THE COMMISSIONER OF INLAND REVENUE v TAURANGA CORPORATE DIVISIONS LTD [2023] NZHC 1851

THE COMMISSIONER OF INLAND REVENUE v TAURANGA CORPORATE DIVISIONS LTD [2023]NZHC 1851 [17 July 2023]IN THE HIGH COURT OF NEW ZEALANDTAURANGA REGISTRYI TE KŌTI MATUA O AOTEAROATAURANGA MOANA ROHECIV-2015-470-177[2023] NZHC 1851UNDER the Companies Act 1993IN THE MATTER of the liquidation of TAURANGACORPORATE DIVISIONS LIMITED (inliq)BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND TAURANGA CORPORATE DIVISIONSLIMITED (in liq)DefendantHearing: On the papersCounsel: Memoranda filed by liquidator dated 5 April and 6 June 2023Judgment: 17 July 2023JUDGMENT OF ASSOCIATE JUDGE SUSSOCK[Approval of Liquidator's Remuneration]This judgment was delivered by me on 17 July 2023 at 4.00pmpursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors:KPMG, ChristchurchIntroduction[1] The liquidators of Tauranga Corporate Divisions Limited (in liq) have nowcompleted the liquidation and apply for approval of their overall remuneration in theamount of $94,269.00.[2] Vivian Fatupaito and Andrew Hawkes, both of KPMG, were originallyappointed as joint and several liquidators on 4 July 2016 at 10.12 am.[3] On 10 June 2019, Elizabeth Keene replaced Mr Hawkes on his resignation, andon 8 March 2022, Luke Norman replaced Ms Fatupaito on her resignation.[4] On 5 April 2023, the liquidators filed a memorandum for approval of theiroverall renumeration in this liquidation. Attached to the memorandum was a draftfinal report to the creditors and shareholders, as required by s 257 of theCompanies Act 1993. Also attached were copies of the 14 earlier liquidators' reports.These reports describe the work undertaken in the liquidation.[5] In my minute dated 15 May 2023, I queried the correctness of the charge outrate applied in calculating the liquidators' renumeration. An amended draft final reportand memorandum dated 6 June 2023 have since been provided to the Court. Thesecond memorandum includes a revised remuneration summary in accordance withthe charge out rate approved by the Court in its orders appointing the liquidators.[6] I set out the background in some detail below as it assists in understanding thebasis for the fees claimed. I then outline the legal principles applicable to approval ofliquidators' remuneration and apply those principles to the circumstances of thisliquidation.Background[7] The company in liquidation, Tauranga Corporate Divisions Ltd (in liq)(formerly Total Control Drilling Limited) (Company) was incorporated on27 January 2010 and provided environmental and geothermal drilling services. TheCompany ceased trading in 2015 with the liquidators attributing the company's failureto prolonged delays in obtaining resource consents for a project it had undertaken fora large land developer.[8] Following appointment, the liquidators' staff spoke with a director of theCompany to gain an understanding of the business. The liquidators assessed thedocuments that were made available to them by the Company's advisors and directorsand issued a notice to attend on one of the directors. The director failed to complywith the notice so the liquidators were required to undertake further investigations todetermine whether there were any claims or other assets that would give rise torecoveries for the benefit of the creditors without the director's assistance.[9] The liquidators' draft final report states that the Company's business had beentransferred to two new entities: TCD Holdings Limited (to hold the assets) andTCD 2015 Limited (to invoice for services), both incorporated in October 2015. Oneof the directors of the Company is also the director of TCD Holdings Ltd andTCD 2015 Ltd.[10] The liquidators record that after undertaking an extensive investigation into thepotential assets of the Company and reconstructing the Company's accounts, theliquidators established that some of the Company's invoices had been paid by way oftransfer of a debtor's property in lieu of cash. However, instead of the property beingtransferred into the Company's name, the property was transferred to the directors'trust.[11] The liquidators registered a caveat on the certificate of title of the property astheir investigation revealed that the Company did not receive any consideration fromthe directors' trust for the transfer.[12] The property was also the subject of a lease that had expired. The liquidatorshad to work with the relevant parties to ensure that the lease was renewed. Theliquidators report that significant attendances were required to resolve the issues inrelation to renewal of the lease.[13] The liquidators attempted to negotiate recovery of the Company's funds usedfor the purchase of the property from the trust, including obtaining a registeredvaluation of the property at the time the trustees obtained ownership. However,negotiations stalled.