Re Kelly in the matter of HALIFAX NEW ZEALAND LIMITED (IN LIQUIDATION) [2019] NZHC 3434

Re Kelly in the matter of HALIFAX NEW ZEALAND LIMITED (IN LIQUIDATION) [2019] NZHC 3434 [19December 2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-002049[2019] NZHC 3434UNDER Section 284 of the Companies Act 1993,section 66 of the Trustee Act 1956 and Part19 of the High Court Rules 2016IN THE MATTER of HALIFAX NEW ZEALAND LIMITED(IN LIQUIDATION)PlaintiffANDANDANDan application by MORGAN JOHN KELLYand PHILIP ALEXANDER QUINLANFirst Applicantsan application by HALIFAX NEWZEALAND LIMITED (IN LIQUIDATION)Second ApplicantMORGAN JOHN KELLY and PHILIPALEXANDER QUINLANThird ApplicantsHearing: (On the papers)Judgment: 19 December 2019JUDGMENT OF VENNING JRe: Remuneration for the liquidators and trusteesThis judgment was delivered by me on 19 December 2019 at 11.30 am, pursuant to Rule 11.5 of theHigh Court Rules.Registrar/Deputy RegistrarDateSolicitors: Russell McVeagh, AucklandCopy to: A Leopold SC, Sydney, AustraliaE Holmes, Sydney, Australia[1] Morgan Kelly and Philip Quinlan apply as iquidators (and formerlyadministrators) for an interim order approving costs incurred by them acting as suchpending the determination of the substantive application for directions. They alsoapply in their capacity as trustees of a trust created by regulation 246 of the FinancialMarkets Conduct Regulations 2014 that they be paid remuneration for professionalservices and be indemnified for costs and expenses in relation to that appointment andthe administration of the Regulation 246 Trust.[2] The application is supported by an affidavit of Mr Kelly affirmed 12 December2019.[3] The applicants also seek ancillary orders relating to the accounts from whichpayments may be made and orders to bring the orders to the attention ofinvestors/creditors.[4] The background to the liquidation of Halifax NZ has been set out in previousminutes of the Court. It is unnecessary to refer to it again in the context of thisapplication.1[5] I note that a similar application was made to the Federal Court in the liquidationof Halifax AU. On 6 November 2019 that Court made orders approving theremuneration of the liquidators as administrators of the company and as liquidators.Jurisdiction – liquidators' costs[6] The expenses and remuneration of a liquidator are payable out of the assets ofthe company as first in the order of priority.2[7] Where liquidators are required to administer trust assets held by the companythe liquidators will be allowed their costs, expenses and remuneration from those trustassets.3 In Re Berkeley Applegate has been applied in New Zealand.41 Minutes of Venning J, dated 2 October 2019, and 12 December 2019.2 Companies Act 1993, s 278; Sch 7, cl 1(a).3 Re Berkeley Applegate (Investments Consultants) Limited [1989] Ch 32.4 Finnigan v Yuan Fu Capital Markets Limited (in liquidation) [2013] NZHC 2899.[8] In Finnigan v Yuan Fu Capital Markets Limited the liquidators sought paymentof costs from trust funds. The case has some similarities to the present one. It involvedthe failure of a New Zealand business offering access to an on-line trading platform inNew Zealand and Australia. In the course of the decision Associate Judge Bell held:5(a) the courts have recognised that liquidators and similar insolvencyadministrators required to deal with assets held on trust by the insolvententity have a right to be paid out of the assets held on trust;(b) this power arises out of the Court's inherent jurisdiction;(c) there is a preference that the charge be imposed on sums recoveredrather than the sums invested;(d) while particular costs may relate to particular claims and be chargeableaccordingly, the Courts will not require liquidators to apportion generaltime to separate claims by investors;(e) the right to remuneration is for work related to the trust assets, not tothe conduct of the liquidation generally. Therefore some apportionmentis required.[9] I note that in its decision the Federal Court considered the issue of whether thecosts would be apportioned. Gleeson J ultimately accepted that all the workundertaken by the liquidators during the administration and in the liquidation couldproperly be considered to relate to the trusts pursuant to which Halifax AU held thecomingled trust funds.6 The work undertaken in the course of the administration andthe liquidation to 31 August 2019 had been overwhelmingly directed to preservinginvestor funds and determining how they might be returned to investors. As there wasa deficiency in the trust funds and the investors were unsecured creditors of HalifaxAU Gleeson J accepted that any general liquidation work also related to the trusts.75 At [70].6 Kelly, in the matter of Halifax Investment Services Pty Ltd (in liquidation) (No 6) [2019] FCA2111.7 At [33]–[34].