Finnigan v Butcher no.2

[2012] NZHC 2463

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2011-488-301 [2012] NZHC 2463

IN THE MATTER OF     DRAGON FLYTE FARM LIMITED (IN LIQUIDATION)

BETWEEN  PERI FINNIGAN AND ROY HORROCKS

Applicants

ANDCARL DAVID GEORGE BUTCHER AND LYDIA KATE BUTCHER

Respondents

Hearing:         29 August 2012

Appearances: R Hern and K Rowe for Applicants

Carl D G Butcher in person
No appearance for Lydia Butcher
No appearance for AJ and RV Burgess
K R Shanks for original liquidators

Judgment:      21 September 2012

JUDGMENT (No.2) OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on   21 September 2012  at  4:00pm

pursuant to Rule 11.5 of the High Court Rules.

...................................

Registrar/Deputy Registrar

Solicitors:

McElroys (Richard Hern) P O Box 835 Auckland 1140, for liquidators

Email:    [email protected] /  [email protected]

Norwest City Law (R N Holdaway), Waimauku Village Centre 0812

Email:    [email protected]

Keegan Alexander (K R Shanks) P O Box 999 Auckland 1140, for original liquidators

Email:    [email protected]

Copy for:

R V and A J Burgess, Turkey Flat Road, RD1, Te Kopuru 0391

Carl Butcher, 8 Settlers Way, RD 1 Okaihau 0475

Email:    [email protected]

FINNIGAN AND HORROCKS V BUTCHER AND BUTCHER HC WHA CIV-2011-488-301 [21 September

2012]

[1]      This decision is about two matters:

(a)       the amounts of the claims of the Butchers and the Burgesses;  and

(b)the validity of the appointment of the original liquidators and their entitlement, if any, to remuneration.

[2]      I was not able to decide these matters in my decision of 27 April 2012.1   The background is set out in that decision and is known to the parties.  It is not necessary to set it out again.

[3]      The current and original liquidators filed evidence and submissions for the hearing and appeared.   Mr Butcher filed submissions and appeared, but did not provide evidence.  The Burgesses filed written submissions but did not appear.  None of the deponents were required to appear to be cross-examined on their affidavits.

Mr Butcher’s preliminary objection

[4]      Mr Butcher says that the court is interfering with a Police fraud investigation. Mr Butcher’s reference to Police investigations is not new.     I have given earlier rulings that this court should continue giving decisions resolving issues in the liquidation of Dragon Flyte Farm Ltd (In Liquidation) independently of any actions that the Police might take.

[5]      The court’s function in deciding questions arising in a liquidation and the role of the Police in investigating complaints and prosecuting any offending they might find in the course of their investigations, are distinct matters.  Most times they can be kept separate.   One need not get in the way of another.   When the court gives directions in a liquidation, it applies civil law.   In civil proceedings evidence is given, as in this case, by way of affidavit.   The court decides the parties’ rights

according to civil law, in particular under the Companies Act 1993.  The court is not

1      Finnigan v Butcher [2012] NZHC 810.

required to determine whether the parties are guilty of criminal offending.  In a civil case the court decides matters on a balance of probabilities.  That is a lower standard of proof than in the criminal court.  The Police, on the other hand, are concerned with criminal offending.  Whether someone has committed criminal offending may have only an indirect effect on determining parties’ rights in a liquidation.

[6]      In this case there is no evidence that a Police investigation is under way. There is no evidence that any of the matters to be decided in this case coincide with matters questions that would arise in a Police investigation.

[7]      The fact that this court might make findings as to the parties’ rights in private law, will not stand in the way of the Police investigating offences if the Police have a proper basis for doing so, and it will not stand in the way of a court with criminal jurisdiction hearing charges.

[8]      In short, Mr Butcher’s claims of interference with a criminal investigation do not provide good grounds for not deciding the matters needing determination in this case.

What is the amount of the Butchers’ claim against the company?

[9]      The Butchers originally made a claim for $479,000 comprising: Unpaid wages and holiday pay  $294,000

Expenditure accumulated in maintaining
Dragon Flyte Farm interests due to the unlawful
behaviour of the other director (Alison Burgess) ...   $100,000

Initial deposit to secure 588 Trounson Park Road

in November 2003 ...    $85,000

$479,000

[10]     While Mr Butcher claimed unpaid wages of $294,000, the original liquidators calculated that the maximum contract entitlement was $271,875, from which deductions were to be made for contract payments, net wages paid and net drawings. The current liquidators re-examined the claim.

