Gillovic v Nayacakalou
[2024] NZHC 2496
•2 September 2024
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2022-419-216
[2024] NZHC 2496
UNDER
AND
sections 284 and 286 of the Companies Act 1993 IN THE MATTER
of the removal of liquidator and review of liquidator’s remuneration
BETWEEN
BRENT STEPHEN GILLOVIC
Plaintiff
AND
KELERA NAYACAKALOU as liquidator of TESIO BLOODSTOCK SERVICES
LIMITED (in liquidation) First Defendant
KELERA NAYACAKALOU as liquidator of TESIO THOROUGHBRED SERVICES
LIMITED (in liquidation) Second Defendant
Hearing: 18 June 2024 Appearances:
D Delic for the Plaintiff
No appearance by or for the First or Second Defendant
Judgment:
2 September 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 2 September 2024 at 4 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Braun, Bond & Lomas Limited, Hamilton
GILLOVIC v NAYACAKALOU [2024] NZHC 2496 [2 September 2024]
Introduction
[1] The plaintiff, Brent Gillovic, is the director and shareholder of two companies in liquidation, Tesio Bloodstock Services Ltd (in liq) (Tesio Bloodstock) and Tesio Thoroughbred Services Ltd (in liq) (Tesio Thoroughbred).
[2] Mr Gillovic has brought these proceedings against the liquidator appointed to both companies in May 2015, Kelera Nayacakalou, seeking orders for her removal and for her remuneration to be fixed at $3,500 plus GST for each liquidation, as Mr Gillovic says was agreed.
[3] The proceedings are brought pursuant to ss 284 and 286 of the Companies Act 1993. Mr Gillovic, in his capacity as a shareholder of the two companies in liquidation, required leave to bring his applications under s 284. Ms Nayacakalou opposed leave and also challenged Mr Gillovic’s proceeding on two further procedural bases:
(a)First, that Mr Gillovic had failed to serve the notice required by s 286(2) before removal could be ordered, submitting that the claim under s 286 was therefore a nullity.
(b)Second, that Mr Gillovic’s second cause of action, which sought to reverse the sale of shares owned by Tesio Bloodstock to a third party, Naldapat Ltd (Naldapat), should be struck out.
[4] Associate Judge Brittain, in a decision issued on 28 August 2023,1 held that Mr Gillovic’s claim under s 286 of the Act may proceed on the basis that the notice issue could be resolved at trial. His Honour held further that if the Court lacks jurisdiction to make s 286 orders, the Court may nonetheless have inherent jurisdiction to remove the liquidator relying on Commissioner of Inland Revenue v Livingspace Properties Ltd.2
1 Gillovic v Nayacakalou [2023] NZHC 2348.
2 Commissioner of Inland Revenue v Livingspace Properties Ltd [2020] NZHC 1434, [2021] 2 NZLR 252.
[5] Associate Judge Brittain struck out the second cause of action seeking reversal of the share sale to Naldapat,3 but held that leave ought to be granted in respect of the third cause of action relating to the liquidator’s remuneration.4
[6] An amended statement of claim was filed on 25 September 2025 deleting the second cause of action and a statement of defence in response on 9 October 2023. The proceeding then came before me for the substantive hearing on 18 June 2024.
Issues
[7]The two issues that I have to determine are:
(a)Should Ms Nayacakalou be removed as liquidator of the two companies?
(b)Should Ms Nayacakalou’s remuneration be fixed at $3,500 plus GST for each of the liquidations?
Preliminary matters
[8] Two preliminary matters need to be addressed. The first is in relation to proceeding with the hearing in the absence of Ms Nayacakalou when she submits that she only first became aware of the hearing on 14 June 2024. I determined that it was appropriate to proceed and set out my reasons for doing so below.
[9] The second relates to whether the affidavit sworn by David Hayes filed together with Ms Nayacakalou’s submissions the day before the hearing ought to be accepted for late filing.
Ms Nayacakalou’s attendance at hearing
[10] Ms Nayacakalou filed submissions on Monday, 17 June 2024, the day before the hearing seeking an adjournment as she said that she had only been advised on the previous Friday, 14 June 2024, that there was a hearing on 18 June 2024.
3 Gillovic v Nayacakalou, above n 1, at [53].
4 At [69].
[11] Following the filing of these submissions on 17 June 2024, the case officer sent an email to both Ms Nayacakalou and counsel for Mr Gillovic confirming that all counsel and parties were required to appear at the fixture on 18 June 2024. Despite this, there was no appearance by Ms Nayacakalou. Halfway through the hearing, Ms Nayacakalou emailed the case officer saying “I am so sorry I have only just opened the email now”. The email from Ms Nayacakalou was not sent in reply to the 17 June 2024 email of the case officer but presumably that is the email Ms Nayacakalou was referring to. Ms Nayacakalou did not ask the case officer if the hearing was proceeding or whether she should attend then.
[12] I had continued with the hearing in Ms Nayacakalou’s absence as I was satisfied that Ms Nayacakalou would have been aware of the scheduled date for the hearing since at least March 2024. This is because following the application by Ms Nayacakalou’s former solicitor to withdraw as solicitor on the record on 19 February 2024, substituted service orders were required to be made in respect of service on Ms Nayacakalou. The directions made included requiring a copy of the minute dated 13 March 2024 confirming the 18 June 2024 fixture to be served. The hearing had originally been allocated by Associate Judge Brittain on 13 February 2024. Affidavits of service in accordance with the substituted service orders dated 20 May 2024 were then provided, and leave was granted for the solicitor’s withdrawal.
