Jones v IBC Japan Ltd
[2024] NZHC 2454
•30 August 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-002070
[2024] NZHC 2454
2454 the Companies Act 1993 and Part 19 of the High Court Rules IN THE MATTER
of the liquidation of Autoterminal New Zealand Ltd (in Liquidation)
BETWEEN
AND AND
KIERAN MICHAEL JONES, STEVEN KHOV and THOMAS LEE RODEWALD
(as liquidators of Autoterminal New Zealand Ltd)
ApplicantsIBC JAPAN LTD
First RespondentKEVYN BOTES
Intervener
Hearing: 4, 5 and 6 June 2024
Closing submissions: 21 June 2024
Counsel:
B J Burt and J Tunna for Applicants
R J Hollyman KC and E K J Gamet for IBC B Gustafson for Intervener
Judgment:
30 August 2024
JUDGMENT OF BREWER J
This judgment was delivered by me on 30 August 2024 at 3 pm pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
JONES & ORS v IBC JAPAN LTD & ANOR [2024] NZHC 2454 [30 August 2024]
Introduction.......................................................................................................... [1]
Background.......................................................................................................... [8]
The law............................................................................................................... [22]
Reasonable remuneration [25]
Medforce 1 [27]
Medforce 2 [30]
Re Roslea Path Ltd [31]
Expenses [38]
What was done?................................................................................................. [43]
Witnesses and evidence..................................................................................... [51]
Evidence admissibility [59]
The issues............................................................................................................ [60]
Discussion........................................................................................................... [78]
The complexity of the liquidation [80]
Conclusion [88]
Whether it was necessary to retain three liquidators [91]
Conclusion [98]
Over servicing [104]
Conclusion [116]
Over resourcing [120]
Conclusion [122]
IBC [124]
Conclusion [131]
The liquidators and Mr Tyler [135]
Conclusion [138]
Expenses [140]
Conclusion [147]
Decision............................................................................................................. [150]
Costs.................................................................................................................. [160]
Introduction
[1] Section 284 of the Companies Act 1993 (the Act) empowers a court to, among other things, review or fix the remuneration of a liquidator at a level which is reasonable in the circumstances.
[2] On 11 September 2021, Messrs Khov, Jones and Rodewald (the liquidators) were appointed liquidators of Autoterminal New Zealand Ltd (ATNZ) by its sole director, Mr Tyler. On 11 September 2023, the liquidators filed an application under s 284 of the Act for orders:
1.1fixing the applicants’ remuneration to 20 August 2023 at
$1,232,801.41 + GST and disbursements of $618,706.15 + GST; and
1.2directing the applicants to deduct their remuneration, and fees and expenses properly incurred, in bringing this application from the funds held by them in the liquidation of Autoterminal New Zealand Limited (ATNZ); and
1.3to the extent the funds held by the applicants in the liquidation of ATNZ are insufficient to satisfy the remuneration, and the fees and expenses properly incurred by the applicants, in bringing this application, those fees and expenses be paid (on a solicitor and client basis) by IBC Japan Limited (IBC).
[3] IBC Japan Ltd (IBC) filed a notice of opposition as an interested party on 13 October 2023. The grounds of its opposition are:
aThe liquidation of Autoterminal New Zealand Limited (in Liquidation) has been carried out in an inefficient manner with the result that excessive time has been spent on certain aspects of the liquidation.
bA large percentage of hours applied to the liquidation have been charged by the three applicants personally at high charge out rates rather than at levels, and rates, appropriate to the nature of the work.
cAs a result:
ithe fees charged by the applicants are excessive and unreasonable in the circumstances; and
iithe applicants have unreasonably incurred disbursements.
dThe applicants elected to bring the proceeding, and IBC has not unreasonably failed to accept an offer of settlement.
[4] On 9 May 2024, Mr Botes, who was appointed as replacement liquidator of ATNZ on 2 November 2023, applied to intervene in the application. This was not opposed.
[5] I heard evidence going to the application for three days in the period 4 June to 6 June 2024. Mr Jones (one of the liquidators) and Ms Nguyen (corporate counsel for IBC) gave evidence relating to the course of the liquidation. Mr Botes gave evidence relating to his tenure as liquidator and gave his views on some of the issues. Evidence was also given by Mr Webb, a senior figure in Deloitte retained by the liquidators, and Mr Hollis, a senior figure in PricewaterhouseCoopers (PwC) retained by IBC as experts.
[6] I heard brief oral submissions from the parties and subsequently received their full written submissions.
[7] My task is to fix the remuneration of the liquidators at a level which is reasonable in the circumstances.
Background
[8] ATNZ was incorporated in New Zealand in 2000. It imported and sold second- hand cars from Japan as part of a business owned and operated by Mr Hemi and Mr Stone.
[9] IBC is a company incorporated in Japan. It was the entity used by Mr Hemi and Mr Stone to source second-hand vehicles in Japan which could then be purchased by ATNZ.
[10] Mr Tyler was appointed a director of ATNZ in 2004 and, other than for a brief period in 2006/2007, was the sole director until he put ATNZ into voluntary liquidation.
[11] The relationship between Mr Hemi and Mr Stone deteriorated from about 2014. They became locked in legal conflict. Ms Nguyen said there have been in the order of 20 to 25 separate legal battles between them in various jurisdictions around
Southeast Asia. Ms Nguyen, who aligns with Mr Hemi, became involved in the disputes in 2016.
[12] Both Mr Hemi and Mr Stone are directors of IBC. I was told that under Japanese law if a director is appointed as Representative Director, then that person controls the operations of the company. Initially, Mr Stone was Representative Director of IBC. However, on 31 May 2018, Mr Hemi took that role.
[13] On 11 October 2018, IBC issued proceedings against ATNZ in this Court. On 6 July 2021, judgment was given against ATNZ in the sum of $38,648,006.1 IBC set out to enforce the judgment and this led to Mr Tyler putting ATNZ into voluntary liquidation on 11 September 2021, following the passing of a special resolution.
[14] Mr Tyler appointed Mr Rodewald as a liquidator because he had engaged Mr Rodewald as a business advisor since 17 August 2021. Mr Rodewald runs his own firm. Mr Khov and Mr Jones were also appointed liquidators, notwithstanding that they are not in Mr Rodewald’s firm but have their own separate enterprise.
[15] The total debts of ATNZ amounted to about $40 million. Accordingly, IBC, with the judgment debt of over $38 million, was far and away the major creditor. IBC was involved with the liquidators from 13 September 2021 until the liquidators resigned in favour of Mr Botes.
[16] On 14 September 2021, IBC requested access to ATNZ’s Xero records to gain full understanding of ATNZ’s affairs and to assist the liquidators with their investigations. On 17 September 2021, the liquidators signed a deed providing IBC with “view only” access to ATNZ’s Xero records so that IBC and its accountants, BDO Auckland Ltd (BDO), could review transactions or discrepancies that might be worthy of investigation by the liquidators, and so that IBC could bring these to the attention of the liquidators.
1 Autoterminal New Zealand Ltd v IBC Japan Ltd [2021] NZHC 1654.
[17] On the same day, IBC gave formal notification to the liquidators that it was interested in purchasing certain ATNZ assets. A formal offer was presented on 21 September 2021.
[18] IBC, on 8 October 2021, essentially purchased all the assets of ATNZ through a New Zealand incorporated subsidiary, ATNZ 2000 Ltd. The price was paid by set- off of its judgment debt.
[19] Around this period, IBC agreed that all other creditors (save one or possibly two IBC thought associated with Mr Stone) could be paid out at 100 cents in the dollar. This was done. The liquidation process continued.
[20]On 1 February 2023, Mr Rodewald resigned as a liquidator.
[21] On 30 March 2023, IBC sent a letter to the liquidators raising “serious concerns” with the liquidators’ conduct of the liquidation. These concerns were discussed in a meeting on 3 April 2023 between Mr Hemi and Ms Nguyen, for IBC, and the liquidators. The next day, Ms Nguyen asked the liquidators to resign. Following further interactions, Messrs Khov and Jones resigned as liquidators with effect 2 November 2023 and Mr Botes was appointed in their place.