[11]     The claim for $100,000 for “expenditure accumulated in maintaining Dragon Flyte Farm interests due to the unlawful behaviour of the other director” is said to break  down into three  parts  –  wages  ($35,000), personal assets supplied to the company ($13,500) and personal claims against the other director ($46,000).  Those figures come to $94,500.  The former liquidators addressed this in their letter to the Butchers of 21 May 2010.   The liquidators noted that there was no supporting evidence  to  prove  costs  of  expenditure  amounting  to  $35,000.      The  former liquidators requested supporting evidence such as copies of unpaid invoices, copies of contracts and other documentation to substantiate the claim.   No such evidence has been provided since then.

[12]     On  the  personal  assets  supplied  to  the  company,  the  former  liquidators requested supporting evidence such as copies of invoices for the assets and copies of the agreements or other documentation to substantiate the claim.   None has been provided.

[13]     The  claim  for  $46,000  seems  to  be  a  claim  more  directed  against  the Burgesses than against the company.  There does not seem any basis for company liability.

[14]    The $85,000 initial deposit has been taken into account by the current liquidators in calculating the capital inputs made by the Butchers.

[15]     The  former  liquidators  rejected  the  Butchers’  claim  and  found  that  the amount of their claim was $188,525.   The current liquidators have reconsidered the matter.     Their  assessment  is  that  the  Butchers’  entitlement  is  no  more  than

$193,120.57.   The current liquidators have provided evidence to support their assessment.  Mr Butcher did not provide any evidence taking issue with the current liquidators’ assessment of his claim.

[16]     I deal with the calculations by the current liquidators.

[17]     The Butchers were entitled to remuneration for their work on the farm.  The

liquidators call this the “contract entitlement”.  They have calculated the Butchers’

contract entitlement as $271,875.   From this they have made deductions from the contract payments made ($75,498.55), net wages paid ($51,500) and net drawings ($56,738.88).  This has given a current account balance of $88,137.57.  To that, the liquidators have also added on capital introduced of $94,343 (including livestock of

$6,480 and a current insurance refund of $2,513 and a capital advance of $85,350). That comes to $182,380.57.   The liquidators have then added back $10,740.   The reason for that add back is that records are not available to support drawings shown for the year 2005.   At this point they have given the benefit of the doubt to the Butchers. With that sum added back, there is a final balance of $193,120.57.

[18]     The liquidators have provided copies of accounting materials which support their analysis.  The accounting materials generally show drawings, wages payments made and advances made by the Butchers. The figure for the contract entitlements is taken from the deed of 18 March 2005.   Ms Finnigan explains that the contract payments were GST inclusive.   However, until February 2007, the accounting treatment was GST exclusive.  The Burgesses and the Butchers signed an agreement on 23 February 2007 that the contract amount should be GST inclusive, backdated to

1 June 2005.   Overall, I am satisfied that the liquidators have provided a sound

explanation with supporting evidence for fixing the amount of the Butchers’ claim at

$193,120.57.

[19]     At the hearing, Mr Butcher objected that:

(a)       The former liquidators had wilfully sold livestock that belonged to him;

(b)      He was entitled to priority for his wages;

(c)       He and his wife were rightfully entitled to the farm;

(d)The liquidators had erred in not recognising his right to occupy the farm;

(e)       Any accounting records prepared by Mrs Burgess were fabricated;

(f)       Any   financial    statements   for   which    Mrs    Burgess    had   given instructions were unreliable;

(g)He had not been given credit for improvements he had made to the farmhouse - a wetback and a shower.

(h)The liquidators were not interested in investigating the merits of his claim; and

(i)The accounts were inaccurate because he had been charged with the costs of a trip which the Burgesses took to Europe.

[20]     Mr Butcher has a proceeding in tort against the former liquidators for the alleged wrongful sale of his cattle.  That is pending in the District Court and can be decided there.  The matter does not require decision in this proceeding.  Even if that claim is successful, it will not alter the amount of the company’s debt to him and his wife at the date of liquidation.

[21]     Mr Butcher’s complaints that he has priority for wages, that he and his wife are the rightful owners of the farm and that they have been wrongfully excluded, were addressed in my decision of 27 April 2012.  Barring any question of appeal, that decision is final and should not be reconsidered in this decision.