[13] The affidavits of service record that when the former solicitors sent the text on 2 May 2024 advising Ms Nayacakalou of service (as required), Ms Nayacakalou replied advising that she did not have access to the email address used and asking that they email the documents to an alternative email address. The affidavit of service confirms that the documents were then emailed to the alternative address. A copy of the email to the alternative address is annexed to the affidavit together with confirmation from the Postmaster that the email had been delivered to that address.
[14] I do not, therefore, accept Ms Nayacakalou’s submission that when she emailed the lawyers back asking for them to resend the document they never did. This is contrary to the evidence of Ms Nayacakalou’s former solicitors and the documentary record.
[15] In any event, Ms Nayacakalou records in her brief written submissions filed that if the Court wishes to proceed, she would be content with an order appointing the Official Assignee as liquidator and leaving them to resolve the outstanding issues. In the circumstances (including as discussed further below) I decided it was appropriate to proceed.
Affidavit of Mr Hayes
[16] As recorded above, an affidavit was filed by Mr Hayes together with the liquidator’s submissions on 17 June 2024. Mr Hayes is a lawyer who says he was present when Ms Nayacakalou was first engaged and purports to give evidence about whether a fixed fee arrangement was agreed.
[17] Mr Gillovic objects to the affidavit being admitted as evidence in these proceedings because it was filed so late, because of the opinion and submissions contained in it and because Mr Hayes has previously acted for the applicant as Mr Hayes acknowledges in the affidavit.
[18] In the circumstances, however, including where Ms Nayacakalou did not appear, I do not grant leave for the late filing of the affidavit by Mr David Hayes.
[19] Not only was the affidavit filed too late, I agree that the affidavit contains significant submission and opinion. Directions had been made in Associate Judge Brittain’s 13 February 2024 minute directing any further evidence in support of Ms Nayacakalou’s opposition to be filed by 26 April 2024. Mr Gillovic was then given an opportunity to file any affidavit evidence in reply. It is not appropriate for the liquidator, therefore, to attempt to file further evidence the day before the hearing.
[20] I considered whether it was appropriate to adjourn the proceedings to allow the evidence to be considered and for evidence to be filed in reply by Mr Gillovic. However Ms Nayacakalou was first appointed in 2015. Furthermore, it is concerning that Mr Gillovic’s counsel indicated that when Ms Nayacakalou’s previous counsel withdrew, Mr Hayes asked counsel for Mr Gillovic whether Mr Hayes could act and counsel replied in the negative, so Mr Hayes was on notice that the plaintiff’s counsel
considered he was conflicted. Despite this, Mr Hayes suggests in the affidavit that he has been providing legal advice to Ms Nayacakalou.
[21] In all these circumstances, I do not therefore consider that it is appropriate to grant leave for the filing of this affidavit in these proceedings and nor was it appropriate to adjourn the hearing further.
Background
[22] I begin by recording that no further evidence has been filed by either Mr Gillovic or Ms Nayacakalou since Associate Judge Brittain’s decision, other than the late affidavit of Mr Hayes for which I have not granted leave. The evidence from both sides is incomplete but I set out a chronology below to the extent possible from the evidence.
[23] Ms Nayacakalou is sued as first and second defendant in her capacity as liquidator of both Tesio Bloodstock and Tesio Thoroughbred. Mr Gillovic is the sole director and 99 per cent shareholder of Tesio Bloodstock and the sole director and shareholder of Tesio Thoroughbred.
[24] Ms Nayacakalou was appointed liquidator by special resolution of the shareholders of both companies on 15 May 2015. Mr Gillovic’s evidence is that this occurred after he visited Mr Hayes (the deponent of the affidavit referred to above) who he was instructing on another civil matter and who shared an office with Ms Nayacakalou. Mr Gillovic said he advised Mr Hayes that he had issues with the Inland Revenue Department (IRD) in respect of interest and penalties for two non- trading companies he owned, Tesio Bloodstock and Tesio Thoroughbred. Mr Gillovic says the core debts included incorrect and disputed default assessments upon which interest and penalties were based.
[25] Mr Gillovic’s evidence is that Mr Hayes said that Ms Nayacakalou could “take care” of the IRD issue for him and said something along the lines of Ms Nayacakalou could act as a friendly liquidator. Ms Nayacakalou disputes this but, in any event, was appointed that day.
[26] “Fee agreements” were signed by Mr Gillovic as guarantor on 15 May 2015 stating in respect of each company:
1.The shareholders have asked for Kelera Luvu Nayacakalou to be Liquidator.
2.She has accepted the appointment and the consents have been signed.
3.The company appears to have few realizable assets.
4.The undersigned guarantors agree to personally pay up to $3500+GST of the costs of the liquidation should insufficient funds be received from the liquidation.
[27] Following her appointment as liquidator, Ms Nayacakalou’s evidence is that she performed the usual tasks of obtaining records from the company and its accountant. She says these files proved to be quite extensive and revealed that accounts had not been done since 2007. Ms Nayacakalou says that she was required to review the transactions for subsequent years to establish the current position.
[28]The only creditor to lodge claims in the liquidations was the IRD, for
$60,516.76 in the Tesio Bloodstock liquidation and for $38,972.53 in the Tesio Thoroughbred liquidation.
[29] On 30 March 2016, Ms Nayacakalou sent an email to Mr Gillovic saying “Please find attached below is our invoice for the liquidations of these two companies”. The invoice attached was in respect of both liquidations and recorded liquidation fees of $3,500 for both Tesio Bloodstock and Tesio Thoroughbred together with GST, amounting to $8,050.