The law
[22]Section 284 of the Act provides:
Court supervision of liquidation
(1)On the application of the liquidator, a liquidation committee, or, with the leave of the court, a creditor, shareholder, other entitled person, or director of a company in liquidation, the court may—
…
(e)in respect of any period, review or fix the remuneration of the liquidator at a level which is reasonable in the circumstances:
(f)to the extent that an amount retained by the liquidator as remuneration is found by the court to be unreasonable in the circumstances, order the liquidator to refund the amount:
(2)The powers given by subsection (1) are in addition to any other powers a court may exercise in its jurisdiction relating to liquidators
under this Part, and may be exercised in relation to a matter occurring either before or after the commencement of the liquidation, or the removal of the company from the New Zealand register, and whether or not the liquidator has ceased to act as liquidator when the application or the order is made.
[23] The liquidators apply under subs (e), seeking the Court to fix their remuneration in the sum of $1,232,801.41. The subsection, together with subs (f), was enacted as proposed by the Law Commission in their 1989 report, Company Law Reform and Restatement.2 The provisions were designed to provide a remedy “[s]hould the remuneration of the liquidator be thought unreasonable”,3 and also to allow for retrospective approval of remuneration. The liquidators maintain the amount claimed is reasonable.
[24] Following the passage of the Act, courts, in various contexts, have considered the remuneration of liquidators. The general principles are settled. However, determining what is “reasonable in the circumstances” is not an entirely straightforward exercise.
Reasonable remuneration
[25] Liquidators are entitled to charge remuneration that is “reasonable”.4 Section 278 provides that “[t]he expenses and remuneration of the liquidator are payable out of the assets of the company”. A liquidator’s fees and expenses have priority over all other payments from the company’s assets.5
[26] The general principles that apply to the assessment of remuneration are found in three High Court decisions, namely: Re Medforce Healthcare Services Ltd (in
2 For a detailed discussion of the provision’s legislative history, see Re Roslea Path Ltd (in liquidation) [2013] 1 NZLR 207 (HC) at [21]–[32].
3 Law Commission Company Law Reform and Restatement (NZLC R9, 1989) at 160.
4 Companies Act 1933, s 276(1). The Act notes a liquidator “is entitled to charge reasonable remuneration for carrying out his or her duties and exercising his or her powers as liquidator” (emphasis added).
5 Companies Act 1993, sch 7, cl 1(1)(a).
liquidation) (Medforce 1),6 Re Medforce Healthcare Services Ltd (in liquidation) (No 2) (Medforce 2),7 and Re Roslea Path Ltd (in liquidation).8
Medforce 1
[27] Medforce 1 (and Medforce 2) concerned the remuneration of liquidators appointed by the Court under s 241(2)(c) of the Act. The judgments considered the principles applicable to both prospective and retrospective applications by liquidators. Both decisions involved uncontested applications.
[28] In Medforce 1, the Court first reviewed the approach to fixing a liquidator’s remuneration under the 1955 legislation9 before considering English and Hong Kong authorities. The Court largely adopted principles expressed in Mirror Group Newspaper plc v Maxwell (No 2) by the English High Court and observed:10
(a)Court-appointed liquidators are fiduciaries who have an obligation to get in and realise assets for the benefit of creditors and, if there is a surplus, for shareholders of the company and like any fiduciary it will be necessary for remuneration to be justified.
(b)The appropriate test to determine whether an expense should be allowed is whether it would have been incurred and would the time spent have been undertaken by a reasonably prudent person faced with the same situation.
(c)Although time is a relevant factor in fixing remuneration too much emphasis should not be placed on it because it is the value of the services rendered which is to be rewarded rather than the cost of rendering them.
(Emphasis added)
[29] The Court likened the inquiry into fixing reasonable costs to approving solicitor and client costs or costs for legal aid purposes.11 It is an inquiry that involves examining the work completed in light of the complexity of the liquidation. However, a court will not impose too stringent requirements on liquidators.12 Salmon and
6 Re Medforce Healthcare Services Ltd (in liquidation ) [2001] 3 NZLR 145 (HC) [Medforce 1].
7 Re Medforce Healthcare Services Ltd (in liquidation ) (No 2) [2001] 3 NZLR 158 (HC) [Medforce 2].
8 Re Roslea Path Ltd, above n 2.
9 Medforce 1, above n 6, at [8]–[11].
10 At [32], citing Mirror Group Newspapers plc v Maxwell (No 2) [1998] 1 BCLC 638.
11 At [33].
12 At [26].
Paterson JJ observed, in relation to what a liquidator should provide a court and the court’s process of approval:
[34] As a minimum it seems to us that what is required is a statement of the work undertaken during the course of the liquidation, together with an expenditure account sufficiently itemised to enable the charges made to be related to the work done. The detail would have to be sufficient to enable the judicial officer to determine whether the personnel involved in the liquidation and their respective charge-out rates were appropriate to the nature of the work undertaken. This information may in some cases raise concerns as to whether there has been overservicing and overcharging. If there are suggestions of this in the information provided, the Court can request further information.
Medforce 2
[30] Medforce 2 set out the Masters’13 practice in approving fees in accordance with Medforce 1 to help facilitate the prospective approval of a liquidator’s fees and retrospective applications.14 The judgment established three financial bands for liquidation approvals.15 Liquidations, excluding expenses, exceeding $15,000 placed a heavier burden on a liquidator to inform the court of the nature of the liquidation justifying the greater expense. Master Gambrill also reviewed the judgment of Ferris J in Mirror Group and considered that fixing remuneration involved assessing the value of the work undertaken, rather than simply the direct cost. It accordingly required consideration of complexity, responsibility, effectiveness of work and the value of the property involved.16
Re Roslea Path Ltd
[31] In 2009 Heath and Venning JJ in the High Court undertook to reconsider the principles laid down in Medforce 1.17 The decision broadly endorsed the judgments of the Full Court in Medforce 1 and Master Gambrill in Medforce 2.18 It remains the leading case and has been subsequently endorsed by the Court of Appeal.19
13 Associate Judges were formerly known as Masters of the High Court.
14 Medforce 2, above n 7, at [2].
15 At [11].
16 At [8].
17 Re Roslea Path Ltd, above n 2, at [3].
18 At [142] and [187(a)].
19 See Madsen-Ries v Salus Safety Equipment Ltd (In Liq) [2022] NZCA 101, [2022] NZCCLR 12;
Toons v Quinn and Wells [2021] NZCA 696, [2021] NZCCLR 29.
[32] The Court-appointed liquidators of Roslea Path Ltd made a prospective application for approval of their fees. The shareholders challenged the remuneration as excessive. Heath and Venning JJ, in the context of fixing remuneration, observed:20
[102] In fixing a liquidator’s remuneration, the Court is making a determination of the fairness and the reasonableness of what has been charged when measured against the work undertaken and the result achieved. Fair and reasonable remuneration reflects the value of the services rendered to the creditors of the company and, if a surplus were achieved, its shareholders. “Value” is an elusive concept which goes beyond mathematical application of hourly rates to hours spent by individuals involved in administering the company’s affairs.
(Emphasis added)
[33] Accordingly, a court adopts a broad approach, and may consider a wide range of factors including:21
(a)the skill, specialised knowledge, and responsibility required;
(b)the time and labour expended;
(c)the value or amount of any property or money involved;
(d)the importance of the matter to the client and the results achieved;
(e)the complexity of the matter and the difficulty or novelty of the questions involved;
(f)the number, and importance of the documents prepared or perused;
(g)the urgency and circumstances in which the business is transacted; and
(h)the reasonable costs of running a practice.
20 Re Roslea Path Ltd, above n 2.
21 At [103]. See also Gallagher v Dobson [1993] 3 NZLR 611 (HC) at 615 per Barker ACJ who referred to the factors for assessing costs, then set out in the New Zealand Law Society’s Costing and Conveyancing Practice Manual. The Court in Re Roslea Path Ltd observed at [104]: “[those] principles are equally applicable to remuneration for liquidators’ services”. The factors were further endorsed by the Court of Appeal in Toons v Quinn and Wells, above n 19, at [64].
[34]Heath and Venning JJ further observed:
[112] Insolvency law requires relevant principles to be applied in a pragmatic way. The fact that liquidators administer an insolvent company dictates the need for efficient and effective procedures to be in place to realise assets and distribute the net proceeds to creditors. A balance must be struck between the need for liquidators to comply with duties imposed (see ss 253– 258A of the 1993 Act), while doing so in a cost-efficient manner. That is emphasised by s 253 which requires the liquidator’s primary duty (realising assets for distribution among creditors) to be carried out “in a reasonable and efficient manner”.
