NEW ZEALAND CUSTOMS SERVICE V CELLAR HOUSE LIMITED (IN LIQUIDATION) AND ANOR HC WN CIV-2007-485-1983

NEW ZEALAND CUSTOMS SERVICE V CELLAR HOUSE LIMITED (IN LIQUIDATION) AND ANOR HC WN CIV-2007-485-1983 6 September 2007IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2007-485-1983IN THE MATTER OF CELLAR HOUSE LIMITED (In Liquidation) BETWEEN NEW ZEALAND CUSTOMS SERVICE Plaintiff AND CELLAR HOUSE LIMITED (IN LIQUIDATION) Defendant AND ROBERT BRUCE WALKER Applicant Hearing: 22 August 2007 Appearances: K P Sullivan for Applicant Judgment: 6 September 2007 at 2.30 pmJUDGMENT OF ASSOCIATE JUDGE GENDALLThis judgment was delivered by Associate Judge Gendall on 6 September 2007 at 2:30 p.m. pursuant to r 540(4) of the High Court Rules 1985.Solicitors: Mr K P Sullivan, DLA Phillips Fox, Solicitors, PO Box 2791, Wellington (Fax: 04-472 7420) for Applicant Ms K McDonald QC, Barrister, PO Box 10-567, Wellington (Fax: 04-499 3583) for Plaintiff Ms H Aikman, Crown Law Office, PO Box 5012, Wellington (Fax: 04-473 3482) for PlaintiffIntroduction[1] Robert Bruce Walker, the liquidator of Cellar House Limited (In Liquidation) ("the company"), has filed an ex-parte application dated 27 August 2007 seeking the following orders: a) approving his remuneration as liquidator of Cellar House Limited (in liquidation) in the amount of $230,840 plus GST; b) approving the rates for on-going remuneration of the liquidator in the administration as follows: i) $200 per hour plus GST for the liquidator; ii) $160 per hour plus GST for senior accountants; iii) $120 per hour plus GST for junior accountants; iv) $90 per hour plus GST for unqualified accounting staff; c) approving the execution by the liquidator of a Deed of Assignment of his judgment debt against Donald Winton Allan to Robert Bruce Walker in his personal capacity jointly with the New Zealand Customs Service on certain terms.Background facts[2] Mr Walker was appointed liquidator of the company on the petition of the Comptroller of Customs on 16 December 1999. The company remains in liquidation and Mr Walker now seeks to bring to an end his administration of the company's liquidation.[3] The Court has power to review and fix remuneration of a liquidator. This is required to be fixed at a level that is reasonable in all the circumstances pursuant to ss 276, 284(1)(e), and 284(1)(f) Companies Act 1993. [4] Mr Walker states that the level of remuneration sought in paragraph [1]a) above has been calculated on an hourly rate from time records. Counsel for Mr Walker notes that whilst the amount claimed at $230,840 plus GST seems a substantial lump sum, the reality is that the liquidation spanned almost eight years and involved a considerable amount of work, including a difficult but successful Court case. And in addition, in any event counsel contends this remuneration is highly unlikely to be paid. [5] As liquidator Mr Walker brought and funded the Court proceedings noted above against the directors of the company. He was a key witness in the long- running case of Walker v Allan in this Court, a case which sat for four days in Nelson on 19-22 August 2003 and a further three days in Wellington on 15-17 October 2003. The substantial judgment from this case, it is suggested to be still one of the leading cases in claims under s 301 Companies Act 1993, was in Mr Walker's favour. Whilst lawyers acting for Mr Walker at the time have been paid, apparently he has been paid only minor disbursements. [6] At the conclusion of this case, the judgment debt awarded by Justice France to Mr Walker against the director Mr Donald Winton Allan was $1.75 million, together with interest from 1 January 1995 to the date of judgment at the rate of 7.5% per annum. [7] That judgment debt, however, has never been paid. Mr Allan declared himself bankrupt on 1 October 2004. The Official Assignee has investigated the affairs of Mr Allan but has yet to make any recovery. [8] Mr Walker advises that he now wishes to bring the administration of the company in liquidation to a close. In keeping the liquidation open he continues to incur the costs of complying with the statutory requirements on liquidators, in particular to file tax returns each year.[9] Counsel for Mr Walker notes that whilst it would be optimistic of Mr Walker to expect to receive payment of his liquidator's fees given the failure to make any recoveries from Mr Allan's estate, Mr Walker is nevertheless entitled to have the correct level of remuneration recognised and fixed. [10] His counsel confirms that the only creditors that could be affected by the level of remuneration approved for Mr Walker are the New Zealand Customs Service and the Inland Revenue Department. Mr Shalfoon, the debt case manager of New Zealand Customs Service, has filed an affidavit in support of the present application. In that affidavit dated 22 August 2007 he deposes at paragraph 4 that:4. Customs' position is that it supports the level of remuneration proposed by Mr Walker. I am aware that he completed a considerable amount of work investigating the affairs of Cellar House Limited (In Liquidation) (Cellar House) and in the Court processes that followed 5. Customs supports the application to approve remuneration of Mr Walker in the amount of $230,840 plus GST along with reasonable fees and disbursements to complete the administration.