[30] Mr Gillovic’s evidence is that he made “part payment of the invoice in the early part of the liquidations.” No further detail is given by Mr Gillovic but this is not disputed by Ms Nayacakalou.
[31] On 23 November 2017, Ms Nayacakalou wrote to Mr Gillovic in his capacity as a director of CHG Investments Ltd (CHG), requesting that he arrange for a transfer of Tesio Bloodstock’s 600,000 CHG shares into her name, to be held on trust. She did not explain why she considered that step necessary. Neither Ms Nayacakalou nor Mr Gillovic’s evidence provides details of what happened next, but it appears from Ms Nayacakalou’s response that Mr Gillovic must have referred to there being a
General Security Agreement (GSA) entered into by Tesio Bloodstock over the assets of Tesio Bloodstock including the 600,000 shares in CHG.
[32] Ms Nayacakalou then appears to have asked the lawyer who witnessed Mr Gillovic’s signature on the GSA for further details. The lawyer recorded in a letter dated 31 January 2018 that when they undertook a search of Tesio Bloodstock they discovered it was in liquidation. The lawyer said she raised that issue with Mr Gillovic but was instructed to proceed and that the documents were amended to reflect that the company was in liquidation. The lawyer confirmed that she was not acting for the liquidated company and that her advice to Mr Gillovic was that they did not believe a liquidated company was capable of guaranteeing the obligations of the borrower so that any security given by the company in liquidation would not be valid.
[33] Following receipt of that letter, still on 31 January 2018, Ms Nayacakalou wrote to Mr Gillovic saying that a company in liquidation is incapable of providing a guarantee so the security given over the 600,000 CHG shares was therefore invalid. Ms Nayacakalou again asked for the CHG shares to be transferred into her personal name to be held on trust as an asset of Tesio Bloodstock. She continued that:
(a)Mr Gillovic could make an offer to purchase those shares from the liquidator and to let her know if he wanted to do so;
(b)if Mr Gillovic was not keen to purchase the shares, the liquidator could invite other shareholders for an offer to buy those shares; and
(c)if all else failed, the liquidator would sell those shares publicly.
[34] It appears that Mr Gillovic then advised the liquidator that Tesio Bloodstock held the shares in CHG as bare trustee for Forever Young Development Ltd, a Hong Kong based company.
[35] Ms Nayacakalou wrote to Mr Gillovic, CHG and the Gillovic Family Trust on 9 February 2018 recording that she was now ready to proceed to collection of outstanding debts owed to both companies by the above addressees and that having
reviewed the documents supplied, she considered the various explanations given were misguided. Ms Nayacakalou refers to the first explanation in respect of the security given over the CHG shares saying “now it appears you want to deny there was a secured loan to avoid criminal responsibilities for granting a security over shares in the company after it went into liquidation”. She then went on to say the unsigned documents in relation to Forever Young Developments Ltd prove nothing. Ms Nayacakalou states “[t]herefore you must transfer the shares in [CHG] to me within 24 hours to avoid legal action”.
[36] In addition to requiring the CHG shares to be transferred, Ms Nayacakalou demanded that Mr Gillovic pay his current account debt of $378,060 and that his wife pay $71,447.
[37] In respect of Tesio Thoroughbred, Ms Nayacakalou said that her records indicated the Gillovic Family Trust owed $53,905 for which she demanded payment within seven days together with payment of $31,350 from Mr Gillovic personally.
[38] It appears that Mr Gillovic had raised by this stage that his understanding was he would only have to pay the core amounts of the IRD debts because Ms Nayacakalou notes that if that had been the case Mr Gillovic would have paid those amounts already. She further noted that the costs of the liquidation had escalated because of the delays and stories told. Ms Nayacakalou concluded:
As always I am open to a settlement offer and will allow you until 16 February 2018 to take legal advice and come up with a sensible offer.
[39] On 27 February 2018, Ms Nayacakalou emailed Mr Gillovic saying that he had advised that her fee was going to be paid before the end of January 2018 but that February is about to end and she was still waiting. She then said:
So as we move forward trying to discuss finalising this liquidation, I would like to ask if you can make the last payment of fees that is outstanding this week. Like I have been saying all along, I am very keen to see the back of this liquidation. It has taken so long and has created lots of extra costs that I did not anticipate and I really am not keen on going any further.
[40] The email also referred to issues in relation to his “2008 account figures” and that she “may be the only person that can recreate the 2008 accounts with the
documents that she had”. Mr Gillovic replied that he would like a meeting to discuss the matters raised in her email.
[41] On 23 May 2018, Mr Gillovic emailed Ms Nayacakalou saying firstly, that it is most unusual that she would refuse to meet with him or his solicitor in person and that he had made an offer relating to full payment of the core amounts of GST which Ms Nayacakalou had refused despite Mr Gillovic considering the emails between them recorded that she would settle for those core amounts.
[42] Mr Gillovic then said that after going back through computer records it was clear that the CHG shares should have been transferred to Forever Young Development Ltd and that this transfer can be substantiated, and that Mr Gillovic would get this information to her if she wished. He continued that Ms Nayacakalou seemed to be fixated that the capital of the company is $2, asking why that was and saying that the company was very real. He however went on to say that he was prepared to settle in respect of both companies for the core amount of GST. Mr Gillovic then records his concern about the length of time taken and that he feels that Ms Nayacakalou may be compromised in some way with the IRD and asks if she would prefer he appoint another liquidator. He notes that she will recall that IRD visited him about her filing of GST returns and later rang to ask whether he would sign a statement that he had nothing to do with the filing of those returns.
