GbR Investment Limited v Goose Bay Ranch Holdings Limited (in liq) and others HC CHCH CIV 2009 409 000613

[2010] NZHC 18

IN THE HIGH COURT OF NEW ZEALAND

CHRISTCHURCH REGISTRY

CIV 2009 409 000613

BETWEEN  GBR INVESTMENT LIMITED

Plaintiff

ANDGOOSE BAY RANCH HOLDINGS LIMITED (IN LIQUIDATION)

First Defendant

ANDMOANA INVESTMENT PROPERTY LIMITED (IN LIQUIDATION)

Second  Defendant

ANDMAKURA SETTLEMENT (IN LIQUIDATION)

Third   Defendant

ANDP K CONSTRUCTIONS LIMITED (IN LIQUIDATION)

Fourth  Defendant

Hearing:         (Determined on the Papers) Judgment: 5 February 2010

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

Fixing remuneration of interim liquidators

[1]      David Donald Crichton and Keiran  Anne  Horne  (the  liquidators)  were

appointed as interim liquidators of the first, second, third and fourth defendants on

31 March 2009.  The Court ordered that the costs of the liquidators be met by those companies.

[2]      On  2  November  2009  the  fourth  defendant  was  placed  into  liquidation  by order of this Court on the application of a third party creditor. Mr Crichton and Ms

GBR INVESTMENT LIMITED V GOOSE BAY RANCH HOLDINGS LIMITED (IN LIQUIDATION) AND

ORS HC CHCH CIV 2009 409 000613  5 February 2010

Horne then became the liquidators of the fourth defendant and continued as interim liquidators of the first, second and third defendants.

[3]           On  27  November  2009  the  first  defendant  was  placed  into  liquidation  by order of this Court on the plaintiff’s application.   Mr Crichton and Ms Horne were appointed liquidators of the first defendant.   On the same day, 27 November 2009, the Court removed Mr Crichton and Ms Horne as interim liquidators of the second and third defendants.

Application

[4]      The  liquidators  now  seek  orders  for  their  reasonable  remuneration  and expenses.  The order is sought in terms of s284(1)(e) Companies Act 1993.

The liquidators’ remuneration – the principles

[5]      By s284(1)(e) of the Act, the Court is required to fix remuneration at a level which is reasonable in the circumstances.

[6]      A full Court conducted a comprehensive review of the principles applicable

in  this  jurisdiction  in  Re  Roslea  Path  Limited  (In  liquidation),  Flynn  v  McCallum HC Tauranga CIV 2005 470 611, 17 December 2009, Heath and Venning JJ.  In that case (see the Court’s summary at [187](c) of the judgment) the Court authorised a modified  procedure  where  the  liquidators  had  engaged  in  a  voluntary  disclosure regime, informing creditors and shareholders of remuneration deducted from time to time.  Where the voluntary disclosure regime did not apply, the following principles are applicable:

(a)       Fees are to be considered  exclusive  of  GST  and  disbursements

(Roslea Path [157]).

(b)Remuneration should be proportionate to the nature, complexity and extent of the work completed, including the nature and degree of responsibility to  which  the  appointee has been subject in any  given

case, as well as risk assumed by the appointee. (Roslea Path [66](f)(i)

and [187])

(c)       The liquidator should provide to the Court information proportionate

to  the  amount  of  remuneration  sought,  the  nature,  complexity  and extent of the work undertaken or to be completed and the value of the assets  and  liabilities  with  which  the  appointee  was  or  is  dealing. (Roslea Path [66](f)(ii) and [187]).

(d)A   three-tiered   approach   may   be   taken   to   the   assessment   of remuneration, adjusted as at December 2009:

Tier 1:            Up to $7,500.00 approvable with little further inquiry.

Tier 2:Between   $7,500.00 and   $25,000.00   probably   no further inquiry if the Associate Judge is satisfied as to the extent and nature of the work carried out and that the reports filed give an adequate overall picture.

