McVeigh v Decmil Australia Pty Limited

[2021] NZHC 2929

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2020-404-1269 [2021] NZHC 2929

UNDER

Section 284 of the Companies Act 1993 and

Part 2A of the Construction Contracts Act
2002

IN THE MATTER

of the liquidation of DECMIL CONSTRUCTION NZ LIMITED (IN LIQUIDATION)

BETWEEN

DERMOTT JOSEPH MCVEIGH Applicant

AND

DECMIL AUSTRALIA PTY LIMITED First Respondent

VAE NZ LIMITED and STANLEY CONSTRUCTION (AUCKLAND) LIMITED

Second Respondents

Hearing:

31 March 2021

Counsel:

J Anderson QC and J M Hanning For Applicant
M Colson & M L Rhodes for Second Respondents

JEM Lethbridge for First Respondent, who abided the decision of the Court

Judgment:

1 November 2021

JUDGMENT OF DUFFY J

This judgment was delivered by me on 1 November 2021 at 11.30 am pursuant to

Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Solicitors/Counsel

Anthony Harper, Auckland Jane Anderson QC, Auckland Wynn Williams, Christchurch

MCVEIGH v DECMIL & ORS [2021] NZHC 2929 [1 November 2021]

[1]      Decmil  Construction  NZ  Limited  (Decmil) is  a New  Zealand  based  and registered company that has been placed in liquidation.  Decmil formerly contracted to perform construction contracts on the basis the physical contract works were fully sub-contracted out. The applicant, Dermott McVeigh, is the appointed liquidator. The first respondent, Decmil Australia Pty Limited (DAP), is an Australian registered company and 100 per cent shareholder of Decmil.  DAP placed Decmil in liquidation and appointed Mr McVeigh as liquidator.1    Mr McVeigh now applies for directions from the Court permitting him to manage a fund of money (the fund) held by Decmil, either in his role as liquidator or through his appointment as receiver and manager of this fund.2   DAP takes a neutral role in the present application.

[2]      The   second   respondents,   comprising   VAE   NZ   Limited   and   Stanley Construction (Auckland) Limited, represent a subset of subcontractors who have “retention” claims against Decmil under the Construction Contracts Act 2002 (CCA). They estimate their claims at $1,551,170.86. They oppose Mr McVeigh having control over the fund. Instead, the second respondents bring a separate originating application seeking the appointment of another nominated person to this role.

Background

[3]      Decmil was subject to the CCA, including the provisions in ss 18A to 18I, which require retention of 10 per cent of the monies payable by Decmil to the party/parties with whom it contracted. However, during the relevant times Decmil did not maintain retention monies in any of the several ways required by the CCA.

[4]      Shortly  before  Decmil  went  into  liquidation,  DAP transferred  $3.3  m  to Decmil’s bank account.3    This transfer forms the fund, relevant to the present applications.  The transfer was recorded in Decmil’s accounts as a loan from DAP to Decmil.  Mr McVeigh’s view was that without the $3.3 m, Decmil was insolvent.4

1      This was done on 15 April 2020.

2      The application is brought under s 284 of the Companies Act 1993 and pt 2, sub-pt 2A of the

Construction Contracts Act 2002 [CCA].

3      The transfer was made on 1 April 2020.

4 Affidavit of Dermott McVeigh, sworn 16 July 2020, at [17].

[5]      The purpose and character of the fund was initially disputed by the parties. They subsequently reached an agreed position, which resulted in this Court making a consent order regarding the fund.5     However, their agreement did not extend to enabling the consent order to appoint someone to manage the fund. The present issue for determination is who should assume that role. This issue raises two questions:

(a)       Can Mr McVeigh manage the fund in his role as liquidator of Decmil?

(b)      If a receiver is required, should Mr McVeigh or someone else be appointed as receiver?

The status of the fund

[6]      The status of the fund is set out in the consent order.  This order relevantly provides:

(a)      That an amount of $3,314.315.72 (on an ex GST basis) is to be held separately by the liquidator of Decmil for the purposes of retention creditors and as a trust fund for that specific purpose (Trust Fund);

(b)      The Trust Fund is not to be a company asset and therefore is only available to satisfy Decmil’s retention creditors (other than the reasonable costs that are expended in assessing and paying out retention claims from the funds which are payable to any Receiver appointed to manage the Trust Fund).  No payments are to be made from the Trust Fund except as provided for in this order or by order of the Court;

(c)       The Trust Fund will be made up of funds already held by Dermot

McVeigh in the name of Decmil;

(d)      To the extent that there is a shortfall in the funds presently held by

Mr McVeigh, DAP and Decmil Group Ltd will replenish the Trust Fund

5      McVeigh v Decmil Australia Pty Ltd HC Auckland CIV-2020-4040-1269, 15 December 2020 (consent orders minute).

with that amount necessary for it to be at $3,314,315.72 (being a sum of no more than $1.1 m);

(e)      If there are excess funds left in the Trust Fund after all retention claims have been made, considered and distributed, the remaining amount should be paid back to DAP.

[7]      The effect of the consent order is that all parties accept the fund is a trust fund that is to be used to meet the claims of Decmil’s retention creditors.  These persons are not expressly identified in the consent orders or the joint memorandum that sought those orders.  However, given the nature of the dispute the consent orders resolved, it is clear to me that the retention creditors are those persons who would have valid claims against the retention monies Decmil was obliged to retain under the CCA.

[8]      The terms of the consent order do not deem the fund a retention fund under the CCA.  There was some argument before me as to whether the trust created by the consent order qualified as a retention monies trust under the CCA.  Those arguments are relevant now only insofar as they provide context for the present questions to be determined.

[9]      When Mr McVeigh sought directions from the Court on the status of the fund, he contended that it was not a retention monies trust under the CCA.  At that time, DAP argued the fund was paid to Decmil “solely for the purpose of payment of subcontractor retentions and to meet the company’s obligations under the [CCA]” and thereby cured any alleged failure on the part of Decmil. Before the consent order was made, DAP’s position aligned with the second respondents’ position, which was that DAP had advanced the fund to Decmil to enable it to belatedly comply with the CCA’s requirements to maintain retention monies.  Following the consent order and for the present application DAP has adopted a neutral position as to whom should manage the fund.

[10]     I do not consider it necessary to determine if the fund belatedly qualifies as a retention fund held pursuant to the CCA.  This is because the terms of the consent order have given the fund much the same protections as those given to retention trust

funds by the CCA.  Following a construction company’s liquidation, if monies are characterised  as  a  retention  fund  under  the  CCA that  makes  them  trust  funds. Therefore, such funds are not available to meet the claims of all the company’s unsecured creditors.  Here the consent orders bind the parties to treat the fund as if it were a retention fund under the CCA. There is no doubt the fund is subject to a trust. The terms of the consent order: (a) identify a specific sum of money; and (b) direct this sum of money to be held as a trust fund for the specific purpose of meeting the claims of a specified group of persons (the retention creditors). These terms create an express trust, which leaves the beneficial ownership of the fund vested in the retention creditors and therefore precludes the fund being available for Decmil’s unsecured creditors.6  The key point is that Decmil is not the beneficial owner of the fund.

[11]     I also consider it is implicit from the terms of the consent order that the fund is to be applied to meet retention creditor claims in the same way that it would have been applied had it been set up as a CCA retention trust fund from the outset.7

[12]     As with a retention trust under the CCA, the trust over the fund ends when the trust over retention monies would end.8  Further, the fund must not be used other than in accordance with s 18E of the CCA.  This means Decmil must not appropriate any retention money held on trust to a use other than to remedy defects in the performance of party B’s obligations under the contract.  Decmil must retain the fund on trust, but the funds do not need to be paid into a separate trust account and may be comingled with other monies.

[13]     Further, as the fund must be held on trust it is protected in the same way that retention fund trusts are protected under s 18FA of the CCA. The fund is not available for the payment of debts of any creditor of Decmil (other than party B), and is not liable to be attached or taken in execution under the order or process of any court at the instance of any creditor of Decmil (other than party B).

6      See Bennett v Ebert Construction Ltd [2018] NZHC 2934 at [108].

7      See CCA, s 18A.

8      CCA, s 18C(3): A trust over retention money ends when – (a) the money is paid to party B; or (b)

party B, in writing, agrees to give up any claim to the money; or (c) the money ceases to be payable to party B under the contract or otherwise by operation of law.

Liquidator as fund manager?