[43] Ms Nayacakalou responded on 31 May 2018 saying that she actually needed evidence that what Mr Gillovic alleged is true. Ms Nayacakalou continued that Mr Gillovic suggests that she gets confused but he really needs to pin down a story and stick to it so she does not have to keep inferring what happened. She continues that her fixation on the $2 company is that it apparently took over an asset of Tesio Bloodstock worth more than half a million dollars and then was supposed to get shares in another company transferred to it which Mr Gillovic forgot to do but then used as security. Ms Nayacakalou notes the issues that will arise from a taxation perspective if capital has been transferred to a related party without paying tax on it and says if Mr Gillovic has any evidence to support his version of events he is to supply that within seven days, pursuant to s 261 of the Companies Act (including setting it out in full). The email further recorded that he had no power to appoint another liquidator and that
the time taken was due to him not getting his act together and supplying requested information — adding to the fees she needs to recover. She ends the email by suggesting that Mr Gillovic start cooperating or makes a sensible settlement offer.
[44] There is no evidence from either party in relation to any activity following this email until September 2020 when Ms Nayacakalou filed a claim in the District Court, in the names of Tesio Bloodstock and Tesio Throughbred, seeking to recover the current account debts set out above from Mr Gillovic, his wife and the Gillovic Family Trust. These proceedings refer to proofs of debt being filed by the IRD of $60,516.76 for Tesio Bloodstock and $38,972.53 for Tesio Thoroughbred. Judgment was sought against Mr Gilllovic for $350,000, Mrs Gillovic for $71,447 and against the trustees of the Gillovic Family Trust for $178,412.
[45] Shortly after filing the District Court proceeding, on 2 October 2020, Ms Nayacakalou executed a share transfer in respect of the CHG shares, purporting to transfer the CHG shares from Tesio Bloodstock into her own name. Ms Nayacakalou signed the transfer as transferor and transferee.
[46] There is no evidence that Ms Nayacakalou complied with the pre-emptive rights clause in clause 8 of CHG’s constitution and nor does she assert this in her affidavit or submissions. A copy of CHG’s constitution is annexed to Mr Gillovic’s affidavit but a copy was also publicly available on the Companies Register.
[47] On 23 December 2020, Ms Nayacakalou then filed a statement of claim in the High Court against CHG seeking rectification of CHG’s share register pursuant to ss 86 and 91 of the Companies Act and requiring the delivery of an annual report by CHG pursuant to s 172 of the Companies Act. Following service of those proceedings on Mr Gillovic, the High Court Registry confirmed on 17 March 2021 that it was unnecessary for Mr Gillovic to file a statement of defence as the proceedings had not been endorsed by the Court and the proper documents and their fees had not been filed by Ms Nayacakalou “despite numerous (failed) attempts to contact her since December 2020”.
[48] In her affidavit in reply, Ms Nayacakalou says that she never received any communication from the Court and had that occurred she would have contacted them. She records that as liquidator she is not required to pay a filing fee (but acknowledges that this requires certification) so she is not sure what the issue was. Although Ms Nayacakalou records this, she did not continue with those proceedings, nor were these proceedings referred to in any of the liquidator’s reports filed.
[49] Mr Gillovic was then told by the IRD that the debts owed by both companies had been written off. His solicitor advised Ms Nayacakalou on 4 May 2021, confirming in the same letter that they had received advice that once the debts had been written off, the debts could not be reinstated.
[50] Ms Nayacakalou’s time records refer to her spending 2.7 hours on 28 May 2021 on “Letter to IRD – debt query – written off?” She does not go in to much further detail in her affidavit, simply saying:
I have never heard of IRD wiping a debt in liquidation before while I worked at IRD and afterward and the write off appears inconsistent with the fact IRD, prior to liquidation refused to settle the claim. I sought advice as to why this happened but IRD resiled to the secrecy provisions. I suspect that it was wiped at about the time of introducing the new computer system at IRD so it may have been an error. All I know is that Mr Gillovic knew of the write off well before I did.
[51] Two months later, Ms Nayacakalou signed a share transfer on 25 August 2021 transferring the CHG shares to Naldapat for $2,000. Again, there is no evidence that the liquidator complied with the pre-emptive rights in cl 8 of CHG’s constitution and nor does she assert this in her affidavit. Ms Nayacakalou simply says:
I sold the shares to Naldapat Limited. I understand they are a company who looks for distressed assets from liquidators. In this case I had been variously told by Mr Gillovic the shares were worthless to now they are worth $400,000 after I had sold them. As I was concluding the liquidations, I determined that I would dispose of the shares which I did taking into account the lack of funding for litigation regarding ownership and the fact there was a high possibility of dispute. Essentially the shares are now in the control of another party who is aware of the dispute and Forever Young Development Limited is welcome to argue with them about ownership so their rights are still available if they can prove ownership.
[52] Around this time Mr Gillovic and Ms Nayacakalou began negotiating a settlement of the District Court proceeding. Mr Gillovic’s evidence is that an
agreement had been prepared and signed by himself, his wife and Ms Nayacakalou but that before the agreement was fully executed the solicitor for the liquidator produced the share transfer form signed on 25 August 2021 for the transfer of Tesio Bloodstock’s 600,000 shares in CHG to Naldapat for $2,000.
[53] Mr Gillovic says that in light of the share transfer to Naldapat, settlement was not reached between the parties.
[54] Mr Gillovic says that the sale of the CHG shares came as a complete shock to him as Ms Nayacakalou had never mentioned that the shares would be sold to a third party.
