Parbery v Heat Exchanger Services Limited (in interim liquidation) HC Christchurch CIV 2009-409-2624
[2010] NZHC 334
•18 March 2010
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2009-409-2624
UNDER the Companies Act 1993
IN THE MATTER OF Heat Exchanger Services Limited (in interim liquidation)
BETWEEN JULIAN DAVID PARBERY Plaintiff
ANDHEAT EXCHANGER SERVICES LIMITED (IN INTERIM LIQUIDATION) First Defendant
ANDJAMES KIRTLAND PARBERY Second Defendant
Hearing: 24 February 2010
Appearances: Mr C R Vinnell for Official Assignee
Mr C T Patterson for Second Defendant
Judgment: 18 March 2010 at 4 p.m.
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
18.03.10 at 4 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Counsel:
Mr C T Patterson, Barrister, Waterloo Towers, P O Box 2886, Auckland
– chris[email protected])
Anthony Harper Lawyers, P O Box 2646, Christchurch – [email protected]
PARBERY V HEAT EXCHANGER SERVICES LIMITED (IN INTERIM LIQUIDATION) AND ANOR HC
CHCH CIV-2009-409-2624 18 March 2010
Background
[1] An application has been made for approval of the remuneration of the Official Assignee (“OA”) and for approval of certain charges which he has incurred with a law firm and an accounting firm. The OA was appointed interim liquidator by order of the Court dated 10 November 2009. The OA has costed the work that he and his staff have carried out since his appointment. The amount claimed is
$23,116.50 including GST. In addition the OA seeks a direction entitling him to recover the amount of legal fees charged to him by a law firm which he has retained
to assist with the liquidation. Those fees total $8,241.75 including disbursements and GST. Further he seeks to recover costs which have been charged to him by a firm of insolvency practitioners, HFK Ltd, totalling $7,041.11. The total amount expended thus far is at least the following:
OA costs
$23,116.50
Legal fees
$ 8,241.75
HFKL
$ 7,041.11
TOTAL
$ 38,399.36
[2] In the submissions provided by the parties, there is some discussion about the
basis for the OA claiming approval of these items given that he has not functioned as
a liquidator but as an interim liquidator. Mr Vinnell told me that the OA seeks approval under s 284(1) of the Companies Act 1993. It does not much matter in my view because in the end, as Mr Vinnell accepted on the half of the OA, it is a matter of the court assessing the reasonableness of the charges. I intend to exercise the discretion that I have under the rule by applying the same approach that the High Court took in the case of Re Roslea Path Ltd (in liq), Flynn v McCallum HC Tauranga CIV-2005-470-611, 17 December 2009, Heath & Venning JJ when considering the remuneration of the OA.
Official Assignee’s fees
[3] The OA has, as I have mentioned, claimed $23,116.50 by way of fees. These were charged for services provided in the week commencing 9 November 2009 to the week beginning 25 January 2010. The period concerned therefore is 11 weeks.
[4] The evidence offered to support the reasonableness of these charges is contained in the affidavit of Mr Parke. Mr Parke is a Deputy OA at Christchurch and was “responsible for the running of the interim liquidation of Heat Exchanger Services Limited”. He produced a computer print-out which shows “the time worth $23,116.50 had been recorded”. The time claimed he said conformed to reg 28 of the Companies Act 1993 Insolvency Regulations 1994. The charges to which he referred are $200 plus GST per hour for the OA or Deputy and $140 per hour for employees of the OA. He said that the OA is seeking retrospective and prospective approval of the costs incurred. He further went on to say that the OA’s appointment as interim liquidator was due to a deadlock regarding the ongoing management of the company arising out of a deep rooted dispute between the Parbery brothers as shareholders and directors of the company. Complaints have apparently been made to the OA by the protagonists and requests made to him all of which have significantly increased the costs incurred by the OA. There was also an employment issue involving the plaintiff, whose employment the company (at the behest of his brother) had attempted to terminate. He states:
The Official Assignee considers that it is inappropriate for the Ministry of Economic Development or the taxpayer to be at the (sic) Official Assignee’s costs and taking steps to fulfil its responsibilities as interim liquidator.
[5] I think the last reference must mean that it is inappropriate for the Ministry/taxpayer to bear such costs. He annexed a digest of the times charged which sets out the rates and the units worked.
[6] He also annexed to his affidavit a weekly summary showing what the OA had done that week. A typical entry is the following:
Phone call to company’s accountant – Ashley Irwin of Wood River Hoowse
Meeting with Julian Parbery
Stock take (physical count) including fixed assets
Emails to Kiwibank
Phone call to Paul Cowey
Meeting with HFK
Phone calls with Gayle Lord, office manager daily
Daily cash book entry and budget forecast
[7] Apart from attendances which relate to the running of the company’s business, the other main activities have been dealing with the legal advisors whose charges I mention elsewhere and also an accountancy consulting firm, HFK Ltd, which was mentioned in the short extract that I have just quoted.
