Marcusson v The Gem Limited (in liquidation) HC Wellington CIV-2001-485-1316

[2005] NZHC 1314

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2001-485-1316

IN THE MATTER OF     The Companies Act 1993

BETWEEN  ROLF MARCUSSON

Plaintiff

AND  THE GEM LIMITED (IN LIQUIDATION)

Defendant

Judgment:      24 March 2005

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

[1]        On 17 June 2004 I considered two applications made by Iain Bruce Shephard and Christine Margaret Dunphy (“Shephard and Dunphy”), the former liquidators of The Gem Limited (in liquidation) (“The Gem”) for orders:

(1)To fix the rate of remuneration of all liquidators of The Gem at particular hourly rates, and

(2)That the overall remuneration of the first liquidators Shephard and Dunphy be fixed at $32,372.50 (excluding GST).

[2]At paragraph 4 of an oral judgment I gave on 17 June 2004 I dealt with item

(1) above. Rates of remuneration for all the liquidators of The Gem were fixed at the stated hourly rates.

[3]        As to the second application noted above, in my 17 June 2004 oral judgment I indicated that I was not able to make a proper finding upon the reasonableness of Shephard and Dunphy’s fees in this matter, until further information was provided. Directions were then given as to the provision of that information, and I indicated

ROLF MARCUSSON V THE GEM LIMITED (IN LIQUIDATION) HC WN CIV-2001-485-1316 [24 March 2005]

that a ruling with respect to that application would be made based upon the material filed and the submissions presented to me on 17 June 2004. Leave was reserved for either party to advise if they wished to be heard personally with respect to matters raised in the further affidavits, or memoranda. No advice to this effect was received.

[4]        Since that 17 June 2004 oral judgment, Mr Shephard filed a further affidavit dated 19 July 2004 in support of the application.

[5]        Mr John Francis Managh (“Mr Managh”), the current liquidator, has filed a reply affidavit in opposition dated 11 August 2004.

[6]        Counsel for Shephard and Dunphy, has provided a memorandum to this Court with further submissions on 17 August 2004.

[7]        Counsel for Mr Managh has filed a memorandum dated 30 August 2004, providing further submissions in opposition.

[8]        Regrettably, these further affidavits and further submissions, through an oversight in the Registry of the Court, were not referred to me until recently.

[9]        I apologise to counsel and to the parties for the delay in my considering this material. Although it was filed many months ago, it did not reach me at that time. I also apologise for the consequential delay in my providing this judgment.

[10]I now turn to provide my decision.

[11]      Dealing with similar issues in MacPherson v Wespap Limited [2004] 9 NZCLC 263.473 at 263.476 Master Lang (as he then was) said:

[23]      In Re Medforce Healthcare Services Ltd (in liq), Re KB Construction Ltd (in rec. & in liq.); Re J & J McCallum Ltd (in liq) (No 2) (2000) 8 NZCLC 262,406; [2001] 3 NZLR 158 Master Gambrill noted (at para [7]) that the Court must strike a balance between giving a fair remuneration to the liquidator and preserving some assets for the creditors. This recognises the inherent tension between the interests of the liquidator, who seeks to be remunerated for time and effort expended, and the creditors, who seek value for money in the liquidation process.

[24]      The Act is designed to protect the legitimate interests of both parties. It does so by prescribing the rates of remuneration to be charged by Court- appointed liquidators whilst reserving power to the Court both to depart from the prescribed rates and also to fix the overall remuneration payable.

[25]      The power to depart from the prescribed rates allows the Court to set the rates of remuneration at levels reflecting both the nature and complexity of the liquidation and the skill and experience of the liquidator who has been appointed.

[26]      Often, as in the present case, a prospective application is made for an order fixing the rates of remuneration to be charged by the liquidator. In fixing those rates Court will generally impose a requirement that the overall remuneration is to be approved by the Court. That  requirement is designed to ensure that the overall remuneration charged by the liquidator is reasonable in terms of s276(1) of the Act. The Court does not have the power, however, to review the reasonableness of the expenses incurred in the liquidation: See Medforce (No 1) (supra) at para [19].