[55] In her affidavit, Ms Nayacakalou says that the assertion that the shares were not offered back to the other shareholders is not consistent with the invitation in her letter on 31 January 2018 for Mr Gillovic to purchase the shares and that this could have involved the other shareholders. Ms Nayacakalou says that the problem was that Mr Gillovic was asserting Forever Young Developments Ltd owned the shares and because he was a director of CHG he “would never transfer the shares to anyone, including a shareholder and so the argument appears irrelevant”.
[56] On 23 December 2021, Mr Gillovic’s solicitors paid the balance owing pursuant to the liquidator’s invoice dated 30 March 2016 of $2,025.
[57] On 10 January 2022, Ms Nayacakalou filed an amended statement of claim in the District Court reducing the amount claimed against Mr Gillovic and the Gillovic Family Trust to $77,807.63 jointly and severally, and against Mrs Gillovic to
$71,447. The statement of claim pleads the current account debts set out above and that each plaintiff company has had proofs of debt filed by IRD against them. The amended claim further pleads that “[o]n 29 June 2021 IRD advised the plaintiff it was withdrawing its proofs of debt.” The amended claim then pleads that Ms Nayacakalou has incurred fees of $80,807.63 including GST during the liquidations and has recovered $3,000 from the sale of assets so the Gillovics and their trustees owe the plaintiff companies $77,807.63.
[58] The District Court proceeding has been stayed, pending the outcome of this proceeding.
Removal of liquidator
Relevant legal principles
[59] The amended statement of claim, in this proceeding, seeks orders for removal of Ms Nayacakalou pursuant to s 286 of the Companies Act. This section provides a process for seeking orders to enforce liquidator’s duties including an order to remove a liquidator from office if the Court is satisfied there has been a “failure to comply”.5
[60] “Failure to comply” is defined in s 285(1) of the Act as meaning a person’s failure to comply with an enactment, a rule of law, or a court order as it applies to the person in their capacity as a liquidator.
[61] A director of the company in liquidation may apply for a s 286 order only after notice of the failure to comply has been served on the liquidator at least five days prior to the date of the application and as at the date of the application there is a continuing failure to comply.6
[62] In Official Assignee v Norris, Mallon J held that a notice under s 286(2) must fairly inform the liquidator of the duty they are alleged to have breached and how, so that the liquidator is able to determine what they need to do if they are to avoid an application to the Court.7
Was notice given as required by s 286(2)?
[63] As set out above, Ms Nayacakalou originally opposed the claim under s 286 on the basis that Mr Gillovic had failed to serve notice as required by s 286(2). Associate Judge Brittain allowed the s 286 claim to proceed on the basis that the notice issue could be resolved at the hearing. His Honour noted that the letter relied on by Mr Gillovic as notice, dated 24 February 2023, referred to earlier correspondence from
5 Companies Act 1993, s 286(3)(c).
6 Section 286(1) and (2).
7 The Official Assignee v Norris [2012] NZHC 961, [2012] NZCCLR 10 at [40]–[43].
Mr Gillovic’s solicitors to the liquidator dated 19 and 22 April 2022. Associate Judge Brittain held “this correspondence from April 2022 may satisfy the notice requirements” before going on to acknowledge that even if the Court lacks jurisdiction under s 286, the Court may nonetheless have inherent jurisdiction to order the removal of the liquidator.
[64] No further evidence has been filed by Mr Gillovic so the April 2022 letters referred to above are not in evidence before the Court. Counsel for Mr Gillovic sought instead to rely on the amended pleadings as adequate notice or if that was not sufficient, the inherent jurisdiction of the Court.
[65] I do not consider that the amended pleadings can be relied on as sufficient notice for the purposes of an order pursuant to s 286. In Official Assignee v Norris, Mallon J held that draft pleadings were not sufficient notice mainly because they did not provide an opportunity for the liquidator to remedy any failure to comply and thereby avoid the need for Court involvement in respect of that failure as the notice was required to do.8
Can the Court rely on its inherent jurisdiction?
[66] A difficulty that arises is that the amended statement of claim only seeks an order for removal pursuant to s 286 of the Companies Act and not pursuant to the inherent jurisdiction of the Court. Mr Delic made an oral application at the hearing to amend the claim to include removal pursuant to the Court’s inherent jurisdiction if it was necessary. I am satisfied that in the circumstances of this case where Ms Nayacakalou has confirmed in her written submissions that she agrees to her removal and where she did not appear at the hearing despite liquidators being officers of the Court, that it is appropriate to allow this oral application to be made and for the Court to consider whether to remove pursuant to its inherent jurisdiction.
8 The Official Assignee v Norris, above n 7, at [59]–[61] and see earlier discussion of notice requirement at [42]–[43].
Should the liquidator be removed?
[67] The liquidations were first commenced in May 2015, with the only creditors being the IRD. District Court proceedings were not commenced to recover those debts until five years later. In the intervening years there are long periods during which Ms Nayacakalou has not described any steps as having been taken.
[68] Ms Nayacakalou has continued to record in her six-monthly reports issued that there are IRD debts owing when she was aware the debts were written off in May 2021 and apparently that the proofs of debt had been withdrawn by 26 June 2021 (as pleaded in the amended District Court pleading). Although Ms Nayacakalou submits that these debts could be reinstated, this is inconsistent with her District Court pleading and there is no written confirmation from the IRD that this is the case as would be expected if that was the position. I record that no correspondence to or from the IRD has been produced. Furthermore, the date pleaded as being when the proofs of debt were withdrawn in the amended claim in the District Court, 29 June 2021, is not consistent with the other correspondence in evidence or Ms Nayacakalou’s time records.
