Halifax New Zealand Limited (in liquidation)
[2019] NZHC 3434
•19 December 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-002049
[2019] NZHC 3434
UNDER Section 284 of the Companies Act 1993, section 66 of the Trustee Act 1956 and Part 19 of the High Court Rules 2016 IN THE MATTER
of HALIFAX NEW ZEALAND LIMITED (IN LIQUIDATION)
Plaintiff
AND
AND
AND
an application by MORGAN JOHN KELLY and PHILIP ALEXANDER QUINLAN
First Applicants
an application by HALIFAX NEW
ZEALAND LIMITED (IN LIQUIDATION)
Second ApplicantMORGAN JOHN KELLY and PHILIP ALEXANDER QUINLAN
Third Applicants
Hearing: (On the papers) Judgment:
19 December 2019
JUDGMENT OF VENNING J
Re: Remuneration for the liquidators and trustees
This judgment was delivered by me on 19 December 2019 at 11.30 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Russell McVeagh, Auckland Copy to: A Leopold SC, Sydney, Australia
E Holmes, Sydney, Australia
Re Kelly in the matter of HALIFAX NEW ZEALAND LIMITED (IN LIQUIDATION) [2019] NZHC 3434 [19
December 2019]
[1] Morgan Kelly and Philip Quinlan apply as iquidators (and formerly administrators) for an interim order approving costs incurred by them acting as such pending the determination of the substantive application for directions. They also apply in their capacity as trustees of a trust created by regulation 246 of the Financial Markets Conduct Regulations 2014 that they be paid remuneration for professional services and be indemnified for costs and expenses in relation to that appointment and the administration of the Regulation 246 Trust.
[2] The application is supported by an affidavit of Mr Kelly affirmed 12 December 2019.
[3] The applicants also seek ancillary orders relating to the accounts from which payments may be made and orders to bring the orders to the attention of investors/creditors.
[4] The background to the liquidation of Halifax NZ has been set out in previous minutes of the Court. It is unnecessary to refer to it again in the context of this application.1
[5] I note that a similar application was made to the Federal Court in the liquidation of Halifax AU. On 6 November 2019 that Court made orders approving the remuneration of the liquidators as administrators of the company and as liquidators.
Jurisdiction – liquidators’ costs
[6] The expenses and remuneration of a liquidator are payable out of the assets of the company as first in the order of priority.2
[7] Where liquidators are required to administer trust assets held by the company the liquidators will be allowed their costs, expenses and remuneration from those trust assets.3 In Re Berkeley Applegate has been applied in New Zealand.4
1 Minutes of Venning J, dated 2 October 2019, and 12 December 2019.
2 Companies Act 1993, s 278; Sch 7, cl 1(a).
3 Re Berkeley Applegate (Investments Consultants) Limited [1989] Ch 32.
4 Finnigan v Yuan Fu Capital Markets Limited (in liquidation) [2013] NZHC 2899.
[8] In Finnigan v Yuan Fu Capital Markets Limited the liquidators sought payment of costs from trust funds. The case has some similarities to the present one. It involved the failure of a New Zealand business offering access to an on-line trading platform in New Zealand and Australia. In the course of the decision Associate Judge Bell held:5
(a)the courts have recognised that liquidators and similar insolvency administrators required to deal with assets held on trust by the insolvent entity have a right to be paid out of the assets held on trust;
(b)this power arises out of the Court’s inherent jurisdiction;
(c)there is a preference that the charge be imposed on sums recovered rather than the sums invested;
(d)while particular costs may relate to particular claims and be chargeable accordingly, the Courts will not require liquidators to apportion general time to separate claims by investors;
(e)the right to remuneration is for work related to the trust assets, not to the conduct of the liquidation generally. Therefore some apportionment is required.
