The Healy Holmberg Trading Partnership v Grant and Khov HC Ak CIV 2009-404-002279
[2009] NZHC 2510
•15 December 2009
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2009-404-002279
UNDER the Companies Act 1993
IN THE MATTER OF an application for orders under section 284
of the Companies Act 1993
BETWEEN THE HEALY HOLMBERG TRADING PARTNERSHIP
Applicant
ANDDAMIEN GRANT AND STEPHEN KHOV
Respondents
Hearing: 28 September 2009
Appearances: M Radich for the Applicant
P McPherson for the Respondents
Judgment: 15 December 2009 at 3pm
JUDGMENT OF ASSOCIATE JUDGE ROBINSON
This judgment was delivered by me
on
……15 December 2009 at………3 pm
Pursuant to Rule 11.5 of the High Court Rules
…………………………………………………….
Registrar/Deputy Registrar
Date……………………..
Solicitors: Radich Law, Blenheim
Hesketh Henry, Auckland
THE HEALY HOLMBERG TRADING PARTNERSHIP V DAMIEN GRANT AND STEPHEN KHOV HC
AK CIV 2009-404-002279 15 December 2009
[1] The respondents were appointed joint and several liquidators on LBD Civil
Ltd (the company) on 17 April 2008 at 1.25 pm pursuant to a special resolution of shareholders. Their appointment was pursuant to s 241(2)(a) The Companies Act
1993. The applicant is a secured creditor of the company. On 30 April 2009 without opposition leave was granted to the applicant to bring an application for orders and directions under s 284 The Companies Act 1993.
Background
[2] The applicant claims to have advanced various amounts to the company between December 2005 and August 2007. Of those amounts:
a) On 29 December 2005 the sum of $155,688.80 was advanced secured over five landscaping machines owned by the company.
b)On 25 September 2006 the sum of $170,407.08 was advanced secured over plant and equipment acquired by the company from Arren Civl Ltd.
[3] Following their appointment the respondents on 17 April 2008 instructed Mr S Kumar of Waterstone Recovery Ltd to locate the assets of the company, identify the company’s creditors, prepare documents on behalf of the respondents and liaise with creditors. Mr Kumar on searching the Personal Property Securities Register identified a number of securities including securities in the name of Mr Laurie Healy who is the surviving partner of the applicant. The other partner died
in April 2008. According to his investigations Mr Kumar found that Mr Healy had security on the following vehicles and plant of the company:
a) Komatsu WA 40-1 Loader b) Dynapac CC142 Roller
c) Mercedes Actros (1999) tiptruck
d) Ford tiptruck registration number OM895
e) Sumitomosh 120 (1999) excavator f) Superpac 540 PB sheepfoot roller
g) Hitachi ZX120 (2000) excavator h) Isuzu Forward (1994) tiptruck
i) Komatsu PC 75UU-3C excavator with drill
j) Yanmar Bio 30PR excavator
[4] Mr Kumar says he contacted Mr Healy in May 2008 seeking documentation
to verify the authenticity of the securities and for permission to sell the assets which provided Mr Healy’s security. In an email of 5 May 2008 Mr Healy gave Mr Kumar instructions to sell the plant and equipment stating;
Thank you Shamal, please dispose of the equipment as best you can. Yes I
agree, we will have to ensure that you are paid for your work.
I understood that LBD Civil had supplied you with details of the monies lent. It would be helpful in my current turmoil if you could send me a copy of what they gave you.
Also good that you emailed – at least I now have you contact details stored. Regards
Laurie Healy
59a Selwyn Street
RD1 Takaka 7183Phone: 03 5258896
Cell Phone: 021 2787736
[5] Pursuant to this authority some of the vehicles and plant over which the applicant claims to have security was sold by Waterstone Recovery Limited. A
number of items were sold in May 2008 and some sold by Turners Auctions on 4 June 2008.
[6] Mr Kumar suspected Mr Healy’s claim to security over the plant and equipment may not be authentic and sought documentary evidence from Mr Healy to support that claim.
[7] According to the respondents’ second report provided pursuant to s 255(2)(a) The Companies Act 1993 for the period 17 April 2008 to 17 October 2008:
a) Total realisations including plant and equipment sold for $144,417.22
amounts to $157,075.53.
b) Cash has been applied as follows:
i) Liquidators’ fee $59,825.46 ii) Distribution to IRD $5,002.63 iii) Disbursements $27,939.84 iv) Bank fees 0.60
v) Total distributions $92,768.53
Consequently, as at 17 October 2008 balance of funds held by the respondents amounted to $64,307.
