THE COMMISSIONER OF INLAND REVENUE v M.L.N. PLASTERERS LTD [2018] NZHC 1954

THE COMMISSIONER OF INLAND REVENUE v M.L.N. PLASTERERS LTD [2018] NZHC 1954[15 August 2018]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYI TE KŌTI MATUA O AOTEAROAKIRIKIRIROA ROHECIV-2016-419-34[2018] NZHC 1954BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND M.L.N. PLASTERERS LIMITED(IN LIQUIDATION)DefendantHearing: On the papersCounsel: M Hollis and W Somerville for Liquidators of DefendantJudgment: 15 August 2018JUDGMENT OF WHATA JThis judgment was delivered by me on 15 August 2018 at 11.00 am,pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate: .Solicitors: Inland Revenue Department Legal and Technical Services, HamiltonPricewaterhouseCoopers, Wellington[1] The liquidators of M.L.N. Plasterers Limited (MLN) seek the Court's finalapproval of liquidators' fee, totalling $9,571.86, excluding GST plus disbursements.The liquidators have advised creditors and shareholders of their right to have the feesreviewed under s 284 of the Companies Act 1993 if they object to the amount of thefees. To date, no objection has been received.Background[2] The following is based on the liquidators' final report dated June 2018.[3] The company was incorporated on 9 December 2005 and operated as aninterior plasterer. The company ceased trading in February 2014 due to a competitivemarket, which reduced the profit margins on plastering contracts. Therefore, thecompany did not have sufficient surplus cash to pay expenses and taxes.[4] After a review of the company's records, the liquidators identified anoverdrawn shareholder current account in the director's name and a demand wassubsequently issued. To achieve a negotiated settlement with the director, a statementof financial means was first completed to determine the director's ability to pay. Afterextended negotiations, the liquidators subsequently reached a settlement with thedirector for $10,000. A deed of acknowledgement of debt was executed, and therepayments were monitored. The settlement has now been paid in full.[5] In terms of asset realisations, the plastering tools owned by the company wereof minimal value and the liquidators arranged sale of the tools back to the director asthey assessed the cost of selling the tools on the open market would outweigh thepotential realisation to creditors. The director arranged for the company motor vehicleto be scrapped and deposited the proceeds into the liquidators' trust account.[6] The liquidators also conducted an investigation of the company's bankstatements and did not identify any transactions which could be considered potentiallyvoidable. After reviewing all documentation in their possession, discussions withvarious parties and conducting further enquiries where required, the liquidatorsconsidered that there were no other matters that warranted further investigation.Creditors[7] There were no known secured creditors at the date of liquidation. In terms ofunsecured creditors, the High Court awarded the petitioning creditor costs totalling$3,872.22. One preferential claim totalling $32,120.03 was received relating to claimsfor unpaid GST and income tax. Two unsecured claims totalling $82,502.42 were alsoreceived. No distributions were made.Liquidators' fees[8] The liquidators' fees are $9,571.86 for the period of the liquidation,comprising:(a) 10 percent – initial investigation and information-gathering;(b) 80 percent – negotiating settlement and enforcing payment of thecurrent account; and(c) 10 percent – general investigation and administration.Statutory framework[9] 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.[10] 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 allowing1 Flynn v McCallum [2013] 1 NZLR 207 at [47].2 Levin v Lawrence [2012] NZHC 1452 at [54].liquidators to make decisions which they, as the persons appointed to exercise theseresponsibilities, are better qualified than the courts to make.Assessment[11] 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 14 March 2016;(b) The relevant attendances were necessary to discharge the liquidator'sobligations;(c) The work was appropriately delegated between staff of differentseniority;(d) $325.14 in fees were written off.[12] 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.[13] One factor against the making of the order is that the fees charged approximateto the amount in fact collected. Nevertheless, given the attendances were necessary,and there was no objection to the fees incurred, I am satisfied that given the workundertaken by the liquidators, approval should be granted.[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 partyand any facts that would support the position of any other party.3 Because a without3 High Court Rules 2016, r 7.23.notice application is in some ways a denial of natural justice rights expected inlitigation, this certification is important.[15] Accordingly, I order that approval for the fees should be granted, but thoseorders should lie in Court until the requisite certification is provided by the liquidators.