[14]     Whether Mr McVeigh can manage the fund in his role as liquidator hinges on whether a liquidator can manage property held on trust by a company in liquidation. Mr McVeigh referred me to a passage in Levin v Ikiua.9     This case involved the liquidation of a trustee company that held no assets in its own name, and the distribution of trust assets to others by the directors acting as trustees.  The question was whether creditors might have a claim against those assets.  Heath J found the creditors could not directly claim against the trust assets.  The liquidator’s role was focussed on investigating the affairs of the company, gathering its assets (including claims that may exist against directors or others) and distributing its property among its creditors in accordance with the scheme set out in sch 7 of the Companies Act 1993. Any property held in trust by the company was excluded from property available for distribution to company creditors.  However, Heath J also found:

[116]    ... But, at least until such time as the company is removed as trustee under s 52 of the Trustee Act 1956, the liquidator, as the person responsible for controlling the company, will also make decisions in relation to trust assets held by the company in liquidation.

[15]     Heath J also found that a trustee, which includes a corporate trustee, has a right to an indemnity out of trust assets in respect of any loss reasonably incurred as trustee. Further, where the trustee has insufficient assets to pay a creditor, the creditor can be subrogated to the trustee’s right to seek indemnity from the trust assets. Accordingly, in principle the liquidator of the corporate trustee could exercise this indemnity to seek recourse against trust assets to pay the sole creditor of the corporate trustee.   It followed that the liquidator must be able to make decisions relating to trust assets held by the corporate trustee in order to take such action.

[16]     The issue for determination before Heath J was whether a liquidator acting on behalf of a corporate trustee could exercise a right (of indemnity) that was personal to the corporate trustee but which affected trust property, namely, the right to seek an indemnity from trust assets to cover reasonably incurred losses. Here, if Mr McVeigh as liquidator manages the fund those decisions will directly determine the scope of the retention creditors’ claims, and whether or not they are paid. Mr McVeigh also seeks

9      Levin v Ikiua [2010] 1 NZLR 400 (HC).

directions from the Court as liquidator to authorise payment of his costs in managing the fund.  These actions go beyond the exercise of the indemnity contemplated by Heath J.   Further, I note that in Levin v Ikiua Heath J recognised that, in such circumstances, a liquidator may only manage trust assets until the trustee company is removed as a trustee and a new trustee appointed, which would then limit the scope of the liquidator’s role.   Accordingly, I consider the present circumstances are distinguishable from those in Levin v Ikiua.

[17]     Mr McVeigh did not refer me to any relevant authority where the courts have recognised that the liquidator of a corporate trustee can manage trust assets in a way that materially affects the beneficiaries, in the face of opposition from beneficiaries.

[18]     I acknowledge that Decmil would have been the person responsible for dealing with the retention fund and the retention creditors’ claims, had it not gone into liquidation.  In those circumstances, the retention creditors chose to place themselves in a position where Decmil held that role.  In comparison, a liquidator is typically faced with more varied competing claims than an operating company may deal with, and the retention creditors had no part in Mr McVeigh’s appointment.  Therefore I consider there are differences for the retention creditors between Decmil managing a retention fund and Mr McVeigh assuming this role.

[19]     Moreover,  here  the  consent  order  appears  to  have  contemplated  the appointment of a receiver. The order refers to such an appointment and makes specific provision for the recovery of the receiver’s reasonable costs from the fund. No express provision is made for the recovery of the liquidator’s costs in managing the fund. The order expressly provides that no payments are to be made from the fund except as provided by the order or by the Court.   Under this general provision, I accept Mr McVeigh could apply to the Court to approve his costs as liquidator.  However, I consider the tenor of the order is not consistent with the liquidator being the manager of the fund.

[20]     There is no clear authority on whether a liquidator of a corporate trustee can manage trust assets in a way that materially affects the beneficiaries, simply by virtue of being  liquidator.    I have heard  limited  argument  on  this  topic.   The second

respondents do not want Mr McVeigh to manage the fund.  They argue that he is unsuitable rather than addressing the discrete legal point in issue.  Mr McVeigh has applied to be appointed a receiver of the fund, so the question of his appointment to the more orthodox role of receiver is also before me.   The real dispute is over Mr McVeigh’s suitability to perform any management role in relation to the fund – either as liquidator or receiver.  In such circumstances I consider the best approach is to stay within the bounds of known law and leave novel ideas for future consideration when circumstances demand they be addressed.

Should Mr McVeigh be appointed receiver?

[21]     Mr McVeigh has applied to be appointed a receiver of the fund. The principles governing the appointment of a receiver to administer retention funds held by a construction company in liquidation and receivership were addressed in Bennett  v Ebert Construction Ltd (in rec and liq).10  These principles are as follows:11

(a)      The Court has an inherent power to appoint a receiver as preserved by s 12 of the Senior Courts Act 2016.

(b)      Court appointed receivers are officers of the Court and the Court retains the right to review and control the receiver’s conduct.

(c)      A relevant factor in whether the Court will exercise its jurisdiction to appoint a receiver is whether anyone else is managing the funds in question.

(d)      Where a company holding retentions is insolvent, nothing will happen to those funds unless someone is appointed receiver and manager of the retention fund.

(e)      The  Court  has  an  inherent  jurisdiction  to  appoint  receivers  and managers of a retention fund for the purpose of distributing the retention funds and resolving any issues arising from that process.

10     Bennett v Ebert, above n 6.

11     At [92]-[102].

(f)      Where receivers are appointed pursuant to the Court’s inherent jurisdiction it is appropriate that their fees and costs are met from the fund.

[22]     Where this Court exercises its inherent jurisdiction to appoint or remove receivers it acts in accordance with equitable principles in the exercise of a wide discretion to do what is just and necessary in the circumstances.12

[23]     There are occasions where a liquidator has also been appointed receiver of a CCA retention fund, as in Oorschot v Corbel Construction Ltd (in liq). However, in that case, the appointment was not opposed by anyone.13  In Bennett v Ebert a receiver appointed by a bank, exercising the power under a general security agreement over a construction company’s assets, was later appointed a receiver of the CCA retention fund. So, in principle there is no reason why someone who is responsible for managing an insolvent company’s assets cannot also be appointed a receiver to manage the trust assets  for  which  that  company  is  responsible,  including  a  CCA retention  trust. However, Bennett v Ebert is another case where the appointment was not opposed by anyone. Here the second respondents object to Mr McVeigh being appointed receiver based on a perceived conflict of interest and the experience of how he initially acted towards the fund.

[24]     Because the circumstances of this case are what drives the call for appointing someone other than Mr McVeigh as receiver, I consider it is helpful to consider the second respondents’ objections first. As mentioned earlier, DAP has chosen to abide the decision of the Court in this application.

Second respondents’ arguments

[25]     New Zealand courts have rarely addressed the question of whether a liquidator or receiver of a corporate trustee with solvency issues is the appropriate person to be appointed as receiver of assets the company holds on trust.   Relevant legal commentary  refers  to Australian  cases,  perhaps  because  trading  trusts  are  more

12     Osiris Properties Investments Number One Ltd v Meadows HC Auckland CIV-2007-404-251, 1

June 2007 at [5].

13     Oorschot v Corbel Construction Ltd (in liq) [2020] NZHC 723.

numerous in that jurisdiction.14   Accordingly, the second respondents have relied on Australian case law to support their arguments for the appointment of someone other than Mr McVeigh as receiver.

[26]     In Re French Caledonia Travel Service Pty Ltd (in liq) the Federal Court of Australia held that liquidation property vested in a company (including trust assets) remains with the company and the liquidator who is in control of the company’s administration is “obliged to act in a responsible way in the administration of the trust in the name of the company”.15    A responsible liquidator could either exercise the company’s powers to administer the trust or – if a conflict of duties or interest arose - apply to the court for the appointment of a new trustee.  Whether the latter course should be followed turns on whether there is a real prospect of a conflict of duties and interest in the liquidator holding both offices.  The second respondents contend that here a real prospect of a conflict of interest arises if Mr McVeigh holds both offices. Further, that the unsuitability of Mr McVeigh being both liquidator of Decmil and receiver of the fund becomes clear when viewed through the lens of apparent bias; to support this proposition they rely on Australian Securities and Investments Commission v Franklin, where a liquidator was removed from office on the ground of apparent bias.  However, I do not find this case helpful.

[27]     First, I am not considering whether Mr McVeigh should be removed from office, which is when the bias rules are typically engaged. The question here is whether he should be appointed to the office of receiver. Second, I am not aware that apparent bias has been applied in New Zealand when considering the conduct of liquidators or receivers; and the second respondents did not refer me to any New Zealand authority on this point.

[28]     In ASIC v Franklin it was common ground (both at first instance and on appeal) that “the test for apprehended bias in a liquidator is the same as that which applies to the judiciary and administrative decision-makers”.16  Thus the court was not asked to

14     Paul Heath and Michael Whale Heath and Whale on Insolvency (online ed, LexisNexis New

Zealand) at [46.8].

