NORRIS v PR LAW QUEENSTOWN NO 1 TRUSTEES LTD (In Liquidation) [2020] NZHC 1746

NORRIS v PR LAW QUEENSTOWN NO 1 TRUSTEES LTD (In Liquidation) [2020] NZHC 1746 [17 July2020]IN THE HIGH COURT OF NEW ZEALANDINVERCARGILL REGISTRYI TE KŌTI MATUA O AOTEAROAWAIHŌPAI ROHECIV-2019-425-000001[2020] NZHC 1746UNDER the Companies Act 1993IN THE MATTER of liquidation of PR Law Queenstown No 1Trustees LimitedBETWEEN JAY NORRISPlaintiffAND PR LAW QUEENSTOWN NO 1TRUSTEES LIMITED (In Liquidation)DefendantHearing: Determined on the papersCounsel: J W A Johnson for the liquidatorsJudgment: 17 July 2020JUDGMENT OF ASSOCIATE JUDGE PAULSENThis judgment was delivered by me on 17 July 2020 at 4.00 pmpursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:The application[1] The liquidators of PR Law Queenstown No 1 Trustees Ltd (PR Law) apply foran order fixing their remuneration under s 284(1)(e) of the Companies Act 1993. Theyhave obtained the agreement to their remuneration of 98.7 per cent of the creditors invalue. Associate Judge Lester ordered service of the application on the two creditors(representing 1.3 per cent of creditors in value) who have not agreed to the liquidators'remuneration. They have both indicated they will not be opposing the liquidators'application. The application therefore proceeds unopposed.Background[2] The quantum of the liquidators' remuneration is large. To explain why, it isnecessary to set out some background.[3] On 4 April 2019, Brendon James Gibson and Natalie Gytha Burrett wereappointed liquidators of PR Law with their remuneration subject to s 284 of theCompanies Act 1933.1[4] PR Law's assets were owned in its capacity as trustee of the Stuart NorrisFamily Trust. The principal asset was shares in a privately-owned tourism business,but the sale of the shares has been a complex process and opposed at various times bythe settlor of the Trust, by trustees appointed by the settlor and more latterly bycreditors.[5] As a result there were Court proceedings. An application for directions astrustee was brought by PR Law in June 2019. That application concerned, amongstother things, the sale of the shares. Consent orders were agreed in September 2019which allowed the shares to be sold following a sale process. Further disagreementarose in February and March 2020. An offer for the shares was received by theliquidators but opposed. The matter was set down for an urgent hearing on 23 March2020 but, prior to the hearing, the offer was withdrawn due to the COVID-191 Norris v PR Law Queenstown No 1 Trustees Ltd HC Invercargill CIV-2019-425-1, 4 April 2019.pandemic. Another offer was received in May 2020. This offer was opposed by threecreditors. An urgent hearing was held on 4 June 2020.[6] On 18 June 2020, Cull J released a final judgment in which her Honour directedthat the shares could be sold.2 Cull J did not consider it was appropriate to determinethe issue of the liquidators' remuneration in that proceeding.3 Cull J made apreservation order in relation to the proceeds of sale pending further order of the Court.[7] Following the release of the judgment, the liquidators and all but the twocreditors reached an agreement which provided that:(a) the liquidators would discount their fees and expenses; and(b) the liquidators' fees and expenses would be paid in preference to thecreditors, with the balance to be distributed to the creditors on a paripassu basis.[8] The terms of the agreement are set out in a joint memorandum of counsel dated19 June 2020 which was filed in the proceeding before Cull J. The quantum of theliquidators' fees and expenses, and the estimated distributions to creditors, were setout in an appendix to that memorandum. On 22 June 2020, Cull J released a minutedischarging the preservation order in these terms:4Accordingly, I order that the Preservation Order at para [58](h) of the finaljudgment in these proceedings be discharged, to allow for a distribution of thesale proceeds, once received, in accordance with the parties' agreement.