FIVE STAR DEBENTURE NOMINEE LIMITED (IN LIQUIDATION) v FIVE STAR FINANCE LIMITED (IN RECEIVERSHIP) [2015] NZHC 142

FIVE STAR DEBENTURE NOMINEE LIMITED (IN LIQUIDATION) v FIVE STAR FINANCE LIMITED (IN RECEIVERSHIP) [2015] NZHC 142 [11 February 2015]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV 2008-404-728[2015] NZHC 142BETWEEN FIVE STAR DEBENTURE NOMINEELIMITED (IN LIQUIDATION)PlaintiffAND FIVE STAR FINANCE LIMITED (INRECEIVERSHIP)DefendantHearing: 15 December 2014(on papers)Appearances: S O McAnally for liquidatorsJudgment: 11 February 2015JUDGMENT OF ASSOCIATE JUDGE J P DOOGUEThis judgment was delivered by me on11.02.15 at 4 pm, pursuant toRule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate[1] The applicants are the liquidators of Five Star Finance Limited ("Five Star")which was liquidated by an order of the Court made on 17 June 2008.[2] The liquidators seek retrospective approval of their fees totalling $330,361 plus GST.[3] Mr McAnally, counsel for the liquidators referred me to the leading authorities governing the remuneration of liquidators, namely Re Medforce Healthcare Services Limited (in liq) 1, Re Medforce Healthcare Services Limited (in liq) (No 2)2 and Re Roselea Path Ltd (in liq).3[4] He submitted:9. The guiding authorities on the fixing of liquidators' remunerationwere, previously, Re Medforce Healthcare Services Ltd (in liq)[2001] 3 NZLR 145 and Re Medforce Healthcare Services Ltd (in liq) (No 2) [2001] 3 NZLR 158. However, the principles of those cases, and those applying generally, have been conveniently collatedand clarified in the Court's more recent decision of Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207.10. The key principle that emerges from the cases, including Roslea Path, is that the Court's duty on an application such as this is to fix afigure that is reasonable in the circumstances. In the context of retrospective applications, such as this, the following statements of principle from the first of the Medforce cases was approved in Re Roslea Path (above) at 222:(a) Court appointed liquidators are fiduciaries. As with any fiduciary it is necessary for remuneration to be justified.(b) The appropriate test is to determine whether a particular cost would have been incurred; would the time spent have been undertaken by a reasonably prudent person faced with the same situation?(c) While time is a relevant factor in fixing remuneration, the value of the services rendered is more important than the costs of rendering them.1 Re Medforce Healthcare Services Limited (in liq) [2001] 3 NZLR 145.2 Re Medforce Healthcare Services Limited (in liq) (No.2) [2001] 3 NZLR 158.3 Re Roselea Path Ltd (in liquidation) [2013] 1 NZLR 2007.11. The Court, in Roslea Path (above) at 238-239, found thoseprinciples applicable to the assessment of solicitors' costs to be equally relevant to remuneration for liquidators' services. Thosefactors are:(a) The skill, specialised knowledge and responsibility required;(b) The time and labour expended;(c) The value or amount of any property or money involved;(d) The importance of the matter to the client and the results achieved;(e) The complexity of the matter and the difficulty or novelty of the questions involved;(f) The number and importance of the documents prepared or perused;(g) The urgency and circumstances in which the business is transacted; and(h) The reasonable costs of running a practice.[5] I accept those submissions.[6] There is no question that the hourly rates which the liquidators charged outwere ones which fell within the band of acceptable charging levels during theperiods in question.[7] Also there is no question that the time recording records of the liquidators are accurate.[8] One feature of the liquidation which calls for comment is that notwithstanding the expenditure of substantial effort in terms of time of the liquidators and their staff there will not be any net recovery for the creditors of the company. Therefore the loss incurred by the creditors of Five Star which exceeded$43,000,000 will be effectively written off.[9] I accept that the liquidators are correct in their assertion that they left no stone unturned to pursue possible remedies for the creditors of Five Star. However a number of factors appear to have defeated their efforts. Those factors are first of all the complexity of the dealings between Five Star and its related companies andpersons associated with it including its directors. Secondly, the large scale fraudulent activities of the directors which resulted in three of them being sentenced to prison and one to home detention and community service. Their fraudulent activities and related party dealings meant that the money diverted away from legitimate purposes of Five Star was put beyond reach of the liquidators notwithstanding their instructing counsel in taking litigation to attempt to enforce recoveries.[10] I accept though that while there was no tangible advantage to the creditors as a result of the efforts of the liquidators, the enquiries that they made and the attempts that they made to recover were ones which were properly undertaken by them. The liquidators represented the only prospect of the creditors receiving any appreciable recovery. It was in their interests that extensive efforts were made to investigate the affairs of the company and to review all possibilities of actions to recover thecompany's money. That nothing came of those efforts is not in any way a matter for which the liquidators are to be criticized. Further, there was a strong public policy requirement that there be a proper investigation of the affairs of the company and the enquiries and investigations which the liquidators undertook were commiserate with that need. For all of those reasons I consider that the remuneration which theliquidators have claimed ought to be approved and there will be an order approvingthe remuneration that they claim of $330,361 plus GST._____________J.P. DoogueAssociate Judge