[22]     As to the balance of his complaints, Mr Butcher has not given any evidence to support them.   He has not shown that the documents the liquidators used to calculate the Butchers’ claim are inaccurate or unreliable.  Mr Butcher has not put forward evidence from any other accountant, or any other person, to cast doubt on the  liquidators’ calculations.    He  has  not  shown  good  reason  for  rejecting  the calculations by the liquidators.

[23]     There is another twist to Mr Butcher’s case.

[24]     He has also made a claim of unfairly prejudicial conduct under s 174 of the Companies Act.  He referred to s 174 in his written submissions for the hearing.  On the eve of the hearing he began a separate proceeding under s 174 of the Companies

Act.2   He is the sole plaintiff and the company is the sole defendant.  The statement of claim is diffuse.  As best I can tell, part of it is directed against the conduct of the Burgesses, especially Mrs Burgess as director of the company.   The other part is directed against the conduct of the present liquidators.

[25]     The other parties have not had sufficient time to consider the claim and did not submit on it.

[26]     The prospect of a new proceedings involving Dragon Flyte Farm Ltd is most unattractive.  So far, very significant costs have been run up in the liquidation of the company.  The liquidators anticipate that after the farm has been sold and expenses have been  paid,  there  will  be very little left  to  distribute to creditors.    Further litigation is likely to extinguish whatever funds might be available for creditors.

[27]     No one submitted whether a claim under s 174 of the Companies Act could be brought against a company after it has gone into liquidation.  However, if a claim under  s 174  could  be  brought,  leave  would  be  required  to  bring  it,  unless  the liquidators consented.3

[28]      The part of Mr Butcher’s claim against the liquidators is misconceived.  He is attacking the steps they have taken in the liquidation.  The liquidators have applied to the court for directions under s 284 of the Companies Act 1993.   That section gives them immunity if they follow the court’s directions:

284     Court supervision of liquidation

(3)      Subject to subsection (4) of this section, a liquidator who has—

(a)      obtained a direction of a Court with respect to a matter connected with the exercise of the powers or functions of liquidator; and

(b)       acted in accordance with the direction—

is entitled to rely on having so acted as a defence to a claim in relation  to  anything  done  or  not  done  in  accordance  with  the direction.

2       CIV-2012-488-570

3      Companies Act 1993, s 248(1)(c).

(4)       A Court may, on the application of any person, order that, by reason of the circumstances in which a direction was obtained under subsection (1) of this section, the liquidator does not have the protection given by subsection (3) of this section.

[29]     The protection given by s 284(3) is subject to the power of the court under s 284(4) to remove it.  However, the circumstances of this case make that possibility no more than academic.   The liquidators have sought directions from the court, because of their concern that they would be challenged.  The court’s directions have been aimed at securing the liquidation of the company in accordance with Part 16 of the Companies Act.  To suggest that liquidators who have applied to the court for directions and then followed those directions would thereby expose the company to a claim under s 174 of the Companies Act is fatuous.

[30]     The other part of Mr Butcher’s claim is directed against the actions of the

Burgesses.  On that aspect, it is helpful to consider the relief available under s 174.

[31]     Section 174(2) provides:

174     Prejudiced shareholders

...

(2)       If, on an application under this section, the Court considers that it is just and equitable to do so, it may make such order as it thinks fit including, without limiting the generality of this subsection, an order—

(a)      Requiring the company or any other person to acquire the shareholder's shares; or

(b)      Requiring   the   company   or   any   other   person   to   pay compensation to a person; or

(c)      Regulating the future conduct of the company's affairs; or

(d)      Altering or adding to the company's constitution; or

(e)      Appointing a receiver of the company; or

(f)       Directing the rectification of the records of the company; or

(g)      Putting the company into liquidation; or

(h)      Setting aside action taken by the company or the board in breach of this Act or the constitution of the company.  ...

[32]     In the circumstances of this case, any order made against the company would not serve any useful purpose.  The only potential orders that are available would be an order requiring the company to acquire the Butchers’ shares, or an order requiring the company to pay the Butchers compensation.  Neither of those orders would have any practical effect because, by the time the court were to hear the case, any funds left in the company would have been used up in liquidation expenses.

[33]     Given that Mr Butcher’s claim against the company can serve no useful purpose at all, it is inconceivable that leave would be granted to him under s 248 to run a fresh proceeding against the company.  It would therefore not be appropriate to defer giving a decision in this matter until Mr Butcher’s claim under s 174 has been heard.