Tier 3:In  excess  of  $25,000.00. At  such  level,  there  is  a heavier burden on the liquidator to inform the Court of the nature of the liquidation, the urgency   of   the dealings, the number of creditors and whether they are preferred and/or  are a   sole  creditor  or   there is a creditors’  committee  and  the  reasons  for  substantial input of time and the cost thereof particularly if there is minimal recovery. (Roslea Path [50], [157], and [187](d))

e)        Justification – It is for the liquidator to justify his or her claim and any element of doubt (including a doubt arising from the lack of particularity as to the basis for and nature  of  the  claim)  is  to  be

resolved by the Court against  the  liquidator.  (Roslea  Path  [66]  and

[143])

f)        The Court is entitled to appoint an assessor in rare cases where it is inexpedient for the Court to embark upon a lengthy consideration of a substantial number of documents (Roslea   Path   [158]-[164]   and

[187](e)) – such assessor or expert then assists the Court in the task of fixing remuneration.

g)        Professional  integrity  –  weight  should  be  given  to  the  fact  that  (if applicable) the appointee is a member of a regulated profession and, as  such,  is  subject  to  rules  and  guidance  as  to  professional  conduct and is accountable to the Court as an officer of the Court: the Court is likely  to  need  less  information  to  satisfy  itself  of  the  fairness  and reasonableness of the fees charged by such an appointee. (Roslea Path [66](c), [107]-[111] and [187](b))

h)The principles applicable to assessing the reasonableness of legal fees are  applicable  to  the  fair  remuneration  of  liquidators.  (Roslea  Path [103]-[105])

i)The  fixing  of  remuneration  is  within  the  discretion  of  the  Court which,  even  in  the  absence  of  objection,  must make  an  independent assessment  of  what  is  fair  and  reasonable  based  on  the  specific information  provided  to  the  Court.  (Roslea  Path  [76]-[78],  citing McLure JA in Conlan v Adams (2008) 65 ACSR 521)

The remuneration claimed by the liquidators

[7]      The application seeks an order fixing the liquidators’ reasonable remuneration  and  expenses  in  respect  of  the  four  liquidations  in  a  total  sum  of

$49,050.25.  That total covers not only the fees for all four liquidations but also GST

and expenses.

[8]      Broken down as between the four companies, the fees sought are: (a) First defendant $21,211.50.

(b)       Second defendant $7,070.50. (c)         Third defendant $7,070.50.

(d)       Fourth defendant $7,070.50.

[9]      The  application  has  for  convenience  been  made  as  a  single  application  in relation to all four companies.  The liquidators’ appointments, however, were to each company  separately.  The  liquidators  had  responsibilities  and  undertook  work  in relation  to  each  company.   In  those  circumstances  it  is  appropriate  that  the  Court, while having regard to the totality of fees, primarily views the fees from the point of view of the liquidation of each company.

[10]     The fees therefore fall into   the   following   categories   in   terms   of   the

(December 2009 adjusted) tiers (see [6](d) above): (a)           First defendant: Tier 2.

(b)       Second, third and fourth defendants: Tier 1.

[11]     Accordingly,  and applying Roslea  Path, for all  but the first defendant little further  inquiry is  required  of  the  Court.   For  the  first  defendant,  further  inquiry is unlikely unless I am unsatisfied as to the extent and nature of the work carried out and as to the reports filed giving an adequate overall picture.

Professional integrity

[12]     The liquidators in this case  are  chartered  accountants. They  practise  as accountants subject to the ethical rules of their institute. Ms Horne deposes that she believes that the fees charged are consistent with  the  level  normally  charged  by

chartered  accountants  for  receivership  and  liquidation  work.  The  liquidators  are known   to   this   Court   as   experienced   liquidators   who   have   accepted   Court appointment  over  many  years.   The  Court  has  confidence  that  they  will  abide  by their ethical standards.