15     Re French Caledonia Travel Service Pty Ltd [2002] NSWSC 641, (2002) 42 ACSR 524 at [12]

and [13].

16     Australian Securities and Investments Commission v Franklin [2014] FCAFC 85, (2014) 223 FCR

204 at [59].

consider if the rules for apparent bias should be applied to liquidators.  Further, the rule being applied was described as “appearance of bias arising by association”, which was said to be a recognised category of apparent bias that will arise from “some direct or indirect relationship, experience or contact with a person or persons interested in a matter”.17   In New Zealand, the rules regarding bias have been described as “highly contextualised and flexible” and courts continue to distinguish between judicial and administrative   decision-making   when   calibrating   the   rigour   of   the   rules.18

Accordingly, how the rules regarding apparent bias may be applied to a liquidator/receiver in New Zealand might not be the same as in Australia.

[29]     I consider the receiver of the fund must act independently and in the best interests of the retention creditors.   The extent to which past conduct and other appearances may influence how the appointee is regarded and how this impacts on his or her suitability for appointment are matters that can be assessed as part of this Court’s broad discretion to appoint receivers.   Factors which have led to persons being disqualified from holding office as liquidator or receiver in other jurisdictions can be insightful and may provide helpful guidance in the exercise of the Court’s discretion when considering who to appoint as receiver, but that is as far as they can be taken.

[30]     The second respondents also submit the Court’s assessment may be guided by the principles relating to the appointment of trustees; that is, with a view to the interests of the beneficiaries, to the security of the trust property, to an efficient and satisfactory execution of the trust and a faithful and sound exercise of the powers conferred upon the trustee.19  The Court will not appoint trustees where a conflict of duty and interest might arise.20   I accept those principles have relevance here.

[31]     I also accept the second respondents’ submission that when assessing the appointment of a replacement trustee or receiver the focus is on what is just and expedient for the beneficiaries. In Irvine v Australian Sharetrading and Underwriting Ltd (in liq) the Supreme Court of Victoria held that it was just and expedient for an

17 At [57].

18     Philip A Joseph Joseph on Constitutional and Administrative Law (5th  ed, Thomson Reuters, Wellington, 2021) at [25.5.4].

19     Osborne v Wilson HC Auckland CIV-2005-404-1252, 8 September 2005 at [22]; citing Miller v

Cameron [1936] 54 CLR 572 (HCA) at 580.

20     Re Parsons [1940] Ch 973 (Ch).

independent receiver to be appointed to wind up a trust in the following circumstances:21

Having regard to Pattison’s failure to seek directions from the court and his potential conflicts of interest arising from the dispute about his fees and his failure to seek directions in relation to ASUL’s proceeding, that receiver cannot be Pattison.   Indeed, the receiver may have to consider questions relating to Pattison’s claim for fees and relating to the costs, past and future of ASUL’s proceeding.

The second respondents raise similar concerns about Mr McVeigh’s conduct; each concern is addressed below.

The application seeking directions from the Court on the status of the fund

[32]     The second respondents accept the application seeking directions from the Court  on  the  fund’s  status  is  no  longer  before  the  court,  but  they  argue  that Mr McVeigh’s approach to that application is important in terms of both the reason for their opposition to his potential management of the fund, and his failure to understand potential conflicts of interest. They contend that Mr McVeigh should have applied to the Court for directions sooner, given that he had doubts about the status of the fund. As it was, he proceeded to deal with the fund as if it was not held in trust for the retention creditors, including making significant payments to himself for his fees and disbursements. These costs have subsequently been repaid by either DAP or Decmil Group Ltd, following the consent order. This circumstance creates a potential conflict of interest if he is appointed receiver.

[33]     The second respondents rely on the following facts.  In his affidavit dated 16

July 2020, Mr McVeigh says that on 30 March 2020, he was advised by Decmil Group executives that upon his appointment as a liquidator, funds would be deposited in Decmil’s bank account to cover Decmil’s retention obligations.  On 1 April 2020, a deposit of $3.3 m was made by DAP into Decmil’s BNZ bank account.  Thus, from his discussions with Decmil, DAP and their solicitor, Mr McVeigh knew the $3.3 m was paid by DAP to meet Decmil’s subcontractor retention obligations, and that those funds were held on trust for those subcontractors.

21      Irvine v Australian Sharetrading and Underwriting Ltd (in liq) (1996) 22 ACSR 765 (SCV) at

797.

[34]     Once appointed as liquidator (on 15 April 2020) Mr McVeigh then disputed the fund was held on trust for retention creditors.  When this stance was resisted by the second respondents, he commenced an originating application on 24 July 2020 seeking a positive declaration the fund was not held on trust for the retention creditors, and therefore was available to meet the claims of Decmil’s unsecured creditors.   The second respondents submit these actions were taken in the face of clear evidence of DAP’s reasons for depositing the fund in Decmil’s bank account; that this evidence was always in Mr McVeigh’s possession; and Mr McVeigh’s actions only resulted in wasted costs in the liquidation, including the costs to the retention creditors.

[35]     The second respondents also contend that Mr McVeigh’s approach to the fund raises other concerns about his performance as liquidator and, therefore, his suitability as a receiver.  They point to there being over $2 m of the fund remaining at the time of the consent orders (before payment of the shortfall by DAP/Decmil Group Ltd). They argue that had Mr McVeigh been truly uncertain about the view the Court might have reached on the status of the fund, then he should have continued to seek the directions because those funds would otherwise be available to the general body of unsecured creditors, whose interests he is bound to protect. The implicit suggestion is that Mr McVeigh’s actions regarding the application for directions on the status of the fund indicate poor performance by him from whatever perspective his actions are viewed.

Depletion of the fund before consent orders made

[36]     The respondents contend the evidence shows that following his appointment as liquidator Mr McVeigh undertook considerable work assessing the retention claims as part of the liquidation. The second respondents submit that if Mr McVeigh had any initial doubts about the status of the fund, he should have sought directions from the Court before undertaking this work.

[37]     Mr McVeigh’s affidavit evidence of 16 July 2020 confirms that “$3,325,828 was the amount provisioned as retention sums by Decmil owing as at 14 April 2020”.22

22 Affidavit of Dermott McVeigh, sworn 16 July 2020, at [33].

Also that immediately before the transfer Decmil’s bank account held $176,998.2623. The second respondents contend, therefore, that at the date of liquidation (15 April

2020), as a result of DAP transferring the fund ($3.3m) to Decmil’s bank account, there were sufficient funds to cover the retention obligations.

[38]     On  28  September  2020  Mr  McVeigh’s  solicitor  wrote  to  the  second respondents’ solicitors advising that the “liquidator’s review process” had removed approximately $1.4 m of retention claims, said to be in excess of $3.8m.24  His actions were justified on the grounds (a) the $3.3m fund was not sufficient to cover $3.8m which the writer said was owing for retentions; (b) Mr McVeigh had determined that

$2,350,816 was potentially payable to retention creditors unless more claims were rejected; and (c) Mr McVeigh had incurred costs in reviewing the retention claims and other matters which came to $420,629. The writer then sets out his arguments for the fund not being a trust for retention creditors and Mr McVeigh’s entitlement to deal with the fund and to take payments from it to cover his costs.

[39]     By 14 October 2020 the balance of cash on hand was $2,405,578 which was significantly below $3.3 m.  The second respondents contend that this was because Mr McVeigh used the fund to pay his own fees and disbursements and/or otherwise depleted it.  The solicitor’s letter of 28 September 2020 refers to costs Mr McVeigh has incurred. There is obviously a shortfall between the $3.3m transferred on 1 April

2020 and the sum remaining as at 14 October 2020. Thus, it is more probable than not that the subsequent changes in Decmil’s bank balances after the $3.3m was transferred to its account reflect drawings Mr McVeigh has made from the fund to meet various costs.25  The second respondents contend that Mr McVeigh was not legally authorised to take money from the fund.  They also contend that Mr McVeigh knew the reasons why DAP had transferred $3.3m to Decmil’s bank account, and he knew the retention creditors maintained the fund was a trust for their benefit.  Accordingly, they argue

23 Affidavit of Dermott McVeigh, sworn 16 July 2020, at [24].

24     It is difficult to see how the transfer of a slightly less sum of money ($3.3 m) than the $3.8 m estimate of retention claims could of itself strip the transfer from being made to meet retention creditors’ claims.

