Compass Homes Limited v Compass Homes (Auckland South) Limited (in liquidation)

[2023] NZHC 1293

IN THE HIGH COURT OF NEW ZEALAND TAURANGA

I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE

CIV-2020-470-000108

[2023] NZHC 1293

UNDER

the Companies Act 1993

IN THE MATTER

Of the liquidation of COMPASS HOMES (AUCKLAND SOUTH) LIMITED (in

liquidation)

BETWEEN

COMPASS HOMES LIMITED

Plaintiff

AND

COMPASS HOMES (AUCKLAND

SOUTH) LIMITED (in liquidation) Defendant

Hearing:	On the papers
Appearances:	Memorandum filed by the liquidator dated 4 May 2023
Judgment:	29 May 2023

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

[Approval of Liquidators’ Remuneration]

This judgment was delivered by me on 29 May 2023 at 12.30pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

COMPASS HOMES LIMITED v COMPASS HOMES (AUCKLAND SOUTH) LIMITED (in liquidation) [2023] NZHC 1293 [29 May 2023]

Introduction

[1]    The liquidators of Compass Homes (Auckland South) Limited (in liquidation) (Company), Kenneth Peter Brown and Paul Thomas Manning of BDO Tauranga, have applied for approval of their liquidators’ fees of $22,245.66. This amount includes the total fees incurred to date of $20,976.68 plus an allowance for finalisation and fee approval of $1,268.98.

[2]    I set out the background below before considering the relevant legal principles and applying those to this liquidation.

Background

[3]    The Company operated as a residential builder based in Great South Road, Takanini, South Auckland.

[4]    The memorandum filed by the liquidators records that the liquidation arose following a dispute between the three directors. Two directors resigned their directorships and lodged a grievance as employees. This left one director remaining who is also a director of Compass Homes Limited, the petitioning creditor. That creditor then paid for the outstanding building work to be completed with a profit element paid to Compass Homes (Auckland South) Limited (in liquidation).

Asset realisations

[5]    The draft final liquidators’ report confirms that all known assets have been disclaimed, realised or distributed without realisation and that all proceeds of realisation have been distributed. The liquidators confirm that the Company is ready to be removed from the Companies Register.

[6]    The only assets available were showroom furniture and a potential legal action by obtaining subrogation rights from a former bank secured creditor. The remaining director believed that there was a case to pursue and encouraged the liquidators to do so. An arrangement was reached where the director sought a review of the information with an independent lawyer. This took some time but the liquidators felt it was worth examining as this was the only asset which would enable a return to creditors.

Information was obtained from the director, legal advisor to Compass Homes Limited and the resigned former directors of Compass Homes (Auckland South) Limited (in liquidation).

[7]    Following discussions with Compass Homes Limited and their legal advisor, the decision was made not to pursue the matter further because of likely costs and the realisation that any potential recovery would only go to the petitioning creditor as a preferential creditor with nothing to other creditors. The two former directors lodged unsecured claims. Due to the extent of preferential claims and there being no funds available, those claims were not examined further.

Creditor claims and distributions

[8]No amounts were owed to secured creditors.

[9]    Compass Homes Limited had a preferential claim of $309,826.71 pursuant to clause 1(1)(e) of schedule 7 of the Companies Act 1993. A distribution of $17,600.00 was made in respect of this claim.

[10]   Inland Revenue had a preferential claim of $58,960.69. No distribution appears to have been made to Inland Revenue.

[11]Unsecured creditor claims totalling $357,937.22 were also received.

[12]   The draft report records that the preferential and unsecured creditors’ claims were unable to be satisfied in full due to a shortfall in the realisation of the Company’s assets. The final remaining balances owed to creditors that filed a claim are recorded as follows:

(a)secured creditors – nil;

(b)preferential creditors - $351,187.40; and

(c)unsecured creditors - $357,937.22.

Legal principles

[13]   The Court’s power to approve liquidators’ remuneration is provided for 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

[14]   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 the 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 is 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

[15]   The Court of Appeal in Madsen-Ries v Salus Safety Equipment Ltd (in liq) recently confirmed the approach set out in Re Roslea Path Ltd.5 The Court approved counsel assisting’s summary of the principles that apply to the determination of retrospective applications (for approval of liquidators’ remuneration) as follows:6

(a)Liquidators are fiduciaries and their fundamental obligation is a duty to account. There is a conflict between the interests 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 creditors.

[16]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.

Discussion

[17]   The liquidators’ memorandum attaches a summary of the time and cost per staff member. I include a summary below by position without reference to names.

Position	Rate	Hours		Total
Administration	160	71.75		10,105.42
Senior Manager	200	0.25		46.25
Liquidators	400	28.25		10825.01
Total to date			$20,976.68
Allowance for Finalisation and Fee Approval			1,268.98
Total Fees			$22,245.66

[18]   From the above summary the average hourly rate for work to date was $209.24. This is reasonable compared to the usual average rates for liquidators’ fees. In addition, the breakdown shows that 28 per cent of the total hours spent were

7 At [54].

undertaken by the liquidators, less than one per cent by a senior manager and the remainder by administrators.

[19]   The liquidators have not included in the six-monthly reports a contact address for queries in relation to the liquidators’ fees. This is a helpful step to ensure that the Court can be satisfied that the cost of the services rendered to the creditors of the company in liquidation appropriately reflects the value of those services. I encourage the liquidators to do so in future.

[20]   In the circumstances of this liquidation, however, I consider that the fees are modest and no issues arise in this regard.

Result

[21]   After considering all of the above, I am satisfied that the liquidators’ proposed remuneration appropriately reflects the value of services rendered to the creditors of the company in liquidation. As a result, I grant the application for approval of the liquidators’ fees in the amount of $22,245.66 as sought.