[34]     Accordingly, I find that the amount of the Butchers’ claim at the date of liquidation is $193,120.57.  For that claim the Butchers rank as ordinary unsecured creditors and do not have any priority – see my decision of 27 April 2012.4

What is the amount of the Burgesses’ claim?

[35]     The Burgesses submitted a claim for $6752.63 for costs paid on behalf of the company plus  $450,386  from  the  current  account,  totalling  $457,138.63.      The current liquidators have calculated their claim as $460,878.13 made up of the current account entitlement of $455,876 plus $5002.13 for expenses they paid on behalf of the company.   The current liquidators have provided copies of source documents plus working papers from accountants’ work files to show the contributions by the Burgesses by way of capital livestock funds, while also taking into account drawings and private expenses met by the company.

[36]     There is no evidence to challenge the approach taken by the liquidators and I accordingly accept their evidence that the Burgesses claim is $460,878.13. As with the  Butchers’ claim,  the  Burgesses’ claim  is  unsecured  and  does  not  have  any

priority.

4      Finnigan and Horrocks v Butcher [2012] NZHC 810 at [61]-[63] and [71](f).

Were the original liquidators validly appointed?

[37]     The original liquidators were Stephen Kim Bennett and Timothy John Hoyle, Whangarei insolvency practitioners.  The issue here is the validity of a resolution of the shareholders of Dragon Flyte Farm Ltd on 26 February 2010 that the company be put into liquidation under s 241(2)(a) of the Companies Act.  The resolution records that the company was unable to pay its debts as they fell due in the normal course of business.     It  was  resolved  that  the  company  be  put  into  liquidation  by  the appointment of a liquidators and that Mr Bennett and Mr Hoyle were appointed liquidators.   The resolution also recorded that the liquidators would be entitled to charge remuneration for carrying out their duties in exercising powers of liquidators at the same charge-out rates normally applied by professional firms of accountants and staff engaged in receivership and liquidation work.   The expenses and remuneration of the liquidators would be paid out of the assets of the company.

[38]     Under s 241(2)(a), a shareholders’ resolution for liquidation must be a special resolution.    Under  s  2  of  the  Companies  Act  a  “special  resolution”  means  a resolution approved by a majority of 75 per cent or, if a higher majority is required by the constitution, that higher majority with the votes of the shareholders entitled to vote when voting on the question.

[39]     At  the  time, the  100  shares  in  Dragon  Flyte  Farms  Ltd  were  owned  as follows:

68shares owned by Robert and Alison Burgess and Hammonds Trustees Ltd as trustees of the Robert and Alison Burgess Family Trust;

28shares owned by Carl and Lydia Butcher and Hammond Trustees Ltd as trustees of the Carl and Lydia Butcher Family Trust;

1 share owned by Robert Burgess;

1 share owned by Alison Burgess;

1 share owned by Carl Butcher; and

1 share owned by Lydia Butcher.

[40]     Hammonds Trustees Ltd is a solicitor’s trustee company of the Hammonds

law practice in Dargaville.

[41]     Mr and Mrs Burgess signed the resolution on 20 February 2010. Mr and Mrs Butcher signed it on 26 February 2010.  Mrs Butcher has signed the minutes of the shareholders’ meeting as chairperson.   Hammonds Trustees Ltd did not sign the resolution.  The objection to the validity of the resolution is that because Hammonds Trustees Ltd did not sign the resolution, the shareholding trusts had not voted in favour of the resolution and the resolution failed for lack of the votes required for a special resolution.  There was no objection that the signatures of the Butchers and the Burgesses could not count both as votes as individual shareholders and also as

shareholding trustees.5

[42]     The objection can be seen in the context of trust law as to the personal nature of trust powers.   It is an established principle of trust law that a trusteeship is personal and only the trustee can exercise the powers, authorities and discretions conferred under a trust.  The trustee must exercise his powers in good faith, must not allow others to dictate how he should exercise his powers and must not fetter his discretion. Trustees must act unanimously.  Subject to any provision in the trust deed

and any relevant statute,6 the trustee cannot delegate his powers to other trustees or

to third parties.   However, the law recognises that a trustee cannot attend to everything required  for  the conduct  of  a  trusteeship  and  may engage  agents  to implement trust decisions.   Section 29 of the Trustee Act provides for trustees to employ agents.  Dal Pont notes the distinction between delegation and agency:7

Trust law, however, distinguishes between the appointment of an agent and that of a delegate.   At general law the personal nature of the trustee- beneficiary relationship dictates that although trustees can appoint an agent to  carry  out  or  implement  decisions  made  by  the  trustees,  they  cannot delegate the exercise of their powers, authorities and discretions under the trust to a third party.  Hence, the common law qui facit per alium facit per se rule does not apply to a trustee except as allowed by the terms of the trust instrument or pursuant to the limited power of delegation conferred by the trustee legislation.