25     Mr McVeigh’s counsel referred in her submissions to [3] of the joint memorandum, on which the consent order was made, which records that part of the wider commercial settlement includes “reimbursement of the liquidator’s costs” which suggests Mr McVeigh has paid various costs from

the $3.3 m DAP transferred to Decmil on 1 April 2020.

that he was on notice that he was personally liable for any misapplication of the fund; and he has personally benefited from the consent order, which had the effect of removing a potential claim against him. Here the second respondents refer to the term of the consent order in which it is provided that to the extent there is a shortfall in the fund DAP and Decmil Group Ltd will replenish the fund with that amount necessary for it to be at $3.314,315.72.

[40]     The second respondents submit it is clear as a matter of law that an order is required before an administrator of an insolvent company may deduct fees for administering a trust fund held by a company.26  Typically a Beddoe order27 is sought prior to the administration commencing.   They contend that here, Mr McVeigh has paid his own fees and disbursements from the fund and/or depleted the fund without first seeking a court order for the purpose, or directions from the Court regarding the administration of this fund. Nor did he seek to have the Court confirm his view of the amount that was needed to cover retentions.  Insofar as he may have thought the fund exceeded the value of payable retentions (as expressed in the solicitor’s letter of 28

September 2020), he did not have the legal right to unilaterally decide what the level of those retentions should be, and thereby the level of the fund.  Further, he had not sought and, therefore, did not have a Court order allowing him to deduct his fees and disbursements from the fund. The second respondents submit Mr McVeigh’s conduct in this regard is significant because the authorities indicate that a failure to seek directions in relation to using or deducting fees from a trust fund provides a basis for seeking the appointment of an alternative receiver for that fund.

[41]     The second respondents contend that the position in relation to Mr McVeigh’s personal use of the fund for fees and disbursements is best shown in his first six monthly report as liquidator, which says he proceeded on the basis the funds were not funds held for retention claimants.28   He sought further information from the Decmil group, but his view remained the same.  He advised that if the Court upheld his view

26     Bennett v Ebert, above n 6.  See also Newsmakers International Ltd (in liq) HC Napier M153/86,

24 February 1994.

27     Named for the English Court of Appeal decision in Re Beddoe [1893] 1 Ch 547 (CA).

28     The reasons given in the report are because Decmil had not maintained asset levels at least equal to the value of the retention claims and the $3.3 m DAP transferred to Decmil was not enough to

cover and “discharge retentions liabilities of $3.8m”.

then he intended to commence legal proceedings against the company’s directors for recovery of damages arising from any breach of their duties.

Mr McVeigh’s undisclosed arrangements with DAP and the Decmil Group

[42]     The position reached prior to the hearing of the earlier originating application for directions on the status of the fund was recorded in the joint memorandum of counsel dated 15 December 2020 and later confirmed by a Court minute of the same date.  The second respondents argue that this memorandum reveals there has been a separate commercial arrangement between DAP, Decmil Group Ltd, Decmil and Mr McVeigh to which the retention creditors are not privy.  Mr McVeigh says of the consent orders:

The application was ultimately the subject of a wider commercial settlement involving DEP and Decmil Group resulting on consent orders for the provision of substantial funds from DAP/Decmil Group to replenish trust fund for retention creditor.  I cannot comment on what the Court would have found if it had determined this specific issue of the status of the initial payment that was made.

[43]     The  second  respondents  submit  that  it  is  clear  the  wider  commercial settlements underlie the consent orders.   They are concerned that Mr McVeigh’s commercial arrangements with DAP and Decmil Group Ltd create a potential conflict of interest. DAP has replenished the fund that Mr McVeigh, in the second respondents’ view, wrongly diminished.   DAP has agreed to pay additional money ($200,000) towards the costs of administrating the retention fund if Mr McVeigh is appointed as its receiver.  The second respondents have no details of those arrangements beyond references made in the joint memorandum of counsel and Mr McVeigh’s recent affidavits.  In this regard I note that there are no primary documents before the Court that would reveal what appear to be complex and multi-faceted arrangements. Nonetheless, the second respondents maintain the arrangements potentially, if not actually,  create  a  position  of  conflict.    In  particular,  they  say  DAP  is  paying Mr McVeigh’s fees up to $200,000 in addition to the $420,000 already reimbursed. Any   assessment of the claim by each retention creditor to the fund ought to be independent.  However, if Mr McVeigh determines that a retention creditor’s claim to the fund is less than 100 per cent then a portion of the value of that claim will  revert to DAP.  The second respondents say this means that Mr McVeigh is being paid by

DAP to determine how much of the fund will be returned to DAP. Mr McVeigh is also beholden to DAP for covering the shortfall in the fund.  Such arrangements create a clear impression of apparent bias.

Costs incurred

[44]     The second respondents are critical of the costs Mr McVeigh has incurred since his appointment as liquidator. Mr McVeigh’s fees for assessing retention claims since

15 December 2020 are close to $80,000 (excluding GST).  This is in addition to the

$420,000 in fees he incurred in relation to claims before the consent order.  His first six monthly report showed that the costs incurred were as follows: $210,434 in liquidator’s fees incurred in relation to retentions and $264,120 incurred in legal fees relating to the retentions.

[45]     The same report shows that the following costs were incurred as at 14 October

2020: $1,795,774 in legal fees and disbursements; $1,089,420 in liquidator’s fees and

$370,424 in consulting and accounting fees.   The second respondents argue that despite having incurred fees of over $500,000 in the liquidation, in relation to retention claims, Mr McVeigh will not assure the parties that $200,000 to be provided by DAP to cover his further fees will be enough to complete his assessment and wind up the fund.

[46]     The second respondents contrast Mr McVeigh’s expenses with those identified in Bennett v Ebert, where PWC’s fees for managing a $3.68 m retention fund with a larger number of claims than the present case totalled $169,895.91.29

[47]     In the event that the appointment of an alternative receiver caused some duplication of costs, the second respondents argue that duplication is justifiable where there are concerns that the receiver may be in a position of conflict and where his or her appointment is not in the best interest of the beneficiaries.   Furthermore, duplication may be minimised by Mr McVeigh providing the alternative receiver with the assessments he has conducted to date.

29 Affidavit of Lara Bennett, sworn 5 Mach 2021, at [25].

Conduct since the consent order was made

[48]     The second respondents argue that Mr McVeigh has acted in a high-handed way since the consent order was made.  The day after it was made, Mr McVeigh sent a circular to all retention creditors advising that he was continuing work on retentions issues, even though he had not been appointed receiver of the fund. He then continued to act as if he were receiver of the fund by undertaking further work in relation to it.30

The second respondents assert he is now using that work as the basis for an argument

that he should be appointed as receiver of the fund, or be allowed to continue as liquidator in relation to the same, thus presenting the Court with a fait accompli.

Mr McVeigh’s arguments

[49]     Mr McVeigh submits there are sound reasons why a liquidator of a construction company in liquidation should also be appointed to manage retention funds.  He says this first, to argue that his role as liquidator enables him to manage the retention fund, and secondly, in support of his application as receiver.  I have already explained why I consider Mr McVeigh’s suitability to manage the fund should be considered in the context of his application for appointment as receiver of the fund.

[50]     Mr McVeigh makes several points as to why he is the person best placed to be the receiver.  His arguments address perceived benefits of liquidators managing CCA retention trusts in general, as well as him managing this specific trust.

Avoidance of inconsistent outcomes

[51]     As to the benefits of the liquidator also being appointed receiver of the fund, Mr McVeigh submits this necessarily avoids duplication of costs and efforts - as was recognised in Bennett v Ebert and Oorschot v Corbel.  Further, if different persons hold those respective roles there is potential for each to arrive at a different view on the number and value of retention claims.  This is because the retention is based on a percentage of the money payable by Decmil to a subcontractor. If less money than the contract sum is payable due to work defects, the basis from which the retention claim

30     See [44] herein, which refers to Mr McVeigh incurring costs of $80,000 after the consent order was made.

is assessed will be reduced.31   When it comes to assessing defects under the various contracts and whether the contract price should be reduced, the liquidator has a role in dealing with a claimed reduction of the overall contract price to reflect the poor performance.   If the receiver is a different person, he or she may support the subcontractor and argue for a smaller reduction or no reduction at all, thus ensuring the retention claims remain at a higher value.

[52]     Mr McVeigh says there is significant overlap between the role of the liquidator of a construction company and the role of a receiver of a CCA retention trust.  Such trusts come to an end once money ceases to be payable under the construction contract or otherwise by operation of law.32   Thus general claims for poor performance under the contract, which may be brought by the liquidator, can diminish the money payable under the contract, and therefore the retention monies. In the present case, if only fifty per cent of the claim of each category B creditor is found to be payable, and the balance can be off set and used to remedy poor contractual performance, the value of those creditors’ claims on the fund will necessarily reduce by that amount as well, because the money to be retained is calculated on what is payable under the contract.

