Ng v M&C Malaysia Restaurant Limited

[2022] NZHC 882

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-1062

[2022] NZHC 882

UNDER

the Companies Act 1993

BETWEEN

CHIEN FEI NG

Plaintiff

AND

M&C MALAYSIA RESTAURANT LIMITED

First Defendant

HUAI MING CHAN

Second Defendant

Hearing:	On the papers
Judgment:	29 April 2022

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

(Approval of liquidator’s remuneration)

This judgment was delivered by me on 29 April 2022 at 3.30pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Edison Tam Lawyers, Auckland Meredith Connell, Auckland

NG v M&C MALAYSIA RESTAURANT LTD & ANOR [2022] NZHC 882 [29 April 2022]

Introduction

[1]                  The liquidators, Mr Rees Logan and Mr Andrew McKay of BDO Auckland, have applied for approval of their remuneration in the liquidation of M&C Malaysia Restaurant Limited (in liquidation). Approval is sought for remuneration and expenses totalling $49,813.17. This comprises fees incurred by the liquidators of $42,702.50 plus out-of-pocket disbursements of $1,141.28, an “Office Service Charge” of

$2,142.19 and a disbursement for BDO Taxation Services of $3,827.20.

[2]                  The liquidators have attached their draft final report to their memorandum, a deed of settlement of the shareholders’ claims and letters from the two shareholders consenting to the amounts claimed.

Background

[3]                  The application to liquidate the company was made by one of the shareholders following various disputes between the shareholders which they were unable to resolve. The restaurant run by the company ceased trading on 19 March 2021.

[4]                  Prior to the order for liquidation, the liquidators signed a Consent to Act seeking the Court’s approval for rates of remuneration.

[5]                  The remuneration summary in the draft final report records that those working on this liquidation included those in the position of liquidator, manager, senior analyst and administrator (or support staff). The hourly rates charged are the rates recorded in the Consent to Act.

[6]                  The liquidators’ memorandum advises that the fees claimed include time charged to 15 March 2022 along with an agreed amount to complete the liquidation (although it does not record what that amount is). The memorandum further records that the average hourly rate charged is $358.

[7]                  Out-of-pocket disbursements include the public advertising of the appointment and the notice of intention to remove the company from the Companies Register. The liquidators have estimated the cost of the final advertisement to be published in the New Zealand Herald and New Zealand Gazette in line with previous advertisements.

[8]                  There is also an amount of $2,142.19 recorded as an “Office Service Charge”. The memorandum describes this as a fee charged to BDO’s clients that covers expenses such as mileage, secretarial time, photocopying, phone calls, filing, stationery and other ancillary office services. The charge is calculated as five per cent of time charged.

[9]                  Finally, there is a separate amount claimed as a disbursement for taxation services provided by BDO Auckland of $3,827.20. The liquidators say in their memorandum that BDO Tax provided assistance with finalising the company’s final tax returns and filing these with Inland Revenue.

[10]              The liquidation has taken just over seven months to date with the key tasks that the liquidators have undertaken being:

(a)selling the company’s business to one of the company’s shareholders for $140,000; and

(b)facilitating a settlement between the company and its shareholders that would see external creditors paid in full, settlement of the related party liability and forgiveness of shareholder debt to enable the company to be solvent at the completion of the liquidation. As mentioned above, a copy of the signed settlement agreement is attached to the memorandum filed.

[11]              As contemplated in the settlement agreement, the two shareholders have signed letters confirming that they have no objections to the amounts charged.

[12]              Finally, the liquidators record that they have distributed funds to the external unsecured creditors and will complete the final distributions to the shareholders on confirmation of the Court’s approval of the liquidators’ remuneration and receipt of final tax refunds.