Applicants Case
[8] The applicant contends that in breach of s 255(2)(c)(ii) the respondents did not send him the report required by that section together with a notice explaining the creditors right to call a meeting of creditors under s 314 of The Companies Act 1993.
He also claims the respondents have acted unreasonably and improperly by taking unreasonably high fees for themselves. According to the applicant the liquidators’
fees as at 17 April 2009 amounted to $74,825.46. In addition there is a deduction of
$27,939.84 for unspecified disbursements. The applicant also contends that the liquidators have been unreasonable and acted improperly in refusing to recognise his security over some of the company’s plant and equipment.
[9] The applicant contends that fees in this case assessed at $350 an hour for the liquidators are excessive and, based on authorities such as Body Corporate No.205963 v Cheltenham Trustees Limited (9 July 2008, AK HC, CIV 2007-404-
6074), should be no more than $180 per hour. Based on the evidence time recorded
by the liquidators for themselves and their staff for the six months between 17 October 2008 and 17 April 2009 totalled 15.25 which at the rate claimed by the respondents would justify fees of $3,425. In fact the respondents paid themselves $15,000 which is nearly $1,000 per hour.
Respondents Case
[10] The respondents say that as a matter of course all creditors received the first report which was sent out on 2 May 2008. In that report the respondents advised the creditors as follows:
CREDITORS MEETING
After having regard to the assets and liabilities of the company and the likely result of the liquidation, it is proposed to dispense with a meeting of creditors pursuant to Section 245 of the Companies Act 1993.
However, we do not wish to preclude creditors from expressing their views. Please contact our office if you have any specific enquiries.
You are advised that should you require a meeting, notice in writing is required within 10 working days of receiving this notice.
At the time of giving notice you must also state the reason you require a meeting so that an agenda can be prepared and advertised and creditors can be given the opportunity to vote on any issue.
[11] Section 245 of The Companies Act 1993 empowers the liquidator to dispense with a meeting of creditors under s 243 or s 244 of The Companies Act 1993 if the liquidator considers having regard to the assets and liabilities of the company the result of the liquidation of the company and any other relevant matters that no such
meeting should be held provided the liquidator gives proper notice to creditors in terms of that section.
[12] The respondents also point out that they went to considerable effort in contacting Mr Healy who was in regular communication with Mr Kumar immediately after the company went into liquidation. They maintain that although they cannot prove definitely Mr Healy did receive their report, and accept it as possible he did not, they received claim forms from 63 creditors. Those claim forms accompanied the notice and established that the 63 creditors concerned must have received the notice.
[13] The liquidators claim that there appears to be a relationship between Mr Healy and Mrs Prujean, who was a former director of the company. Mrs Prujean had told the respondents Mr Healy was a family friend and she was anxious to ensure he was looked after. They report Mrs Prujean was uncertain as to the existence of the security documentation relating to the applicant’s advances. Mr Healy appeared unable to supply some documentation. Consequently, they considered their request for further information from Mr Healy concerning the
security for his advances to be justified and reasonable.
[14] The respondents maintain that the liquidation of the company was a large and complex undertaking requiring a substantial commitment of their firm's resources. There was a possibility that because of security over the company’s assets they would have not recovered any fees. Consequently, they received an indemnity to a maximum of $4,000 from the director of which $2,000 was paid.
[15] At the commencement of the liquidation most of Waterstone staff were sent
to different sites in order to identify and recover assets. Additional staff was provided by Waterstone Recovery Ltd and billed separately. At one point the entire firm of eight staff was engaged on four different sites identifying, cataloguing, securing and retrieving assets for the liquidation. They say their staff worked during the weekend in difficult and often confrontational situations. Furthermore, they say the liquidation has continued to consume resources in dealing with security issues, insurance claims, $800,000 in creditors’ claims and a comprehensive audit of the
company’s bank statements investing a large series of transactions that appeared to have occurred in the months prior to liquidation. However, ultimately the decision was made not to attack those transactions to determine whether those transaction may be voidable
[16] Relying on HIH Holdings (NZ) Limited v HIH Casualty & General Insurance (NZ) Ltd a decision of Master Faire (CIV 2001-404-4097 1 August 2003) it is pointed out that fees of up to $425 per hour have been accepted. It is therefore contended on behalf of the respondents that fees fixed at $350 per hour for liquidators, $250 per hour for qualified support staff, $150 per hour for unqualified support staff and $80 per hour for internal administration staff are acceptable. The fees charged by the respondents in this case amounting to $74,825.46 as at 17 April 2009 have been calculated on that basis and are appropriate.