[53]     This leads Mr McVeigh to submit that the respective roles overlap when it comes to assessing whether money is properly payable under the contract and the issues at the intersection of where the retention trust begins and ends.  If a different person is appointed as receiver, he or she may form a view that conflicts with assessments the liquidator has made in relation to the sub-contractor’s unsecured claims in the liquidation.  Mr McVeigh gives the example where a liquidator could determine that there are significant defects, which means both unsecured claims for payment of outstanding invoices and claims for payment of retentions are rejected. If the receiver formed a different view on the defects, and therefore in relation to the

31     Section 18A of the CCA provides that “retention money means an amount withheld by a party to a construction contract (party A) from an amount payable to another party to the contract (party B) as security for performance of party B’s obligation under the contract”.  It follows that where an amount is properly in dispute by Decmil (the company has acted in accordance with the CCA’s default provisions or any contractual provisions which outline the process for disputing payment claims) it will not be payable in terms of s 18A and therefore they will be no obligation to retain a percentage of the disputed amount. The fund is being held in trust as a substitute for the retention fund that would exist if Decmil had properly followed its obligations under the CCA.  It appears to be common ground (no one argued otherwise) that the fund should be distributed as if it were a retention fund and therefore subject to s 18A to 18I of the CCA.

32     CCA, s 18C(3).

retentions, this could result in conflicting decisions and issues around how to resolve those conflicts.  In addition, appointing a separate receiver would likely result in a significant duplication of work and therefore cost.

[54]   Moreover, in the pre-liquidation scenario, the company’s management administers and assesses the contracts and their performance as well as maintaining the retention fund. Accordingly, a liquidator will inevitably be best placed to manage retention funds; in this regard a liquidator will have to assess the subcontractor contracts and their claims as part of the liquidator’s general duties. These will include a consideration of any defects or other non-performance issues under those subcontracts (and the head contracts).  This assessment may result in the rejection of a retention subcontractor’s claim in the liquidation, a counterclaim and the right to retain retentions to compensate for the defects or other matters of non-performance. The fact  that  the liquidator will  already  have  carried  out  many  of  the relevant assessments and have detailed knowledge of the retention claims and is therefore well positioned to manage and distribute the retention fund was acknowledged in Bennett v Ebert and Oorschot v Corbel.33

[55]     The second respondents contest this view.  They say the short answer is an alternative receiver would be authorised by the Court to determine retention creditors’ claims to the fund. Once that determination has been made for each retention creditor then if that creditor received less than 100 per cent of the claim it follows that this creditor has “no unsecured claim to the balance”, which I take to mean that if the receiver reduces the value of the 10 per cent retention by half to cover costs of remedying  work  defects,  then  the remaining  90  per cent  that  is  payable to  the subcontractor will equally be reduced by half for the same reason.34

[56]     The tension between Mr McVeigh’s argument and that made by the second respondents is obvious. He is working from the basis that as liquidator he will look at

33     In Bennett v Ebert and Oorschot v Corbel a bank appointed receiver took on the role of receiver to manage the retention trust fund. Whether it is a receiver or a liquidator is irrelevant. The key point is that the manager of the retention trust fund is the same person as whoever is otherwise responsible for managing an insolvent company.

34     This argument is likely to be largely academic in terms of there being much chance of the balance of money payable under the sub-contract actually being paid.  Decmil has few available funds to

meet its creditors other than the $3.3 m it received from DAP to cover the retention claims.

the 90 per cent portion of a subcontractor’s claim that is payable and determine if that subcontractor should be paid in full or not. If not, the value of the 10 per cent retention will be reduced to the same extent.  Whereas, the second respondents would have the assessment  commence  with  the  receiver  looking  at  the  contract  price  and  the

10 per cent retention based on that price.  If the performance requires a reduction for defects the value of the 10 per cent retention is reduced, which also brings the value of the 90 per cent remainder down as well. Whether the assessment is made using the

10 per cent retention or the 90 per cent that is payable under the contract as a basis will not matter if this reduction is arrived at by the same person, as from either perspective the value of the reduction is going to be the same.   However, if the liquidator works from the contract price end and a different person as receiver works from the retention payment end then if each has a different view on what the value of the reduction should be, they will arrive at different figures.  Thus, Mr McVeigh is correct to say there is room for inconsistency here, which is a factor that favours having the same person in the role of liquidator and receiver of the fund.

[57]     The second respondents sought to address this issue by arguing that retention creditors are by definition persons who have been paid for their work, minus the retention: “They’re paid 90 percent and 10 percent is set aside.” I accept that is correct. However, for some of these creditors money may have been payable but not in fact paid out to them.   Because the money was payable under the contract, 10 percent should have been retained. Therefore these persons may also have claims on the fund for their retention portion that should have been retained from money that was contractually payable to them.  Also, even where a sub-contractor has been paid 90 percent and has a retention claim for 10 percent, if the quality of his subsequent work is being disputed such that defects may require remediation, the cost of any such work can be deducted from retentions held for him.  Therefore the quantum of the various retention claims will need careful assessment.

Efficiencies arising from work Mr McVeigh has done to date

[58]     Mr McVeigh also argues there are other considerable benefits if he is appointed receiver of the fund.  First, he contends he has already done considerable work in identifying the retention claims of the respective retention creditors and that this work

would be wasted if someone else were to be appointed receiver.   In his affidavit evidence of 11 February 2021, he says he has identified 63 retention creditors, who fall into four categories:35

(a)      Category A (32 creditors): claims assessed as payable in full (total assessed value $922,606 incl. GST);

(b)     Category B (13 creditors): claims rejected in part because the subcontractor had issued a payment claim, Decmil had issued a payment schedule (which is required if Decmil is to dispute the payment claim) and no payment was made by Decmil, therefore no retentions could have been withheld (total assessed value $697,498 incl. GST);36

(c)      Category C (13 creditors): claims which have not been fully assessed by Mr McVeigh or where he considers retentions should be withheld and paid to Decmil for the purpose of remedying defects in performance of the subcontractor’s obligations under their contract (total assessed value $350,653 incl. GST);

(d)      Category D (5 creditors): creditors for whom retentions were made by Decmil,  but  who  have not  made  a  retentions  claim  to  date  (total assessed value $42,422 incl. GST).

[59]     This accounts for why, by Mr McVeigh’s assessment, the retentions have less value than the $3.3 m fund set aside to meet these claims.

[60]     Mr McVeigh refers to the four groups of retention creditors he has identified and the proposed treatment of each category of creditor.  He contends that following his appointment he will be in a position to pay out all accepted claims on a pro rata

35     This may be work that was done following the consent order; see [75] herein.

36     CCA, s 18A provides that “retention money means an amount withheld by a party to a construction contract (party A) from an amount payable to another party to the contract (party B) as security

for performance of party B’s obligation under the contract”.

basis of between 65 and 85 per cent.37  He submits that if a new receiver is appointed, that person would need to carry out their own investigations and assessments to address the retention claims, including determining which retention creditors have a valid claim on the fund and whether there are any creditors not entitled to full release of retentions.  This will require an examination of the subcontracts, as well as the underlying head contracts and any defects or other deductions which relate to the subcontractor’s work.

[61]     Mr McVeigh submits that the effect of appointing a new receiver is likely to result in both a delay in payment of valid retention claims and additional costs beyond those which he would incur in the future. If he is appointed to manage the fund, delay will be avoided and there will be no duplication of work or costs.  He says there will also be the benefit of $200,000 that DAP have agreed to provide towards his work as receiver of the trust fund.

[62]     Mr McVeigh points out that 27 retention creditors support his appointment as receiver and manager of the trust fund and 25 have confirmed that they agree with his assessment of their retention claims. This represents $1,001,576 or 49 per cent of his assessed value of the retention claims.

[63]     On the other hand, the second respondents argue that Mr McVeigh has carried out work that he had no authority to do in relation to the fund.  He should not then be able to take advantage of this and claim it as a benefit supporting his appointment as receiver.