The correct approach when approving the OA’s remuneration
[8] The issue of liquidator’s remuneration was considered recently by a full
High Court bench in Flynn v McCallum, which Associate Judge Gendall summarised
in his later decision in McAulay v Hawkes Bay Wind Machines Ltd (in liq) HC Napier CIV-2007-441-916, 11 February 2010.
[9] As a result of the above decisions, a three-tiered approach may be taken to the assessment of remuneration, adjusted as at December 2009 (McAulay at [5]):
Tier 1: Up to $7,500.00 approvable with little further inquiry.
Tier2: Between $7,500.00 and $25,000.00 probably no further inquiry if the Associate Judge is satisfied as to the extent and nature of the work carried out and that the reports filed give an adequate overall picture.
Tier3: In excess of $25,000.00. At such level, there is a heavier burden on the liquidator to inform the Court of the nature of the liquidation, the urgency of the dealings, the number of creditors and whether they are preferred and/or are a sole creditor or there is a creditors’ committee and the reasons for substantial input of time and the cost thereof particularly if there is minimal recovery.
(Roslea Path [50], [157], and [187](d)).
[10] Associate Judge Gendall also noted an additional principle to be extracted from Roslea Path:
(e) Justification – It is for the liquidator to justify his or her claim and any element of doubt (including a doubt arising from the lack of particularity as to the basis for and nature of the claim) is to be resolved by the Court against the liquidator. (Roslea Path [66] and [143])
[11] The reasonableness of a liquidator’s charges is linked to a number of considerations. One guiding feature is that remuneration should be proportionate to the nature, complexity and extent of the work completed, including the nature and degree of responsibility to which the appointee has been subject in any given case, as well as risk assumed by the appointee: Roslea Path [66](f)(i) and [187]. I now consider each of the claims in the light of the above guidelines.
[12] If the foregoing approach is correct, some effort ought to have been made to show that the OA’s charges may be assimilated to those of liquidators generally. It
is not sufficient, in my view, simply to add up the time cost charges and present those to the court for approval. It is not open to the court to arrive at some intuitive judgment, uninformed by evidence that the OA’s charges seem reasonable for the work done. There is, for example, no indication of where the spread of acceptable time cost charges might have been found to lie if the work had been done by a private sector practitioner.
[13] In the absence of such evidence, it is difficult to form an assessment of the reasonableness of the costs. The burden lies on the OA to justify his costs.
Discussion
[14] I note that Mr Patterson was prepared to accept that hourly rates which were the equivalent of those allowed to the OA by the regulations were an acceptable starting point when assessing the propriety of the OA’s charges here. That concession is a sensible one. It provides a part, but part only, of the evidence that the OA needs to justify his charges in this case.
[15] The purpose for which interim liquidators generally are appointed is reflected
in the wording of s 246(1) of the Companies Act 1993:
246 Interim liquidator
(1)If an application has been made to the Court for an order that a company be put into liquidation, the Court may, if it is satisfied that
it is necessary or expedient for the purpose of maintaining the value
of assets owned or managed by the company, appoint a named person, or an Official Assignee for a named district, as interim liquidator.
[16] The responsibility of the liquidator appointed under this section is an extensive one. Little by way of explicit evidence was placed before me giving an overview of what the OA actually did. Such evidence as there is seems to be restricted to a description of the detailed attendance by the OA without tying in the purpose or objective of particular enquiries. Notwithstanding this lack of evidence, it is possible to make some assumptions about what the OA acting as interim liquidator would have had to do.
[17] It seems likely that the OA would first of all have had to make enquiries as to the state of the business so that he could inform himself as to the extent of the assets
of the company and identify any risks to those assets including wrongful transfer of them out of the company. He would also need to be reassured that the company was not sustaining losses. To do that, he would need information about how the company was trading. All of these matters would have had to be attended to in circumstances of urgency.
[18] The OA was, as I have noted, appointed 10 November 2009. When the OA’s records are analysed, it would seem that a total of about 100 hours were expended on
his duties up until 1 February 2010. No doubt, the initial path that the OA followed
in informing himself about the state of the business was a steep one with some tailing off in the amount of effort and time required after the initial period by which time the OA ought to have acquainted himself with the state of the company and its business. That may indeed be what has happened. As I calculate it, 789 chargeable units (which is 73% percent of the total units charged) were recorded in the first five weeks approximately following the OA’s appointment. Attendances reduced from the end of that period (14 December 2009) until the end of the period covered by the end of the charges (1 February 2010). The picture may, however, be to some extent
distorted by the intervening Christmas vacation.
