Commissioner of Inland Revenue v Tauranga Corporate Divisions Limited (in liq)
[2023] NZHC 1851
•17 July 2023
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2015-470-177
[2023] NZHC 1851
UNDER the Companies Act 1993 IN THE MATTER
of the liquidation of TAURANGA CORPORATE DIVISIONS LIMITED (in
liq)
BETWEEN
THE COMMISSIONER OF INLAND REVENUE
Plaintiff
AND
TAURANGA CORPORATE DIVISIONS
LIMITED (in liq) Defendant
Hearing: On the papers Counsel:
Memoranda filed by liquidator dated 5 April and 6 June 2023
Judgment:
17 July 2023
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
[Approval of Liquidator’s Remuneration]
This judgment was delivered by me on 17 July 2023 at 4.00pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
KPMG, Christchurch
THE COMMISSIONER OF INLAND REVENUE v TAURANGA CORPORATE DIVISIONS LTD [2023] NZHC 1851 [17 July 2023]
Introduction
[1] The liquidators of Tauranga Corporate Divisions Limited (in liq) have now completed the liquidation and apply for approval of their overall remuneration in the amount of $94,269.00.
[2] Vivian Fatupaito and Andrew Hawkes, both of KPMG, were originally appointed as joint and several liquidators on 4 July 2016 at 10.12 am.
[3] On 10 June 2019, Elizabeth Keene replaced Mr Hawkes on his resignation, and on 8 March 2022, Luke Norman replaced Ms Fatupaito on her resignation.
[4] On 5 April 2023, the liquidators filed a memorandum for approval of their overall renumeration in this liquidation. Attached to the memorandum was a draft final report to the creditors and shareholders, as required by s 257 of the Companies Act 1993. Also attached were copies of the 14 earlier liquidators’ reports. These reports describe the work undertaken in the liquidation.
[5] In my minute dated 15 May 2023, I queried the correctness of the charge out rate applied in calculating the liquidators’ renumeration. An amended draft final report and memorandum dated 6 June 2023 have since been provided to the Court. The second memorandum includes a revised remuneration summary in accordance with the charge out rate approved by the Court in its orders appointing the liquidators.
[6] I set out the background in some detail below as it assists in understanding the basis for the fees claimed. I then outline the legal principles applicable to approval of liquidators’ remuneration and apply those principles to the circumstances of this liquidation.
Background
[7] The company in liquidation, Tauranga Corporate Divisions Ltd (in liq) (formerly Total Control Drilling Limited) (Company) was incorporated on 27 January 2010 and provided environmental and geothermal drilling services. The Company ceased trading in 2015 with the liquidators attributing the company’s failure
to prolonged delays in obtaining resource consents for a project it had undertaken for a large land developer.
[8] Following appointment, the liquidators’ staff spoke with a director of the Company to gain an understanding of the business. The liquidators assessed the documents that were made available to them by the Company’s advisors and directors and issued a notice to attend on one of the directors. The director failed to comply with the notice so the liquidators were required to undertake further investigations to determine whether there were any claims or other assets that would give rise to recoveries for the benefit of the creditors without the director’s assistance.
[9] The liquidators’ draft final report states that the Company’s business had been transferred to two new entities: TCD Holdings Limited (to hold the assets) and TCD 2015 Limited (to invoice for services), both incorporated in October 2015. One of the directors of the Company is also the director of TCD Holdings Ltd and TCD 2015 Ltd.
[10] The liquidators record that after undertaking an extensive investigation into the potential assets of the Company and reconstructing the Company’s accounts, the liquidators established that some of the Company’s invoices had been paid by way of transfer of a debtor’s property in lieu of cash. However, instead of the property being transferred into the Company’s name, the property was transferred to the directors’ trust.
[11] The liquidators registered a caveat on the certificate of title of the property as their investigation revealed that the Company did not receive any consideration from the directors’ trust for the transfer.
[12] The property was also the subject of a lease that had expired. The liquidators had to work with the relevant parties to ensure that the lease was renewed. The liquidators report that significant attendances were required to resolve the issues in relation to renewal of the lease.
[13] The liquidators attempted to negotiate recovery of the Company’s funds used for the purchase of the property from the trust, including obtaining a registered valuation of the property at the time the trustees obtained ownership. However, negotiations stalled.
[14] Legal proceedings were brought against a third party in respect of the property and various attendances were required, including the filing of affidavits and completing of discovery. Despite attempts to resolve matters outside court, no agreement could be reached and so the liquidators attended a judicial settlement conference. The liquidators state that this resulted in a settlement agreement in principle but as one of the trustees was not in attendance, the settlement deed could not be signed at the conference and unfortunately never was. Only after legal proceedings were resumed, was an amended agreement eventually reached. However, the liquidators state that the terms of that amended agreement were not subsequently met.