[10] Similar reasoning applies to the present application. There are 2,079 investorclients of Halifax NZ compared to only 19 trade and broker creditors and fiveemployee creditors. The general creditors only represent a little over one per cent ofall creditors by number.[11] Mr Kelly has deposed in his 12 December 2019 affidavit that all of the workcarried out by the applicants has, in one way or another been concerned with,connected with, or related to, administering and managing the client moneys held ontrust by Halifax NZ for the investor clients as has been for the benefit of the trusts.[12] I accept the work identified by Mr Kelly has been necessary in order to identify,collect, realise and distribute the trust assets to the persons beneficially entitled tothem, and that the administrators and liquidators tasks have all borne a substantialconnection to the trust funds such that would be unnecessarily impractical to seek toapportion the costs.[13] Further, as Mr Kersey submitted in his memorandum in support of the currentapplication, even the formal external administration expenses such as preparation ofreports to creditors and dealing with the Financial Markets Authority (FMA) arenecessary steps in returning investor funds since the funds cannot be returned withoutundertaking formal insolvency procedures. Also the creditors to whom the reports areprovided are predominantly the investors entitled to the trust funds.Jurisdiction - trustees' costs[14] Regulation 246(1) created a trust over certain money and other property on theappointment of voluntary administrators to Halifax NZ.[15] Mr Kelly and Mr Quinlan are trustees of the Regulation 246 Trust. They seekreimbursement of the costs incurred by them in that role under:(a) s 72 Trustee Act 1956;(b) s 38(2) Trustee Act;(c) the Court's inherent jurisdiction.[16] Section 72 refers to a "commission". That is somewhat of a historical term.But s 72(1) is a broad provision which could enable payment for the trustees' servicesas are just and reasonable.[17] A more direct route is the application of the proviso under s 38(2) of the TrusteeAct. The Court can allow such costs as, in the circumstances, seem just for expensesreasonably incurred in or about the execution of the trust's powers. In circumstancessuch as the present, where the trusts are created by statute, and there is an obligationto administer the trusts imposed on the trustees, it is clearly appropriate they bereimbursed.[18] Finally, for completeness, I note that the Court has inherent jurisdiction toaward trustees remuneration as recognised by the Court of Appeal in Ngai Tai KiTamaki Tribal Trust v Karaka.8 The overriding consideration is that the remunerationbe just and reasonable.[19] I accept the submission made by Mr Kersey that the costs recoverable extendto costs reasonably incurred in relation to their appointment as trustee.9Quantum[20] In summary, to this point, the Court is satisfied there is jurisdiction to make anorder for the reasonable costs and expenses for the liquidators acting as administratorsand liquidators and the trustees to be paid from the assets of Halifax NZ.[21] The liquidators have drawn money from the liquidators' trading account tomeet some initial costs. They have drawn remuneration for the period from 27November 2018 to 28 February 2019. The remuneration was AUD 433,476.50 (NZD455,499.92) and was disclosed to Halifax NZ's creditors at the watershed meeting heldon 22 March 2019. At the time, Mr Kelly and Mr Quinlan believed that accountcontained only corporate funds. Mr Kelly now considers it is possible that those funds8 Ngai Tai Ki Tamaki Tribal Trust v Karaka [20120] NZCA 268, [2015] NZAR 266 at [48].9 Harvey v Olliver (1887) 57 LT 239 (Ch) at 241.transferred into the liquidators' trading account were comingled with client moneysand moneys originating from Halifax and its clients.[22] The liquidators have not drawn any remuneration for the remainder of theadministration period (1 March 2019 to 21 March 2019) or for the liquidation period.Nor have they drawn or been paid for any internal or external disbursements incurredsince appointment.[23] The total remuneration sought for the period from 22 March 2019 is AUD704,217.10 (excluding GST) (NZD 733,559.43) made up of additional administrators'fees of $183,427.30 and liquidators' fees to 31 August 2019 $520,789.75. The internaland external disbursements as at 31 August 2019, including legal fees total AUD125,791.60 (excluding GST) plus NZD 527,959.21.