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

McCULLAGH and LAWRENCE v NORTHERN CREST INVESTMENTS LIMITED (IN LIQUIDATION)[2020] NZHC 2535 [28 September 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2010-404-7741[2020] NZHC 2535UNDER the Companies Act 1993 Section 284and Part 19 of the High Court RulesIN THE MATTER OF the liquidation of NORTHERN CRESTINVESTMENTS LIMITED(IN LIQUIDATION)BETWEEN ANTHONY JAMES McCULLAGH andSTEPHEN MARK LAWRENCEApplicantsAND NORTHERN CREST INVESTMENTSLIMITED (IN LIQUIDATION)RespondentOn the papers: 28 September 2020Appearances: Lynne Van for the ApplicantsJudgment: 28 September 2020JUDGMENT OF ASSOCIATE JUDGE R M BELLThis judgment was delivered by me on 28 September 2020 at 3:00pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors:Anthony Harper (L M Van), Auckland, for the Applicants[1] The liquidators of Northern Crest Limited (in liq) apply for orders approvingtheir fees and expenses and authorising company records held in Australia under courtwarrant to be disposed of or destroyed.[2] They claim $1,227,351.54 in their application for their remuneration, legal feesand other expenses. That amount does not tally with some other figures in theirapplication. A schedule to the application gives these sums:(a) $335,523.35 for their own remuneration;(b) $917,608.24 for legal fees; and(c) $44,519.04 for other expenses.(d) $1,287,780.10 total.They have written off $60,178.68 in fees and expenses. Their claim is limited by therealisations in the liquidation. There are no funds available for creditors.[3] Northern Crest Investments Ltd was the parent of the Blue Chip group ofcompanies. While Northern Crest was incorporated in New Zealand and remainedregistered under the New Zealand Companies Act 1993, in later years it carried onbusiness in Australia with Australian subsidiaries. For a period it was listed on theAustralian stock exchange. A liquidation order was made on 2 June 2011 on thedismissal of an application to set aside a statutory demand by a Mr RE Haywood.1Messrs Lawrence and McCullagh were appointed liquidators and have remainedliquidators ever since. They have now completed the liquidation.[4] The creditors in the liquidation are:1 Northern Crest Investments Ltd v Haywood HC Auckland, CIV-2010-404-7741, 3 June 2011.(a) Lombard Finance Investments Ltd (in receivership), a secured creditorfor $4,751,048.00;(b) Mr RE Haywood's preferential claim for court costs; and(c) 17 non-preferential unsecured creditors for $10,165,612.77.[5] On liquidators' retrospective applications to approve their remuneration andexpenses, the court applies the principles in Re Roslea Path Ltd (in liq).2[6] As this was a considerable liquidation that ran for a number of years, and theamounts claimed are substantial, I considered whether an assessor should be appointedto assist in considering the remuneration claimed. In Re Roslea Path Ltd (in liq), itwas held that there is jurisdiction to appoint an assessor, either under the court'sinherent jurisdiction or under r 9.36(1) of the High Court Rules 2016.3 The courtindicated, however, that the use of an assessor might be appropriate in the rare casewhere it is inexpedient for an associate judge to embark on a lengthy consideration ofa substantial number of documents. The fact that the costs would come out of theassets of the company counts against the indiscriminate use of assessors. In this case,I am satisfied that I can assess the remuneration without outside assistance.[7] Mr Lawrence's affidavit in support of the application outlines the conduct ofthe liquidation. Copies of reports to creditors, including the final report, have beenprovided. Soon after their appointment, the liquidators took prompt steps to have theliquidation recognised in Australia under its cross-border insolvency legislation,giving the liquidators the powers of an Australian liquidator. That required theappropriate application to the Federal Court. The company directors were not as co-operative as the liquidators would have hoped. The liquidators had trouble retrievingbooks and records. They applied to the Federal Court for a search and seizure warrantto obtain company records. The documents they seized have since been held in theoffices of Sydney insolvency practitioners.2 Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC).3 Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC) at [158]-[164].[8] Since the start of the liquidation, the liquidators have made a number of tripsto Australia. New Zealand lawyers also had to travel to review documents seized.There was an examination of Northern Crest's director, Mr Eakin, an Australianresident.[9] Northern Crest's Australian subsidiaries were put into voluntaryadministration. The New Zealand liquidators claimed that Northern Crest was thecreditor of two subsidiaries. They were unsuccessful in opposing deeds of companyarrangement proposed by the administrators. The liquidators contended thatintellectual property allegedly held by one subsidiary really belonged to NorthernCrest, but they were unsuccessful in pursuing that aspect.