[17] The respondents also point out that the Court cannot review the disbursements paid by the liquidators which as at the date of hearing total $27,939.84. In this respect they rely on the following comments of Salmon and Paterson JJ in their joint judgment in Re Medforce Healthcare Services Ltd (In Liquidation) [2001] 3 NZLR 145 where at p 151, para [19] their Honours state:
It seems clear that it is only the remuneration of the liquidator which is subject to review, not his expenses. The distinction between the two is apparent from s 278 which provides that “the expenses” and remuneration of the liquidator are payable out of the assets of the company.(emphasis added)
[18] Counsel for the respondents also point out fees deducted by the liquidators of
$15,000 in April 2009 were for work by the liquidators prior to 17 October 2008 for which they had not been paid. When the total time recorded by the respondents and their employees is taken into account fees calculated at the hourly rate fixed by the respondents total $68,162.50. They have charged $74,825.46 resulting in an overpayment of $6,662.96. It is pointed out that at the final conclusion of the liquidation any overpayment will be accounted for.
Further information not provided at the hearing
[19] At the conclusion of the hearing I directed the respondents to provide the Court with further information as to:
a) Details of the sale of the plant and equipment subject to the charge in the applicants favour including details of the purchasers. The date of sale, and the amounts received for each item. I also directed further evidence as to the method of sale and efforts made to achieve the best possible price.
b) Full details of the disbursement of $27,939.84.
c) Details of how the respondents calculated their scale of charges and in particular how much relates to overheads and how much is profit.
[20] At that time I also directed the applicant to supply the respondents with the originals of the documents creating the security he claims for the advances made by the applicant to the company. The applicant advises the original documents creating the securities have now been provided to the respondents.
[21] A further affidavit sworn and filed by Mr Grant, one of the respondents, supplied details of the sale of vehicles and plant which are subject to the applicant's securities. The total amount received was $83,900. From that sum has been deducted
a commission on sale paid to Turners Auctions of $8,366.62 and a commission paid
to Waterstone of $24,890 leaving a balance of $50,643.38. Three items of plant and equipment were sold through Turners Auctions for a total of $64,400 and the remaining items of plant and equipment were sold to individuals who the respondents claim offered a better price than would be achieved through Turners Auctions.
[22] Mr Grant in his affidavit also advises that the respondents have received
$172,451.91 from the company’s liquidation which has been applied by them as follows:
a) Direct costs/disbursements $16,556.51 b) Waterstone’s liquidators fees $79,350 c) Waterstone recovery fees $11,955 d) Distribution to creditors $13,033.82 e) Balance of funds held $51,556.58
Of the disbursements $12,678.95 is payment of GST to the Inland Revenue
Department and the other items are for transporting some of the company’s plant.
[23] Mr Grant advises that he trades as Waterstone Insolvency. He states he is the only shareholder and sole director of Waterstone Recovery Limited. He further advises he established Waterstone Recovery Limited in September 2007 as a vehicle
to collect debtors’ ledgers from companies in liquidation. Mr Shamal Kumar was employed by Waterstone Recovery Limited as manager of its business. Mr Grant goes on to say that Waterstone Recovery Limited has its own balance sheet and separate business function. He also says that approximately half of Waterstone Recovery Limited’s revenue comes from third party debt collection unrelated to the respondents' insolvency practice.
[24] Mr Grant points out that time spent on the company’s liquidation by three of Waterstone Recovery Limited’s staff in the initial part of the liquidation has not been billed by the respondents but was billed by Waterstone Recovery Limited to the respondents. The amount involved is the $11,955 deducted from monies recovered by the respondents.
[25] Mr Grant also points out that Waterstone Recovery Limited made a loss of
$61,120 on a turnover of $132,934 in the last financial year as shown by the income tax returns which he has produced.
[26] Mr Grant advises that the charge-out rates were fixed by reference to other charges by other liquidator firms in town. He also took into account evidence filed
by insolvency practitioners in proceedings to have their fees approved by the Court and in particular relied on an affidavit by John Whittfield, an insolvency practitioner
at McDonald Vague, filed in a High Court proceeding who swore that an hourly rate
of $300 was reasonable for liquidators. Mr Grant points out that the hourly rate referred to by Mr Whittfield was in 2006 and that the cost of business has increased since that time.
[27] Mr Grant considers there is a substantial risk of no recovery in a liquidation which results in the liquidators receiving no remuneration for the work they have done. He says they have substantial overheads in conducting liquidations and consequently must factor into their hourly rates the risk of conducting substantial work for no payment. He claims it is not possible to break down the hourly rate to describe which portion relates to profit and which to overheads or costs of sale. He estimates that on the figures he has supplied less than ten percent would be a pre-tax profit element. In this respect he supplies a copy of the respondents’ tax returns which show that taxable income for the last year amounted to $125,207.98 on turnover of $792,573. The respondents’ overheads are approximately $40,000 per month for rent, salaries, electricity and so on. There are he points out, additional expenses such as costs of sale, legal and profession fees. He claims the respondents have incurred over $16,000 in legal fees to defend these proceedings.