[69] A significant factor supporting Ms Nayacakalou's removal is the steps taken by her in respect of the CHG shares owned by Tesio Bloodstock. After asking for these shares to be transferred into her name, Ms Nayacakalou, with no confirmation from Mr Gillovic, transferred the shares to herself, signing the share transfer form as both transferor and transferee. She did this without complying with the pre-emptive rights clause in CHG’s constitution, without the permission of CHG, and without any direction from the Court.
[70] It is no excuse to say that Mr Gillovic would not have agreed. Liquidators are still obliged to take the required steps.
[71] After recording the first transfer, Ms Nayacakalou filed proceedings in the High Court against CHG but then did not continue the proceedings, as set out above.
[72] In May 2021, Ms Nayacakalou was then advised that the IRD had written off the debts owed. Despite this, on 25 August 2021 she signed a further share transfer, this time as liquidator of Tesio Bloodstock rather than personally, transferring the
600,000 CHG shares from Tesio Bloodstock to Naldapat. Again, this transfer was completed without complying with the pre-emptive rights clause in CHG’s constitution, without the permission of CHG, and without any direction from the Court.
[73] Additionally, it is of considerable concern that there are no documents in evidence nor entries in her time records regarding the negotiations around the sale of these shares, including the seeking of advice as to the appropriate consideration. Ms Nayacakalou was clearly on notice that Mr Gillovic considered the shares were of considerable value, as she recorded in her email on 31 May 2018 to him that Mr Gillovic was asserting that the shares were worth more than half a million dollars.
[74] I accept that Ms Nayacakalou does appear to have been provided with several different stories in relation to these shares but this does not remove the need for liquidators to take proper steps or seek advice or direction from the Court when making decisions relating to matters outside their expertise, as considered in Young & Associates Ltd v Ruscoe.9
[75] Furthermore, Ms Nayacakalou has issued six-monthly reports that do not reflect the steps taken or the assets realised. For example, the purported share transfer from Tesio Bloodstock to Naldapat for consideration of $2,000, is not recorded in the liquidator’s report. There are also discrepancies in respect of the amount apparently recovered, with the amended statement of claim in the District Court pleading that
$3,000 had been recovered yet Ms Nayacakalou’s evidence being that the shares were sold for $2,000.
[76] In response to claims that her reports are inconsistent with the steps taken, Ms Nayacakalou simply notes in her affidavit that subsequent reports will correct the position. She does not however provide any explanation for why the reports are incorrect in the first place.
[77] The timing of the sale after the IRD had confirmed that it had written off the debt also requires further explanation from Ms Nayacakalou which she could not
9 Young & Associates Ltd v Ruscoe [2012] NZHC 1438, [2012] NZCCLR 23 see [9].
provide due to her non-attendance at the hearing on 18 June 2024. As an officer of the Court, Ms Nayacakalou had a duty to attend including to assist the Court in better understanding the circumstances of this liquidation.10
[78] For all of the above reasons, I consider that an order ought to be made removing Ms Nayacakalou as liquidator of both companies.
Liquidators to be appointed
[79] Mr Gillovic seeks the appointment of Stephen Khov and Kieran Jones as liquidators. A consent to act as liquidators, for both companies, has been filed dated 12 June 2024 confirming their hourly rates and the rates for their staff ranging for $160 for administrative staff to $495 plus GST for directors or liquidators plus standard office charges of 3 per cent plus GST.
[80] In her submissions, Ms Nayacakalou proposes instead that the Official Assignee ought to be appointed to replace her.
[81] Messrs Khov and Jones have consented to act and where no issue appears to arise, I consider that it is appropriate to appoint them rather than the Official Assignee given the Assignee’s current workloads because the liquidations commenced in 2015. I make these orders below.
Was an agreement reached to fix the remuneration at $3,500 plus GST per company?
[82] Mr Gillovic submits that a fixed fee agreement was reached in respect of each liquidation. As set out above, the fee agreement signed by Mr Gillovic on 15 May 2015 recorded that Mr Gillovic as guarantor agreed to personally pay up to
$3,500 plus GST of the costs of the liquidation should insufficient funds be received from the liquidation. In addition, the fee agreement recorded that each company appears to have few realisable assets. The wording of the fee agreement therefore
10 Although Ms Nayacakalou was appointed by shareholder resolution, because of the supervisory role of the Court including in s 284 of the Companies Act, she is still considered an officer of the Court.
appears to be consistent with the liquidator’s position that she did not agree to a fixed fee.
[83] The covering email under which she forwarded invoices to Mr Gillovic on 30 March 2016 does provide some support for Mr Gillovic’s position, as it does not suggest it is an interim invoice. In addition, it was issued prior to fees of $3,500 being incurred in the liquidation, according to the time records provided by Ms Nayacakalou.
[84] Ms Nayacakalou then emailed Mr Gillovic on 27 February 2018 recording that he had advised “her fee” would be paid before the end of January 2018 and that she is still waiting. The email then further indicated that she wanted the “last payments of fees outstanding” and that she was “keen to see the back of this liquidation” and was “not keen on going any further.” This email therefore suggests no further fees would be incurred although it is not definitive.
[85] Ms Nayacakalou’s six-monthly reports filed with the Companies Office begin by recording that the liquidator’s fees are $3,500 plus GST, breaking down the work into three phases from the initial investigation through to the general investigation itself. However, the reports from 17 December 2018 onwards state “the liquidator’s fees are plus GST for the period of liquidation”, missing out any figure for liquidator’s fees.
[86] From all of the above, I do not consider I can determine on the evidence filed that there was a fixed fee arrangement in place. However I go on to consider what the appropriate remuneration for the liquidator ought to be in any event.