[9] On 29 June 2020 the liquidators made this application.2 An interim judgment was released on 12 June 2020.3 PR Law Queenstown No 1 Trustees Ltd (in liq) v Norris & Ors [2020] NZHC 1397 at [54]-[56].4 PR Law Queenstown No 1 Trustees Ltd (in liq) v Norris & Ors HC Invercargill, CIV-2019-425-66, 22 June 2020 at [4].Discussion[10] The liquidators seek the Court's approval to fees of $140,000 and Goods andServices Tax. They have also incurred expenses (principally legal and expert's fees).The liquidators' fees (as well as some of the legal expenses) have been discounted. Inthe case of the liquidators the discount on "actual costs" is $22,583 or 14 per cent.[11] Under s 284(1)(e) the Court must be satisfied that the amount claimed isreasonable. The liquidators submit that the purpose of the Court supervision ofliquidators' remuneration is to protect the interests of creditors5 and as in this caseapproximately 98.7 per cent of the creditors (by value) have agreed that the liquidatorsare entitled to be paid their remuneration there is no need for the Court to adopt aprotective role. The approval of the majority of the creditors does not absolve theCourt from making its own assessment of the reasonableness of the liquidators'remuneration. However, the Court must approach the matter pragmatically andefficiently.6[12] I have had regard to the principles set out in Re Roslea Path Ltd (in liq).7 Inrespect of retrospective applications for approval of liquidators' remuneration theCourt said:8In relation to retrospective applications, we have authorised a modifiedprocedure, based on a voluntary disclosure regime, the purpose of which is toinform creditors/shareholders of remuneration deducted, from time to timeand their rights to challenge the amounts. If no challenge were brought by thetime the retrospective application were made the Court is likely to approvefees charged with a minimum of inquiry . If that new procedure were notadopted, in determining the "value" of the work undertaken, the Court is notentitled to fix a fee on an arbitrary ("broad brush") basis but must exercise ajudicial judgment on the fee to be approved, bearing in mind the onus placedon the liquidator to justify remuneration[13] I am satisfied that the liquidators' claims are reasonable. The liquidators areknown to the Court as specialist insolvency practitioners. The liquidators' rates (andthe rates of staff engaged on assignments relating to the liquidation) are set out in the5 Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC) at [106] and [118].6 At [112].7 At [138]-[158] and [187].8 At [187](c).liquidators' first statutory report. The liquidators' second and third statutory reportsprovided details of the work performed by the liquidators and their staff, a breakdownof hours worked by author type, the hourly rates applied as well as disbursementsincurred. I have also considered the description of the work performed in Counsel'smemorandum. The judgment of Cull J sets out the history of the litigation whichraised complex issues requiring extensive work from both the liquidators andexperienced counsel.[14] Overwhelmingly the creditors (by value) have accepted the liquidators' claimsas reasonable. Those include a law firm and an accountancy firm who the Court canexpect are in a position to challenge the legitimacy of the liquidators' claims if thatwas justified. The two creditors who have not agreed represent only 1.3 per cent ofcreditors by value. Each had the opportunity to raise any issue of concern with theCourt and neither has done so. Those creditors are a law firm and a Queens Counselwho were similarly well placed to respond if they considered the liquidators' claimedremuneration was not reasonable.[15] Finally, whilst it is the case that the creditors will receive payment of only asmall proportion of what is owed to them, the judgment of Cull J makes it clear thatthis situation has come about by circumstances beyond the liquidators' control and, Inote, the liquidators have agreed to discount their remuneration.Result[16] Under s 248(1)(e) of the Companies Act 1993 I approve the liquidators'remuneration as set out at Appendix 1 of counsel's memorandum of 29 June 2020._______________________O G PaulsenAssociate JudgeSolicitors:Wynn Williams (J W A Johnson), Auckland (Liquidators' Solicitor)