Perceived conflict of interest that Mr McVeigh will reduce retention claims

[64]     The second respondents assert a conflict of interest will lead Mr McVeigh to reduce retention claims to ensure there are more funds for: (a) the unsecured creditors; (b) the liquidator’s general liquidation activities; or (c) the benefit of all creditors generally. Mr McVeigh responds that such conflicts are inherent in the CCA retention

37     It is not clear to me if Mr McVeigh is referring to retention claims or claims for money payable under the contract. Nor does he explain why retention money claims should be generally reduced by 65 to 85 per cent, given that the purpose of the $3.3 m fund is to stand in the place of a retention fund under the CCA.

fund regime.  If Decmil was not in liquidation then it would be making a decision on whether the retentions are payable or not, and it would be up to the subcontractor to challenge Decmil if it did not agree.38   Decmil would have an interest in not releasing retentions as this would increase its own funds.  Thus, when the liquidator steps into the company’s shoes and makes the same assessment, there is no difference.  Further, Mr McVeigh argues that the inherent conflict referred to above is not a reason to justify the appointment of a separate receiver.   A liquidator has obligations to act independently in good faith and for proper purposes when exercising powers and performing duties.39   That is no different from when he is managing trust funds.  The liquidator is still bound by his obligations. The only difference is that he is exercising them for the best interests of the retention creditors, in accordance with their entitlement (as opposed to all creditors).40  Similarly, in a receivership a receiver must exercise his or her powers in good faith and for a proper purpose and in a manner he or she believes on reasonable grounds to be in the best interests of the person in whose interest he or she was appointed.41

Summary of arguments Mr McVeigh relies on to support his appointment

[65]     Mr McVeigh submits that at law there is no need for a separate receiver to be appointed to manage retention trust funds.   First, there is nothing in the statutory scheme of the CCA that would disqualify the liquidator from managing retention trust funds or require a different approach to how a liquidator manages other types of trust assets.   Second, in most circumstances a liquidator will be best placed to manage retention funds and can do so in the most efficient and cost-effective manner.  Third, conflicts could arise between assessments made by the liquidator and a separate receiver.

[66]     As to a liquidator’s need to obtain approval from the Court to deduct their costs from trust assets, Mr McVeigh submits this could be achieved in the ordinary manner

38     Section 18C(3) of the CCA provides that retention money ceases to be held on trust where money ceases to be payable to party B under the contract.

39     Consolidated Technologies Development (NZ) Ltd v McCullagh (2006) 9 NZCLC 264, 056 (HC)

at [46].

40     See s 253 of the Companies Act 1993 which provides that the principle duty of a liquidator is to take possession of, protect, realise and distribute the assets or the proceeds of the realisation of the asset of the company to its creditors, in accordance with the Companies Act.

41     Receiverships Act 1993, s 18.

by seeking directions from the Court under s 284 of the Companies Act.  Here, of course, there is also the power reserved in the consent order to seek directions from the Court.

[67]     The present circumstances, Mr McVeigh submits, involve a retention trust pursuant to consent orders arising from conflicting views as to whether a CCA trust has been created where an overall commercial settlement had been reached involving DAP replenishing funds, and with provision for aversion of unused funds to that party. The consent orders contemplated a receiver being appointed.  It is submitted these aspects do not alter the analysis that an appointment of a receiver is unnecessary if the Court comes to that conclusion, as well the factors underlying why a liquidator as appointed receiver should be the manager remain equally potent.

[68]     Mr McVeigh accepts there may be exceptional circumstances where it is appropriate to appoint a separate and different receiver, but says this is not such a case. He maintains he is the person in the best position to manage the fund for the benefit of all retention creditors, whether in his role as liquidator or as Court appointed receiver, and that there are significant advantages in him doing so.   Here, he has already carried out a significant amount of work relating to the retention creditor claims, and will be well placed to complete the administration and distribution of the retention funds.   In this regard, he says he is in a position to make distributions promptly and complete adjudication of the retention claims. Accordingly, he submits that taking into account the interests of all retention creditors, who want valid claims to be paid out promptly and in full, it is appropriate that he is appointed to manage the trust fund, either as liquidator or Court appointed receiver.

Mr McVeigh’s response to second respondents’ arguments

[69]     Mr   McVeigh   acknowledges   that   the   second   respondents   oppose   his appointment on the basis there is a real risk he may act adversely to the interests of the retention creditors.  Also that this opposition is based on his conduct to date in the liquidation, including the fees he has incurred as liquidator, and the fact he made an application to the Court regarding the status of the fund and conflict of interest.  He addresses those concerns as follows.

[70]     Regarding the application Mr McVeigh made to the Court seeking directions as to the status of the fund as at the date of liquidation, Mr McVeigh contends he took the prudent step of making the application based on the information available to him at the time and seeking service directions to ensure that all affected parties could be represented. He contends this does not indicate any wrongdoing and it is not suggested he would act adversely to the interests of the retention creditors. Nor does the fact the parties agreed to settle the application as part of a wider commercial settlement indicate that the position he took as to the status of the fund was incorrectly held, or suggest an intention to act against the interests of retention creditors.

[71]     Regarding  the  second  respondent’s  concerns  about  the  level  of  fees Mr McVeigh has incurred as a liquidator, including fees relating to assessment of retention claims, he submits that the hearing for a liquidator’s appointment as receiver over the fund is not the proper forum to consider a creditor’s allegation that the liquidator’s fees have not been appropriate.  Rather, the proper course is to pursue an application under s 284(1) of the Companies Act to seek relief from the Court.

[72]     Further, in this case the Court indicated at the first call of this matter in September 2020 that the second respondents could apply for directions under s 284 if they had concerns about the use of funds in the liquidation.42   However, the second respondents have chosen not to take that step; nor have they put forward any compelling evidence as to why the work carried out by Mr McVeigh was unnecessary in light of the matters that have arisen in the liquidation to date.  In any event, as recorded in the joint memorandum seeking the consent order, the liquidator’s costs have been reimbursed as part of the commercial settlement.

[73]     Mr McVeigh acknowledges the second respondents also complains that there is a risk he will dilute the fund and they criticise him for not agreeing to limit his fees to $200,000, being the amount DAP have agreed to contribute for the management of the trust fund should Mr McVeigh be appointed receiver.  First, he argues the rate and level of his remuneration are and will remain subject to the supervision of the Court and the second respondents’ stated concerns as to costs are misplaced in this context.

42     McVeigh v Decmil Australia Pty Ltd HC Auckland CIV-2020-4040-1269, 25 September 2020 at

[5].

Second, there is no foundation in a concern that fees incurred before 15 December

2020 (the date the consent order was made) will be drawn from the $200,000 to be made available by DAP.  He has confirmed this will not be the case. Third, a prudent receiver will need to undertake their own enquiry and come to their own decision relating to retention claims, rather than rely on the work carried out by someone else, hence the appointment of an alternative person will result in duplicated work.

Post the consent order

[74]     Regarding the position since 15 December 2020, Mr McVeigh says his firm has incurred professional fees and associated costs in bringing the application to be appointed receiver,  seeking further directions relating to distribution of the fund and assessing the retention claims.

[75]     Mr McVeigh says that he has incurred costs in respect to retention claims through initial work based on information provided by creditors’ claim forms, which lead to a review of the company’s records and discussions with Decmil employees. Since then, the engineer’s provisional assessment in relation to the Corrections Department contract has been received, together with further information from creditors.   This enabled Mr McVeigh to identify the four categories of retention creditors and make a more detailed assessment of their claims. As at 12 March 2021, the attendances on the additional work totalled $79,385 (excl. GST).  Regarding the costs of the application, fees to date are $41,339 (excl. GST).  In addition, there are legal costs  to date and ongoing.

[76]     In terms of future costs if Mr McVeigh is appointed as receiver, he submits he intends to make the following steps: make initial pro rata payments to all retention claims presently assessed as payable; liaise with the Inland Revenue Department regarding refunded GST on the retention payments;  file an appearance or opposition in the event of any category B creditors; respond in the manner to be directed by the Court; write to the disputed (category C) creditors with an assessment of their retention claim and consider any responses in an attempt to reach an agreed position; respond to any challenges of the Category C creditors retention claims if agreement cannot be reached; and consider and seek Court approval to deal with the five Category D

creditors, being companies with valid retention claims who have not made a claim in the liquidation.  Mr McVeigh estimates the professional fees in respect of the above work are likely to be completed within $60,000 (excl. GST). Some of these steps will involve court or other adjudicative processes; therefore, ultimate costs will depend on how those matters progress and the amount of legal disbursements.

[77]     Mr McVeigh refers to the sum of $200,000, which DAP will provide for costs of administering the fund if he is appointed.  The consent orders require the sum of

$3,314,315.72 be held for retention creditors. The sum represents a total sum held by Decmil at the date of liquidation and in respect to which the issue arose as to whether a CCA trust existed or not. Mr McVeigh says the fund actually includes an additional amount of $149,943 in excess of the $3,314,315.72. The additional funds arise out of the commercial settlement entered into with DAP.  He also expects further funds in the form of a GST refund of $135,741, relating to GST amounts paid by Decmil after the liquidation began.  He proposes that these excess funds be applied to the present application, with any balance being applied to administering the retention trust fund if required, or reverting to DAP as per the consent orders.  He has advised DAP of this intent.