[10] The liquidators had to consider a considerable number of claims in theliquidation and rejected many they considered were creditors of other companies inthe Blue Chip group. Their rejection of a claim by Manifest Capital Pty Ltd was setaside on review in this court. I am satisfied that considerable time was spent onreceiving, considering and reviewing creditor claims.[11] The liquidators also say that a consortium of groups of investors applied forthem to be removed as liquidators. That application was discontinued.[12] The liquidators investigated potential voidable transactions. They negotiatedsettlements of two, realising $62,000. They also challenged payments to Robt JonesHoldings Ltd amounting to $751,941.52. That led to protracted litigation from 2013to 2019. Discovery was contested. That required further visits to Australia to recoverdocuments. A discovery decision upholding the liquidators' position wasunsuccessfully reviewed.4 The voidable transaction hearing for four days in 2017went in the liquidators' favour.5 Robert Jones appealed unsuccessfully.6 The SupremeCourt gave leave to appeal7 but that appeal was also unsuccessful.8 The liquidators4 McCullagh v Robt Jones Holdings Ltd [2015] NZHC 1462, [2016] NZHC 2529, [2017] NZHC70.5 McCullagh v Robt Jones Holdings Ltd [2017] NZHC 2182.6 Robt Jones Holdings Ltd v McCullagh [2018] NZCA 358.7 Robt Jones Holdings Ltd v McCullagh [2018] NZSC 120.8 Robt Jones Holdings Ltd v McCullagh [2019] NZSC 86, [2019] 1 NZLR 641.recovered $1,164,276.10 from Robt Jones Holdings Ltd, including interest and costs.Attempts to settle during the litigation were unsuccessful.[13] The major expense in the liquidation is legal fees. In Re Roslea Path Ltd (inliq), the Full Court recorded a dictum in Re Medforce Healthcare Services (No.1) thatthe court reviews only remuneration, not the expenses of the liquidator.9 There is,however, a qualification. If liquidators take steps that are not required for theliquidation, the court may disallow both their expenses and their remuneration forthose steps. It would be absurd to refuse their remuneration while allowing theirexpenses for the same matter. Under Schedule 7(1) of the Companies Act 1993,liquidators may be paid only "the fees and expenses properly incurred".Notwithstanding that qualification, I am satisfied that the legal expenses in this casewere properly incurred and I do not need to inquire further into them. The liquidators,as experienced insolvency practitioners, can be expected to have negotiatedappropriate fees with the lawyers. I am satisfied that the work by the lawyers wasproperly required for the liquidation. Similarly, it is not necessary to inquire into theexpenses recorded by the liquidators.[14] That leaves their remuneration claim. The starting figure is the sum of$335,523.35 in the schedule to the application. That is for 1,259.94 hours and givesan average hourly charge-out rate of $266.30. The charge-out rates for the liquidatorsrange from $95 an hour for secretarial assistance, to $375 an hour for the liquidatorsthemselves. In many run-of-the-mill liquidations, the share of time recorded by theliquidators is relatively small, with the bulk of the work delegated. In this case, theliquidators' records show much more work carried out by the liquidators themselves.That is understandable given the complexity of the liquidation and the associatedlitigation.[15] There can be no issue over the charge-out rates. The liquidators have appliedthe rates the court approved on their appointment. The rates are within the normalrange charged by insolvency practitioners at that time. The liquidators did not apply9 Re Medforce Healthcare Services (in liq) (No.1) [2001] 3 NZLR 145 (HC) at [18].for any increase in their rates, notwithstanding some movement upwards in the marketsince then.[16] I am similarly satisfied that the hours claimed are reasonable, given the effortsrequired to deal with the liquidation as a cross-border insolvency and to manage aheavily contested voidable transaction proceeding that ran for several years.[17] The liquidators funded the liquidation from their own resources for the bulk ofthe liquidation, until Robt Jones Holdings Ltd paid under the judgment against it. Theliquidators have also written off some $60,000 because the recoveries were not enoughto cover their remuneration in full. Their actual remuneration claim is for$275,344.67.[18] Overall, I am satisfied that the remuneration claim is reasonable. It is upheld.[19] The other aspect is the disposal or destruction of the company records.Because they were obtained under a search warrant, the liquidators will need aclearance from the Australian court to dispose of the documents. As for the conductof the liquidation under the Companies Act 1993, I see no reason for the documentsto be held. So far as the New Zealand part of the liquidation is concerned, the recordsheld in Australia may be disposed of. That is not, of course, intended to stand in theway of the Federal Court making its own decision on this aspect.Associate Judge R M Bell