[9] I note that in its decision the Federal Court considered the issue of whether the costs would be apportioned. Gleeson J ultimately accepted that all the work undertaken by the liquidators during the administration and in the liquidation could properly be considered to relate to the trusts pursuant to which Halifax AU held the comingled trust funds.6 The work undertaken in the course of the administration and the liquidation to 31 August 2019 had been overwhelmingly directed to preserving investor funds and determining how they might be returned to investors. As there was a deficiency in the trust funds and the investors were unsecured creditors of Halifax AU Gleeson J accepted that any general liquidation work also related to the trusts.7
5 At [70].
6 Kelly, in the matter of Halifax Investment Services Pty Ltd (in liquidation) (No 6) [2019] FCA 2111.
7 At [33]–[34].
[10] Similar reasoning applies to the present application. There are 2,079 investor clients of Halifax NZ compared to only 19 trade and broker creditors and five employee creditors. The general creditors only represent a little over one per cent of all creditors by number.
[11] Mr Kelly has deposed in his 12 December 2019 affidavit that all of the work carried out by the applicants has, in one way or another been concerned with, connected with, or related to, administering and managing the client moneys held on trust by Halifax NZ for the investor clients as has been for the benefit of the trusts.
[12] I accept the work identified by Mr Kelly has been necessary in order to identify, collect, realise and distribute the trust assets to the persons beneficially entitled to them, and that the administrators and liquidators tasks have all borne a substantial connection to the trust funds such that would be unnecessarily impractical to seek to apportion the costs.
[13] Further, as Mr Kersey submitted in his memorandum in support of the current application, even the formal external administration expenses such as preparation of reports to creditors and dealing with the Financial Markets Authority (FMA) are necessary steps in returning investor funds since the funds cannot be returned without undertaking formal insolvency procedures. Also the creditors to whom the reports are provided are predominantly the investors entitled to the trust funds.
Jurisdiction - trustees’ costs
[14] Regulation 246(1) created a trust over certain money and other property on the appointment of voluntary administrators to Halifax NZ.
[15] Mr Kelly and Mr Quinlan are trustees of the Regulation 246 Trust. They seek reimbursement of the costs incurred by them in that role under:
(a)s 72 Trustee Act 1956;
(b)s 38(2) Trustee Act;
(c)the Court’s inherent jurisdiction.
[16] Section 72 refers to a “commission”. That is somewhat of a historical term. But s 72(1) is a broad provision which could enable payment for the trustees’ services as are just and reasonable.
[17] A more direct route is the application of the proviso under s 38(2) of the Trustee Act. The Court can allow such costs as, in the circumstances, seem just for expenses reasonably incurred in or about the execution of the trust’s powers. In circumstances such as the present, where the trusts are created by statute, and there is an obligation to administer the trusts imposed on the trustees, it is clearly appropriate they be reimbursed.
[18] Finally, for completeness, I note that the Court has inherent jurisdiction to award trustees remuneration as recognised by the Court of Appeal in Ngai Tai Ki Tamaki Tribal Trust v Karaka.8 The overriding consideration is that the remuneration be just and reasonable.
[19] I accept the submission made by Mr Kersey that the costs recoverable extend to costs reasonably incurred in relation to their appointment as trustee.9
Quantum
[20] In summary, to this point, the Court is satisfied there is jurisdiction to make an order for the reasonable costs and expenses for the liquidators acting as administrators and liquidators and the trustees to be paid from the assets of Halifax NZ.
[21] The liquidators have drawn money from the liquidators’ trading account to meet some initial costs. They have drawn remuneration for the period from 27 November 2018 to 28 February 2019. The remuneration was AUD 433,476.50 (NZD 455,499.92) and was disclosed to Halifax NZ’s creditors at the watershed meeting held on 22 March 2019. At the time, Mr Kelly and Mr Quinlan believed that account contained only corporate funds. Mr Kelly now considers it is possible that those funds
8 Ngai Tai Ki Tamaki Tribal Trust v Karaka [20120] NZCA 268, [2015] NZAR 266 at [48].
9 Harvey v Olliver (1887) 57 LT 239 (Ch) at 241.
transferred into the liquidators’ trading account were comingled with client moneys and moneys originating from Halifax and its clients.
[22] The liquidators have not drawn any remuneration for the remainder of the administration period (1 March 2019 to 21 March 2019) or for the liquidation period. Nor have they drawn or been paid for any internal or external disbursements incurred since appointment.
[23] The total remuneration sought for the period from 22 March 2019 is AUD 704,217.10 (excluding GST) (NZD 733,559.43) made up of additional administrators’ fees of $183,427.30 and liquidators’ fees to 31 August 2019 $520,789.75. The internal and external disbursements as at 31 August 2019, including legal fees total AUD 125,791.60 (excluding GST) plus NZD 527,959.21.