[14] Legal proceedings were brought against a third party in respect of the propertyand various attendances were required, including the filing of affidavits andcompleting of discovery. Despite attempts to resolve matters outside court, noagreement could be reached and so the liquidators attended a judicial settlementconference. The liquidators state that this resulted in a settlement agreement inprinciple but as one of the trustees was not in attendance, the settlement deed couldnot be signed at the conference and unfortunately never was. Only after legalproceedings were resumed, was an amended agreement eventually reached. However,the liquidators state that the terms of that amended agreement were not subsequentlymet.[15] The liquidators then registered a mortgage over the property and issued ademand. After the issuing of a notice under the Property Law Act 2007 andindependent real estate agents being instructed to market the property for sale with anauction date set, further negotiations with the trustees ensued and a final settlementagreement was reached. Payment was received by the liquidators in full and finalsettlement, and the mortgage over the property was discharged. The liquidators havenot identified any further claims in the liquidation for the benefit of the Company'screditors and have decided to finalise the liquidation.[16] In addition to the above steps, the liquidators were required to attend toadministrative tasks, including corresponding with creditors and attending to statutoryreporting requirements.Creditors and distributions[17] The liquidators anticipate a first and final distribution of $3,058.25 and$15,428.79 to the Commissioner of Inland Revenue, representing 100 per cent of thepetitioning creditor costs and 14 per cent of Inland Revenue's preferential unsecuredcreditor claims respectively. The liquidators confirm that there will be no fundsavailable to make a distribution to the non-preferential unsecured creditors.Legal principles[18] The Court's power to approve liquidators' remuneration is provided in s 284of the Companies Act 1993. The principles that apply in considering applications forapproval are set out in Re Roslea Path Ltd (in liq), a judgment delivered by a FullBench of the High Court.1[19] Heath and Venning JJ held that in fixing a liquidator's remuneration, the Courtis determining the fairness and reasonableness of what is being charged whenmeasured against the work undertaken and the result achieved.2 The Court held thatfair and reasonable remuneration reflects the value of the services rendered to thecreditors of the company and, if a surplus is achieved, its shareholders. The decisiondescribes "value" as an elusive concept which goes beyond mathematical applicationof hourly rates to hours spent by individuals involved in administering a company'saffairs.3 The Court emphasised the need for a proportionate approach, both in termsof the remuneration paid but also the information required by the Court to justify theremuneration paid.4 One of the suggested ways of ensuring that a reasonable andproportionate approach has been taken, is for the liquidators to voluntarily disclose intheir six-monthly reports the amount of fees charged, such that creditors have anopportunity to ask questions as the liquidation progresses.5[20] The Court of Appeal in Madsen-Ries v Salus Safety Equipment Ltd (in liq),6recently confirmed the approach adopted in Re Roslea Path Ltd (in liq). The Courtapproved counsel assisting's summary of the principles that apply to the determinationof retrospective applications as follows:7(a) Liquidators are fiduciaries and their fundamental obligation is a dutyto account. There is a conflict between the interest of the liquidator1 Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC).2 At [102].3 At [102].4 At [108].5 At [151].6 Madsen-Ries v Salus Safety Equipment Ltd (in liq) [2022] NZCA 101, [2022] NZCCLR 12.7 At [15].(fiduciary) in receiving remuneration and the interest of the creditors(those to whom the fiduciary duties are owed) who bear the cost ofthat remuneration.(b) Liquidators are officers of the Court and are subject to its generalsupervisory function. They must attend diligently to their tasks andmake all proper reports and inquiries. They have the sameresponsibilities as barristers and solicitors.(c) Liquidators must justify their claims for remuneration. They bear theonus in this regard and the benefit of any doubt due to inadequateinformation must be resolved in favour of the creditors.(d) Fixing liquidators' remuneration requires judicial judgment. It ismore akin to an administrative task. It is implicit that the judicialofficer can draw on his/her own experience in performing this role.