Decision
[28] The applicant seeks the following relief by way of orders under s 284 of the
Company Act 1993:
a) That the applicant was a secured creditor holding registered securities over various items of property owned by the company at the time the company was put into liquidation.
b)That the respondents be required to account to the applicant for proceeds received from the sale of items over which the applicant held a registered security.
c) That the accounts of the liquidation be audited at the respondents'
expense.
d)That the respondents produce the accounts and records of liquidation for audit and provide the auditor with such information concerning the conduct of the liquidation as the auditor requests.
e) That the remuneration of the respondents as liquidators of the company be fixed at a reasonable level that is reasonable and that the respondents refund the difference between that figure and what they have actually claimed as remunerations.
f) That the respondents be removed as liquidators and replaced by a
Court-appointed liquidator.
g) That the costs of the applicant in making this application be met by the respondents.
[29] Now that the applicant has produced the original documents relating to the securities it claims I understand the respondent accepts the validity of the securities and will accordingly account to the applicant for the proceeds received from the sale
of the items over which the applicant claims security. Consequently, I will not make any orders or directions relating to that part of the application. That part of the application will be adjourned to be brought on for hearing should there be any further problems arising out of the securities held by the applicant. Should either party seek to bring this part of the application on for hearing the party concerned will need to file an affidavit giving further particulars of the particular problem arising out of the security.
[30] Counsel for the respondents submitted that it was not possible for the Court
on an application under s 284 to direct their removal as liquidators. The power of the
Court to remove a liquidator from office can only be exercised, it is submitted, under
s 286(3) of The Companies Act 1993 or where the liquidator becomes disqualified to
act by reason of s 280 of The Companies Act 1993. There is no suggestion that the respondents have become disqualified to act as liquidators of the company under s
280. Consequently, the power of the Court to remove the respondents as liquidators must be confined to s 286(3). In terms of that provision the Court can only remove a
liquidator where notice of the liquidator’s failure to comply has been served on the liquidator not less than five working days before the date of the application (see s
286(2)). As no such notice has been served in this case the Court is precluded from ordering the removal of the respondents as liquidators. The applicant did not make any submissions in answer to the respondents’ submissions. Pursuant to s 285 failure
to comply includes failure to comply with any order or direction of a Court (see s
285(1)(b)).
[31] In the circumstances I will not make an order removing the respondents as liquidators of the company. It is more appropriate for such an order to be made following the service of a notice in set terms of s 286(2). The applicant can of course
at any time serve such a notice and if there is default apply for orders under s 286.
[32] Subject to the Court’s discretion to review or fix remuneration of the liquidator under s 284(1)(e) every liquidator appointed under s 241(2)(a) is entitled
to charge reasonable remuneration for carrying out his or her duties and exercising
his or her powers. In contrast to the position of the Official Assignee accepting appointment under s 241(2)(a) and the liquidator appointed by the Court under
s 241(2)(c) the respondents’ remuneration is not fixed by Reg 28 Liquidation Regulations 1994. That regulation fixes the remuneration of liquidators appointed by the Court and the Official Assignee when appointed by resolution of shareholders under s 241(2)(a).
[33] In Re Medforce Healthcare Services Limited (In Liquidation) [2001] 3 NZLR
145 the Court had to consider applications by liquidators for approval of fees in excess of the fees fixed by regulation 28 Liquidation Regulations 1994. The applications before the Court were brought under s 284(1)(e) and (f). As the Court had considered reasonable remuneration for the liquidators the decision is relevant to the determination of reasonable remuneration for liquidators approved by sharebrokers under s 241(2)(a). At paragraph 27, page 154 Salmon and Paterson JJ made the following comments:
An application for approval of hourly rates proposed to be charged would need to be supported by an affidavit from an experienced insolvency practitioner deposing that the hourly rates were appropriate for the particular person sought to be appointed as liquidator or his or her employees.
However, where a particular liquidator's hourly rates have previously been approved by a Master and no increase is sought there should be no need for that verify affidavit in subsequent applications. Rather, the application should refer to that previous approval.