[11] The Inland Revenue Department has apparently received a copy of the present application and supporting affidavits. The Department has confirmed by letter dated 9 August 2007 to counsel for Mr Walker that "the Commissioner neither supports nor objects to the application and is prepared to rely on the authority of the Court in this matter". [12] Insofar as the application noted in paragraph [1]c) above with respect to the proposed assignment of the judgment debt is concerned, Mr Walker indicates to the Court that he is unsure whether Court approval is needed for this assignment. Nevertheless he says he thought it prudent to make the present application for approval. [13] That application seeks approval for Mr Walker as liquidator to assign the judgment debt owing by Mr Allan to Mr Walker in his personal capacity jointly with the New Zealand Customs Service. Pursuant to the draft terms of the proposed assignment, which are put before the Court, Mr Walker will be paid his liquidator's fees from any recoveries from Mr Allan with the balance of monies paid to the NewZealand Customs Service. The New Zealand Customs Service has agreed to pay a share of monies it might receive to the Inland Revenue Department in proportion to their respective preferential debts. [14] As to this aspect, the actual debt owed to New Zealand Customs Service by the company as at the time of liquidation was $8,581,024. This is a preferential debt. The Inland Revenue Department is also a creditor in the sum of $2,706,738 of which $102,173 is a preferential debt. [15] Counsel for Mr Walker contends that the proposed assignment will not detrimentally affect the rights of Mr Allan as a bankrupt. Whether or not he is discharged from bankruptcy, all Mr Allan's assets that existed at the date of his bankruptcy will remain the property of the Official Assignee. If the Official Assignee takes steps to recover any property from Mr Allan or his related parties after the proposed assignment, the property recovered will be payable to Mr Walker in his personal capacity for his fees with the balance payable to the New Zealand Customs Service. [16] Mr Walker contends that from an administrative point of view it is appropriate that administration of the liquidation of the company be brought to an end with the judgment and rights assigned in the way he proposes. [17] And in passing it is noted that in any event leave of the Court will still be required to initiate any execution process on the judgment against Mr Allan pursuant to r 556 High Court Rules.Remuneration[18] Turning now to the applications at paragraph [1]a) and [1]b) above for approval of the liquidator's remuneration, Mr Walker has provided a detailed affidavit dated 21 August 2007 in support of these applications. It sets out at length the considerable work he has undertaken in his role as liquidator between December 1999 and September 2007. In this affidavit he outlines each of the four phases of theliquidation over the period up to the present time, including the commencement in 2000 of the substantial High Court litigation against Mr Allan. [19] Mr Walker notes that his personal liquidation charge out rate is $200 plus GST per hour. He confirms that in the detailed time records he has kept he has been involved in 1,154.2 hours in this liquidation from December 1999 up to the present time. Calculated on a strict hourly time charge basis this totals the $230,840 plus GST for which he now seeks approval at paragraph [1]a) above. [20] I have now had the opportunity to carefully consider Mr Walker's affidavit and the written submissions put to the Court by his counsel. Having reviewed these, I am of the view that although the $230,840 claimed by Mr Walker is a very substantial sum, it is "reasonable in the circumstances" here in the sense outlined in the decision in Re Medforce Healthcare Services Ltd (in liquidation) [2000] 8 NZCLC 262, 246. In terms of s 276(1) Companies Act 2003 this represents "reasonable remuneration" and as outlined in Marcusson v The Gem Ltd (in liquidation) (HC WG, CIV 2001-485-1316, 24 March 2005, Associate Judge Gendall) it properly reflects the nature and complexity of the present liquidation, the skill and experience of Mr Walker as liquidator and also the outcomes achieved. As to this last aspect, it has already been noted that Mr Walker successfully issued proceedings in this Court against the director of the company, Mr Allan, which resulted in judgment for the sum of $1.75 million together with interest at 7.5% per annum from 1 January 1995. [21] An order is now made therefore approving the remuneration of Mr Walker as liquidator of the company for the work carried out to the present time in the amount of $230,840 plus GST. [22] I turn now to the application noted in paragraph [1]b) above. As to this there is no doubt in my view that the rates noted in