Background and reasons for appointment

[13]     The background and reasons for appointment of the liquidators have already been  traversed  by  this  Court  in  two  judgments:  31  March  2009  (appointing  the applicants as interim liquidators); and 27 November 2009 (placing the first defendant into  liquidation  and  dismissing the  application  for  orders  in  relation  to  the  second and  third  defendants).   In  summary,  the  plaintiff,  as  a  minority shareholder  in  the first  defendant,  sought  the  first  defendant’s  winding  up  on  just  and  equitable grounds.

[14]         A friendship had developed between Mr Koulanov of the plaintiff company and Mr Keung of  the  defendant  companies. A  high  level  of  trust  and  confidence developed. This led to investment by Mr Koulanov including the acquisition by the plaintiff of a shareholding in the first defendant.  Problems began to emerge between the parties by November 2007 (a short time after the initial investment). Shareholders’ agreements were entered into between the   parties   both at  the commencement in August 2007 and later in May 2008.   In the evidence the parties disagreed on the extent of the differences and problems which then flowed.

[15]     The extent of issues is summarised  by  Associate  Judge  Gendall  in  the

27 November 2009 judgment.  His Honour found that it was clear from the evidence that  the  parties  had  gone  into  business  together  through  the  first  defendant  on  the basis of a relationship of trust and confidence and that there had been a fundamental breakdown of that relationship, producing deadlock.

[16]     His Honour found that the Koulanovs had increasing and justified concerns

as to the way in which Mr Keung was  conducting the  various  companies.   At the commencement of the litigation, Mr  Keung had strongly disputed  the plaintiff’s allegations, but by the time of the hearing before Associate Judge  Gendall,  the

breakdown  in  the  relationship  of  trust  and  confidence  was  acknowledged  by  the defendants’ counsel.

[17]     From this background it is plain that the liquidators were receiving an interim appointment  into  a  difficult  situation  in  which  a  high  degree  of  professional experience and judgement would be called for.

Description of the work undertaken

[18]     Before the present application was made, Ms Horne had in November 2009 filed an extensive (35 page) affidavit explaining the actions taken by the liquidators and detailing the progress of the interim liquidations to that point. Associate Judge Gendall reviewed Ms Horne’s evidence in the 27 November 2009 judgment (at [40]-

[45]).   A picture of the difficulties associated with the interim liquidation emerged from paragraphs 166 to 169 of Ms Horne’s affidavit, which Associate Judge Gendall found to be important to his judgment, and in which Ms Horne said:

167.     Mr Keung has ensured that for all major transactions resolutions are

in place that record that these transactions are in the best interests of the  entities. However  he  appears  to  have  failed to keep  records

which support or substantiate such a conclusion.

168.In  my  view,  Mr  Keung  has  shown  significant  disregard  to  the process  of  the  interim  liquidations  of  the  companies.   As  outlined above, he has failed to disclose company assets and company bank accounts,  reverted  income  of  PK  Construction  to  his  own  entities, and transferred and encumbered assets of the companies.

169.     The extent of advances and management fees paid by the companies

to Mr Keung and his associated entities have, in my opinion, placed the companies in financial hardship and rendered them unable to pay their debts as they fall due.  Of the companies, three entities (GBRH, Makura  and  Moana)  generate  no  income  at  all  and  the  fourth  (PK Construction) has generated significant losses.  In the context of the trading   of   the   companies,   in   my   opinion   there   seems   little justification for this.

Reason for work to be done

[19]     The background, together with  Ms  Horne’s  affidavit,  indicate  very  clearly why it was important that significant work be undertaken by the interim liquidators.

Ms Horne uncovered a pattern of financial dealings by Mr Keung which could not be related to the best interests of the companies involved.  Co-operation from Mr Keung was not forthcoming.  The liquidation required significant supervision and input at a senior  level  within  the  liquidators’ firm. The liquidators  themselves  adopted  a charge out rate of $240 per hour which is manifestly reasonable.  They delegated to insolvency and administration support staff a significant but appropriate proportion of the work involved, with the consequence that those staff at their appropriate range of  charge  out  rates  (from  $65  to  $170)  were  able  to  conduct  a  proportion  of  the liquidation work at a substantially lower rate than if the liquidators personally had completed all work.