[27]      The statutory requirement that the remuneration be ‘reasonable’ means that the assessment process is not mathematical or formulaic in nature. Even in fixing the hourly rates to be charged by a liquidator the  Court must necessarily make an objective assessment of the rates that are reasonable in the circumstances.

[28]      A similar exercise is undertaken when the Court is asked to decide whether the overall remuneration charged by a liquidator is reasonable. In reaching that decision the Court must take into account factors such as the nature and complexity of the liquidation and, as a consequence, the skill and experience required of the liquidator. Those factors, together with the results achieved, will provide guidance as to the reasonableness of the time actually expended by the liquidators. It will also provide some insight into the level of competence and/or incompetence demonstrated by the liquidator in administering the liquidation.

[29]      It is important to recognise that the Court is not required to undertake a taxing function involving an examination of each and every attendance for which remuneration has been claimed. Neither is it required  to ‘second guess’, or critically examine, administrative decisions made by the liquidator during the course of the liquidation. The liquidator remains under the supervision of the Court throughout, and avenues of redress are provided by the Act for those persons who might be affected and aggrieved by the liquidator’s actions.

[30]      In the end the Court must necessarily make a broad assessment as to whether or not, taking into account all relevant factors including the nature and complexity of the liquidation, the overall remuneration charged by the liquidator is reasonable.

[12]      It is useful also to repeat paragraph [18] of my earlier oral judgment dated 17 June 2004, where I said:

[18] Cases of this type raise difficult issues. These include whether the  Court in reviewing a liquidator’s charges should be examining every aspect of a liquidator’s work and second-guessing or critically examining administrative decisions which a liquidator may have made during the  course of the liquidation. Further, the Court may need to consider, with the benefit of hindsight, whether in its opinion, steps taken by the liquidators are reasonable or whether it should supplant its own views upon the decisions made by experienced professionals in this difficult liquidation area.

[13]      As I have noted in paragraph [2] above, the hourly rates at the stated levels charged by Shephard and Dunphy have already been approved both for them and for Mr Managh as subsequent liquidator.

[14]      The bills before me for approval relate to the overall accounts charged by Shephard and Dunphy and total $32,372.50 (excluding GST).

[15]      I have considered carefully all the detailed material which has been filed by both parties with respect to these accounts, including the time recording records and details of the experience of senior staff. Having done this, I need to say that I have reached the conclusion on an arithmetic calculation, that those bills are broadly justified in terms of the hours of work undertaken by Shephard and Dunphy and their staff and the respective levels at which that work actually was undertaken. This is in line too with the comments made by Mr Traveller, another experienced liquidator, in his affidavit filed in support of the application.

[16]      This is not an end to the matter, however. As the Medforce decision makes clear, the Court’s duty is to fix a figure which is “reasonable in the circumstances” and for this purpose to take into account the nature and complexity of the liquidation and the skill and experience of the liquidator and possibly also outcomes.

[17]      Counsel for Mr Managh contends that here consideration needs to be given first, to the propriety of undertaking certain aspects of the work in question, secondly, to the choices made by Shephard and Dunphy as to the seniority level at which the work was undertaken, and thirdly, to the issue of whether, given the size of the liquidation exercise and bearing in mind the company’s likely recoverable assets, under the circumstances a bill of this magnitude is justified.

[18]I turn now to address these broad issues.

[19]      As to whether it was proper for Shephard and Dunphy to undertake the work they did, this question is not easily answered.

[20]      All I am able to say is that on the basis of the material filed in this Court, the steps taken and work choices made by Shephard and Dunphy in the various stages of the liquidation appear to be broadly appropriate under the circumstances.  Complaints might be made that two senior liquidators were unnecessarily involved at the outset, but as Mr Traveller notes, overall the fees charged for these areas of work undertaken were reasonable. There is no other conclusion I can reach, therefore, but to find, as I do, that these steps were properly undertaken.

