THE COMMISSIONER OF INLAND REVENUE v GENERIS SOFTWARE LIMITED (IN LIQUIDATION) [2019] NZHC 723

THE COMMISSIONER OF INLAND REVENUE v GENERIS SOFTWARE LIMITED (IN LIQUIDATION)[2019] NZHC 723 [5 April 2019]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYI TE KŌTI MATUA O AOTEAROAKIRIKIRIROA ROHECIV-2016-419-83[2019] NZHC 723BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND GENERIS SOFTWARE LIMITED (INLIQUIDATION)DefendantHearing: On the papersCounsel: W Somerville for LiquidatorsJudgment: 5 April 2019JUDGMENT OF WHATA JThis judgment was delivered by me on 5 April 2019 at 4.00 pm,pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate: .Solicitors: PricewaterhouseCoopers, ChristchurchIntroduction[1] The liquidators of Generis Software Ltd (Generis) seek the Court's finalapproval of the liquidators' fee, totalling $9,046.49, excluding GST plusdisbursements. The liquidators have advised creditors and shareholders of their rightto have the fees reviewed under s 284 of the Companies Act 1993 if they object to theamount of the fees. To date, no objection has been received.Background[2] The following is based on the liquidators' draft final report dated 22 November2018.[3] The company was incorporated on 19 February 2002 and operated in thesoftware industry with the responsibility for developing database managementsoftware. The reason for the company's insolvency was due to the failure of oneparticular project. The database management software design was incompatible withApple Mac computers. Therefore, the resulting product was of minimal value.[4] As at the date of liquidation the Company's assets consisted of three oldcomputers which were of minimal value. In addition, the Company was still receivinga limited stream of income in respect of the hosting and maintenance of databasemanagement software developed for former clients of the Company.[5] After a review of the company's records, the liquidators confirmed thatCompany expenditure and the director's personal expenditure were intermingled in abank account belonging to the Company whilst the Company was trading. TheLiquidators reached a full and final settlement with the director, which covered allpotential claims against the director, and included an amount to cover the value of anyCompany assets retained by the director in respect of ongoing maintenance andhosting. That amount was calculated with reference to the potential sale price ofCompany assets, bearing in mind the niche market for resale of the Company'sdatabase management system, along with the fact that any existing streams of incomewere dependent on the director's continuing involvement and familiarity with softwaredeveloped for former clients of the Company.[6] The Liquidators have received all payments due under the settlementagreement. Whilst the final payment of $2,500 was due in March 2017, the Liquidatorsdid not receive this final sum until June 2018, following protracted discussions withthe director regarding non-payment, and during which the Liquidators had consideredthe possibility of formal recovery action.[7] The Liquidators conducted further necessary investigations into the Company'saffairs but did not uncover any other breaches of the Companies Act 1993 that werelikely to result in recovery of assets (e.g. voidable transaction claims).Creditors[8] There were no known secure creditors at the date of liquidation. In terms ofunsecured creditors, the High Court awarded applicant creditor costs of $3,791.72. Nodistribution has been made in respect of these costs. One preferential claim totalling$28,456.90 was received from the Inland Revenue Department relating to claims forunpaid GST and PAYE. One non-preferential unsecured claim totalling $16,538.90was received from the Inland Revenue Department. No distribution has been made topreferential or non-preferential unsecured creditors.Liquidators' fees[9] The liquidators' fees are $9,046.49 for the period of the liquidation,comprising:(a) 20 percent - initial investigation information gathering;(b) 60 percent - negotiations with director regarding settlement of claims;and(c) 20 percent - general investigation and administration.Statutory framework[10] Section 284(1)(e) of the Companies Act, provides:(1) On the application of the liquidator, a liquidation committee, or, withleave of the Court, a creditor, shareholder, or other entitled person, ordirector of a company in liquidation, the Court may -(e) In respect of any period, review or fix the remuneration on theliquidator at a level which is reasonable in the circumstances.[11] As stated in Flynn v McCallum,1 the appropriate test of reasonableness iswhether the time spent would have been undertaken by a reasonably prudent personfaced with the same situation. In addition, as noted by Toogood J in Levin vLawrence,2 the statutory regime under the Companies Act favours allowingliquidators to make decisions which they, as the persons appointed to exercise theseresponsibilities, are better qualified than the courts to make.Assessment[12] I am satisfied that the costs incurred were reasonable:(a) The fees were calculated in accordance with the rates fixed by order ofthe Court on 2 May 2016;(b) The work was appropriately delegated between staff of differentseniority;(c) $1,324.51 in fees were written off.[13] It is also relevant that in each of the six-monthly reports prepared by theliquidators, the creditors and shareholders are advised of the fees incurred to date andtheir right to have the fees reviewed and no objection to the fees has been raised.[14] I note however the application for the fees approval was in the form of amemorandum rather than in the form of an interlocutory application without notice.The latter would certify that the applicant has made all reasonable inquiries and takenall reasonable steps to ensure that the application and all supporting documents containall relevant material, including any defence that might be relied on by any other party1 Flynn v McCallum [2013] 1 NZLR 207 at [47].2 Levin v Lawrence [2012] NZHC 1452 at [54].and any facts that would support the position of any other party.3 Because a withoutnotice application is in some ways a denial of natural justice rights expected inlitigation, this certification is important. The liquidators have since provided thatcertification.[15] Accordingly, I order that approval for the fees should be granted.3 High Court Rules 2016, r 7.23.