Proportion of work on different tasks

[20]     In their application the liquidators have not endeavoured to apportion work between particular subject matters of the interim liquidations.  The work in progress records   which   Ms   Horne   exhibited   do   however   indicate   an   understandable breakdown  between  more  general  aspects  of  liquidation  attendances  and  some particular  tasks  such  as  correspondence,  realisation  of  assets  and  dealing  with creditors.         Many  of  the  attendances  within  the  work  in  progress  records  are  not identified  by  specific  narratives  but  I  consider  that  approach  in  keeping  with  the reminder in the Roslea Path decision that the Court in an application of the present nature  is  not  to  be  required  to  undertake  a  task  of  the  exactitude  of  a  taxation  of costs.           I  am  satisfied  that  the  level  of  information  provided  by  Ms  Horne  is proportionate to the amount of remuneration sought.

Interest of stakeholders

[21]     The application does not disclose any level of  consultation  as  to  fees  with stakeholders such as major creditors. Indeed it appears that the Court has not been provided with a list of the significant creditors of each company, whereas that might have been expected. On the other hand, the fees which the liquidators seek to have fixed are, with one exception, all Tier 1 fees. Ms Horne has also deposed as to the fact that none of the first three defendants has generated any income at all and that the fourth defendant had generated significant losses. It is appropriate that the Court

does not require a process of consultation which is at best unlikely to be relevant and which at worst, by adding to the costs of the liquidation, may eliminate any margin

or benefits which might remain available to creditors.

Approach to apportionment of fees

[22]     Ms Horne has explained that all time and cost attendances were recorded on one ledger, having regard to the significant amount of overlap in the work involved

in the interim liquidations of the various companies.  She has then explained that the liquidators have completed an approximate apportionment of that time based on the time spent in the individual liquidations, with the consequence that 50% of cost has been attributed to the first defendant with 16.67% to each of the other defendants. The  Court  accepts  the  professional  integrity  and  judgment  of  the  liquidators  with regard  to  that  apportionment.   It  was  a  sensible  and  appropriate  means  of  dealing with the accumulation of issues which was presented in the interim liquidations.

Conclusion

[23]     I am satisfied that the proposed fees set out in the evidence of Ms Horne are fair and reasonable.

Orders

[24]     I order:

(a)       The fees of the liquidators in relation to Goose Bay Ranch Holdings Limited (in interim liquidation) for the period to 22 December 2009 are fixed at $21,211.50 (exclusive of GST and expenses).

(b)       The fees of the liquidators in relation to Makura Settlement Limited

(in interim liquidation) for the period to 27 November 2009 are fixed

at $7,070.50 (exclusive of GST and expenses).

(c)       The  fee  of  the  liquidators  in  relation  to  Moana  Investment  Property Limited (in interim liquidation) for the period to 27 November 2009 are fixed at $7,070.50 (exclusive of GST and expenses).

(d)The fees of the liquidators in relation to PK Construction Limited (in interim  liquidation)  for  the  period  27  November  2009  are  fixed  at $7,070.50 (exclusive of GST and expenses).

Costs

[25]     The applicants are entitled to the costs of and incidental to this application. These  are  to  be  on  a  2B  basis  together  with  disbursements  to  be  fixed  by  the Registrar. Those  costs  and  disbursements  shall  be  apportioned  between  the  first, second, third and fourth defendants in the same proportions as the fees themselves.

[26]     The fees and disbursements as fixed are to be paid from the funds held in the liquidations, or interim liquidations as the case may be, of the first, second, third and

fourth defendants in the amounts applicable to the respective defendants.

Solicitors:

Buddle Findlay, Christchurch
Clark Boyce, Christchurch

Duncan Cotterill, Christchurch