Legal principles

[13]              The Court’s power to approve liquidators’ remuneration is provided in s 284 of the Companies Act 1993. The principles that apply in considering applications for approval are set out in the full High Court decision, Re Roslea Path Ltd (in liq).1

[14]              Heath and Venning JJ held that in fixing a liquidator’s remuneration, the Court is determining the fairness and reasonableness of what is being charged when measured against the work undertaken and the result achieved. The Court held that fair and reasonable remuneration reflects the value of the services rendered to the creditors of the company and, if a surplus is achieved, its shareholders. The decision goes on to describe “value” as an elusive concept which goes beyond mathematical application of hourly rates to hours spent by individuals involved in administering a company’s affairs. The Court emphasised the need for a proportionate approach, both in terms of the remuneration paid but also in the information required by the Court to justify the remuneration paid.2

[15]              The Court of Appeal recently confirmed the approach adopted in Re Roslea Path Ltd in Madsen-Ries v Salus Safety Equipment Ltd (in liq).3 The Court approved counsel assisting’s summary of the principles that apply to the determination of retrospective applications as follows:4

(a)Liquidators are fiduciaries and their fundamental obligation is a duty to account. There is a conflict between the interest of the liquidator (fiduciary) in receiving remuneration and the interest of the creditors (those to whom the fiduciary duties are owed) who bear the cost of that remuneration.

1      Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC) at [102].

2 At [108].

3      Madsen-Ries v Salus Safety Equipment Ltd (in liq) [2022] NZCA 101.

4 At [15].

(b)Liquidators are officers of the Court and are subject to its general supervisory function. They must attend diligently to their tasks and make all proper reports and inquiries. They have the same responsibilities as barristers and solicitors.

(c)Liquidators must justify their claims for remuneration. They bear the onus in this regard and the benefit of any doubt due to inadequate information must be resolved in favour of the creditors.

(d)Fixing liquidators’ remuneration requires judicial judgment. It is more akin to an administrative task. It is implicit that the judicial officer can draw on his/her own experience in performing this role.

(e)In fixing liquidators’ remuneration the Court is making a determination of the fairness and reasonableness of the proposed fees compared to the work undertaken and results achieved. The focus is on the value of services rendered to the creditors of the company.

(f)The Court will consider whether there has been unnecessary work or over servicing as this would not represent time reasonably expended at a reasonable rate.

(g)A broad brush approach is acceptable provided that there is an exercise of judicial judgment as opposed to an arbitrary choice of amount.

(h)The process of fixing remuneration needs to be proportionate. It should not be unduly prescriptive; nor should it unnecessarily add costs to the creditors.

[16]The shareholders have consented to the amounts being claimed. However in

Madsen-Ries v Salus Safety Equipment Ltd (in liq) the Court of Appeal held: 5

… even where there is no challenge to the liquidator’s remuneration, it does not absolve the Court from the obligation to be satisfied that the remuneration approved reflects the value of the services rendered to the creditors of the company.

[17]              I am therefore required to be satisfied that the remuneration reflects the value of the services rendered to the creditors of the company.

Does the remuneration in this case reflect the value of services rendered to the creditors?

[18]              During the course of the liquidation, a settlement agreement was reached between the shareholders and a related party resolving claims against the company. The result of this settlement was that amounts owing to the shareholders and the related party were reduced.

5 At [54].

[19]              The liquidation will therefore be solvent, with the liquidators able to make a distribution of 100 cents in the dollar to all creditors including the shareholders and related party unsecured creditors.

[20]              I note that the total owing to external unsecured creditors was relatively small with only $15,902.73 recorded in the draft final report as being full replacement to them.

[21]              The average hourly charge-out rate for the liquidators of $358 is relatively high as are the total fees for a liquidation of approximately seven months where the business was sold for $140,000. The outcome of the liquidators’ work however would be of significant value to the creditors and shareholders as it has resolved all differences between the parties within a relatively short time period and enabled the liquidation to be finalised on a solvent basis.

[22]              The “Office Service Charge” appears relatively high particularly where time has been separately charged for support staff. Whilst this may be a more efficient way of recovering fees than individual itemisation as disbursements, the matters referred to as covered by this charge are often absorbed into the hourly rate. If this is the approach that is to be adopted by the liquidators going forward, it may be sensible to record it in the liquidators’ consent to act so that the Court can consider the charge at the time it approves the initial rates.

[23]              I am conscious that the process of fixing remuneration needs to be proportionate and should not unnecessarily add costs to creditors. Requiring further information or justification in respect of the office service charge may reduce the amount payable to the shareholders. In circumstances where all unsecured creditors have been repaid in full and the shareholders have consented to the amounts being claimed, this approach does not appear proportionate. I therefore conclude that it is appropriate to approve the remuneration claimed.

Result

[24]              I approve the liquidators’ remuneration and expenses of $49,813.17 as set out in paragraph 2 of the liquidators’ memorandum dated 16 March 2022.

Associate Judge Sussock