[34] In the decision relied upon by the respondents as justifying their hourly rates
of HIH Insurance Holdings (NZ) Limited v HIH Casualty and General Insurance (NZ) Limited the rates were supported by John Waller, a chartered accountant and senior partner of Price Waterhouse Coopers in New Zealand. In his judgment Master Faire at paragraph [5] states:
It is significant that I record that the rates advanced and as confirmed as appropriate by Mr Waller were advanced to me on the basis that they are:
“similar to rates charged by other international insolvency practices engaged
in a liquidation of a financial institution requiring specialty skills and experience of comparable size and complexity”.
[35] In his decision Master Faire at paragraph [19] went to some length to point out that the rates he was fixing related to the complexities and difficulties of the particular liquidation.
By contrast, the liquidators in this case are involved with complex issues dealing with insurance recoveries which, if successful, will have a substantial benefit to policy holders and to creditors. There are other issues involving investments, inter-company debtors, and other debtors. It is not the purpose of this judgment to summarise the various reports which the liquidators have made to the liquidation committee. The information is fully contained therein. The purpose in mentioning the special aspects of the liquidation is because this is a case where special expertise is called upon and where there is, understandably, a basis for the view advanced by Mr Waller that the rates for which Court approval is sought are reasonable having regard to the circumstances of this case. I wish to make it clear that the rates that I shall approve in this judgment cannot be accepted without further justification as being appropriate rates applying in subsequent litigation cases. The increases are substantial in what was previously approved. The primary basis of them is that they are set by the firm of which the liquidators are partners but they are supported by a competitive firm which is also involved in liquidation work. The rates are expressly placed before the Court on the basis that this is a case where the issues are complex and there is clearly an international component involved in the work that is being undertaken by the liquidators. There is yet a further and significant matter that has a bearing on the approval of the rates in this case. Mr Downey informed me that the liquidators were close to approving an interim dividend which could be in the order of sixty cents in the dollar. This process is subject to the liquidators obtaining orders from the Court.
[36] As can be seen from my decision in HIH Casualty and General Insurance (NZ) Limited (In Liquidation) HC AK, 30 April 2008, CIV 2007-404-3775 reported (2008) 10 NZCLC, 264, 376 all creditors of the liquidation were paid in full and there was a surplus including the sum of $35 million set aside pursuant to the directions of the Court made on 17 December 2003.
[37] In contrast to the situation in HIH Insurance Holdings (NZ) Limited (In
Liquidation) the liquidation in this case will not achieve anything like full payment
to all creditors, has not involved complex legal and accountancy issues and apart from some difficulties in locating plant and equipment and the liquidators questioning of the applicants security has been relatively straightforward. Consequently, no assistance can be obtained from the decision in HIH Insurance Holdings (NZ) Limited (In Liquidation) in determining an appropriate rate of remuneration for the respondents.
[38] The respondents have not supplied an affidavit from an experienced insolvency practitioner deposing that the hourly rates charged were appropriate for the respondents or their employees as required by the decision of Re Medforce Healthcare Services Limited (In Liquidation). All they have done is supply the Court with a copy of the affidavit of John Whittfield, an insolvency practitioner with McDonald Vague filed in High Court proceedings in which he confirms fees charged
by Mr Anthony John McCullough at up to $300 per hour plus GST for a director as being reasonable and in accordance with the prevailing charge-out rates for insolvency practitioners.
[39] I must also bear in mind that in 2000 Master Gambrill made the following comments with regard to appropriate hourly rates in Re Medforce Healthcare Services Limited (In Liquidation) (No 2), [2001] 3 NZLR 158 at 167, paragraph [23]:
Quantum of Fees
This is the difficult issue because of the variation in methods used to calculate fees. In the smaller cities and in large areas of New Zealand, except Wellington and Auckland, the fee structure proposed to the Court in liquidators applications is considerably lower. The Court is prepared to recognise that in Auckland and Wellington there are higher costs of living, salaries and rental accommodation. Medforce approved rates of liquidators at
$280 to $300 per hour, insolvency accountants at $100 to $160 per hour. The
Court does not have difficulty in approving rates of up to $160 to $180 for accountants in areas other than Auckland and Wellington and between $260 and $300 for senior staff and liquidators scaled down in relation to work of other staff in areas such as Auckland and Wellington, such sums inclusive of GST, but has certain difficulties over other sums which are propounded up to
$350 an hour.
[40] In Re Galdamost Dynamics (NZ) Limited (In Liquidation) decision of Hammond J (HC AK, M1925/93, 25 March 1994) the following comments were made with regard to fixing fees at hourly rates:
4. In making such assessment, the Court will be astute to see that there
is an adequate identification of what the real profit rates are which are being charged, and that only fair overheads are being allowed. Partner time, for
instance, normally includes some elements of overheads; and blind
aggregation of overheads to a principal’s hourly rate may lead to a distinct element of double recovery. Liquidations are not a bottomless well from which insolvency practitioners may drink; at the same time, without sufficient succour, professionals with adequate experience and professional capacities would be dissuaded from accepting appointment as liquidators.
