Madsen-Ries and Levin as liquidators of Salus Safety Equipment Ltd ((in Liquidation)) v Salus Safety Equipment Ltd ((in Liquidation))

• Jurisdiction: New Zealand
• Judge: Brown J
• Judgment Date: 31 March 2022
• Neutral Citation: [2022] NZCA 101
• Docket Number: CA383/2020
• Court: Court of Appeal

Between

Vivien Judith Madsen-Ries and Henry David Levin as Liquidators of Salus Safety Equipment Limited (in Liquidation)

Appellants

and

Salus Safety Equipment Limited (in Liquidation)

Respondent

Between

Vivien Judith Madsen-Ries and Henry David Levin as Liquidators of Green Securities Limited (in Liquidation)

Appellants

and

Green Securities Limited (in Liquidation)

Respondent

[2022] NZCA 101

Court:

Cooper, Brown and Courtney JJ

CA383/2020

CA384/2020

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Insolvency — appeals by the liquidators against determinations concerning their applications for approval of their remuneration — breach of natural justice — no opportunity for the liquidators to consider, challenge or contradict the High Court's concerns about the fees — concerns about “fee padding” — Companies Act 1993

Counsel:

N H Malarao and B J Hamilton for Appellants

M G Colson QC and K O M Fitzgibbon as counsel to assist the Court

• A The appeals are allowed.

• B The judgments are set aside.

• C The liquidators' applications for approval of their remuneration are to be reconsidered by an Associate Judge after the liquidators have availed themselves of the opportunity to present written submissions on their issues of concern in the judgments.

• D There is no order for costs.

JUDGMENT OF THE COURT

Table of Contents

	Para no
Introduction	[1]
Grounds of appeal	[6]
The nature of the appeal	[8]
Liquidators' remuneration — relevant principles	[12]
Green Securities Ltd	[19]
The liquidators' application	[19]
The High Court judgment	[25]
Salus Safety Equipment Ltd	[28]
The liquidators' application	[28]
The High Court judgment	[37]
A breach of natural justice?	[39]
Appellants' submissions	[39]
Submissions of counsel assisting	[44]
The nature of the Court's function	[47]
The invocation of the Roslea Path principles	[51]
The specific alleged breaches of natural justice	[62]
Conclusion	[74]
Appropriate relief	[76]
Result	[80]

REASONS OF THE COURT

(Given by Brown J)

Introduction

1 These two appeals comprise challenges to determinations by Associate Judge Bell on 17 and 18 June 2020 of applications by the appellants (the liquidators) under s 284(1)(e) of the Companies Act 1993 (the Act) for approval of their fees. The liquidators complain a miscarriage of justice occurred by reason of the failure by the Judge to give them notice of, and an opportunity to respond to, certain conclusions which he had reached which were critical of them.

2 On 5 May 2010 Green Securities Ltd was put into liquidation on the application of the Commissioner of Inland Revenue and the appellants were appointed as liquidators. On completion of the liquidation on 8 July 2019, they sought the approval of the High Court of their overall remuneration in the sum of $159,500 for liquidation fees (plus GST and disbursements). The Judge declined approval and fixed remuneration at $120,000 (plus GST and disbursements). 1 The claim for disbursements was reduced by $5,000 plus GST.

3 On 13 February 2013 Salus Safety Equipment Ltd was put into liquidation on the application of the Commissioner of Inland Revenue and the appellants were appointed as liquidators. On completion of the liquidation on 26 July 2018, they sought the approval of the High Court of their overall remuneration in the sum of $91,600 for liquidation fees (plus GST and disbursements). The Judge declined approval and fixed their remuneration at $30,000 (plus GST and disbursements). 2

4 The Judge's reasons included a number of criticisms which the liquidators contend they were neither informed of nor provided with an opportunity to respond to. Their appeals challenge the Judge's process as involving a miscarriage of justice. By way of relief they request that their appeals be allowed, the judgments be quashed and the matters be remitted back for determination by a High Court Judge.

5 Because there was no respondent below, Mr Colson QC and Ms Fitzgibbon were appointed as counsel to assist the Court on the appeals. 3

Grounds of appeal

6 The grounds of both appeals may be summarised as follows:

The notices of appeal identified a number of errors of law which are said to have resulted in several errors of fact.

• (a) an error of law and a breach of the principles of natural justice by determining the applications without providing an opportunity to the liquidators to consider, challenge or contradict the Judge's concerns about the fees;

• (b) an error of law by taking into account evidence which neither a party nor an interested person had adduced; and

• (c) a departure from the Re Roslea Path Ltd (in liq) principles and practice. 4

7 The appellants filed a list of issues, with which Mr Colson agreed, which was in the following terms:

• 1 Did the High Court depart from well-established principles and practice endorsed by the Full Court in Re Roslea Path Ltd (In Liquidation)?

• 2 In the process followed by the High Court, was the appellants' right to the observance of principles of natural justice breached? In particular:

  • (a) Did the appellants have a right to be warned of adverse allegations and potential findings?

  • (b) If so, were the appellants appropriately warned?

  • (c) Did the appellants have a right to be provided with an opportunity to be heard on adverse allegations and potential findings?

  • (d) If so, were the appellants provided with an appropriate opportunity to be heard?

• 3 Should the judgments subject to this appeal be quashed and the matters remitted back to the High Court?

The nature of the appeal

8 At the outset it is important to recognise the unusual and confined nature of this appeal. There is no specific attack on the quantum fixed by the Judge in either case. Mr Malarao acknowledged that it was not inconceivable that the same determination could have been made in the absence of the procedural unfairness of which complaint is made. As he put it, such an outcome was possible but, in his view, not at all likely.

9 The liquidators' complaint is that the process employed by the Judge was fundamentally flawed. As Mr Malarao explained it:

The judgments are not judgments on the basis that the Liquidators simply failed to prove their claim for remuneration to the appropriate standard, and the approved remuneration was written down accordingly. If the judgments had simply reduced remuneration on the basis of insufficient evidence, the Liquidators would have disagreed with such an assessment, but that would have been a separate matter. In these cases the Associate Judge delivered judgments which contain a number of findings that can be described as findings of malpractice or, at least unconscionable behaviour.

10 A particular focus of the appeal was the Judge's criticism in Green Securities of the number of people who had worked on the liquidation, which he viewed as inefficient, and his observation that the approved reduced remuneration removed “padding and inefficiencies” in the claim. 5 It was apparent that at least one of the liquidators' objectives in the appeals was to seek to restore their professional reputations and the reputation of their firm.

11 However the liquidators did not invite the Court to conduct a rehearing of the applications or to substitute orders approving the amounts originally sought. In Mr Malarao's words, the only way forward was for the matter to be remitted back to the High Court in order to remedy some of the procedural errors that had occurred.

Liquidators' remuneration — relevant principles

12 A liquidator appointed by the Court is remunerated in accordance with s 276(2) of the Act which allows remuneration to be charged, without Court approval, at not more than amounts fixed or hourly rates prescribed under s 277. If higher rates are sought a prospective application for remuneration must be made and granted. Then at the conclusion of the liquidation what is known as a “retrospective application” is made to the Court under s 284(1)(e) of the Act for approval of the liquidator's fees.

13 In the leading authority, Roslea Path, Heath and Venning JJ described the nature of the Court's function in fixing a liquidator's remuneration: 6

[102] In fixing a liquidator's remuneration, the Court is making a determination of the fairness and the reasonableness of what has been charged when measured against the work undertaken and the result achieved. