 1954

BETWEEN

THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

M.L.N. PLASTERERS LIMITED (IN LIQUIDATION)

Defendant

Hearing:	On the papers
Counsel:	M Hollis and W Somerville for Liquidators of Defendant
Judgment:	15 August 2018

JUDGMENT OF WHATA J

This judgment was delivered by me on 15 August 2018 at 11.00 am, pursuant to Rule 11.5 of the High Court Rules.

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

Solicitors:Inland Revenue Department Legal and Technical Services, Hamilton PricewaterhouseCoopers, Wellington

THE COMMISSIONER OF INLAND REVENUE v M.L.N. PLASTERERS LTD [2018] NZHC 1954
[15 August 2018]

[1]    The liquidators of M.L.N. Plasterers Limited (MLN) seek the Court’s final approval of liquidators’ fee, totalling $9,571.86, 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’ final report dated June 2018.

[3]    The company was incorporated on 9 December 2005 and operated as an interior plasterer. The company ceased trading in February 2014 due to a competitive market, which reduced the profit margins on plastering contracts. Therefore, the company did not have sufficient surplus cash to pay expenses and taxes.

[4]    After a review of the company’s records, the liquidators identified an overdrawn shareholder current account in the director’s name and a demand was subsequently issued. To achieve a negotiated settlement with the director, a statement of financial means was first completed to determine the director’s ability to pay. After extended negotiations, the liquidators subsequently reached a settlement with the director for $10,000. A deed of acknowledgement of debt was executed, and the repayments were monitored. The settlement has now been paid in full.

[5]    In terms of asset realisations, the plastering tools owned by the company were of minimal value and the liquidators arranged sale of the tools back to the director as they assessed the cost of selling the tools on the open market would outweigh the potential realisation to creditors. The director arranged for the company motor vehicle to be scrapped and deposited the proceeds into the liquidators’ trust account.

[6]    The liquidators also conducted an investigation of the company’s bank statements and did not identify any transactions which could be considered potentially voidable. After reviewing all documentation in their possession, discussions with various parties and conducting further enquiries where required, the liquidators considered that there were no other matters that warranted further investigation.

Creditors

[7]    There were no known secured creditors at the date of liquidation. In terms of unsecured creditors, the High Court awarded the petitioning creditor costs totalling

$3,872.22. One preferential claim totalling $32,120.03 was received relating to claims for unpaid GST and income tax. Two unsecured claims totalling $82,502.42 were also received. No distributions were made.

Liquidators’ fees

[8]    The liquidators’ fees are $9,571.86 for the period of the liquidation, comprising:

(a)10 percent – initial investigation and information-gathering;

(b)80 percent – negotiating settlement and enforcing payment of the current account; and

(c)10 percent – general investigation and administration.

Statutory framework

[9]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.

[10]   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

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

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

liquidators to make decisions which they, as the persons appointed to exercise these responsibilities, are better qualified than the courts to make.

Assessment

[11]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 14 March 2016;

(b)The relevant attendances were necessary to discharge the liquidator’s obligations;

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

(d)$325.14 in fees were written off.

[12]   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.

[13]   One factor against the making of the order is that the fees charged approximate to the amount in fact collected. Nevertheless, given the attendances were necessary, and there was no objection to the fees incurred, I am satisfied that given the work undertaken by the liquidators, approval should be granted.

[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 and any facts that would support the position of any other party.3 Because a without

3      High Court Rules 2016, r 7.23.

notice application is in some ways a denial of natural justice rights expected in litigation, this certification is important.

[15]   Accordingly, I order that approval for the fees should be granted, but those orders should lie in Court until the requisite certification is provided by the liquidators.