[21]      The second issue relates to the choices taken by the liquidators as to the various levels at which the liquidation work was undertaken by Shephard and Dunphy and members of their firm. Again a detailed analysis of this question is difficult.

[22]      Initially, questions were raised by Mr Managh as to the competence and experience levels of Shephard and Dunphy staff Geoff Fagerlund and Nadine Williams. It seems, however, from the affidavit of Mr Managh dated 11 August 2004, that it is accepted now that Ms Williams and Mr Fagerlund have appropriate levels of experience in the area of insolvency work.

[23]      As to the hourly rates charged for work undertaken by Ms Williams and Mr Fagerlund, Mr Managh still contends, however, that, in his view, they are high when compared to the hourly rates charged by Shephard and Dunphy as principals.

[24]      I reject this contention. On the basis of the material which was placed before the Court, I am satisfied that the hourly rate set for Ms Williams and Mr Fagerlund as “seniors” at $120.00 per hour is appropriate. It is certainly well below the rates charged by the large metropolitan accounting firms for “seniors” involved in this work.

[25]      Mr Managh has raised other concerns over the nature of the work carried out at times, in particular by Ms Williams and Mr Fagerlund. His view is that aspects of this work (for example “completing statutory precedents and instructing public notice advertising, and setting out cash book and reconciliation”) being straightforward and not time-consuming, could have been completed by supervised secretarial staff, with a consequent reduction in the cost charged for this work.

[26]      Although, in some circumstances, there may be some force in this suggestion made by Mr Managh, I do note the comments of Mr Traveller in his evidence that overall, the bulk of the work was undertaken and completed at the appropriate levels.

[27]      In considering all these aspects, I reach the conclusion that the work undertaken here by Shephard and Dunphy and their staff in this liquidation was completed, broadly speaking, at appropriate levels of seniority.

[28]      The final issue relates to Mr Managh’s contention that, bearing in mind the size of the liquidation exercise involved here, and the company’s likely recoverable assets, the bill from Shephard and Dunphy is not justified.

[29]      This raises difficult issues, which in terms of the need for this decision, go to the question of whether the costs charged are reasonable in all the circumstances. In the Medforce decision at paragraph (18), the Court stated:

18. It seems clear that s284(1)(e) applies to an application pursuant to s276(2) so that put at its simplest, the duty of the Court on an application to fix a liquidator’s remuneration must be to fix a figure which is “reasonable in the circumstances”.

[30]      An issue which has been signalled by Mr Managh here is the question of over-servicing or over-charging on the part of Shephard and Dunphy in their role as first liquidators of The Gem.

[31]      I am satisfied, however, that notwithstanding that total recoveries by Shephard and Dunphy in this liquidation were approximately $92,300, upon the  basis of the material before the Court and the opinion expressed by Mr Traveller, there is no evidence of over-servicing or over-charging here.

[32]      Although the bill from Shephard and Dunphy is a relatively large one, and it exceeds the Medforce standard range at the time of $6,000-$15,000, under all the circumstances here, I am satisfied in terms of the Medforce test that it is reasonable.

[33]      The application before me therefore succeeds. I approve the overall costs of the first liquidators Shephard and Dunphy in the sum of $32,372.50 plus GST.

[34]      As to costs, the judgment of the Full Court in Medforce (No 1) makes it clear (at para [38]) that the costs associated with an application for approval of fees are to be treated as costs of the liquidation unless the Court orders otherwise.

[35]      Accordingly, costs of this application are awarded to Shephard and Dunphy on a 2B basis to be met as costs of the liquidation.

Associate Judge D.I. Gendall

Delivered at 9.00am on 24 March 2005.

Solicitors:

Buddle Findlay, Wellington for Applicant Previous Liquidators Shephard & Dunphy Sainsbury Logan & Williams, Napier for Current Liquidator J.F. Managh,