5      Young v Schuler (1883) 11 QBD 651 (CA) is authority that a person may sign once in two capacities.

6      Such as s 31 of the Trustee Act 1956.

7      Law of Agency 2nd ed Dal Pont (LexisNexis Butterworths).

Although it does not mark the distinction between delegation and agency quite so clearly, the following dictum of Paterson J in the Court of Appeal’s decision in Niak v Macdonald makes the same point:8

It is an established rule of trust law that a trustee must not delegate his or her duties or powers, not even to co-trustees. Delegation is, however, allowed where such delegation is specifically permitted by the trust instrument, or practically unavoidable and is usual in the ordinary course of business and the particular agent is employed in the ordinary scope of his or her business...A  trustee  has  a  duty  to  act  personally  and  this  duty  requires trustees to be unanimous in any decision they make.  ...

In that case one trustee had borrowed trust funds to buy a yacht.  At first instance it was  held  that  the  other  trustees  had  effectively  given  him  general  authority  to transact trust business.  The Judge relied on s 29 of the Trustee Act 1956. The Court of Appeal overturned this on appeal.  It held that a general, non-specific delegation cannot be valid.

[43]     Under these principles,  the trustees of the shareholding trusts had to  act unanimously and one trustee could not delegate responsibility for voting on a liquidation resolution to another trustee.  A vote to put Dragon Flyte Farm Ltd into liquidation is not a mere administrative matter for which an agent could be engaged under s 29 of the Trustee Act 1956, unless the trustee had already decided, as trustee, that the company should go into liquidation and the other trustees were acting only as authorised proxies.

[44]     It is also necessary to bear in mind that Hammonds Trustees Ltd was trustee for two trusts.  The other trustees of those trusts, the Butchers and the Burgesses, had fallen out.  The fact that one set of trustees might agree on liquidation does not mean that Hammonds Trustees Ltd, as trustee for the other trust, had agreed on liquidation with the co-trustees of the other trust.

[45]     To overcome the objection, the original liquidators raise these matters:

8      Niak v Macdonald [2001] 3 NZLR 334 (CA) at [16].

(a)      For  each  trust,  Hammonds  Trustees  Ltd  had  given  its  co-trustees general authority to deal with trust matters concerning Dragon Flyte Farm Ltd;

(b)      Hammonds Trustees  Ltd  had  decided  on  liquidation  in  November

2009; and

(c)      Hammonds   Trustees   Ltd   gave   its   approval   to   the   liquidation afterwards.

[46]     The argument as to general authority does not apply.  The trust deeds were not put in evidence.   There is no evidence that the trust deeds allowed Hammonds Trustees  Ltd  to  delegate its  powers  as  trustee.   While it  is  understandable that Hammonds Trustees Ltd would allow its co-trustees to act as its agent under s 29 of the Trustee Act, it could not delegate the power to decide as a trustee whether to vote in favour of a liquidation resolution and to appoint liquidators.

[47]     For the second argument, the original liquidators say that part of the rule that trustees must act unanimously is that the act of one trustee, which has the sanction or approval of the other, is binding on both:  Lang v Southen.9 They rely on a letter that Hammonds, the law firm, wrote on behalf of the Burgesses on 27 November 2009 to lawyers acting for the Butchers.  Mr Dennis, a director of Hammonds Trustees Ltd, wrote and signed the letter.  Among other things he proposed that company assets be

sold and the company be put into voluntary liquidation. It can be accepted that Mr Dennis would not have made that proposal as lawyer for Mr and Mrs Burgess unless he also supported it as director of Hammonds Trustees Ltd.   However, that does not take matters far enough.  The letter is evidence of agreement to liquidation by the trustees of the Burgess Family trustees, but it is not evidence that Hammonds Trustees Ltd had agreed to the appointment of Mr Bennett and Mr Hoyle as liquidators. And it is not evidence that as a trustee of the Carl and Lydia Butcher

Family Trust, Hammonds Trustees Ltd had agreed on liquidation.