that paragraph for on-going remuneration sought by Mr Walker for himself as liquidator ($200 plus GST per hour), for his senior and junior accountants ($160 and $120 per hour respectively plus GST), and for unqualified accounting staff ($90 per hour plus GST) are in linewith, or in some cases below, the prevailing rates of remuneration approved in similar liquidations at the present time. [23] An order is made therefore approving the rates for on-going remuneration of Mr Walker as liquidator in the administration of the company as follows: a) $200 per hour plus GST for the liquidator; b) $160 per hour plus GST for senior accountants; c) $120 per hour plus GST for junior accountants; and d) $90 per hour plus GST for unqualified accounting staff.Assignment[24] I turn now to consider the application noted at paragraph [1]c) above seeking approval to the execution by the liquidator of an assignment of the judgment debt against Mr Allan to Mr Walker in his personal capacity jointly with the New Zealand Customs Service. [25] As to this, Mr Shalfoon on behalf of New Zealand Customs Service in his affidavit dated 22 August 2007 confirms that Customs agrees to the terms of the proposed assignment. He notes that the New Zealand Customs Service is a preferential creditor, as is the Inland Revenue Department to a lesser extent, but the Deed of Assignment itself recognises the reality that Mr Walker as liquidator will be paid prior to Customs in the event that any recoveries are made by the Official Assignee. [26] Mr Shalfoon confirms that Customs supports any steps to reduce administration costs in the liquidation but only if the avenues of potential recovery from Mr Allan and his related parties are kept open.[27] He confirms that New Zealand Customs Service will ensure that the Inland Revenue Department still receives its pro rata share of any moneys received by Customs from Mr Allan or the related parties. He is satisfied that the proposed assignment will ensure that Customs can work with the Official Assignee to investigate recovery options against Mr Allan in the knowledge that Customs will benefit from any recoveries once Mr Walker as liquidator has been paid. [28] As I have noted above, the Inland Revenue Department, the other substantial creditor in the liquidation, will abide the decision of the Court with respect to the proposed debt assignment. [29] Addressing this aspect, it is noted that Mr Allan will have been bankrupt for three years as at 30 September 2007. Apparently, the Official Assignee is still making inquiries about potential recoveries from Mr Allan or entities controlled by him or of which he is a beneficiary. Mr Walker maintains that there is a strong probability that Mr Allan will not achieve a discharge from his bankruptcy on 30 September 2007. Mr Walker deposes that as liquidator with a substantial debt owing from Mr Allan he intends to ensure that all available avenues of recovery have been explored. [30] Mr Walker notes that the problem he faces in holding the judgment debt as liquidator is that in doing so he can foresee having to continue the administration of the company for some years. This will necessarily incur additional costs. Many of these costs will be a cost to him personally as he is required to use active chartered accountants for completing annual financial statements and returns for the company. [31] Given the substantial volume of fees already owing to Mr Walker and the continuing costs of the liquidation, he deposes that he wishes to remove the company from the register as soon as possible and hence to assign the judgment debt to himself personally and New Zealand Customs Service. As I have noted, this is supported by Customs. [32] I have now had an opportunity to consider in detail the affidavit of Mr Walker dated 21 August 2007 and the affidavit of Mr Shalfoon dated 22 August2007 and all other material in support of the application to approve the execution of the Deed of Assignment and I am satisfied in terms of s 284 Companies Act 1993 that approval should be given. [33] An order is now made approving the execution by the liquidator of the Deed of Assignment of the judgment debt owing by Donald Winton Allan to the assignees Robert Bruce Walker in his personal capacity jointly with the New Zealand Customs Service, on the terms set out at exhibit "RBW3" to Mr Walker's affirmation dated 21 August 2007 filed herein. [34] As to costs, Mr Walker's application has succeeded in its entirety. The judgment of the Full Court in Medforce (No 1) makes it clear (at para [38]) that the costs associated with an application for approval of fees by a liquidator are to be treated as costs of the liquidation unless the Court orders otherwise. For similar reasons, in my view, the costs associated with the application to approve the assignment should also be treated as costs of the liquidation. [35] Accordingly, costs of this entire application are awarded to Mr Walker on a category 2B basis together with any disbursements as may be approved by the Register to be met as costs of the liquidation. "Associate Judge D I Gendall"