(e) In fixing liquidators' remuneration the Court is making adetermination of the fairness and reasonableness of the proposed feescompared to the work undertaken and results achieved. The focus ison the value of services rendered to the creditors of the company.(f) The Court will consider whether there has been unnecessary work orover servicing as this would not represent time reasonably expendedat a reasonable rate.(g) A broad brush approach is acceptable provided that there is anexercise of judicial judgment as opposed to an arbitrary choice ofamount.(h) The process of fixing remuneration needs to be proportionate. Itshould not be unduly prescriptive; nor should it unnecessarily addcosts to the creditors.[21] The Court went on to state: 8 even where there is no challenge to the liquidator's remuneration this doesnot absolve the Court from the obligation to be satisfied that the remunerationapproved reflects the value of the services rendered to the creditors of thecompany.Discussion[22] The liquidators' memorandum dated 6 June 2023 includes a revised summaryof the fees incurred by hours worked, staff level and the average rates applied as setout below.[23] The liquidators record that the total hours worked of 309.90 for $94,269.00 infees means an average hourly recovery of $304.19.8 Madsen-Ries v Salus Safety Equipment Ltd (in liq), above n 6, at [54].[24] The liquidators' original memorandum further breaks down the percentage oftime spent by the liquidators and their staff into the following categories:(a) 17 per cent on general enquiries, initial discussion with the directorsand creditors, and administration of the liquidation;(b) 8 per cent on statutory reporting; and(c) 75 per cent on investigating, issuing claims, litigation includingdefending legal proceedings, and negotiating and attending tosettlement of their claims in the liquidation.[25] In addition, disbursements of $18,159.98 have also been incurred foradvertising, travel, service fees, administration charges and legal fees.[26] The administration charges are calculated as 5 per cent of the liquidators'remuneration as noted in the liquidation reports, amounting here to $4713.45. Addingthis to the total remuneration claimed and dividing by the total hours charged resultsin an average hourly recovery rate of $319.40. This is at the higher end of the usualSummary of Liquidators' Fees(All figures excludeGST)CourtApprovedHourly Rates($)AverageHourly RateCharged($)HoursWorkedFees Incurred($)Percentageof HoursWorked(%)Partner/Liquidator/DirectorNo more than$450.00419.85 105.65 44,357.50 34Manager/SeniorManager/AssociateDirector$300.00–$380.00375.89 42.85 16,107.00 14Analyst/SeniorAnalyst/AssociateManager$200.00–$280.00215.03 147.95 31,813.00 [48]Support Staff $100.00–180.00148.07 13.45 1,991.50 [4]Total 309.90 94,269.00 100Total Fees Actually Paid fromLiquidation94,269.00 100range but I am satisfied it is reasonable in the circumstances for the reasons discussedbelow.[27] The liquidators' original memorandum records that a significant portion of thework undertaken in this liquidation was completed at a liquidator level due to theissues which arose during the liquidation as detailed above. Input was also requiredat a senior level to the litigation undertaken, and in the negotiation and re-negotiationof settlements. This explains the slightly higher than normal percentage of time atliquidator level of 34 per cent with 14 per cent at the manager level, 48 per cent at theanalyst level and four per cent for support staff.[28] In addition, the liquidators' six monthly reports record the fees charged up tothe date of each report and invite creditor feedback in respect of the fees charged atany time during the liquidation.Commissioner of Inland Revenue[29] The original memorandum records that the liquidators notified Inland Revenueof the level of fees and expenses set out in the original memorandum, which was$103,241, rather than the $94,269 now claimed. The Commissioner did not raise anyobjections to the initial level of fees. The memorandum dated 6 June 2023 does notrecord whether the Commissioner was given notice of the updated amounts claimed.However, the fact that the Commissioner did not object to the original amount claimedsuggests that the Commissioner would not object to the lower amount now claimed.Result[30] I am satisfied, having regard to the memoranda filed and their attachments, thatthe liquidators' remuneration appropriately reflects the value of the services renderedto the creditors of the Company. As a result, I grant the application for approval of theliquidators' remuneration totalling $94,269.00.__________________________Associate Judge Sussock