9      Lang v Southen HC Christchurch AP15/01, 24 July 2001 at [9].

[48]     The  original  liquidators  are  on  stronger  ground  in  their  third  argument. Mr Dennis’ affidavit says at paragraph 9:

Given the complete inability of the directors and shareholders to conduct the business of Dragon Flyte and its inability to pay the IRD debt, I confirm that Hammonds Trustees Ltd would have resolved, in the interests of the shareholders and creditors of Dragon Flyte to enter into a resolution of the Burgess Family Trust on 20 February 2010 and a resolution of the Carl and Lydia Butcher Family Trust on 26 February 2010 to appoint Steve Bennett Associates Ltd, as liquidators of Dragon Flyte.

[49]     While the co-trustees of both trusts may not have had the actual authority of

Hammonds Trustees Ltd to vote in favour of the liquidation resolution in February

2010, Mr Dennis says that Hammonds Trustees Ltd would have given that approval. That is ratification of the liquidation resolution.  Ordinary principles of agency law allow a person to adopt a transaction entered into by another on his behalf, which would otherwise not be binding on him.  Ratification operates retrospectively.10   The principle is recognised under trust law.   In Messeena v Carr Lord Romilly MR said:11

I had some doubts at first whether, as the discretion was to be exercised by the two trustees and one only had acted, the discretion had been properly exercised;    but  I have  come  to  the  conclusion  that  as  the  other  trustee approved and sanctioned what was done by the one who made the payments, no breach of trust was committed.

[50]     In Visini v Cadman, the Court of Appeal said:12

The judgment of Romilly MR in Messeena v Carr is settled authority for the proposition that one trustee can subsequently approve another trustee’s exercise of a discretion.

[51]     I  apply  that.    Mr  Dennis’  statement  in  paragraph  9  of  his  affidavit  of

2 February 2011 amounts to Hammonds Trustees Ltd giving its subsequent approval to the votes by its co-trustees of both shareholding trusts for Dragon Flyte Farm Ltd to  be  put  into  liquidation.    That  ratification  takes  effect  from  the  date  of  the resolution.  Accordingly Dragon Flyte Farm Ltd was effectively and validly put into liquidation with effect from 26 February 2010 and the original liquidators were

validly appointed by the resolution of that date.

10     Bolton Partners v Lambert (1889) 41 Ch D 295.

11     Messeena v Carr (1870) 9 LR Eq 260 at 262-263.

12     Visini v Cadman [2012] NZCA 122 at [17].

Can the former liquidators claim in quantum meruit?

[52]     Because the original liquidators were validly appointed, they are entitled to remuneration for their work as liquidators under s 276 of the Companies Act.  They also claimed on a quantum meruit basis in the alternative, in case I held that they were not validly appointed.   I do not have to decide the question because I have found that their appointment was effective.  In case I am held wrong on the validity of their appointment, I set out some considerations.

[53]     The liquidators claimed quantum meruit in restitution on the basis of free acceptance of their services by the company.13     In particular, they relied on the decision of the Court of Appeal in Morning Star (St Lukes Garden Apartments Ltd) v Canam Construction Ltd where the Court of Appeal said:14

It is sufficient to say that there is general agreement that a plaintiff will be able  to  establish  a  quantum  meruit  claim where  the  defendant  asks  the plaintiff to provide certain services, or freely accepts services provided by the plaintiff, in circumstances where the defendant knows (or ought to know) that the plaintiff expects to be reimbursed for those services, irrespective of whether there is an actual benefit to the defendant.

[54]     In some cases, where there are mandatory requirements to be satisfied before a person can be held to be bound contractually, the courts have not allowed those mandatory requirements to be circumvented by quantum meruit claims in restitution. Examples that come to mind are Tuck Construction Ltd v Waipa County Council15 and Re Cleadon Trust Ltd.16

[55]     Here,   the   former   liquidators   were   appointed   to   provide   services   as liquidators.   The Companies Act requires that if they are to be appointed by shareholders to act as liquidators, there must be a special resolution, and upon a special resolution, a statutory entitlement to remuneration arises under s 276 of the Companies Act.    If  authorities  such  as  Tuck  Construction  Ltd  v Waipa  County

Council and Re Cleadon Trust Ltd are to be followed, services as a liquidator can be

13     See Gough and Jones Law of Unjust Enrichment ch 17.

14     Morning Star (St Lukes Garden Apartments) Ltd v Canam Construction Ltd CA90/05, 8 August

2006 at [50].