[35] The touchstone is pragmatism. A court must conduct a proportionate assessment examining the evidence of the liquidator’s work against the nature and complexity of the work undertaken in order to assess its value. The greater the amount claimed, the more a court will examine the evidence, and the greater the evidence required.22 Each case must be judged on its own facts, and a court must avoid a prescriptive approach.23 However, the onus is on the liquidator to justify the remuneration claimed.24
[36] The authorities suggest a court should not adopt too broad an approach, i.e. simply fixing a fee thought appropriate.25 Rather, the authorities prefer a “global approach” in the absence of evidence:26
… Rather, we consider that Associate Judges should inquire into the reasonableness of the fees on the basis of the principles outlined in Medforce 1 and other cases, but have the ability to fix a global sum as remuneration (as a matter of judgment), if the liquidator had supplied too little information to enable a clear view to be formed on whether what was claimed was or was not “reasonable”. The difference is that our approach requires the exercise of a judicial judgment, as opposed to an arbitrary choice of an amount.
[37]In retrospective applications, the Court of Appeal observed:27
(g)A broad brush approach is acceptable provided that there is an exercise of judicial judgment as opposed to an arbitrary choice of amount.
22 At [108].
23 At [155].
24 At [187(c)].
25 At [42].
26 At [142].
27 Madsen-Ries v Salus Safety Equipment Ltd (In Liq), above n 19.
(h)The process of fixing remuneration needs to be proportionate. It should not be unduly prescriptive; nor should it unnecessarily add costs to creditors.
A court should ensure that creditors and shareholders are not prejudiced as a result of any inefficiency or over servicing by the liquidator on one workstream but at the same time do not receive a windfall at the liquidator’s expense as a result of an abundance of efficiency. Accordingly, the court’s focus in the inquiry is on assessing the value of the work,28 remaining mindful of the need for predictability, and the proportionality between the cost of the evidence required and the amount at stake in the liquidation.29
Expenses
[38] As I have said, the liquidator claims disbursements of $618,706.15 plus GST. Counsel for the liquidators submits that “the Court has no jurisdiction to review the liquidator’s expenses under s 284(1)(e) of the Act”; and that courts have denied any power to review a liquidator’s expenses.30 In support of this submission, counsel refers to the following passage in Medforce 1:31
An allied question is as to what is included in the expression “remuneration”. It seems clear that it is only the remuneration of the liquidator which is subject to review, not his expenses. The distinction between the two is apparent from s 278 which provides that “the expenses and remuneration of the liquidator are payable out of the assets of the company”. (emphasis added)
[39]However, Associate Judge Bell observed in relation to the above passage in
Medforce 1 in Quinn v Toon:32
[119] … There is however a qualification to that. If liquidators take a course of action which is not required for the liquidation, the court may disallow both their expenses and their remuneration for that course of action. It would be absurd to refuse their remuneration while still allowing their expenses for the same matter …
[40] I am satisfied that the rules regarding the reasonableness of remuneration do not directly apply to expenses incurred in the course of a liquidation. Nor does the
28 At [141].
29 Kim Francis and Thomas Westaway Heath and Whale on Insolvency (online ed, LexisNexis) at [22.22(c)].
30 See Re Roslea Path Ltd, above n 2, at [45] and [157].
31 Medforce 1, above n 6, at [19], cited in Re Roslea Path Ltd, above n 2, at [45].
32 Quinn v Toon [2020] NZHC 816 at [119].
statutory jurisdiction, discussed above, provide a basis of review. However, that does not mean that the court has no jurisdiction whatever to determine that an expense (in this context, what might more appropriately be called a disbursement) was unjustified. I respectfully concur with Associate Judge Bell. A liquidator could not, for example, claim for expenses that have no causal connection to the liquidation process itself.
[41] The authors of Heath and Whale on Insolvency note the legal basis to determine that expenses cannot be claimed as a liquidation expense is found in sch 7 of the Act.33 It provides that liquidators may be paid “the fees and expenses properly incurred” (emphasis added).
[42] Accordingly, I consider the Court has and may exercise jurisdiction to review expenses. Unnecessary expenses that are not “properly incurred” should not be borne by the creditors.
What was done?
[43] Immediately upon their appointment, the liquidators began reviewing ATNZ’s position. The COVID lockdown was in place at the time of their appointment. The liquidators had to liaise with the firm’s 21 staff (who, at first, they continued to employ) and deal with the 255 vehicles on site, of which 202 were “saleable”. They set about ensuring ATNZ’s leasing arrangements continued. The early months principally involved relationship building, securing the premises and an overall appraisal.
[44] The liquidators reviewed the pre-liquidation sale of ATNZ’s workshop, as well as undertaking general administrative work including securing staff emails and Outlook accounts through Aquarius, which provided IT support to ATNZ.
[45] The discussions with IBC on its purchase of ATNZ’s assets commenced two days after the liquidators were appointed and the agreement was concluded on 8 October 2021.
33 Paul Heath and Michael Whale, Heath and Whale on Insolvency (looseleaf ed, LexisNexis) at [38.5(n)].
[46] During the liquidation 291 vehicles were released to ATNZ for registration, which required ongoing administration. During the two-year liquidation period, four statutory reports were produced, in addition to frequent updates to IBC as the principal creditor, and subsequent owner. Throughout the period, the liquidators were closely engaged with IBC which was regularly consulted and approved payments to other creditors. The liquidators were also involved in other claims; principally a claim against ATNZ by a company (NTMC), which soon settled.
[47] Other workstreams included the reconciliation of accounts receivable and the engagements of experts in respect of potential litigation. The liquidators engaged no fewer than eight different law firms across four countries. There were multiple experts engaged on various matters including the legal implications of claims against ATNZ.
[48] The liquidators oversaw the payments to creditors, payments to staff and to IRD in relation to GST claims.
[49] By the end of their tenure the liquidators were in the process of analysing potential legal claims by ATNZ, including against the former director, Mr Tyler.
[50] In his very lengthy first affidavit, Mr Jones describes 16 workstreams completed. The affidavit contains the following table. I have abridged the descriptions of each workstream. The remuneration charged by the liquidators for each workstream ranges from $6453 to $190,993:
Workstream Details Fees
(excluding GST)
1 IBC Japan Engagement with IBC and their solicitors $190,993 2 Securing control of the business Identifying and engaging with stakeholders, including taking control of documents and records, staff cooperation, engaging with the director and
landlord, inventory management
$78,781 3 Accounts
receivable ledger
Document management in relation to the ledger, reconciliation, liaison with accounts team,
adjustment and customer liaison
$36,365 4 Sale of the
business and assets
Sale of the business and assets to IBC $158,330 5 Position of the creditors in liquidation Receipt/adjudication of creditor claims, leasing and adjusting claims, establishing credit priorities, distribution to non-IBC creditors $36,581
6 Relations Co Ltd Investigations with supplier $21,134 7 Voidable
transaction claim
Engagement with a law firm and accounting/consultant firm re the company’s
position on the claim
$170,012 8 Wheelers debt Reconciliation of claim, including taking legal advice $44,637 9 Aquarius/ IT
issues
Engagement with Aquarius and receipt of advice $62,355 10 AFC/ Escrow Deed Investigation of arrangements with AFC in further receipt of advice $72,867 11 Robert Stone Engagement with Mr Stone and legal counsel as well as other parties $12,119 12 Tax Losses Review of information/position, receipt of tax advice $6,453 13 Mike Tyler/ Claim Extensive engagement with Mr Tyler to secure cooperation and assistance on various issues $50,854 14 FX accounts reconciliation Requests for, analysis and reconciliation of information with various stakeholders $94,968 15 Internal
administration
Administration of liquidation including tax obligations, accounting, reporting and records $74,865 16 Remuneration approval Preparation of application and affidavits for remuneration approval $121,487
Witnesses and evidence
[51] Mr Jones was the witness of fact for the liquidators. He filed an affidavit in support of the application. The body of the affidavit is more than 100 pages and there are some 3,000 pages of attachments. He filed a further two affidavits; there are some 600 pages and a total of 6,000 pages of attachments. Mr Jones’s evidence is to the effect that all the work done by the liquidators was done in good faith and was carried out at appropriate levels of seniority.