5. There is an obligation upon a liquidator to present fees in such a form as allows convenient identification of true profit costs and overheads. Where there are unusual items, explanatory notes should be added.
6. All relevant factors have to be considered in setting fees, whether percentage or itemised. Without limiting the generality of that statement, the skill and efficiency with which a difficult liquidation is advanced may in itself well be relevant to the appropriate level of liquidators fees. So too will be the kinds of matters which have to be attended to within a given liquidation: obviously some kinds of matters require a higher degree of skill and expertise than others. Liquidations vary enormously in their degrees of difficulty, both in toto and within a given liquidation.
7. Where there is demonstrated misconduct or incompetence on the part of a liquidator, fees may be disallowed in whole or in part. Obviously it would be an extreme case where a liquidator was entirely disbarred from her fees, but the normal rule that a professional person is only entitled for fees for that work which is appropriately and professional undertaken obtains.
[41] In the present case the respondents have not complied with the obligation to present their fees in such a form as allows convenient identification of true profit costs and overheads.
[42] Decisions relied upon by the applicant in limiting the respondents’ hourly charge out rate include Body Corporate No 205963 v Cheltenham Trustee Limited, my decision dated 9 July 2008 (AK HC, CIV 2007-404-6074) where rates were set
at $180 per hour for the principal liquidator and $50 per hour for a junior insolvency
practitioner in Auckland, NZ Customs Services v Cellular House Limited (HC Wellington, M287/99, 6 September 2007) fixing rates for the principal liquidator at
$200 per hour and Marcusson v The Gem Limited (Wellington HC, CIV 2001-485-
1316, 17 June 2004) fixing rates at $195 per hour for principal liquidators and $120
for seniors.
[43] The rate of remuneration fixed for the liquidator in Cellar House Limited at a maximum of $200 per hour plus GST involved a very complicated liquidation where the liquidator brought proceedings against the directors of the company. Those proceedings lasted for four days in the Nelson High Court and a further three days in the Wellington High Court. There was a substantial judgment which it is suggested is one of the leading cases in claims under s 301 of The Companies Act 1993. Mr Walker was successful in bringing his claim. That fee of $200 per hour plus GST for the liquidator, $160 per hour plus GST for senior accountants, $120 per hour plus GST for junior accountants and $90 per hour plus GST for unqualified accounting staff was fixed in respect of a liquidator resident in Wellington in 2007. Consequently, the fee was fixed having regard to the extra overheads which apply in centres such as Wellington and Auckland referred to by Master Gambrill in the Medforce Healthcare Services decision.
[44] The liquidation conducted by the respondents in the present circumstances was by no means as complex and difficult as the liquidation in Cellar House Limited.
In Body Corporate No 205963 v Cheltenham Trustee Limited, decision dated 9 July
2008, Mr Paterson who was appointed as the liquidator sought and obtained approval
for fees at $180 per hour for himself, $85 per hour for fully qualified accountants and
$50 per hour for a junior insolvency practitioner. Mr Paterson is resident in Auckland.
[45] It is significant that the fees referred to in Cellar House Limited and Body Corporate No 20596 are significantly lower than the $300 per hour referred to by Master Gambrill at paragraph 23 of her decision in Re Medforce Healthcare Services. It would seem therefore that market forces over the last eight years have impacted on the fees chargeable by in fact reducing the appropriate hourly rate for fees in Auckland and Wellington.
[46] In the absence of any evidence establishing that the hourly rate sought by the respondents is appropriate for this liquidation I must fix their hourly rate based on the above authorities. In the circumstances I can see no reason why the respondents should receive a higher hourly rate than the rate fixed for Mr Paterson in the decision
of Body Corporate No 205963 v Cheltenham Trustee. In that case the liquidator had
to achieve an immediate sale of 12 units. The debts included levies owing on the units to the Body Corporate of $1,155,886.26. For that task the liquidator accepted a fee of $180 per hour, a fee of $85 for qualified accountants and $50 per hour for a junior insolvency practitioner. Consequently, in the context of this liquidation I am satisfied that an appropriate charge out rate for the respondents is $180 per hour plus GST, $85 per hour plus GST for qualified support staff and $50 per hour plus GST for internal administration staff.