15     Tuck Construction Ltd v Waipa County Council [1967] NZLR 987 - the statutory requirements of the Public Bodies Contracts Act and the Counties Act had not been satisfied.

16     Re Cleadon Trust Ltd [1939] 1 Ch 286 - insufficient quorum for a resolution of directors.

accepted for a quantum meruit claim, only if the statutory requirements have been met.  If some officers or shareholders of a company were to acquiesce in actions by invalidly appointed liquidators, that would not be acceptance binding the company. In response, the original liquidators referred to Craven-Ellis v Canons Ltd.17   There the plaintiff did not have a claim in contract because he had not satisfied a condition requiring him to acquire shares, but he succeeded in quantum meruit.  There was no

dispute as to the defendant’s free acceptance of his services.  This case is different,

because free acceptance is in issue.

[56]     Even if the former liquidators can overcome those difficulties, their claim would be almost fruitless.  If they had not been validly appointed liquidators, there would also not have been a valid resolution that the company be put into liquidation. Their claim against the company would be as unsecured creditors under s 313(1) of the Companies Act.  They would not enjoy any priority.  They would rank alongside other unsecured creditors - the Inland Revenue, the Butchers, the Burgesses - and they would rank behind the current liquidators.  Their claim would not come within the Seventh Schedule of the Companies Act.  They would not have a claim within clause 1(1)(a) of the Seventh Schedule, as they do not have a claim for remuneration as the appointed liquidators and their claim for their remuneration is not a claim for fees and expenses incurred by the current liquidators.   Nor could they bring themselves within clause (1)(1)(e):  while they appear to have provided liquidation services, it has not been shown that they protected, preserved the value of, or recovered assets for the benefit of the company by paying money or giving an indemnity within that clause.

Is the remuneration claimed by the former liquidators reasonable?

[57]     Under s 276(1), a liquidator appointed by special resolution (other than the Official Assignee) is entitled to charge reasonable remuneration for carrying out his or her duties in the exercise of his or her powers as a liquidator.  That is subject to s 284(1)(e) which provides the court with power to review and fix the remuneration

of the liquidator at a level which is reasonable in the circumstances.

17      Craven-Ellis v Canons Ltd [1936] 2 KB 403 (CA).

[58]     The former liquidators claim $55,364.00 including GST and disbursements. Their invoices cover the period February 2010 to December 2010.  They have been paid $24,768.00 from the company’s assets, but $30,596.00 is outstanding.    Their expenses include legal fees of $15,538.50, claimed in addition to their own remuneration.   They have included in their evidence copies of their invoices and statements, copies of their lawyers’ invoices, copies of their work in progress ledger printouts, the hourly charge-out rates for each person who worked on the liquidation, a breakdown of the hours each person worked on the liquidation and the total hours worked (444.2).

[59]     Mr Bennett describes the liquidation.  The liquidators went about matters that are  routinely  addressed  in  a  liquidation.  He  goes  into  non-routine  matters. The Burgesses told him that Hammond Trustees Ltd was no longer a trustee of their trust. The Butchers did not tell him that the company was a trustee of their trust.   The liquidators employed Mr Butcher to maintain the farm and its boundary fences until there was a decision as to the future of the farm.  One reason was animal welfare concerns.  While the Butchers initially co-operated, they expected the liquidators to transfer the farm to them.  The Butchers offered $300,000 for the farm, to be paid in part by unpaid wages and holiday pay, recognition of work done on the farm and of an earlier deposit contribution.  The liquidators did not accept that proposal, as being contrary to the Companies Act.  Because of his credit history, Mr Butcher was not able to raise finance.   He alleged that the liquidators had cast aspersions on his ability to service a loan, a matter they had to respond to.   Time was required to explain to Mr Butcher why the liquidators could not go along with his proposal.

[60]     The arrangement for Mr Butcher to stay on the farm to manage it did not work out.   He caused trouble with neighbours by cutting fences and water lines. Stock would disappear or could not be accounted for.  Time was taken to deal with complaints from neighbours.

[61]     There were disputes with Mr Butcher over stock ownership.  Time was spent tracing stock to farm count sheets, invoices and external livestock records.