[52] Ms Nguyen gave evidence on behalf of IBC. She is a Vietnamese lawyer with degrees from Vietnamese universities. She also holds a master’s degree in law from a university in Singapore. Ms Nguyen has worked for Mr Hemi and is his friend. Although she remains a partner in a Vietnamese law firm and works in its Singapore office, she has been seconded as corporate counsel for ATNZ and lives now in Auckland.
[53] Ms Nguyen said that from the outset she found the liquidators difficult to work with because they seemed to be unduly guarded and pushed back against her expressed wish to have IBC work co-operatively with the liquidators. In Ms Nguyen’s view, there should have been a complete alignment of interests given that IBC was by far
the major creditor, had purchased the business of ATNZ within a month of the liquidation commencing and had agreed that all the other creditors, save one or two which IBC considered aligned with Mr Tyler and/or Mr Stone, could be paid out at 100 cents in the dollar.
[54] Mr Botes gave evidence in his capacity as the replacement liquidator, but really he had been commissioned by IBC to review aspects of the performance of the liquidators. He did so by taking what he considered to be a sample. I found his evidence to be instructive not so much for his criticisms of the liquidators but for the light he shines on IBC’s practices. In short, Mr Botes as current liquidator is simply taking directions from IBC. Although he appreciates that he has a statutory duty of independence, his view is that because IBC is the sole remaining creditor of ATNZ, every dollar he spends in the liquidation is a dollar less for IBC and therefore he should take direction from IBC as to what dollars are spent.
[55] Mr Webb gave expert evidence on behalf of the liquidators. He is a very experienced insolvency practitioner at Deloitte. Mr Webb thoroughly reviewed the work done by the liquidators. He filed a number of affidavits. His view is that the fees charged by the liquidators are, in general, reasonable. He did find some areas where he thinks that charges are surprisingly high and he would reduce the fees charged overall by $55,000.
[56] Mr Hollis, the expert briefed by IBC, has a completely different view. His initial opinion was on a high-level basis. That is to say, he looked at the state of ATNZ at the commencement of the liquidation and at the various pieces of work required to complete the liquidation. He, at a high level, evaluated what needed to be done on a reasonable basis and decided that an appropriate level of remuneration would be between $500,000 and $600,000. On later review, he increased that to a maximum of
$700,000 to take into account the application to fix remuneration.
[57]IBC maintains that Mr Webb adopted an incorrect approach:
… he expressly took the view that the liquidators ought not to be ‘second- guessed’ with the benefit of hindsight. That approach, it is submitted, is wrong because the Court patently does apply hindsight in assessing remuneration, and does second-guess the liquidators.
(Footnotes omitted)
[58] IBC maintains that Mr Webb is wrong to endorse the partner heavy model that led to him disregarding the lack of juniors and the lack of reduced rates and expressing the view that the liquidators should not be second guessed. That approach, IBC submits, is incorrect because the Court does have an ability to apply hindsight in assessing remuneration and accordingly must second guess the liquidators.
Evidence admissibility
[59] The intervenor, Mr Botes, challenges the liquidators’ evidence on the basis that it contains hearsay. I do not think anything turns on that. This is not a case where any particular piece of evidence will influence the outcome. The analysis is broader than that and the approach more global.
The issues
[60] IBC’s central argument is that the liquidators spent too much time at unreasonably high rates, and that they over serviced and overworked the file. Accordingly, the fees are unreasonable. IBC submits also:
3.9 The liquidators’ 16 different workstreams are inaccurate and unhelpful due to the over-lapping of work within the different categories, a fact recognised by Mr Jones in cross-examination; and clear in the summaries of the work falling within each category. Nor do they accord with the statutory reports.
(Footnotes omitted)
[61] I disagree with the criticism of the workstreams. Although there is a considerable degree of overlap, the workstreams provide a useful breakdown of the work completed. IBC does not examine each workstream in detail. As the liquidators submitted: “[t]he remuneration charged … for many of the workstreams was unchallenged in the cross-examination of either Mr Jones or Mr Webb” by IBC. The nature of the opposition by IBC is that overall the liquidators charged too much. The argument is made by reference to examples of what IBC describes as “over-servicing”.
[62]In its closing submissions, IBC submitted:
It is important to recognise that timesheets do not answer the question of appropriate remuneration. They do provide critical understanding as to what
was done, by whom, and what was charged for it. But, as pointed out above, appropriate remuneration is not a mathematical exercise of time recorded multiplied by hourly rate. However, a review of the timesheets – as has been undertaken and set out in various parts of the evidence – reinforces the concerns that underpin IBC’s opposition. Some simple and critical examples:
a.The 224.90 hours spent by the liquidators themselves for remuneration approval, including themselves assembling the exhibits to the affidavits in support.
b.The time spent by (all three of) the liquidators themselves reading legal texts and authorities so as to understand legal advice on the NTMC voidable preference claim.
c.The 348.38 hours spent on FX reconciliation, a task which was largely a duplicate of that completed by BDO.
d.The 120.02 hours spent on ‘Mike Tyler/Claim’. The hours are undoubtedly high, given Mr Tyler was said to be ‘generally cooperative’, the admitted soft-pedalling of the investigation and lack of legal action, and the relationship of Mr Rodewald with Mr Tyler; which was meant to have made this aspect of the liquidation more efficient.
(Footnotes omitted)
[63] Mr Hollis, in his second report, does not separately analyse all the workstreams. However, his view is that there was over-charging. He suggests that a fee of $700,000 was justified and that the claimed fee of $1.2 million is unreasonably high. He acknowledges that the five workstreams analysed were chosen because they stood out as having high charges. He could not explain in cross-examination how the other workstreams which do not have that apparent quality could contain over- charging for the difference between his suggested fee and the claimed fee.
[64]The five workstreams which Mr Hollis focused on are:
(a)engagement with IBC;
(b)engagement with Mr Tyler;
(c)the FX accounts reconciliation;
(d)internal administration; and
(e)remuneration approval.
[65] IBC’s closing submissions address specifically two workstreams: the NTMC claim and the FX reconciliation.
[66] The NTMC claim relates to the liquidators’ attendances in defending a voidable transaction claim of approximately $3.3 million. The claim settled for
$250,000. The liquidators maintain it is one of the workstreams where they are able to clearly demonstrate a significant benefit to the company through their efforts. Indeed, Mr Jones in his affidavit, refers to an email from Ms Nguyen endorsing the liquidators’ approach to the claim. Evidently, IBC now takes a different view.
[67] IBC maintains that by the time the liquidators became involved, most of the legal work had been completed by ATNZ’s lawyers. Fraud by NTMC had been identified and the claim against ATNZ was never going to succeed.
[68] The workstream involved 455 hours work. The majority of the work was completed by Mr Jones (171 hours) and Mr Lowther (125 hours), an insolvency analyst. Mr Jones deposes that 26 meetings occurred to discuss the defence of the claim. He sets out the negotiation process, and the involvement of IBC. In addition, the liquidators instructed TWA Legal to oversee the claim. Mr Jones summarises the workstream as involving:
(a)reconciling and analysing voluminous data from the Company’s previous vehicle management system, Trakker;
(b)attending to substantial discovery obligations;
(c)assisting with the preparation of Mr Tyler’s evidence for an expected trial;
(d)performing various tracing exercises in support of the Company’s defence;
(e)liaising with IBC and its lawyers; and
(f)assisting with settlement negotiations.
[69]IBC, in reply, submits:
By the time of liquidation, most of the discovery had been located and ATNZ’s lawyers had evidence that NTMC had been acting fraudulently. The assessment of an appropriate fee is informed by that understanding, rather than the face value of the claim. There is little or no evidence as to why the liquidators personally spent so long working on the claim, when they had a competent law firm acting on it, and (for their own reasons) a second firm reviewing that work.
[70]Further IBC submits:
5.3The liquidators personally completed tasks that were not required, or where their involvement ought to have been minimal and straight- forward in nature:
aOn Mr Jones’ evidence, the liquidators’ ‘work was largely comprised of fronting and initiating settlement attempts and working with… solicitors to prepare a detailed and forensic defence to the claim’.
bThe discovery obligations, which Mr Jones describes as a ‘substantial’ task, were already largely dealt with by the time of appointment.
cMr Jones states that the liquidators had to compile ‘substantial missing information regarding vehicle supplies made by the Company to NTMC, and payments received’. However, Mr Jones at the same time told the Court that Aquarius ‘held most of the data required to complete the Company’s discovery obligations’. (This data was dealt with, and collected by, Mr Tyler (not by the liquidators) from Aquarius).
dTasks were undertaken by the liquidators (and often by all three liquidators) that were unnecessary, such as reading the ‘relevant legal authorities and legal texts’, and otherwise duplicating the work of the law firms. Mr Webb agreed that at least some of this could have been avoided ‘by not all co- liquidators reviewing documents that their legal advisors were to opine on’. Mr Webb himself concluded that the ‘costs associated with this workstream appear high’ and ‘could be reduced’.