[24] The remuneration is sought in Australian dollars. Mr Kelly and Mr Quinlan are liquidators of both Halifax AU and Halifax NZ.
[25] The liquidation of Halifax NZ is part of a complex cross-border insolvency involving difficult issues of client entitlements to comingled trust property. Inevitably some of the work carried out by the administrators and liquidators and the Australian legal advisors focusing on the Australian operation will have been for the benefit of Halifax NZ clients. Some of that has been allocated to Halifax AU and the fees and expenses associated with it have been recovered from funds held by Halifax AU pursuant to orders of the Federal Court. Mr Kelly confirms that there has been no double-counting in that area. In his affidavit Mr Kelly confirms that he has instructed staff to review the time entries through the entire administration and liquidation with a view to apportioning time between Halifax NZ and Halifax AU wherever practically feasible.
[26] I accept it is appropriate for the remuneration to be paid in Australian dollars, that being the currency the fees were rendered in and the costs were largely incurred.
[27] The internal disbursements are fees charged by the applicants for specific services provided formerly by Ferrier Hodgson, now KPMG Australia, such as
photocopying and non-professional disbursements. The external disbursements are comprised primarily of legal fees payable to New Zealand solicitors. Both are reasonably incurred.
[28] While not determinative, it is also relevant that at a meeting of the committee of creditors on 16 October 2019 a resolution was passed confirming the committee had no objection to the remuneration of the administrators or liquidators for the period from 1 March 2019 to 31 August 2019.
[29] The sum sought in relation to the trustees is AUD 23,447.50 This work all occurred prior to the liquidators’ appointment under reg 246 but is recoverable as work necessary and reasonable for the trustees to have undertaken in order for the trustees to properly consider the trusteeship they were required to take on. The trustees and legal advisors spent significant time working through the unusual circumstances with the FMA.
[30]For those reasons the Court makes the following directions/orders:
(a)in their capacity as trustees, appointed on 18 September 2019 by the Financial Markets Authority (FMA), of a trust created by regulation 246 of the Financial Markets Conduct Regulations 2014 (Regulation 246 Trust) and for the purposes of s 38(2) of the Trustee Act 1956, the applicants are allowed to be paid remuneration for professional services performed, and to be indemnified for any costs and expenses incurred in relation to:
(i)their appointment as trustees of the Regulation 246 Trust; and
(ii)the administration of the Regulation 246 Trust, from their appointment as trustees on 18 September 2019 until the distribution of property subject to the Regulation 246 Trust is completed,
and to pay those amounts out of the property subject to the Regulation 246 Trust or with which the property subject to the Regulation 246 Trust has been comingled;
(b)an order that the remuneration, costs and expenses of the applicants in their capacity as liquidators of Halifax New Zealand Limited (in liquidation) (Halifax NZ) and the remuneration, costs and expenses of the applicants as voluntary administrators and the remuneration, costs and expenses of the applicants as trustees of the Regulation 246 Trust in the amounts set out in paragraphs 116, 254, 261, 262, 263 and 273 of the affidavit of Morgan John Kelly affirmed on 12 December 2019 may be paid from time to time out of some or all of the following accounts of Halifax NZ (Accounts) pending the determination of the application for directions filed by the applicants (together with Halifax NZ) on 25 September 2019 in proceeding CIV-2019-404-2049 (directions application):
(i)ANZ Business Current Account 01-0121-0135307-02;
(ii)ANZ Foreign Currency Account 205964USD00001;
(iii)ANZ Foreign Currency Account 205964EUR00001; and
(iv)IB Proprietary Account U1439482;
(as referred to in para 31 of Mr Kelly’s affidavit);
(c)the remuneration, costs and expenses in paras (a) and (b) above may be paid from the Accounts prior to any distributions to clients of Halifax NZ or other persons beneficially entitled to the funds in the Accounts;
(d)the application and sealed orders in this proceeding are to be posted on the webpage maintained by KPMG Australia for the purpose of the liquidation of Halifax NZ
( within five working days of sealing of these orders;
(e)leave reserved.
Venning J
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