What is the appropriate remuneration?
[87] Ms Nayacakalou records in the brief written submissions filed that the sole remedy sought by Mr Gillovic is an order fixing the costs at the fixed fee and that nothing is sought in the pleadings in the alternative about the quantum of fees she has charged. Ms Nayacakalou simply says:
As there is no remedy sought to review my fees as sworn in my time records already before the Court, I say no more about that.
[88] Mr Gillovic’s second amended statement of claim pleads that the parties entered into a fixed fee agreement and that he has already paid the first and second defendants the fixed fee. The pleading however continues that the quantum of fees being claimed is exorbitant with the relief sought being an order fixing “the cost of liquidation to $3,500 plus GST” for each of the liquidations. A statement of defence has been filed on behalf of Ms Nayacakalou denying the pleading that the fees are exorbitant but without providing any further details or particulars.
[89] The written submissions filed on behalf of Mr Gillovic include submissions that even if the Court finds that it is reasonable for the liquidator to claim for fees outside of the fixed fee arrangement (which Mr Gillovic denies), that the amount claimed is exorbitant, unsupportable and unreasonable. Submissions are then made over several pages challenging the amounts recorded in the time records provided.
[90] On the wording of the pleading and Mr Gillovic’s written submissions I consider that Ms Nayacakalou was clearly on notice that the reasonableness of her fees was being challenged even if the Court found there was no fixed fee arrangement. Furthermore, I consider that she has had an adequate opportunity to provide evidence establishing that the remuneration claimed is reasonable.
[91] In my view in the context of this long and difficult liquidation, it is important to consider what the reasonable remuneration of the liquidators ought to be to prevent this issue from causing further difficulties and expense for the new liquidators appointed.
Liquidator’s remuneration under s 284(1)(e) — relevant legal principles
[92] The relevant principles applying to consideration of the reasonableness of a liquidator’s remuneration are set out in Re Roslea Path Ltd (in liq).11 These principles apply whenever the Court is required to determine a liquidator’s reasonable remuneration.12
11 Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC) at [101].
12 At [170]–[172].
[93] The Court 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.13 And 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.14
[94] 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.15 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 reports the amount of fees charged, such that creditors have an opportunity to ask questions as the liquidation progresses.16
[95] The Court of Appeal in Madsen-Ries v Salus Safety Equipment Ltd (in liq),17 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. Although these comments were made in the context of the approval of remuneration once a liquidation is complete rather than in proceedings where orders are sought to remove the liquidator, the principles set out are still relevant in this context. They are as follows:18
(a)Liquidators are fiduciaries and their fundamental obligation is a duty to account. There is a conflict between the interest 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.
13 At [102].
14 Re Roslea Path Ltd (in liq), above n 11, at [102].
15 At [108].
16 At [151].
17 Madsen-Ries v Salus Safety Equipment Ltd (in liq) [2022] NZCA 101, [2022] NZCCLR 12.
18 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 broadbrush 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.
[96]The Court went on to state: 19
… 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.
[97] This last comment emphasises that it is the value of the services rendered to the creditors of the company that ought to be the Court’s focus.
Discussion
[98] As set out above, liquidators are officers of the court, they must attend diligently to their tasks and make all proper reports and inquiries. They must also justify their remuneration claims, with the liquidator bearing the onus of proving that the remuneration sought is reasonable. Any doubt due to inadequate information being provided is resolved in favour of the creditors.
[99] Ms Nayacakalou has provided very little detail of the steps taken in respect of these liquidations other than her time records. Associate Judge Brittain recorded in his leave judgment that although her time records were provided they require further
19 Madsen-Ries v Salus Safety Equipment Ltd (in liq), above n 17, at [54].
explanation and that Ms Nayacakalou had not provided sufficient justification for the fees of $80,870.63 claimed to have been incurred.
[100] Despite this, Ms Nayacakalou did not take the opportunity to file any further evidence. Significantly, the time records provided do not distinguish between work undertaken for each of the liquidations. Given the CHG shares were owned by Tesio Bloodstock and a number of steps were taken in respect of them, I would have expected there to be two separate sets of time records or at least some demarcation on the time records themselves as to which company’s liquidation the time entries relate to.