(Footnotes and emphasis omitted)
[71] There was some agreement between the experts. Mr Webb reports that while “a positive outcome for creditors was received, the costs associated with this workstream appear[ed] high”. In his report, he suggests that “the fees associated with this work could be reduced by an amount in the vicinity of $30K”. Mr Hollis accepts
that “legal advice might have been required as regards dealing with some investigation matters, including settling the voidable claim from the liquidator of NTMC”.
[72] I consider that the NTMC workstream is an example of where there was some over servicing on the part of the liquidators.
[73] Next, IBC and Mr Hollis are critical of the volume of work done by the liquidators in reconciling ATNZ’s considerable foreign exchange transactions (workstream 14). That is because from an early stage the liquidators were aware that IBC had engaged BDO to perform the reconciliations. Mr Hollis’s view is that the liquidators should not have done any reconciliation work but should have waited to receive BDO’s report. The liquidators could then have decided whether to accept it or do further work as required.
[74]IBC submits further:
5.4The reconciliation task was ‘just yet another normal part of a liquidation’ (which, according to Mr Hollis), was not particularly complex, and should have been charged accordingly. This task was made more straight-forward by the following:
a.this workstream was only concerning the ‘limited reconciliation’ of foreign exchange accounts (as opposed to all transactions – i.e. the NZD transactions); and
b.not all work was completed by the liquidators—IBC completed the reconciliation of payments made to 4Wheelers Limited and Relation Co Limited against vehicle cost information, to determine any funds received in excess of vehicle costs.
5.5However, the task was over-serviced: 348 hours, and $94,968, were billed. Mr Webb concluded that the value of this work was ‘unclear’. Mr Hollis’ evidence was that ‘the sheer quantum and value of all the work seems questionable’; instead, ‘an amount half this size would make much more sense’.
5.6Further, the liquidators were aware from an early stage that BDO were completing the task…
(Footnotes omitted, emphasis in original)
[75] In short, IBC maintains that the liquidators undertook the same work that BDO was undertaking, knowing that BDO was doing the work.
[76] The evidence of Mr Jones, backed up by Mr Webb, is that the liquidators were required to perform their own analysis of this significant area (over $1 million), and in any event did not know the extent of the work being done by BDO until receiving BDO’s report. There was then work done between the liquidators and BDO to reach an agreed reconciliation. Work done by the liquidators was adopted by BDO and is being used by IBC to pursue Mr Tyler.
[77] I consider that this is another area of over servicing. The liquidators were aware that BDO was doing work in this area and they were in frequent contact with IBC. They should have taken steps to ensure there was no unnecessary duplication of work.
Discussion
[78] Overall, I have to consider whether the total of over 3,300 hours charged in the liquidation was reasonable.
[79] I will focus on the following issues to help assess the overall reasonableness of the liquidators’ remuneration:
(a)The complexity of the liquidation.
(b)Whether the liquidators’ tasks were undertaken without consideration of benefits (“over servicing”).
(c)Whether it was necessary to retain three liquidators.
(d)Whether the liquidators performed too much of the work themselves.
(e)Whether the liquidators unnecessarily engaged advisors across various workstreams, incurring disbursements without a corresponding reduction in the liquidators’ work.
(f)Whether the engagement with IBC justifies greater remuneration/expenses.
The complexity of the liquidation
[80] Mr Jones’s evidence is that this was a complex liquidation, made more difficult by IBC, and that the work was performed to a good standard and at reasonable cost. He considers the liquidation of ATNZ to be more complex than a “standard liquidation”. Its complexity was principally because of the international connections. Thus, legal advice was obtained as to Japanese law because the liquidators, in selling the business of ATNZ to IBC, wished to be reassured that Mr Hemi could legally bind IBC. Similarly, with the interactions with Aquarius, the liquidators wanted to understand how Philippine law might affect the agreements they were negotiating. All in all, the disbursements of the liquidation amount to some $600,000 which is largely attributable to legal fees. Mr Jones says that the liquidators needed to get legal advice and this is a reasonable disbursement.
[81] The liquidators, in reply, note that Mr Hollis acknowledged under cross- examination that “there are complexities in the ATNZ liquidation which go beyond the average liquidation”. In evidence, Mr Webb said that there were five reasons for the liquidation being complex:
(a)the liquidation was multi-jurisdictional;
(b)there were a number of advisors;
(c)there was a high level of distrust between parties;
(d)the level of involvement of IBC; and
(e)COVID.
[82] In contrast, beyond the acknowledgement above, Mr Hollis does not consider that this was a complex liquidation. Mr Hollis pointed out that ATNZ is a New Zealand incorporated company. Its business was purchased as a going concern by IBC within a month of the commencement of the liquidation. All that was left to do following the sale of the business were the standard liquidator’s tasks of getting in assets and distributing them to creditors. There were very few other creditors and, for
all but one or two, 100 per cent distributions were authorised by IBC. Mr Hollis was dismissive of claims of complexity involving the NTMC claim, the 4 Wheelers matter and Aquarius. He thought it was unnecessary to engage extensive legal advice and points out that the NTMC claim was settled relatively easily for $250,000.
[83] IBC maintains, first, that this was not a multi-jurisdictional liquidation. ATNZ was almost entirely based in New Zealand. It employed its staff in Auckland. At the time of its liquidation, most of the assets (i.e. cars/vehicles) were on a single site in Auckland. Further, many of them had been provisionally sold. IBC submits that Mr Webb is incorrect to maintain that the FX reconciliation gave the liquidation a cross-jurisdictional element. Any medium to large company will be engaged in cross- jurisdictional transactions.
[84] Second, IBC does not accept that the liquidators’ use of legal advisors relates to the complexity of the task. In short, they maintain that the complexity that arose from the number of advisers involved in the liquidation was a consequence entirely of the liquidators’ making. It is submitted it was the liquidators who decided to engage so many experts and IBC says it is not clear that all of them were necessary.
[85] Third, (based on Mr Hollis’s evidence) IBC submits that a level of acrimony between stakeholders is not uncommon and it does not in itself make a liquidation complex. Liquidations are seldom convivial affairs. That there was distrust is not a contributor to complexity. IBC notes Mr Webb said in evidence that it is “not unusual to have stakeholders that are not aligned”.
[86] Fourth, IBC maintains that its involvement did not make the liquidation and insolvency process more complex, rather IBC offered real benefits which should have made the liquidation more, not less, efficient. It submits that any complexity arose only because the liquidators viewed IBC’s desire to assist as a threat and spent time resisting it.
[87] Finally, as regards COVID-19, IBC submits that any impact of restrictions was relatively short. The COVID alert system in New Zealand ended on 2 December 2021, less than three months after the commencement of the liquidation.
Conclusion
[88] In my view this was not a particularly complex liquidation. It was not multi- jurisdictional. There were no overseas court proceedings and none were contemplated. There were no major disputes with creditors. The only litigation in progress at the date of the litigation was the NTMC claim. The lawyers had that well in hand and the settlement of $250,000 came relatively quickly.
[89] Importantly, the major creditor, IBC, bought the business of ATNZ within a month of the liquidation. IBC agreed that the remaining creditors (bar one or two thought associated with Mr Stone or Mr Tyler) would be paid out fully.
[90] I agree with Mr Hollis that there were some complexities in that IBC was a Japanese company and the liquidators knew of the acrimony between its shareholders. Also, there had to be negotiations with Aquarius and so some understanding of the Philippines legal environment was needed. However, I also agree with Mr Hollis that the bulk of the work required was the standard fare for a liquidator of getting in the assets and distributing them to creditors.
Whether it was necessary to retain three liquidators
[91] Mr Jones denies that having three liquidators in two different firms materially increased the costs of the liquidation. That is because the liquidators apportioned workstreams between them.