[47] The accounts supplied by the respondents show that between 18 April 2008 and 22 April 2008 they charged fees of $25,259. In addition, they paid Waterstone Recovery Limited fees of $11,955. Mr Grant says those fees paid to Waterstone Recovery Limited were for service rendered by Shamal Kumar, Phil Clements and Andrew Edginton, employees of Waterstone Recovery Limited who were involved
in recovery of the assets of the company during the early weeks of the liquidation.
[48] Mr Grant also says the respondents had up to eight staff working at four different sites looking for assets during the initial stages of this liquidation. He claims exceptionally long days were worked and some staff had difficult confrontations where the ownership of assets was being contested by those in possession of the equipment. He also points out that there were fraudulent attempts
to issue trespass notices and in a number of cases junior staff members left sites when they were asked to leave resulting in the respondents returning and negotiating the release of the company’s assets. It is claimed that without the resources and skills
of the respondent to take possession of the company’s assets in a hostile environment the assets would have been lost without any possibility of recovery.
[49] It is a reasonable inference from the respondent’s evidence that extra costs were incurred as a result of the respondents inadequate preparation. The respondents should have anticipated difficulties in recovery of plant and ensured competent
forceful staff attended at sites armed with the necessary legal authorities to collect the plant. This would have avoided extra costs incurred because junior staff left the sites.
[50] I observe that in the time sheets produced to the Court on 18 and 19 April
2006 some twenty hours have been charged at $350 an hour. This is the hourly rate
for the liquidators. It is surprising they did not instruct an independent repossession agent. On 4 June the liquidators spent 7.25 hours attending to the auction of equipment at Turners Auctions. This is clearly an excessive amount of time. It is surprising that more junior staff were not despatched to attend the auction. In addition, Waterstone Recovery Limited charged a commission of $24,890 in respect
of the sale of all the equipment which included equipment and plant sold by Turners Auctions. Thus there is an element of double charging in that Waterstone Recovery Limited was attending to the sale of plant and equipment for which it was receiving payment and in addition the liquidators claimed a not insignificant amount for their involvement in the same exercise.
[51] The liquidators acknowledge receiving payment of $6,662.96 in excess of the amounts claimed for their services. Clearly, taking such payment establishes misconduct on their part. I am also satisfied that not only is their hourly rate unjustified but they have spent excessive time and, on at least one occasion, have billed for time attending to the sale of plant when at the same time they have instructed Waterstone Recovery Limited to attend to this task.
[52] As pointed out by Hammond J in Galdamost Dynamics (NZ) Limited (In
Liquidation):
Liquidations are not a bottomless well from which insolvency practitioners may drink.
I also observe that in that decision Hammond J stated:
Where there is demonstrated misconduct or incompetence on the part of a liquidator, fees may be disallowed in whole or in part.
[53] The evidence establishes misconduct on the part of the liquidators which justify disallowing the fees they have charged in part. I accept that they are entitled
to some fees for the work they have done.
[54] I am concerned that the liquidators made very little effort to obtain the best possible price for the plant and equipment they seized. In the directions I made on
28 September 2009, I required some detail as to the method employed to sell the assets of the company whether by auction or otherwise, and the efforts made to obtain the best price for the assets. No such details have been supplied and I can only assume that the liquidators chose to dispose of the plant by way of public auction through Turners Auctions. They have supplied details of disbursements that have been incurred in the liquidation. Absent from those details is any reference to the cost of valuing the plant seized. Consequently I conclude that the liquidators did not obtain a valuation of the plant. Furthermore, there is no disbursement for advertising plant nor is there any evidence that the liquidators did advertise the plant. There is no evidence of attempts to dispose of the plant through sites such as TradeMe on the Internet. I conclude therefore that very little effort was made by the liquidators to dispose of the plant at the best available price.
[55] The evidence would justify an order for the audit of the hours spent by the liquidators in this liquidation. However, such audit would be expensive. In the circumstances, rather than direct an audit, I have decided to fix the liquidators’ fees
in the total sum of $20,000 plus GST for work to date. In calculating that figure I take into account evidence that establishes the hourly rate charged to be excessive, the hours charged to be excessive, and the failure of the liquidators to take appropriate steps to ensure that the plant and equipment they seized was sold for the best available price.
[56] I also direct that as from today the liquidators’ fees will be fixed at:
a) For liquidators $180 per hour plus GST.
b) For qualified support staff $85 per hour plus GST.
c) For internal administration staff $50 per hour plus GST.
[57] The applicant has not produced any evidence to support the contention that the liquidators sold the plant and equipment at an under-value. In the absence of such evidence I cannot come to that conclusion.
