McCullagh v Northern Crest Investments Limited (in liquidation)

[2020] NZHC 2535

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2010-404-7741

[2020] NZHC 2535

UNDER

the Companies Act 1993 Section 284 and Part 19 of the High Court Rules

IN THE MATTER OF

the liquidation of NORTHERN CREST INVESTMENTS LIMITED

(IN LIQUIDATION)

BETWEEN

ANTHONY JAMES McCULLAGH and STEPHEN MARK LAWRENCE

Applicants

AND

NORTHERN CREST INVESTMENTS LIMITED (IN LIQUIDATION)

Respondent

On the papers:	28 September 2020
Appearances:	Lynne Van for the Applicants
Judgment:	28 September 2020

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on 28 September 2020 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

………………………….

Registrar/Deputy Registrar

Solicitors:

Anthony Harper (L M Van), Auckland, for the Applicants

McCULLAGH and LAWRENCE v NORTHERN CREST INVESTMENTS LIMITED (IN LIQUIDATION) [2020] NZHC 2535 [28 September 2020]

[1]                 The liquidators of Northern Crest Limited (in liq) apply for orders approving their fees and expenses and authorising company records held in Australia under court warrant to be disposed of or destroyed.

[2]                 They claim $1,227,351.54 in their application for their remuneration, legal fees and other expenses. That amount does not tally with some other figures in their application. A schedule to the application gives these sums:

(a)$335,523.35 for their own remuneration;

(b)$917,608.24 for legal fees; and

(c)        $44,519.04 for other expenses. (d)           $1,287,780.10 total.

They have written off $60,178.68 in fees and expenses. Their claim is limited by the realisations in the liquidation. There are no funds available for creditors.

[3]                 Northern Crest Investments Ltd was the parent of the Blue Chip group of companies. While Northern Crest was incorporated in New Zealand and remained registered under the New Zealand Companies Act 1993, in later years it carried on business in Australia with Australian subsidiaries. For a period it was listed on the Australian stock exchange. A liquidation order was made on 2 June 2011 on the dismissal of an application to set aside a statutory demand by a Mr RE Haywood.1 Messrs Lawrence and McCullagh were appointed liquidators and have remained liquidators ever since. They have now completed the liquidation.

[4]The creditors in the liquidation are:

1      Northern Crest Investments Ltd v Haywood HC Auckland, CIV-2010-404-7741, 3 June 2011.

(a)Lombard Finance Investments Ltd (in receivership), a secured creditor for $4,751,048.00;

(b)Mr RE Haywood’s preferential claim for court costs; and

(c)17 non-preferential unsecured creditors for $10,165,612.77.

[5]                 On liquidators’ retrospective applications to approve their remuneration and expenses, the court applies the principles in Re Roslea Path Ltd (in liq).2

[6]                 As this was a considerable liquidation that ran for a number of years, and the amounts claimed are substantial, I considered whether an assessor should be appointed to assist in considering the remuneration claimed. In Re Roslea Path Ltd (in liq), it was held that there is jurisdiction to appoint an assessor, either under the court’s inherent jurisdiction or under r 9.36(1) of the High Court Rules 2016.3 The court indicated, however, that the use of an assessor might be appropriate in the rare case where it is inexpedient for an associate judge to embark on a lengthy consideration of a substantial number of documents. The fact that the costs would come out of the assets of the company counts against the indiscriminate use of assessors. In this case, I am satisfied that I can assess the remuneration without outside assistance.

[7]                 Mr Lawrence’s affidavit in support of the application outlines the conduct of the liquidation. Copies of reports to creditors, including the final report, have been provided. Soon after their appointment, the liquidators took prompt steps to have the liquidation recognised in Australia under its cross-border insolvency legislation, giving the liquidators the powers of an Australian liquidator. That required the appropriate application to the Federal Court. The company directors were not as co- operative as the liquidators would have hoped. The liquidators had trouble retrieving books and records. They applied to the Federal Court for a search and seizure warrant to obtain company records. The documents they seized have since been held in the offices of Sydney insolvency practitioners.

2      Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC).

3      Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC) at [158]-[164].

[8]                 Since the start of the liquidation, the liquidators have made a number of trips to Australia. New Zealand lawyers also had to travel to review documents seized. There was an examination of Northern Crest’s director, Mr Eakin, an Australian resident.

[9]                 Northern Crest’s Australian subsidiaries were put into voluntary administration. The New Zealand liquidators claimed that Northern Crest was the creditor of two subsidiaries. They were unsuccessful in opposing deeds of company arrangement proposed by the administrators. The liquidators contended that intellectual property allegedly held by one subsidiary really belonged to Northern Crest, but they were unsuccessful in pursuing that aspect.