[92] Mr Jones says, and this is not disputed, that the hourly rates charged by the liquidators and their employees are competitive and reasonable. He denies that too much work was done by the liquidators, thus maximising costs.
[93] Mr Hollis, in contrast, maintains there should never have been three liquidators. He says this created a duplication of effort, even if it is only at the statutory level where liquidators are required to concur with certain tasks. However, when I asked Mr Hollis what the liquidators should have done, he could not give me a firm response but I gathered he was saying that one of them should have refused to be appointed or that there should have been a resignation early in the piece.
[94] IBC says that the liquidation “patently only required two liquidators”. Mr Jones accepted it is not common practise for three liquidators to be appointed to a company. IBC is critical that Mr Rodewald failed to give evidence and invites me to draw a negative inference as to the contribution he made to the liquidation.
[95] In contrast, the liquidators submit that the appointment of three liquidators was justified because:
50… Ms Nguyen does not point to any specific instance of duplication of effort, despite Ms Nguyen’s allegedly “extensive discussions and meetings with the Liquidators” and her “good understanding of the work carried out by them”.
…
52.1COVID-19 restrictions in place at the time of the Liquidators’ appointment prevented Mr Rodewald (based in Tauranga) from accessing ATNZ’s business premises in Auckland, where the company’s assets, staff, books and records, and information technology equipment were located;
52.2ATNZ’s director resided in Hamilton, the company’s solicitors were also located in Hamilton, while the company’s general accountants were based in Cambridge, and the company’s review accountants were in Tauranga, all outside the Auckland region and not subject to the same movement restrictions;
52.3there were relationships between ATNZ and others in multiple overseas jurisdictions, involving varied and complex legal issues, and a need to undertake a forensic investigation of the company’s affairs due (in part) to the acrimonious relationship between stakeholders;
52.4the quantum of funds which passed through the company were substantial (annual turnover of almost $100 million and a total asset position of approximately $44 million), and it would therefore be prudent to diversify funds held by the liquidators between trust accounts; and
52.5Mr Rodewald has a close professional relationship with Murray Branch of Harkness Henry (solicitors appointed by Mr Tyler) and, in light of the antagonism between Mr Tyler and IBC, Mr Rodewald considered it would assist the relationship with IBC for liquidators with no such connection to be appointed.
(Footnotes and emphasis omitted)
[96] In relation to the appointment of Mr Rodewald, the liquidators submit that it led to financial benefits for the creditors:
54. The constructive relationship between Mr Rodewald and Mr Tyler resulted in a direct financial benefit to ATNZ of NZD $5,052,137.56 and USD $1,200,000.00 – a total benefit to ATNZ (and therefore its creditors) of approximately NZD $7,000,000.00. By contrast, the remuneration charged by Mr Rodewald throughout the course of ATNZ’s liquidation totalled $155,700 plus GST (12.63% of the total remuneration charged and approximately 2.2% of the direct financial benefit derived from his relationship with Mr Tyler).
(Footnote omitted)
[97] The liquidators maintain that there was an ongoing review of the need for three liquidators. The continuing involvement of Mr Rodewald was largely because of his positive relationship with Mr Tyler, the former director. Mr Rodewald’s resignation on 1 February 2023 was prompted by the fact that the relationship with Mr Tyler had become less important and the workstreams had narrowed.
Conclusion
[98] Standing back and looking at the overall scheme of the liquidation, I do not find this to be a significant issue.
[99]First, whether or not three liquidators were required, three were appointed.
[100] I accept Mr Jones’s evidence to the effect that in the initial COVID period there were advantages to having the three liquidators. I also accept his evidence that work was apportioned between the liquidators.
[101] I accept that the statutory requirements resulted in some added costs, but the main example that IBC could point to was an $8,000 expense incurred in the NTMC claim for the three liquidators co-ordinating their firms.34
[102] Further, there was a good reason for the appointment of Mr Rodewald. He was someone Mr Tyler could work with and, in the initial phases of the liquidation at least, engaging positively with Mr Tyler was to the benefit of the liquidation.
34 IBC notes that Mr Webb acknowledged “this time could be reduced by half”.
[103] Accordingly, I do not consider that the employment of three liquidators is of material relevance to the overall issue of the reasonableness of the liquidators’ remuneration.
Over servicing
[104] Mr Hollis criticises the liquidators for the proportion of the liquidation work they did at their $450 hourly charge-out rate. He points out that something over 55 per cent of the total time spent on the liquidation was spent at that senior level (and approximately 70 per cent of the value was charged by the liquidators personally). In his view, the bulk of the work should have been pushed down to less expensive employees, with one liquidator doing most of the oversight work with limited consultation with the second liquidator.
[105]I set out the remuneration table of the liquidators and staff:
Remuneration table
Position
Firm
Hourly rate
Director/ liquidator
· Thomas Rodewald
· Steven Khov
· Kieran Jones
· Rodewald Consulting Ltd
· Khov Jones
· Khov Jones
$450
Senior manager/ consultant
· Denise Cooper
· Willem Jordaan
· Rodewald Consulting Ltd
· Rodewald Consulting Ltd
$230
Investigative accountant
· Farhana Nisha
· Khov Jones
$290
Insolvency analyst
· Issac Lowther
· Khov Jones
$195
Administrative staff
· Various
$160
[106] Cross-examination of Mr Hollis on this area focused on efficiencies that can be gained by having senior people deal with work expeditiously rather than having it done at greater length by employees whose output must then be checked by the senior
people. It also focused on the low level of charge-out rates compared to the much higher levels of, say, Deloitte and PwC.35
[107]There was the following exchange with Mr Hollis in cross-examination:
Q.You’d also accept, wouldn’t you, that there is a degree of efficiency that comes with more experienced staff undertaking work?
A.Absolutely. However, I would therefore see much less than 3,300 hours in an assignment of this nature if that were the case.
Q. So are you suggesting that Messrs Rodewald, Khov and Jones aren’t experienced?
A. No, you said that if you had more senior – effectively said if you had more senior practitioners, you’d get a – sorry, I’m paraphrasing you – get a better outcome.
Q. Sorry, that wasn’t what I was –
THE COURT:
Q.No, the point that you were making was that more expensive people can be valuable because they work faster and there are efficiencies thereby, and the answer that you just got was, as I understand it: “Yes, that’s true, but it doesn’t apply in this case because 3,300 hours are far too many.” Is that what your point was, Mr Hollis?
A. Yes.
[108]IBC submits:
3.14 … work should be undertaken (or at least charged) at the appropriate level. In this regard there was extensive examination by the liquidators’ counsel about “rates”. The thesis appeared to be that the liquidators charged lower rates, and so doing the work themselves was justified. However, that misses the point. Big firm rates do not reflect the whole market, and even big firms will meet the market (as Mr Hollis explained). Further, the rates were still $450/hour, there were much lower rates available, and the thesis does not explain or justify the significant hours spent by the liquidators themselves.
…
3.16In assessing value, Mr Webb simply considered the percentage of fees against recovery, which fails to take into account the ease with which the majority of the recoveries were made. Critically, ATNZ had significant cash holdings and IBC purchased the business at full value within a month of the liquidation.
35 I note in that in Mr Hollis’s affidavit, the letter of engagement notes that a partner at PwC has an hourly rate of $860.
3.17Mr Webb’s approach largely misses the point of remuneration review. Fundamentally, he has failed to consider the underlying rationale for, and value of, the work carried out by the liquidators. As a result, his analysis does not really assist the Court. An example is his misunderstanding of the value of the investigations undertaken by the liquidators, particularly in relation to Mr Tyler. Mr Webb concludes that ‘subsequently IBC elected to bring the claim outside of the liquidation and the liquidators have assisted with the provision of information. On this basis, the time and costs appears to have provided benefit and we do not see it as unreasonable.’ The evidence was rather that IBC brought the claim outside the liquidation because the liquidators had made little progress despite having spent large amounts of money.
(Footnotes and emphasis omitted)
[109] I note that Mr Webb referred to the delivery model of Mr Khov and Mr Jones as being reasonable. Their firm has only four fee authors — Mr Khov and Mr Jones at the senior level and then Ms Nasim and Mr Lowther at lesser levels. Mr Webb said they were employed appropriately. Mr Rodewald appears to be a sole practitioner with some administrative staff and the latter were involved minimally.
