THE COMMISSIONER OF INLAND REVENUE v J AND J WATT LIMITED [2019] NZHC 531

THE COMMISSIONER OF INLAND REVENUE v J AND J WATT LIMITED [2019] NZHC 531 [25 March2019]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYI TE KŌTI MATUA O AOTEAROAKIRIKIRIROA ROHECIV-2017-419-239[2019] NZHC 531BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND J AND J WATT LIMITEDDefendantHearing: On the papersCounsel: M Hollis and W Somerville for Liquidators of DefendantJudgment: 25 March 2019JUDGMENT OF WHATA JThis judgment was delivered by me on 25 March 2019 at 3.00 pm,pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate: .Solicitors: PricewaterhouseCoopers, Hamilton[1] The liquidators of J. and J. Watt Limited (the company) seek the Court's finalapproval of the liquidators' fee, totalling $101,615, excluding GST, including costsand disbursements.Background[2] The following is based on the liquidators' final report dated September 2018.[3] The company was incorporated on 26 March 1958 and operated a dairy farm.To maintain the welfare of the animals on the farm, the liquidators continuedoperations on the farm until its sale on 9 May 2018 by auction. The farm was sold viamortgagee sale, with the sale price being $11.1m.[4] The directors also placed a residential property owned by the Company on themarket during the time of the liquidation. The liquidators agreed to continue with thesale of this residential property and it sold on 16 June 2018 via auction with theliquidators settling the sale.[5] The directors had placed a number of pieces of machinery on the market priorto the liquidators' appointment. During the course of the liquidation, the liquidatorssold one slurry tanker. The other items of machinery remain under the control of thedirectors.[6] All debtors outstanding at the commencement and throughout the liquidationhave been collected in full.[7] The shareholders of the company later advised they wished to apply to theCourt for termination of the liquidation and the liquidators provided an affidavitconfirming the facts of the liquidation to date. The Court granted an order on 18September 2018 to remove the company from liquidation. The liquidators havereturned the remaining funds to a solicitor's trust account as per the shareholders'instructions.Creditors[8] A total of $6,336,744 was paid to mortgage holders with a further $72,303 paidto secured creditors, equating to distributions of 100 cents in the dollar. In terms ofunsecured creditors, two preferential claims totalling $179,778 were received, andtwenty non-preferential unsecured claims totalling $2,249,930 were received. Adistribution of 100 cents in the dollar was made to both preferential and non-preferential unsecured creditors.Liquidators' fees[9] The liquidators' fees are $101,615 excluding GST for the period of theliquidation, which relate to:(a) Initial procedures and tasks following appointment, including notifyingthe Registrar, applicant creditor and other creditors;(b) All matters relating to assessing the viability of the liquidators tradingthe farm, including cash flow projections and considerations forcreditors;(c) Communication with FIDUS as to the welfare of animals on the farmand their recommendations on continued trading;(d) All negotiations with parties relevant to the continued trading anddrafting agreements regarding same;(e) All matters in respect of employee contracts;(f) All matters pertaining to the mortgagee sale of 85 Maungatautari Road,including numerous attendances to ensure adequate oversight of theprocess;(g) All matters pertaining to the sale of 97 Maungatautari Road at therequest of the directors;(h) All matters in respect of assessing and admitting 23 secured,preferential and unsecured claims;(i) All work in relation to full distributions to each class of creditor.(j) Al work in relation to the potential distribution as requested byshareholders, including tax review, distribution analysis andcommunications with the shareholders and their advisors; and(k) All attendances with the directors and their advisors during the courseof the liquidation.[10] This list is not exhaustive.Statutory framework[11] 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.[12] 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[13] I am satisfied that the costs incurred were reasonable:1 Flynn v McCallum [2013] 1 NZLR 207 at [47].2 Levin v Lawrence [2012] NZHC 1452 at [54].(a) The rates are calculated in accordance with the ordinary rates chargedby Pricewaterhouse Coopers in liquidations similar to that of theDefendant in the Waikato region, being the rates approved by the Courton 18 April 2018;(b) While a significant proportion of the work was completed by seniorstaff members, this was necessary given the negotiations that theliquidators faced, and the liquidators have attempted to reduce costs bydelegating work to staff at less senior levels where appropriate;(c) Significant work was required to ensure the sale process of a companyproperty, undertaken by the third ranking mortgagee, was appropriateand that the mortgagee's security was valid. The liquidators were alsorequired to undertake further works, with haste, after learning thedirectors had placed a second Company property on the market for sale;(d) The Inland Revenue Department has stated that the Commissioner hasno objection to the level of fees sought; and(e) The company shareholders have stated they have no objection to thelevel of fees sought.[14] Accordingly, I order that approval for the fees should be granted.