[19] The point has been made in submissions for the second defendant that the company had its own financial controller running the business throughout the period that is covered by the charges. It is implicit in that submission that there was no need for the OA to become so closely involved in the company’s business.
[20] I accept that the OA has an obligation to ensure that the business was being properly run and that losses were not being incurred. In this respect, the position of
an interim liquidator can differ from that of a liquidator. The latter will often be engaged in winding up a business that has ceased trading. The extent of surveillance required may therefore vary considerably depending on whether the subject-matter of the liquidation is or is not a “live” business. While in this case there were no doubt employed staff who were capable of running the business without the OA’s assistance, the OA in the interests of fairness and to discharge his obligations would have had to keep a reasonably close oversight over the way the business was run.
[21] As well the nature of the liquidation proceedings is a relevant item of background. This was not a case of a party with only an interest as a creditor in the company requiring information from the OA. This company was sought to be placed in liquidation because the two brothers who own it are deadlocked. A great deal of stress has, understandably, been experienced by the protagonists in the case.
It is very easy to imagine how this will have made the OA’s task more onerous because of the degree of concern the brothers would have had for the way the business was running and also their watchfulness to ensure that the other party was not obtaining some unjustified advantage.
[22] Another relevant fact is that the OA accepted the appointment as an interim liquidator which inherently involved circumstances of urgency. That may have meant that the OA did not have the luxury of time within which to measure carefully the extent of the resources that would be required; he had to act swiftly. On balance I would be prepared to assume that the time which the OA and his staff dedicated to their duties – approximately 107 hours – was not unreasonable.
[23] The OA’s counsel, Mr Vinnell, stressed that the fee was calculated on an hourly rate of $200 per hour for the OA and $140 per hour for an employee, which
are amounts that are approved by reg 28 of the Companies Act 1993 Liquidation Regulations 1994. Those regulations do not directly apply to approval of remuneration under s 284 of the Companies Act 1993. However no other counsel was disposed to argue that the rates so fixed should be ignored. My approach will therefore be that those hourly rates provide some guidance to appropriate charges for the OA in the present case, and in the absence of any contention to the contrary I will accept them as being reasonable. As a result of my experience in approving liquidators’ charges on previous occasions I accept that the charges are less than what would be charged by liquidators and their staff in the private sector.
[24] Next I propose to examine whether the overall cost of that time represented reasonable value to those being charged for it. That issue cannot be decided in isolation but needs to be considered in the context of the overall charges including those of the professional advisers that the OA retained. As I have noted above, when those charges are added the total cost of the interim liquidation to early February 2010 is $38,399.36. It certainly is not self-evident that charges of that level reflect the value of the job done. In assessing that question it would have been helpful to have some opinion evidence from, for example, a liquidator from the private sector about whether the charges fit within the range of what is acceptable. What a liquidator from the private sector would have charged is not exactly in point, obviously, but it is an appropriate comparator. There was no evidence covering this point.
[25] I consider that an appropriate allowance for work done to this point must be arrived at by way of a conservative approach to the figures actually charged by the OA. I would be happy to adopt a figure of $30,000 for the global charges (that is including legal and consultants fees). That represents approximately a 20% discounting of the amount claimed.
[26] Such a discounting reflects two things: first, the possibility that had a private sector liquidator been nominated as interim liquidator, it is likely that he or she would have had the necessary resources “in house” and would not have needed to involve an outside consultant such as HFK Ltd. Secondly, it provides a margin to
compensate for the uncertainty that necessarily arises in the absence of evidence, whether the actual charges represent the true value of the work.
[27] I have hesitated before adopting the approach of discounting the OA’s claim
in this way. It is a rather ‘blunt instrument’ to bring to bear. In deciding the overall fairness of such an approach I have taken into account that it seems to be a preferable alternative to adjourning the application to give the OA additional time to adduce further evidence. Because of the delays and expense that such an approach would occasion, I have decided not to follow that course. The expense would be incurred not only by the OA but by the other interested parties including the second defendant who, with some justification, complains about the expenses that the whole exercise has occasioned to the company and himself as shareholder in it.
Future charges
[28] I consider that the future charges at the rates sought are reasonable. However, in the end, it must be emphasised that hourly rates are only part of the picture. It will be the overall aggregate total that ultimately has to be approved by the Court. In that regard, the OA will no doubt appreciate that after an initial settling down period, it should be possible for him to supervise the operation of the company with a rather lighter hand than was necessary at the outset of the interim liquidation.
Result
[29] There will be orders pursuant to s 284 approving the remuneration of the liquidator (including the charges of Anthony Harper Lawyers and HFK Ltd) in the sum of $30,000. The parties should be able to resolve the issue of costs by consultation between them. If they cannot, I will arrange for a further telephone hearing at 9 a.m. on a convenient date to resolve this issue.
J.P. Doogue
Associate Judge
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