[110] IBC points out that 58 per cent of total time claimed was by the liquidators themselves.36 Mr Hollis, in his first report, observes that on a liquidation of a company with considerable trading activities, liquidators themselves will often perform a relatively small amount of the work, in the range of 10 to 20 per cent.
[111]Mr Webb defended the liquidators’ model but did identify:
… some areas where a lower staff level could have been utilised and where time spent on certain tasks could have been reduced.
[112] Mr Hollis, in his second report, said that administrative activities were inefficiently organised and an amount of around half the $75,000 billed would be more appropriate and “make sense”. IBC notes that the three liquidators personally undertook administrative work for which approximately $40,000 is claimed.
[113] IBC submits there are further examples of over servicing, including both firms undertaking the payment of distributions by elaborate processes, and that there were multiple examples of double handling, for example, visits to other firms.
36 Mr Hollis says the figure was 55 per cent.
[114] In reply, the liquidators note that Mr Webb in his evidence suggests that it is not altogether uncommon for a liquidator in a partnership role to be required to fulfil a large proportion of the work. Mr Webb also noted in evidence before me that this is probably more common in small firms.
[115] The liquidators are critical of Mr Hollis and submit that he failed to take into account the hourly rate charged by the liquidators compared to that of their competitors, and the efficiencies gained from more expert senior insolvency practitioners becoming involved. They rely on the evidence of Mr Webb who suggests that the rates charged were significantly less than those charged by competitors, for example Deloitte and other large accountancy firms. Mr Webb’s view is that the mode “does not appear to have resulted in significant impact on the return to creditors that would result from the delivery model of a larger firm”. Mr Webb makes this observation, however, in light of his approach which compares the amount recovered against the cost of the liquidators. This approach is heavily criticised by Mr Hollis.
Conclusion
[116] The model employed by the liquidators was undoubtedly “top heavy”. There was less division of labour and delegation than would generally be utilised by an appointed liquidator. However, that was largely due to the absence of a junior structure in the liquidators’ firms. Larger insolvency practices would have used a different model.
[117] In my view, the liquidators’ business models are justified by the lower hourly rates charged. On the evidence before me, $450 per hour for the liquidators was significantly less than would be charged by people in a large firm who were well below the level of partner. The same is true for the two support staff employed by Khov Jones.
[118] I accept that simple administrative work would cost more in Khov Jones than in larger firms (photocopying, for example). But, I accept also that the experience levels of the personnel should make for efficiencies.
[119] In my view the major point on the issue of whether the claimed remuneration is reasonable is not the rates at which the work was charged but the number of hours charged for.
Over resourcing
[120] IBC submits that the liquidators spent too much time on the liquidation, namely 3389 hours.
[121] This submission overlaps with the other contention by IBC that too much work was conducted by the liquidators. Under the heading “Over-resourcing”, IBC submits:
7.4Indicative examples of over-resourcing within this liquidation include:
aDespite Mr Rodewald and his staff being ‘responsible for the administrative side of the liquidation’, the three liquidators personally incurred 86.63 hours of time on administration, or
$38,981. In total, $74,865 was spent on administration – an amount that Mr Hollis concluded was too high: ‘an amount around half this would make sense’.
bAdministration staff incurred only $11,910 in fees for internal administration, and in total (across the entire period of engagement, for all workstreams) incurred only $19,895 in fees (or 124 hours). The remaining time was recorded by the liquidators themselves or by more senior staff.
cPaying for operating costs, making distributions to creditors and paying GST, was undertaken by both firms via an elaborate eight-step process. There were approximately 300 payments, which even Mr Webb commented on: ‘[while] authorisation of payments will be required by a liquidator, the hours spent by the liquidators appears to … be high’.
dThere were approximately 300 payments, which even Mr Webb commented on: ‘[while] authorisation of payments will be required by a liquidator, the hours spent by the liquidators appears to … be high”.
eAdministrative tasks, drafting the initial statutory reports, dealing with IT issues, and dealing with creditors could have been delegated to junior team members, and fees reduced accordingly. Tasks were double handled, for example the visit to Iron Mountain (archiving) by Mr Khov and another staff member to search archive boxes. Even Mr Webb questioned whether the resultant $6,000 fee was reasonable.
fMr Rodewald recorded 89% of fees charged by his firm ($155,700 of $175,595 total). The remaining 11% was his (mostly administrative) staff.
(Footnotes and emphasis omitted)
Conclusion
[122] I find that IBC’s submissions in this area have validity. It was inefficient for both firms to make payments and the processes were elaborate. There were significant charges for administration which are largely unexplained. And, there was on occasion more than one law firm employed on the same workstream.
[123]I will take this into account in my global analysis of the liquidation.
IBC
[124] Mr Jones says that the extensive interventions by IBC added to the cost of the liquidation. His evidence is that the liquidators were conscious of their obligation to remain independent of IBC and to get in the assets of ATNZ bearing in mind all the stakeholders.
[125] IBC played an active part in the liquidation. There were, for a considerable period, fortnightly zoom meetings with Ms Nguyen and with lawyers on both sides. After a time, the presence of lawyers was restricted. There were 18 such meetings.
[126] In addition to the statutory reports, the liquidators provided IBC with six detailed updating reports. These reports included disclosure of the ongoing cost of the liquidation.
[127] Ms Nguyen acknowledges that she had significant communication with the liquidators through meetings and reports. Her evidence is that despite this contact she never really understood what the liquidators were doing. Ms Nguyen’s evidence is that her inquiries would be met with general statements, such as there was still work in progress. Ms Nguyen says it was only when the liquidators had largely completed their work that she realised IBC had not received benefits commensurate with the
liquidators’ charges. It was that realisation that caused her, in March 2023, to raise her concerns formally.
[128] The submission in response is that Ms Nguyen was very much aware of the costs of the liquidation and this is simply her attempt to renegotiate the liquidators’ remuneration.
[129] Mr Hollis criticises the liquidators for failing to establish a proper and co- operative working relationship with IBC. He said that this is part of the role of a liquidator, particularly where there is one major creditor.
[130] Mr Botes, in his evidence, said that Ms Nguyen requires him to copy her with every item of correspondence, which he does happily.
Conclusion
[131] IBC, as the only creditor of note, was entitled to be involved in the liquidation. It was entitled to be kept informed of the progress of the liquidation, to make suggestions and to be consulted on major decisions. But, it was not entitled to take over the liquidation. The liquidators have statutory duties and they go beyond duties to a major creditor. The liquidators had to maintain a reasonable level of independence.
[132] The liquidators are entitled to charge for the time they spent liaising with, and reporting to, IBC. The reports prepared for IBC were comprehensive. I find that Ms Nguyen was made aware of the progress of the liquidation and its cost. The decision later in the liquidation to limit the attendance of lawyers at the liaison meetings must, to an extent, have been to save cost.
[133] Ms Nguyen is a very experienced corporate counsel. She has a strong personality. The evidence of Mr Botes as to how she requires copies of all correspondence and of his dealings with her lead me to conclude that, in effect, she expects to have control of the liquidation. I accept that Ms Nguyen was surprised and concerned that the liquidators “pushed back”. I do not accept Mr Hollis’s criticism of the tactic adopted by the liquidators of providing Ms Nguyen with comprehensive
reports. In the circumstances, that was understandable and Ms Nguyen never demurred.
[134]I will not reduce the remuneration claimed on account of this workstream.
The liquidators and Mr Tyler
[135] Ms Nguyen is particularly critical of the way the liquidators dealt with Mr Tyler. Mr Tyler is aligned with Mr Stone and hence is regarded by IBC as an adversary to be pursued in the liquidation.
[136] The liquidators took the view that it was in the interests of ATNZ to engage co- operatively with Mr Tyler at the outset of the liquidation because of his great knowledge of the business dealings of ATNZ and his good relations with companies that were seeking money from ATNZ. In particular, 4 Wheelers and Aquarius. As I have said, Mr Rodewald had good relations with Mr Tyler and so he was the liquidator in charge of getting Mr Tyler’s assistance. Mr Jones’s evidence is that this relationship was leveraged to the benefit of the liquidation. He said that the liquidators always intended to pursue Mr Tyler once his usefulness was over. That pursuit began towards the end of the liquidation, with the assistance of IBC and its lawyers. It was eventually agreed that IBC would take action against Mr Tyler rather than the liquidators. The liquidators provided all the information they had accrued in respect of Mr Tyler to IBC’s lawyers for that purpose. IBC has since taken action against Mr Tyler.