[62]     Mr Butcher asserted that the farm was his – a matter not finally resolved until the decision of 27 April 2012.   To consider this the liquidators had to carry out research into records of title, company records and shareholder agreements.

[63]     Property went missing from the farm.   Mr Butcher would not remove his personal items when asked.

[64]     Attempts  to  sell  the  farm  were  fruitless.    Mr  Butcher  would  intimidate potential purchasers.   Because of the history of the farm and the personalities involved, potential purchasers were reluctant to make a reasonable offer.  To give a better chance of marketing the farm, the liquidators gave the Butchers a notice under the Trespass Act.   The process server needed several attempts before serving the notices.

[65]     Mr Heath, an experienced and independent Auckland insolvency practitioner examined the liquidators’ records and provided useful analysis to assist in gauging the reasonableness of the remuneration.

[66]     The  hourly  rates  of  remuneration  of  the  liquidators  and  their  staff  are reasonable, particularly in the light of other applications for prospective approval of hourly rates.   The hours spent on the liquidation are reasonable.   On this aspect Mr Heath has analysed in detail the time records of the two professionals who spent most time on the liquidation.

[67]     On  many  applications  for  retrospective  approval  of  remuneration,  it  is apparent that liquidators try to delegate work where appropriate.  In this liquidation, the work carried out by senior people is more extensive than would be expected in a liquidation for a company such as Dragon Flyte.  However, I accept that this was not a normal liquidation.   Mr Butcher caused unusual problems, which required the attention of senior people.   In the circumstances of this liquidation, the relatively high share of work carried out by professionals is entirely understandable.

[68]     The liquidators took legal advice.   That again is entirely understandable, given the demands made by the Butchers.  The lawyers billed four times.  The first

three relate to the conduct of the liquidation and are in order.  The fourth is for work carried out in response to the Butchers’ challenge to the validity of the liquidation resolution and their court application.  That work was for the liquidators personally in that it was to uphold their right to be liquidators and to claim remuneration.  It is not claimable as an expense in the liquidation.   The amount of the fourth invoice should be deducted.   The amount the liquidators can claim for legal expenses is

$7,338.50.

[69]     Both the Burgesses and the Butchers attacked the original liquidators.  The Burgesses took the liquidators to task for not identifying the need to obtain the approval of Hammonds Trustees Ltd (even though they did not tell the liquidators that it was required), for employing Mr Butcher to manage the farm, for deducting their remuneration from the proceeds of stock sales, for not using due care and diligence in allegedly allowing plant and equipment to deteriorate, for not selling the farm at a value given by a registered valuer, and for charging excessive fees for what they say should have been a straightforward sale of a farm.  The Burgesses did not give any evidence to support their submissions.

[70]     Mr Butcher complained about the actions of neighbours, about his exclusion from the farm, about the failure to recognise his rights to priority for wages, about the liquidators  devaluing assets  and  taking his  stock,  and  about  the liquidators’ failure to carry out a proper accounting and relying on inaccurate accounting records. Again, Mr Butcher did not give evidence to support his complaints.

[71]     The differences between the Butchers and the Burgesses led to the failure of the company.   Those  differences  continued  after the liquidation  and  caused the liquidators added work and expense.  None of the matters raised by Mr Butcher or the Burgesses give me any reason not to approve the liquidators’ remuneration.   I find that their remuneration is reasonable in the circumstances of this liquidation and approve it, save that the amount they can claim for their lawyers’ fees is $7,338.50.

[72]     I  also  record  that  under  r  35  of  the  Companies  Act  1993  Liquidation

Regulations 1994, the current liquidators are to pay the former liquidators their fees,

expenses and remuneration from the assets of the company as soon as is practicable. In this case that would presumably mean on the sale of the farm.

Result

[73]     I make these orders:

(a)       The amount of the Butchers’ claim is $193,120.57;

(b)      The amount of the Burgesses’ claim is $460,878.13;

(c)      The  special  resolution  of  26  February  2010  was  valid  and  was effective to appoint Stephen Kim Bennett and Timothy John Hoyle as liquidators;

(d)Their remuneration is fixed at $55,364.00 including GST and disbursements, but the amount they can claim in addition for legal fees is $7,338.50.

[74]     If the parties cannot agree costs, memoranda may be filed for me to decide costs on the papers.   If any party applies for costs, those opposing are to file and serve their submissions in opposition within a further five working days.

...........................................

R M Bell

Associate Judge