[10]             The liquidators had to consider a considerable number of claims in the liquidation and rejected many they considered were creditors of other companies in the Blue Chip group. Their rejection of a claim by Manifest Capital Pty Ltd was set aside on review in this court. I am satisfied that considerable time was spent on receiving, considering and reviewing creditor claims.

[11]             The liquidators also say that a consortium of groups of investors applied for them to be removed as liquidators. That application was discontinued.

[12]             The liquidators investigated potential voidable transactions. They negotiated settlements of two, realising $62,000. They also challenged payments to Robt Jones Holdings Ltd amounting to $751,941.52. That led to protracted litigation from 2013 to 2019. Discovery was contested. That required further visits to Australia to recover documents. A discovery decision upholding the liquidators’ position was unsuccessfully reviewed.4 The voidable transaction hearing for four days in 2017 went in the liquidators’ favour.5 Robert Jones appealed unsuccessfully.6 The Supreme Court gave leave to appeal7 but that appeal was also unsuccessful.8 The liquidators

4      McCullagh v Robt Jones Holdings Ltd [2015] NZHC 1462, [2016] NZHC 2529, [2017] NZHC 70.

5      McCullagh v Robt Jones Holdings Ltd [2017] NZHC 2182.

6      Robt Jones Holdings Ltd v McCullagh [2018] NZCA 358.

7      Robt Jones Holdings Ltd v McCullagh [2018] NZSC 120.

8      Robt Jones Holdings Ltd v McCullagh [2019] NZSC 86, [2019] 1 NZLR 641.

recovered $1,164,276.10 from Robt Jones Holdings Ltd, including interest and costs. Attempts to settle during the litigation were unsuccessful.

[13]             The major expense in the liquidation is legal fees. In Re Roslea Path Ltd (in liq), the Full Court recorded a dictum in Re Medforce Healthcare Services (No.1) that the court reviews only remuneration, not the expenses of the liquidator.9 There is, however, a qualification. If liquidators take steps that are not required for the liquidation, the court may disallow both their expenses and their remuneration for those steps. It would be absurd to refuse their remuneration while allowing their expenses for the same matter. Under Schedule 7(1) of the Companies Act 1993, liquidators may be paid only “the fees and expenses properly incurred”. Notwithstanding that qualification, I am satisfied that the legal expenses in this case were properly incurred and I do not need to inquire further into them. The liquidators, as experienced insolvency practitioners, can be expected to have negotiated appropriate fees with the lawyers. I am satisfied that the work by the lawyers was properly required for the liquidation. Similarly, it is not necessary to inquire into the expenses recorded by the liquidators.

[14]That  leaves  their  remuneration  claim.    The  starting  figure  is  the  sum of

$335,523.35 in the schedule to the application. That is for 1,259.94 hours and gives an average hourly charge-out rate of $266.30. The charge-out rates for the liquidators range from $95 an hour for secretarial assistance, to $375 an hour for the liquidators themselves. In many run-of-the-mill liquidations, the share of time recorded by the liquidators is relatively small, with the bulk of the work delegated. In this case, the liquidators’ records show much more work carried out by the liquidators themselves. That is understandable given the complexity of the liquidation and the associated litigation.

[15]             There can be no issue over the charge-out rates. The liquidators have applied the rates the court approved on their appointment. The rates are within the normal range charged by insolvency practitioners at that time. The liquidators did not apply

9      Re Medforce Healthcare Services (in liq) (No.1) [2001] 3 NZLR 145 (HC) at [18].

for any increase in their rates, notwithstanding some movement upwards in the market since then.

[16]             I am similarly satisfied that the hours claimed are reasonable, given the efforts required to deal with the liquidation as a cross-border insolvency and to manage a heavily contested voidable transaction proceeding that ran for several years.

[17]             The liquidators funded the liquidation from their own resources for the bulk of the liquidation, until Robt Jones Holdings Ltd paid under the judgment against it. The liquidators have also written off some $60,000 because the recoveries were not enough to cover their remuneration in full. Their actual remuneration claim is for

$275,344.67.

[18]Overall, I am satisfied that the remuneration claim is reasonable. It is upheld.

[19]             The other aspect is the disposal or destruction of the company records. Because they were obtained under a search warrant, the liquidators will need a clearance from the Australian court to dispose of the documents. As for the conduct of the liquidation under the Companies Act 1993, I see no reason for the documents to be held. So far as the New Zealand part of the liquidation is concerned, the records held in Australia may be disposed of. That is not, of course, intended to stand in the way of the Federal Court making its own decision on this aspect.

………………………………

Associate Judge R M Bell