THE COMMISSIONER OF INLAND REVENUE v ATTRACTUM LTD (in liq) [2022] NZHC 3597

THE COMMISSIONER OF INLAND REVENUE v ATTRACTUM LTD (in liq) [2022] NZHC 3597 [21December 2022]IN THE HIGH COURT OF NEW ZEALANDTAURANGA REGISTRYI TE KŌTI MATUA O AOTEAROATAURANGA MOANA ROHECIV-2016-470-146[2022] NZHC 3597UNDER the Companies Act 1993IN THE MATTER of the liquidation of ATTRACTUMLIMITED (in liq)BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND ATTRACTUM LIMITED (in liq)DefendantHearing: On the papersCounsel: Memorandum filed by Liquidator dated 7 December 2022Judgment: 21 December 2022JUDGMENT OF ASSOCIATE JUDGE SUSSOCK[Approval of Liquidator's Remuneration)This judgment was delivered by me on 21 December 2022 at 4pmpursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors:Deloitte, AucklandIntroduction[1] The liquidator of Attractum Limited (in liq) (Attractum), Mr Henry DavidLevin, has applied for approval of the liquidators' fees in this liquidation totalling$100,900 (plus GST and plus disbursements). This is slightly more than the exactamount of current fees of $100,841 to allow for minor variances against estimatedfuture cashflow.[2] Mr Levin and Vivien Judith Madsen-Ries of Deloitte were first appointed asliquidators of Attractum on 13 February 2017.[3] On 14 December 2021, this Court made an order discharging Ms Madsen-Riesas liquidator and leaving Henry David Levin as sole liquidator.1[4] The liquidation is now complete and so the liquidator applies for approval oftheir remuneration. Mr Levin has attached his draft final report to the Registrar ofCompanies, prepared on the basis that the liquidators' fees have been approved. Inaddition, the liquidator has attached his first report plus a letter on behalf of theCommissioner of Inland Revenue confirming that the Commissioner accepts theproposal for approval of remuneration of $100,900 (plus GST and disbursements) andemail correspondence from ACC abiding the decision of the Court.[5] The disbursements in this liquidation are significant as the liquidators wererequired to bring legal proceedings against the directors and shareholders of thecompany in liquidation and were charged $146,288 (excluding GST) for legal fees anddisbursements. There is a further $3,254 (excluding GST) of other disbursements.[6] I therefore describe the background and work undertaken in some detail belowas it assists in understanding the reasons for the level of liquidators' fees. Next, I setout the legal principles applying to approval of the liquidators' remuneration beforeapplying those principles to this liquidation.1 Madsen-Ries v 32267 Ltd (in liq) HC Auckland CIV-2021-404-2256, 14 December 2021 (sealedorder).Background and work undertaken[7] The company was incorporated on 11 February 2008 and traded as a websitedeveloper. The company ceased trading on the date of the liquidation.[8] Two creditors had unsecured creditor claims admitted in the liquidation:(a) Inland Revenue had a preferential claim of $42,296.88 plus anon-preferential claim of $18,164.11 for a total of $60,460.99; and(b) another creditor had a non-preferential claim for $4,821.30.[9] In addition, Inland Revenue, as the petitioning creditor, was awardedpetitioning creditor costs of $4,406.80.[10] The liquidators faced a number of challenges in realising the debts owing andthe assets of the company, including the following difficulties:(a) realising trade debts which were largely irrecoverable due to assertedinadequacies in the provision of services;(b) recovering the current account debt and enforcing shareholders'resolutions to inject funds into the company in the event of insolvency,requiring more protracted than usual legal proceedings; and(c) in relation to recovery and eventual sale of a Toyota Landcruiser, theownership of which was uncertain.[11] The liquidator records that "[w]hile the level of costs required to obtain therecovery was extremely disappointing, the level of costs was caused by therespondents' actions", the respondents being the shareholders/directors.[12] The liquidator's memorandum further records, in addition to pursuing theshareholders/directors, the liquidators undertook their statutory duties including:(a) advertising the appointment of the liquidators;(b) updating the Companies Officer Register to record the liquidation andchanged the registered office and address for service;(c) maintaining records of the liquidation including filing and archivingrecords;(d) preparing accounts for the liquidation;(e) preparing and filing GST Returns; and(f) preparing the first and subsequent six-monthly reports to creditors.Legal principles[13] 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 the full High Court decision, Re Roslea Path Ltd (in liq).2[14] 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. 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.52 Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC) at [102].3 At [102].4 At [108].5 At [151].[15] The Court of Appeal in Madsen-Ries v Salus Safety Equipment Ltd (in liq)recently confirmed the approach adopted in Re Roslea Path Ltd.6 The Court approvedthe following summary of principles applying to the determination of retrospectiveapplications:7(a) Liquidators are fiduciaries and their fundamental obligation is a dutyto account. There is a conflict between the interest of the liquidator(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.