[15] The liquidators then registered a mortgage over the property and issued a demand. After the issuing of a notice under the Property Law Act 2007 and independent real estate agents being instructed to market the property for sale with an auction date set, further negotiations with the trustees ensued and a final settlement agreement was reached. Payment was received by the liquidators in full and final settlement, and the mortgage over the property was discharged. The liquidators have not identified any further claims in the liquidation for the benefit of the Company’s creditors and have decided to finalise the liquidation.
[16] In addition to the above steps, the liquidators were required to attend to administrative tasks, including corresponding with creditors and attending to statutory reporting requirements.
Creditors and distributions
[17]The liquidators anticipate a first and final distribution of $3,058.25 and
$15,428.79 to the Commissioner of Inland Revenue, representing 100 per cent of the petitioning creditor costs and 14 per cent of Inland Revenue’s preferential unsecured
creditor claims respectively. The liquidators confirm that there will be no funds available to make a distribution 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 Re Roslea Path Ltd (in liq), a judgment delivered by a Full Bench of the High Court.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.2 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.3 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.4 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.5
[20] The Court of Appeal in Madsen-Ries v Salus Safety Equipment Ltd (in liq),6 recently confirmed the approach adopted in Re Roslea Path Ltd (in liq). The Court approved counsel assisting’s summary of the principles that apply to the determination of retrospective applications as follows:7
(a)Liquidators are fiduciaries and their fundamental obligation is a duty to account. There is a conflict between the interest of the liquidator
1 Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC).
2 At [102].
3 At [102].
4 At [108].
5 At [151].
6 Madsen-Ries v Salus Safety Equipment Ltd (in liq) [2022] NZCA 101, [2022] NZCCLR 12.
7 At [15].
(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.
(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 went on to state: 8
… 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.
Discussion
[22] The liquidators’ memorandum dated 6 June 2023 includes a revised summary of the fees incurred by hours worked, staff level and the average rates applied as set out below.
[23] The liquidators record that the total hours worked of 309.90 for $94,269.00 in fees means an average hourly recovery of $304.19.
8 Madsen-Ries v Salus Safety Equipment Ltd (in liq), above n 6, at [54].
Summary of Liquidators’ Fees (All figures exclude GST)
Court Approved Hourly Rates ($)
Average Hourly Rate Charged
($)
Hours Worked
Fees Incurred ($)
Percentage of Hours Worked (%)
Partner/Liquidator
/Director
No more than
$450.00
419.85
105.65
44,357.50
34
Manager/Senior Manager/Associate Director $300.00–
$380.00
375.89 42.85 16,107.00 14 Analyst/Senior Analyst/Associate Manager
$200.00–
$280.00
215.03
147.95
31,813.00
[48]
Support Staff
$100.00– 180.00
148.07
13.45
1,991.50
[4]
Total 309.90 94,269.00 100 Total Fees Actually Paid from Liquidation 94,269.00 100
[24] The liquidators’ original memorandum further breaks down the percentage of time spent by the liquidators and their staff into the following categories:
(a)17 per cent on general enquiries, initial discussion with the directors and creditors, and administration of the liquidation;
(b)8 per cent on statutory reporting; and
(c)75 per cent on investigating, issuing claims, litigation including defending legal proceedings, and negotiating and attending to settlement of their claims in the liquidation.
[25] In addition, disbursements of $18,159.98 have also been incurred for advertising, travel, service fees, administration charges and legal fees.
[26] The administration charges are calculated as 5 per cent of the liquidators’ remuneration as noted in the liquidation reports, amounting here to $4713.45. Adding this to the total remuneration claimed and dividing by the total hours charged results in an average hourly recovery rate of $319.40. This is at the higher end of the usual
range but I am satisfied it is reasonable in the circumstances for the reasons discussed below.
[27] The liquidators’ original memorandum records that a significant portion of the work undertaken in this liquidation was completed at a liquidator level due to the issues which arose during the liquidation as detailed above. Input was also required at a senior level to the litigation undertaken, and in the negotiation and re-negotiation of settlements. This explains the slightly higher than normal percentage of time at liquidator level of 34 per cent with 14 per cent at the manager level, 48 per cent at the analyst level and four per cent for support staff.
[28] In addition, the liquidators’ six monthly reports record the fees charged up to the date of each report and invite creditor feedback in respect of the fees charged at any time during the liquidation.
Commissioner of Inland Revenue
[29] The original memorandum records that the liquidators notified Inland Revenue of the level of fees and expenses set out in the original memorandum, which was
$103,241, rather than the $94,269 now claimed. The Commissioner did not raise any objections to the initial level of fees. The memorandum dated 6 June 2023 does not record whether the Commissioner was given notice of the updated amounts claimed. However, the fact that the Commissioner did not object to the original amount claimed suggests that the Commissioner would not object to the lower amount now claimed.
Result
[30] I am satisfied, having regard to the memoranda filed and their attachments, that the liquidators’ remuneration appropriately reflects the value of the services rendered to the creditors of the Company. As a result, I grant the application for approval of the liquidators’ remuneration totalling $94,269.00.
Associate Judge Sussock
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