[58] According to the evidence of Mr Kumar, employed by Waterstone Recovery
Limited, the specific areas of his involvement in this liquidation included:
a) Locating the assets of the company and arranging for their retrieval and disposal.
b) Identifying the creditors of the company.
c) Preparing draft documents on behalf of the liquidators. d) Liaising with creditors in relation to their claims.
He says his involvement in the company’s liquidation began the day the company went into liquidation on 17 April 2008.
[59] Pursuant to s 253 of the Companies Act 1993, the principal duty of a liquidator:
Subject to s 254 of this Act the principal duty of a liquidator of a company is:
(a)To take possession of, protect, realize, and distribute the assets, or the proceeds of the realization of the assets, of the company to its creditors in accordance with this Act; and
(b) If there are surplus assets remaining, to distribute them, or the proceeds of the realization of the surplus assets, in accordance with s 31(3) (4) of this Act in a reasonable and efficient manner.
Mr Kumar, therefore, was undertaking the principal duties of the respondents.
[60] It is contended on behalf of the respondents that the Court cannot review the disbursements paid by the respondents to Waterstone Recovery Limited. It must be
borne in mind that one of the respondents is the only shareholder and sole director of Waterstone Recovery Limited. If the respondents’ contention is correct, then the respondents, by instructing Waterstone Recovery Limited to undertake the responsibilities of the liquidation, can thereby oust the jurisdiction of the Court to review the charges for such services.
[61] I accept that the Court cannot review proper charges made to independent sub-contractors employed by the liquidators for specific tasks. Thus in the present case the Court could not review a charge made by an independent repossession company for seizing plant and equipment of the company. Consequently, I conclude that in the circumstances of this case the disbursement to Waterstone Recovery Limited is subject to review of the Court. In effect, the respondents have delegated their responsibilities as liquidators to Waterstone Recovery Limited.
[62] The applicant acknowledges instructing Mr Kumar of Waterstone Recovery Limited to dispose of plant over which the applicant has a charge. Consequently the applicant must accept liability for payment of reasonable charges. However, the applicant was entitled to expect that Waterstone Recovery Limited would take appropriate steps to ensure the plant it recovered was sold at the best available price. There is no evidence that Waterstone Recovery Limited did anything to try and obtain the best price for the plant and equipment. It did not report to the applicant advising details of the sale of the equipment, nor did it seek the applicant’s agreement to the method of sale and to the amounts received from the sale. Consequently, whilst they might be entitled to a reasonable fee, their conduct falls below the standard which would justify payment for the services they have rendered.
In the circumstances therefore I conclude that Waterstone Recovery Limited is not entitled to any fees in respect of this liquidation and the liquidators have acted improperly in paying such fees to that company. Those fees amounting to $11,955 must therefore be refunded.
[63] Similarly, I am satisfied that Waterstone Recovery Limited is not entitled to the commission of $24,890 which was deducted from the amount received from the sale of plant and equipment. A substantial portion of the plant and equipment was sold through Turners Auctions for which no commission should be payable to
Waterstone Recovery Limited. In any event, because of the lack of any evidence to establish that Waterstone Recovery Limited attempted to get the best available price,
I am satisfied that the company is not entitled to charge. Consequently there is a direction that the respondents repay the commission of $24,890 charged and collected by Waterstone Recovery Limited
Summary of Orders
[64] In summary there are the following orders:
a) The application relating to directions concerning the applicants security over items of property owned by the company is adjourned sine die. Leave is reserved to bring that application on for hearing. If either party wishes that application to be brought on for hearing there will need to be an affidavit containing sufficient particulars of the issue that is to be resolved.
b) The remuneration of the respondents for work to today’s date is fixed
at $20,000. The respondents shall forthwith refund money they have deducted in excess of the remuneration of $20,000.
c) That as from today the respondent’s remuneration shall be fixed as:
i) For liquidators $180 per hour plus GST
ii) For support staff $85 per hour plus GST
iii) For internal administration staff $50 per hour plus GST
[65] That the respondents shall forthwith refund the following amounts.
a) $11,955 paid to Waterstone Recovery Limited.
b)$24,890 deducted by Waterstone Recovery Limited as commission on sale of plant.
c) The application for the respondents to be removed as liquidators is dismissed.
Costs
[66] The applicant is entitled to costs. In the circumstances I conclude that such costs should be fixed on a 2B basis, with disbursements as fixed by the Registrar. In coming to that conclusion I do not consider that the respondents have acted in any way to unnecessarily increase the applicant’s costs. I also take into account that the parties came to an agreement relating to the acceptance by the respondents of the applicant’s security and that the application to remove the respondents as liquidators could not succeed because it was brought under the wrong section of the Companies Act.
……………………………………………………..
Associate Judge M D Robinson
0
0
0