[101] In addition, Mr Gillovic makes the following submissions following review of the time records submitted:
(a)On Saturday, 11 April 2015, a month prior to her appointment and the commencement of liquidation, 4.5 units were spent preparing and sending the “first six months report” to the creditors and Companies Office Register. The first report was, again, recorded to be prepared and sent to the creditors and Companies Office Register on 21 May 2015 for a total of 2.5 hours;
(b)On Sunday, 12 April 2015, prior to her appointment and commencement of liquidation, 4.5 units were spent to email and “snail mail” a questionnaire to the Plaintiff;
(c)On 14 May 2015, prior to her appointment and commencement of liquidation, 5 units were spent to email and “snail mail” a questionnaire to the Plaintiff;
(d)On Sunday, 5 July 2015, 50 units were spent sending and replying to the “Directors” emails;
(e)On 9 June 2016, the liquidator allegedly sent an invoice to the Plaintiff, however the invoice was sent on 30 March 2016;
(f)On 13 June 2017, in a single day, 90 units were spent emailing, drafting letters and phoning “various parties” to investigate the ownership structure, and prepare the third six monthly report;
(g)On 19 September 2017, in a single day, 110 units were spent preparing spreadsheets on “xcell [sic]”;
(h)On 21 September 2017, the liquidator spent 4.5 units to follow up with the Plaintiff, then another follow up of 1.5 units the next day;
(i)On 29 September 2017, the liquidator spent 50 units following up with the Plaintiff;
(j)On 7 December 2017, in a single day, the liquidator spent 120 units drafting brief of evidence. The proceedings in the District Court were not filed until 3 September 2020, approximately three years after this time entry;
(k)On Sunday, 10 December 2017, in a single day, the liquidator spent 110 units on “legal proceedings”. The proceedings in the District Court were not filed until 3 September 2020, approximately three years following the time entry;
(l)On 2 August 2018, the following time entries were recorded:
(i)31.5 units on “email & snail mail” to “share transfer”, relating to CHG, the Plaintiff, and the share transfer;
(ii)41.5 units on “email & snail mail” to “share transfer”, relating to CHG, the Plaintiff, and the share transfer; and
(iii)27.5 units on a letter to the Plaintiff relating to CHG share payments;
(m)In 2019, the Defendants did not contact anyone other than by sending the Companies Office Register one letter;
(n)On 28 July 2020, 50 units were spent engaging a lawyer to querying assets. It is noted that this occurred approximately 2 years since she last contacted the Plaintiff;
(o)From 10 to 19 August 2020, 230 units were spent on reconstructing 2008 accounts;
(p)On 2 September 2020, 70 units were spent drafting proceedings in the High Court. The Plaintiff filed the current proceedings on 1 August 2022, but the High Court proceedings the liquidator filed on 23 December 2020 was not actioned or pursued;
(q)On Saturday, 2 October 2020, the following time entries were recorded;
2.5 units on a “letter – share xfr [sic] to “Directors”;
(ii)2.5 units on a “letter – share xfr [sic] to “Directors”;
and
2.5 units on a “letter – share xfr [sic] to “Directors”.
(r)On 22 March 2021, 11.5 units were spent and charged to email the Plaintiff about payment of her invoice;
(s)On 30 October 2021, a total of 43 units were spent on the six-monthly report. However, the report was not updated to reflect that there are no claims to the liquidation or that the shares were sold;
(t)There is no record of the preparing or signing of the share transfer form involving Naldapat Limited. Nor is there any time entry to show
that she contacted Naldapat Limited, or how the Shares were advertised for sale.
[102] Whilst I do not accept all of the points made, there are clearly considerable difficulties in relying on the time records, especially when compared with the six‑monthly reports which remain largely unchanged throughout.
[103] In terms of the factors considered in Madsen-Ries v Salus Safety Equipment, I do not consider that Ms Nayacakalou has justified her claim for remuneration, particularly because of the lack of detail in her time records, the failure to provide more detail in her evidence and the issues with the six-monthly reports which do not accurately record the steps being taken at the time. Nor do the six monthly reports set out the liquidator’s fees incurred to the date of each report.
[104] Considering Ms Nayacakalou’s time records, a considerable amount of the work, including in relation to the District Court proceedings, had already been undertaken by the time of her email in February 2018 where she refers to the payment of the remainder of the fees outstanding being final payment. Furthermore, until December 2018 Ms Nayacakalou recorded in her six-monthly reports that the liquidators fees are $3,500 plus GST for the period of the liquidation.
[105] It is unclear when the IRD made its decision to write off the debts owing. They may therefore have been written off prior to the filing of the District Court proceedings in September 2020. It seems unusual that the liquidator would have filed those proceedings without confirming with the IRD that its debts remained outstanding but there is no evidence that Ms Nayacakalou took that step prior to filing the proceedings.
[106] In any event, since May 2021 there have been no creditors except allegedly the liquidator in respect of her fees (although no account or invoice has been provided for these). Prior to May 2021 the IRD was the sole creditor and yet there is no evidence of any written correspondence with the IRD, including after Mr Gillovic’s lawyer advised the debt had been written off.
[107] Furthermore, Ms Nayacakalou's most recent reports dated 17 December 2023 continue to record the IRD as a creditor for both companies when those debts have
been written off and, according to Ms Nayacakalou’s own pleading, the proofs of debts withdrawn.
[108] In addition, neither the original nor the amended statements of claim in the District Court provide any breakdown of the fees the liquidator says that she has incurred and nor do they account for the $3,500 in fees plus GST already paid by Mr Gillovic in each liquidation.
[109] As set out above, the onus is on Ms Nayacakalou to establish that the remuneration claimed is reasonable.
[110] Standing back and considering the value to the creditors, I acknowledge that Ms Nayacakalou's role has not been straight forward but there are considerable issues with the steps she has taken or omitted to take, I do not consider that Ms Nayacakalou has established that the value to creditors of the companies in liquidation is any more than the $3,500 plus GST per liquidation already paid.
Result
[111]I order:
(a)that from 3 September 2024 at 12 noon:
(i)Ms Nayacakalou is removed as the liquidator of both Tesio Bloodstock and Tesio Thoroughbred;
(ii)Stephen Khov and Kieran Jones are appointed to both companies jointly as replacement liquidators;
(b)the remuneration of Ms Nayacakalou whilst liquidator of the Tesio Bloodstock and Tesio Thoroughbred is fixed at $3,500 plus GST for each liquidation;
(c)the rates of remuneration of Messrs Khov and Jones are as set out in their consent to act dated 12 June 2024; and
(d)Messrs Khov and Jones are to apply at the end of their liquidation for approval of their overall remuneration.
Costs
[112] Mr Gillovic seeks costs in respect of this proceeding. I ask the parties to confer and only if costs cannot be agreed for memoranda of no more than three pages (excluding schedules) to be filed on behalf of the plaintiff by 30 September 2024 and the defendants by 4 October 2024.
Associate Judge Sussock
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