[16] The Court of Appeal further held: 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.6 Madsen-Ries v Salus Safety Equipment Ltd (in liq) [2022] NZCA 101.7 At [15].8 At [54].[17] So, although the Commissioner is satisfied the fees charged are reasonable,I am still required to be satisfied that the remuneration reflects the value of the servicesrendered to the creditors of the company.Discussion[18] The liquidator's memorandum attaches a copy of the order putting thecompany into liquidation on 13 February 2017. The order records that the rates ofremuneration for the liquidator and the staff working under their supervision andcontrol are the rates set out in the liquidators' consent dated 18 January 2017. A copyof that consent is attached to the memorandum and records that the rates ofremuneration range from $95 for an administrator up to $475 plus GST per hour for aliquidator.[19] The liquidator's memorandum records that the liquidators' fees have beencharged at a rate between $475 to $550 per hour. This is in excess of the rates actuallyapproved in the order. The order in fact reserved leave to the liquidators to apply fromtime to time for approval of rates other than those approved in the order, with suchapplication being supported by affidavit evidence of the liquidators deposing to therates, and of an independent expert deposing to their reasonableness. No suchapplication appears to have been made, or leave granted. I am aware from otherapplications for approval of liquidators' remuneration however that an hourly rate of$550 for a liquidator is relatively standard for liquidators.[20] In the circumstances of this already lengthy, complicated and expensiveliquidation, I consider it appropriate to grant retrospective leave for the change inhourly rates, rather than require any further submissions or documents to be filed.[21] Relevant to my decision to grant retrospective leave is the fact that during thecourse of the liquidation $9,631 was written off as related to training or inefficiency.The net time cost of the liquidation is therefore $100,841. The total hours workedafter the write-off was allocated on a pro rata basis over the total time, were355.7 hours for an average hourly recovery rate of $283.50 excluding GST per hour.This average is within the normal range.[22] The breakdown in the memorandum shows that approximately 30 per cent ofthe hours worked were at liquidator level, six per cent were at associate director ormanager level, 8.5 per cent were at senior analyst level, 38 per cent were at analystlevel, and the remaining approximately 17 per cent were at administrator or officeassistant level. This is a relatively high proportion at liquidator level compared toother liquidations but is likely to be the result of the difficulties with recovering theamounts owing from the shareholders/directors.[23] The memorandum records that the parties affected by the level of theliquidators' fees are the non-preferential creditors who are still owed $4,597.08, sharedbetween Inland Revenue and ACC. The liquidators' memorandum comments that ifthe liquidators' fees were less, Inland Revenue and ACC would stand to gain as anincreased distribution could have been made to them.[24] As noted above, both Inland Revenue and ACC have been consulted in respectof the liquidators' fees and confirmed in the case of the Commissioner that they acceptthe fees as proposed, and in respect of ACC, that they abide the decision of the Court(although on the basis that it will not affect ACC's debt recovery).[25] The fact that the Commissioner of Inland Revenue accepts that there weredifficulties in recovering the current account debt and pursuing the breach of directors'duties and has agreed that the remuneration for which approval is sought is acceptedsupports the view that the proposed remuneration reflects the value of the servicesrendered to the creditors of the company.[26] The liquidator in his memorandum further refers to the fact that thesix-monthly reports record that all creditors have the right to seek the leave of theCourt under s 284(1)(e) of the Companies Act 1993 to review or fix the remunerationof the liquidator, which is at a level which is reasonable in the circumstances. I notethat the notice in the six-monthly reports does not invite creditors to contact theliquidators if they have any issues in relation to fees. In my view this is preferablerather than simply referring to a possible right to apply to the Court for review pursuantto s 284. I do not therefore place significant weight on this submission by theliquidator.Result[27] After considering all of the above, I am satisfied that the liquidators' proposedremuneration appropriately reflects the value of services rendered to the creditors ofthe company in liquidation. As a result I grant the application for approval of theliquidators' fees totalling $100,900 (plus GST and plus disbursements), allowing forminor variances against estimated future cash flow as proposed by the liquidator._________________________Associate Judge Sussock