[137] Ms Nguyen criticises the liquidators for not actively pursuing Mr Tyler and, in particular, for not having him complete a compulsory examination pursuant to s 261 of the Act.
Conclusion
[138] This section overlaps with the previous one. IBC was not entitled to control the liquidation. Mr Rodewald was appointed a liquidator by Mr Tyler because of the good working relationship Mr Tyler had with him. I accept Mr Jones’s evidence that the liquidators saw value to the liquidation in maintaining a good relationship with Mr Tyler. Mr Hemi and Ms Nguyen might have wanted a more aggressive or
adversarial approach to Mr Tyler. But the liquidators did not. That was their decision to make.
[139] I do not find that this aspect of the liquidation should cause me to reduce the remuneration claimed.
Expenses
[140] Improperly incurred expenses cannot be claimed by a liquidator. As I explained above, the principles that apply to determining remuneration do not apply to disbursements. But expenses must nevertheless be properly incurred.
[141]Mr Hollis observed:
On balance, my view is that over $400k of legal fees appears high for the circumstances that the Autoterminal liquidation required. No serious litigious claims were taken or received. General insolvency advice and the sale transaction would have required legal input, but beyond that the liquidation was straight-forward from a legal perspective.
[142] IBC submits first that there is little evidence to establish that the disbursements were properly incurred in the liquidation. The liquidators merely provided schedules of payments to law firms and consultants. Second, such large expenses should be reflected or result in a reduction in liquidators’ fees, which did not occur. Further, the disbursements include “liquidators disbursements” in the sum of $38,738.11. IBC submits the liquidators can only charge for remuneration. IBC submits that expenses claimed should be limited to $300,000 to $400,000.
[143] IBC submits that the liquidators unnecessarily engaged legal advisors for almost every workstream, paying disbursements accordingly without any evident corresponding reduction in the liquidators’ fees.
[144] Where experts are engaged, and expenses incurred, it is appropriate to consider the relationship between the expenditure and the claimed remuneration. In his report, Mr Hollis says that in his view “not all the disbursements incurred were reasonable, although I had less information about disbursements”.
[145]The two examples which IBC points to are as examples of over serving:
(a)the engagement of Harkness Henry in the NMTC claim;
(b)the services of BDO in the FX reconciliation.
[146] IBC notes that in total the liquidators engaged eight firms. It was unnecessary, it submits, for both Harkness Henry and TWA Legal to provide advice on the same work. And it was also unnecessary for BDO to complete the same work that the liquidators commissioned in relation to the reconciliation. The evidence suggests that while the liquidators did not know the extent of BDO’s inquiries, it was available and open to them to discover that the work was being done. The submission is that by doing the work themselves the liquidators were simply spending creditors’ funds unnecessarily.
Conclusion
[147] I am satisfied that the disbursements claimed ($618,706.15) are disproportionate to the requirements of the liquidation. In particular, most of this sum was paid for legal advice but there is no real evidence that the receipt of the advice led to a more efficient liquidation. To the contrary, on Mr Jones’s evidence the receipt of advice led to him spending considerable time examining the advice (including doing legal research) to decide whether to accept it. I accept also that there was duplication of effort between law firms.
[148] This finding does not mean that the disbursements were improperly incurred. I have no doubt they were incurred by the liquidators in the belief they were reasonably necessary for the proper conduct of the liquidation. As I have said, the principles as to the reasonableness of remuneration do not apply in the same way to expenses.
[149] In my view, where disbursements have been incurred for the purposes of a liquidation with the result that further and unnecessary attendances have been performed by the liquidator, then it is (perhaps generally) the liquidator’s remuneration which should be reduced having regard to the applicable principles. That is what I will do.
Decision
[150] As I said at the outset, my task is to fix the remuneration of the liquidators at a level which is reasonable in the circumstances. I am not to do that by undertaking a line-by-line analysis of every hour claimed to have been worked.37 Instead, at a higher level (a global approach), I will assess the “fairness and reasonableness of what has been charged when measured against the work undertaken and the result achieved”.38
[151] My global assessment is that the liquidators, to an extent, over-worked and over-resourced the liquidation. They were appointed to liquidate a company that had debts of about $40 million, but also had millions of dollars of assets. To employ a clichéd metaphor, they saw the liquidation as a Rolls-Royce rather than a cheaper brand of motorcar. They were given the keys and they took it for a long drive. I make it clear that in saying this I do not imply profiteering. It is just that there was no incentive not to do whatever work they thought reasonable and to whatever depth they thought reasonable. I must consider the case beyond the liquidators’ subjective view of what was “reasonable” in the circumstances.
[152]In my discussion of particular issues raised by IBC, I have found:
(a)This was not a particularly complex liquidation.
(b)The fact there were three liquidators is not significant.
(c)The liquidators’ business models were justified by their lower hourly rates.
(d)The liquidators spent too much time working on the liquidation.
(e)The liquidators were, however, entitled to charge IBC for the work IBC caused them to do.
(f)The liquidators’ approach to using Mr Tyler was within their discretion.
37 If I tried to do that in this case, I would drown in the thousands of pages provided by Mr Jones.
38 Re Roslea Path Ltd, above n 2, at [102].
(g)The disbursements claimed, particularly for legal fees, are disproportionate to the requirements of the liquidation and resulted in further and unnecessary attendances by the liquidators.
[153] Mr Webb recommended a reduction in the remuneration of $55,000. But that was against his view that hindsight is not to be employed. I accept IBC’s submission that given the scope and nature of my task, hindsight has its place. The effect of that is ameliorated by the stipulation that the Court will not impose too stringent requirements on liquidators.39
[154] Mr Hollis’s approach was to stand back, look at the liquidation overall, and use his experience to draw conclusions on what the work should have required. In his second report he analysed the five workstreams he thought showed surprising levels of work performed. In his view, total remuneration should be no more than $700,000, including the cost of preparing the current application. But, the claimed remuneration for the five workstreams analysed totals $533,167. The remuneration claimed for the remaining workstreams is $699,634. Mr Hollis does not explain how the unanalysed workstreams which do not have the same appearance of overcharging nevertheless equate to the total remuneration he recommends.
[155] I will remove from this analysis the claim of $190,993 for the workstream involving IBC Japan (because I have found it is justified). I will also remove the claim for $121,487 for the remuneration approval application (because I will deal with it separately). That means I am now dealing with a claim of $920,321 plus disbursements of $618,706.
[156] In my view, the disbursements paid to lawyers and other experts illustrate the approach taken by the liquidators. They are disproportionate. The liquidators performed more work as a result. And, overall, there is no evidence that the liquidators, by doing most of the work in the liquidation themselves, were more efficient than if more work was done by less expensive staff. I have concluded that the remuneration claim of $920,321 should be reduced by 15 per cent, or $138,000 (rounded). The result is $782,321.
39 See [29].
[157] As to the claim of $121,487 for the remuneration approval application, I consider this is significantly higher than it should be. I infer that Mr Jones, smarting at the criticism of Mr Hemi and Ms Nguyen, set out to demonstrate emphatically that the liquidators had acted entirely professionally. But the result is a claim for around 11 per cent of the total remuneration claim. There was no need for the very lengthy affidavit and the thousands of pages of attachments, the work being done entirely by the liquidators. A focused description of what was done and the results obtained was all that was required. Replies to specific criticisms could then be filed. I will reduce the claim by a quarter to $91,115.
[158]Accordingly:
(a)I fix the applicants’ remuneration to 20 August 2023 at $1,064,42940 plus GST and disbursements of $618,706.15 plus GST.
(b)I direct that the applicants may deduct the above sums from the funds held by them in the liquidation of ATNZ.
[159] Paragraph 1.3 of the application (quoted at [2]) was not pursued. I decline to make an order.
Costs
[160] I am sure there will be a dispute about remaining costs. The applicants are to file their memorandum by 27 September 2024. IBC and Mr Botes are to respond by 18 October 2024. The memoranda are not to exceed four pages.
Brewer J
40 The sum of $190,993 (IBC workstream), $91,115 (remuneration approval application) and
$782,321 (balance of the workstreams).
Solicitors:
TWA Legal (Auckland) for Applicants Kensington Swan (Auckland) for IBC Grant & Co (Auckland) for Intervener
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