[78]   Mr McVeigh refers to Bennett v Ebert where the receiver’s costs and disbursements in bringing the application for appointment as receiver of the retention fund were met from the retention fund, as were the costs of administering the fund. Here, if appointed receiver, Mr McVeigh does not expect to need to have recourse to the sum held under the consent orders for fees or third party costs, unless legal actions arise in dealing with the disputed retention claims and depending on the extent of reporting to the Court that is required in terms of the appropriate subsequent distributions.

[79]     Mr McVeigh anticipates that if the category C claims can be resolved relatively easily and are not significantly more than the assessed amounts to date, there is likely to be sufficient funds to repay all valid claims in full.  If claimants take formal steps to challenge his assessment of disputed claims, the cost could be significantly higher.

[80]     Mr McVeigh refers to the second respondents being critical that he has not been prepared to cap costs to assess retention claims at the $200,000 to be provided by DAP. Mr McVeigh says capping fees is unworkable, given it is unknown whether substantive challenges to claim assessments will be made and how they are pursued. Further, there are other steps that may necessitate legal costs and associated attendances.  Any appointed manager of the fund will need to assess the disputed retention claims and this may ultimately require court determination/ adjudication. An alternative receiver will need to dilute the fund from the outset, given that all remuneration they receive will come from that source.  He submits the appropriate way to ensure that any further remuneration is reasonable is through supervision of the Court. The retention creditors would have an opportunity to challenge or scrutinise the costs if they remain concerned.

Additional conflicts of interest raised by the second respondents

[81]     Mr McVeigh refers to two potential conflicts of interest the second respondents have identified if Mr McVeigh is appointed receiver.  First, where he determines the amount to meet retention creditor claims is less than the amount advanced by DAP, and  any  excess  becomes  available  to  Decmil  generally  and  can  be  used  for Mr McVeigh’s fees and/or distribution to other creditors.  Mr McVeigh responds that it is not clear that the funds revert to Decmil as opposed to DAP on the face of the consent order.  Either way, whether the funds go to DAP or Decmil, he says this type of conflict is inherent in the nature of the retentions regime. In Oorschot v Corbel the Court did not perceive any obvious conflict where a liquidator was appointed receiver and manager over retention trust funds.

[82]     Second,  the  $200,000  allowance  that  DAP  has  agreed  to  pay  towards Mr McVeigh’s fees in managing the trust funds, on the basis unused funds will revert DAP.  The second respondent contends that this gives the impression that DAP is funding Mr McVeigh for a beneficial review of retention claims. Mr McVeigh submits the implied assertion that he would undervalue retention claims in order to maximise the return to DAP is unfounded.  Such assertion strikes at the heart of the role of a liquidator or receiver who is required to act independently, in good faith and for proper purposes.  Mr McVeigh says he has no interest in returning funds to DAP.  The fact

that he brought the retention funds status application, which was opposed by DAP and the Decmil group, shows that he does not simply act at the behest of the Decmil group of companies.

[83]     Mr McVeigh refers to allegations made in an affidavit of Gregory Wong, the commercial manager of VAE Group, which is one of the parties comprising the second respondents. Mr Wong has alleged that Mr McVeigh, as liquidator, has manufactured allegations to undervalue VAE’s claims. Mr McVeigh firmly rejects the allegation and further states Mr Wong ignores the context of the wider dispute which has been ongoing since April 2020.   Moreover, Mr McVeigh contends the real conflict is between the retention claimants on the fund.  There are retention claimants who have not had their claims accepted in full by Mr McVeigh and they have an interest in a different receiver being appointed in the hope their retention claim might be assessed differently.  The retention creditors whose claims have been accepted in full, or who have accepted Mr McVeigh’s assessment have an interest in him being appointed. They are likely to receive payment more promptly and there is less risk of a depletion of funds through receiver’s costs.  Accordingly, Mr McVeigh submits that concerns raised by the second respondents are unfounded and, in any event, can be alleviated through Court supervision over the liquidator/receiver which is provided for in both the consent order and the specific directions sought by him in the present application.

Discussion

[84]     Mr McVeigh’s argument that having different persons in the roles of liquidator and fund receiver could lead to inconsistent views on the value of each retention creditor’s claim, potential for disputes and lost time, is valid.  In principle, it provides a strong reason for appointing one person to both roles.

[85]     Mr McVeigh’s argument about the efficiencies that result from one person being both liquidator and receiver also has merit.  Both a liquidator and a receiver of a retention fund are interested in whether there are subcontractors yet to be paid, and whether or not there is a proper basis for reducing the quantum of their outstanding claims.

[86]     As to the work Mr McVeigh has already done regarding the value of the fund and the various retention creditors’ claims, there will be duplication of effort if someone else is appointed receiver.  It is not, however, clear to me that there will be duplication of cost.   First, Mr McVeigh acknowledges that the commercial arrangement by which DAP will top up the fund to a limit of $1.1 m includes reimbursement of liquidator’s costs. This means the fund will not be depleted if it has to meet the costs incurred by Mr McVeigh and a newly appointed receiver.  Second, any costs Mr McVeigh incurred relevant to the fund are now subject to the consent order, which recognises the fund as a retention fund held on trust for the retention creditors. As his costs were incurred without any formal authority (by Court order) to manage the fund,  he could  face difficulties  were he to  attempt  to  maintain  his entitlement to those costs.  However, as DAP will reimburse his fees through the top up, the retention creditors are unlikely to challenge him on this point. Accordingly, I do not consider that the appointment of someone else as receiver will incur additional costs to be drawn from the fund.  Duplication of costs is therefore a neutral factor.

[87]     The greatest concern I have regarding the appointment of Mr McVeigh as receiver arise from his depletion of the fund prior to the consent order.   This is something that Mr McVeigh has not directly addressed in his submissions.  Decmil had little funding of its own in April 2020.  The 3.3 m it received from DAP was not the result of DAP paying a debt it owed to Decmil.  DAP chose to transfer $3.3 m to Decmil to cover the retention creditors’ claims.  I was not made aware of any legal reason that would have required DAP to take that course of action.  If DAP had not made the transfer, there would have been no fund available to meet retention creditor claims.   That may have exposed Decmil’s directors to legal actions for breach of directors’ duties  to  ensure compliance with  the CCA.    Indeed,  Mr  McVeigh  as liquidator threatened that course of action, which was consistent with his obligation as liquidator to protect the interests of the retention creditors.  If he had not taken such action it could have provided grounds for the retention creditors to seek his removal as liquidator. Therefore I consider it safe to infer that Decmil’s directors were exposed to a litigation risk.  By transferring $3.3 m to Decmil to cover the retention claims DAP removed this exposure.  The evidence is that the directors of DAP are the same persons as the directors of Decmil.

[88]     DAP was free to impose conditions on the use of transferred funds, because it was under no legal liability to make the transfer.   There was no reason why the payment should become Decmil’s property, and therefore available to all Decmil’s creditors; nor was it subject to the provisions in the Companies Act that prevent an insolvent company from preferring a particular group of creditors. Accordingly I can see no legal impediment to DAP providing funds to Decmil on the basis Decmil was to hold those funds on trust to meet the retention money claims.

[89]     Mr McVeigh knew that DAP had transferred the $3.3 m to Decmil for the specific purpose of meeting the retention money claims either as a CCA retention trust or a trust that was in substitution of a CCA trust.   That may be enough to fix Mr McVeigh with knowledge that the $3.3 m was to be held on trust for the retention creditors, which would then leave him liable to the retention creditors for unauthorised depletion of the fund.

[90]     Once in the role of liquidator, Mr McVeigh disputed the $3.3 m was a trust for the retention creditors and proceeded to deal with the fund as if it was the property of Decmil.  Although appointed liquidator in April 2020, he did not seek instructions from the Court on the fund’s status until July 2020. On one view he should have acted more promptly.  He would have known from the outset that the retention creditors’ views as to the status of the fund conflicted with his own.  Some direction from the Court was required.  By October 2020 the fund was depleted by nearly $1 m.  If the status of the fund had not been resolved by consent, Mr McVeigh may have found himself liable to account for any drawings he had taken from the fund after it had been declared a trust.

[91]     The depletion of the fund by October 2020 also left Decmil’s directors exposed to a litigation risk which the provision of the $3.3 m would otherwise have avoided. Unpaid retention creditors may have sought to recover the balance from an action against Decmil’s directors.  The subsequent arrangement (which formed part of the consent orders) for DAP to top up the fund up to a limit of $1.1 m will relieve the directors of further litigation risk. It will also relieve Mr McVeigh of any risk that the retention creditors, or a substitute liquidator, might pursue him for making unlawful withdrawals from the fund.