[24] The remuneration is sought in Australian dollars. Mr Kelly and Mr Quinlanare liquidators of both Halifax AU and Halifax NZ.[25] The liquidation of Halifax NZ is part of a complex cross-border insolvencyinvolving difficult issues of client entitlements to comingled trust property. Inevitablysome of the work carried out by the administrators and liquidators and the Australianlegal advisors focusing on the Australian operation will have been for the benefit ofHalifax NZ clients. Some of that has been allocated to Halifax AU and the fees andexpenses associated with it have been recovered from funds held by Halifax AUpursuant to orders of the Federal Court. Mr Kelly confirms that there has been nodouble-counting in that area. In his affidavit Mr Kelly confirms that he has instructedstaff to review the time entries through the entire administration and liquidation witha view to apportioning time between Halifax NZ and Halifax AU wherever practicallyfeasible.[26] I accept it is appropriate for the remuneration to be paid in Australian dollars,that being the currency the fees were rendered in and the costs were largely incurred.[27] The internal disbursements are fees charged by the applicants for specificservices provided formerly by Ferrier Hodgson, now KPMG Australia, such asphotocopying and non-professional disbursements. The external disbursements arecomprised primarily of legal fees payable to New Zealand solicitors. Both arereasonably incurred.[28] While not determinative, it is also relevant that at a meeting of the committeeof creditors on 16 October 2019 a resolution was passed confirming the committeehad no objection to the remuneration of the administrators or liquidators for the periodfrom 1 March 2019 to 31 August 2019.[29] The sum sought in relation to the trustees is AUD 23,447.50 This work alloccurred prior to the liquidators' appointment under reg 246 but is recoverable as worknecessary and reasonable for the trustees to have undertaken in order for the trusteesto properly consider the trusteeship they were required to take on. The trustees andlegal advisors spent significant time working through the unusual circumstances withthe FMA.[30] For those reasons the Court makes the following directions/orders:(a) in their capacity as trustees, appointed on 18 September 2019 by theFinancial Markets Authority (FMA), of a trust created by regulation246 of the Financial Markets Conduct Regulations 2014 (Regulation246 Trust) and for the purposes of s 38(2) of the Trustee Act 1956, theapplicants are allowed to be paid remuneration for professional servicesperformed, and to be indemnified for any costs and expenses incurredin relation to:(i) their appointment as trustees of the Regulation 246 Trust; and(ii) the administration of the Regulation 246 Trust, from theirappointment as trustees on 18 September 2019 until thedistribution of property subject to the Regulation 246 Trust iscompleted,and to pay those amounts out of the property subject to the Regulation246 Trust or with which the property subject to the Regulation 246Trust has been comingled;(b) an order that the remuneration, costs and expenses of the applicants intheir capacity as liquidators of Halifax New Zealand Limited (inliquidation) (Halifax NZ) and the remuneration, costs and expenses ofthe applicants as voluntary administrators and the remuneration, costsand expenses of the applicants as trustees of the Regulation 246 Trustin the amounts set out in paragraphs 116, 254, 261, 262, 263 and 273of the affidavit of Morgan John Kelly affirmed on 12 December 2019may be paid from time to time out of some or all of the followingaccounts of Halifax NZ (Accounts) pending the determination of theapplication for directions filed by the applicants (together with HalifaxNZ) on 25 September 2019 in proceeding CIV-2019-404-2049(directions application):(i) ANZ Business Current Account 01-0121-0135307-02;(ii) ANZ Foreign Currency Account 205964USD00001;(iii) ANZ Foreign Currency Account 205964EUR00001; and(iv) IB Proprietary Account U1439482;(as referred to in para 31 of Mr Kelly's affidavit);(c) the remuneration, costs and expenses in paras (a) and (b) above may bepaid from the Accounts prior to any distributions to clients of HalifaxNZ or other persons beneficially entitled to the funds in the Accounts;(d) the application and sealed orders in this proceeding are to be posted onthe webpage maintained by KPMG Australia for the purpose of theliquidation of Halifax NZ(https://www.ferrierhodgson.com/au/creditors/halifax-new-zealand-limited) within five working days of sealing of these orders;(e) leave reserved.__________________________Venning J