[92]     The joint memorandum shows that Mr McVeigh was a party to a wider commercial arrangement that involved DAP, Decmil Group Ltd and others.  Its terms have not been disclosed to the retention creditors or the Court.  The fact that the top up would have relieved Mr McVeigh of litigation risk relating to his depletion of the fund, could have led DAP to enter into some arrangement with him in this regard.

[93]    As matters stand, Mr McVeigh’s solicitor’s letter of 28 September 2020 expresses his view that the retention creditors’ claims will total approximately $2 m. If that estimate is correct, the top up is unlikely to be required. Under the terms of the consent order, any balance is to be returned to DAP.  However, if Mr McVeigh finds on further examination that those claims exceed that figure, or alternatively, if the retention creditors establish their claims are in fact over $2 m, the top up will be required. This situation could expose Mr McVeigh to a liability to DAP; either because an arrangement they may have made requires him to indemnify DAP for the drawings made from the top up; or because DAP would have a legal claim against him for funds it provided on trust for a particular purpose, and which he applied for other purposes or used without proper authority. There is no evidence those possibilities would arise. However, if it were not for Mr McVeigh proceeding to treat the fund as available to all creditors and not a trust fund for the retention creditors it is unlikely that he would have allowed it to be depleted to the level of approximately $2 m.  Therefore, it is reasonably arguable that Mr McVeigh’s conduct between his appointment and the making of the consent orders led to the need for DAP to transfer up to a further $1.1 m to the fund. In such circumstances, DAP could be expected to want some indemnity (whole or partial) or compensation from Mr McVeigh.  Thus, the second respondents are right to say that Mr McVeigh’s conduct as liquidator may have led to him being beholden to DAP.

[94]     Mr McVeigh has not provided evidence of the arrangement that includes him and DAP.  Nor has he provided submissions that would ameliorate the concerns the second respondents raise about his potential conflicts of interest, to which I shall return.  In some circumstances the failure of a party to provide evidence permits an inference that the missing evidence would not have helped that party’s case.43   Here,

some explanation from Mr McVeigh to address the concern of his potential conflict of interest was required.  It was not given.  His submissions on this topic are set out at [49] to [83] herein.   They do not specifically address or attempt to mitigate the concerns I have identified.

[95]     It follows that Mr McVeigh may have a personal incentive to set the value of the retention creditors’ claims at around $2 m, rather than $3.3 m.  These concerns, although not based on established facts, are capable of inference from the known circumstances and are therefore reasonably held.  In my view, they are sufficient to disqualify Mr McVeigh from being appointed receiver of the fund.  It is difficult to see how he can be viewed as independent against the background of his conduct between his appointment as liquidator and the making of the consent order.

[96]     I return to explain why I consider Mr McVeigh has not in his submissions addressed the potential conflict of interest that is of most concern to me.  In his reply at the hearing Mr McVeigh argued that the status of the fund before the consent orders was made was problematic. Further, he believed the monies transferred by DAP were not to be held in trust for the retention creditors.  His view was that the status of these funds was a live issue that was settled without the need for the Court to determine it:

A.        Yes, that’s the very issue that was settled, that the Court hasn’t had to determine and was alive on 14 December, the day before the 15th when the consent order created this Trust and so that’s really all I can say about that.

[97]     Mr McVeigh’s counsel also invited me to read the submissions for Mr McVeigh that had been prepared for the anticipated hearing to determine the status of the trust fund, which ultimately did not eventuate.

[98]     I accept the status of the fund before the consent order was made was open to argument.  I also accept the status has not been judicially determined following an opposed hearing.  However, the fact there may be room for argument about the status of the fund, as there most certainly would be in any proceeding brought against Mr McVeigh alleging misapplication of the fund, is not an answer to the argument the second respondents’ raise based on a potential conflict of interest.

[99]     Although the status of the fund (pre consent order) may have been problematic, there were reasonable grounds for arguing it was a trust fund.  Those grounds taken together with the references Mr McVeigh has made to the wider commercial arrangement that led to DAP topping up the fund (which essentially brings it back to the $3.3 m prior to deductions by Mr McVeigh) leaves room, for the reasons I have already identified, to view Mr McVeigh as conflicted. In Mason v Lewis, Allan J found that a liquidator “must both be in fact and appear to be independent and impartial, and must avoid appearing to act as a mouthpiece of a particular creditor.”44   The same is required of the receiver of the fund.

[100]   It is the combination of the fund being reasonably capable of being regarded to be a trust fund coupled with the wider commercial arrangement (which Mr McVeigh has not revealed or explained) that for me poses a material obstacle to his appointment as a receiver.   I cannot see how he can be regarded as someone who would be independent and impartial.   The parties exchanged written submissions before the hearing and therefore the arguments the second respondents were going to advance would have been known to Mr McVeigh.  There would have been the opportunity for him to consider how the concerns raised by the second respondents’ conflict of interest argument could be mitigated.  In my view the response he provided in reply does not mitigate the concerns I have identified.

[101] There are supporting concerns that also weigh against Mr McVeigh’s appointment as receiver.  In Irvine v ASUL a receiver’s failure to seek directions from the Court, his potential conflicts of interest and disputes about his fees, were enough to disqualify him from holding that position. All those factors are present here. First, Mr McVeigh did not act promptly in seeking directions from the Court about the status of the fund. Second, as already explained, he has potential conflicts of interest. Third, there are disputes about his fees, particularly as to whether those fees (in whole or in part) were improperly paid from the fund.

[102]   Mr McVeigh argues his fees are not relevant to this application.  However, the issues the second respondents raise about his fees are based on the premise he has

the question of his suitability to be the receiver of the fund.  He has paid out fees to himself from a fund when the status of that fund was reasonably open to dispute and on one view was a trust fund for a specific category of Decmil’s creditors.

[103]   The arguments Mr McVeigh makes in support of his appointment would be persuasive were it not for his earlier conduct and the potential conflicts of interest that may arise from holding both offices.  I acknowledge there are drawbacks to having two different persons in the roles of liquidator and receiver, but they do not outweigh the more significant  risks  associated  with  conflicts  of duty  and  interest,  in  this particular case.

[104]   Moreover, I consider the room for dispute over the value of retention claims if the liquidator and the receiver are different persons is less a concern than Mr McVeigh portrays it to be.  If a receiver in those circumstances thinks the value of the retention claims should be higher than the liquidator (because for example their views differ on how much retention monies can be used to remedy defects) the receiver’s views are likely to align with those of the retention creditors. In other words, if there is room to reasonably dispute the value of the retention claims, the retention creditors are likely to take this step, so they will be in dispute with the liquidator’s views on how much is payable under the contract and the extent of claims for remedying defective work. The presence of a third party in the form of a receiver may assist with resolving these type of disputes.   This mitigates the concerns Mr McVeigh raises  about inconsistent outcomes if someone else is appointed receiver.  Should such disputes arise between Mr McVeigh and the receiver each will have the ability to seek direction from the Court.

[105]   The appointment of a receiver other than Mr McVeigh will mean the $200,000 payment DAP was prepared to make towards Mr McVeigh’s fees as receiver is not available.  However, that did not concern the second respondents.  Further, the fact this payment was being made only if Mr McVeigh was appointed receiver added to the appearance of his conflict.

Mr McVeigh.    The  second  respondents  propose  the  appointment  of  alternative receivers being either Gareth Hoole and Clive Bush, or Lara Bennett and Richard Nacey, and they have provided evidence of the qualifications and experience of those persons.

[107]   Whilst Mr McVeigh has argued that he should be appointed receiver, he has not made any submissions that would suggest the alternative receivers proposed by the second respondents are unsuitable.  I am satisfied therefore from the material put before me regarding their experience and qualifications that Gareth Hoole and Clive Bush should be appointed receivers and managers of the fund.

Result

[108]   I appoint Gareth Hoole and Clive Bush as receivers of the fund.

[109]   I order that Gareth Hoole and Clive Bush are to have the powers of a receiver under the Receiverships Act 1993.

[110]   They shall be remunerated at the receiver’s standard charge out rate for this work as approved by the Court, which is to be paid out as a first charge on the trust fund.

[111]   They are to file reports as required by the Receivership Act.

[112]   They are authorised to do all things necessary to realise the fund and discharge Decmil’s obligations to its retention creditors in accordance with the terms of the relevant sub-contract and the CCA.

[113]   I grant leave to allow any retention creditor to challenge a decision by the receivers, in this Court.

[114]   I reserve leave to the receivers to seek further directions, including as to the scope of their role.

Duffy J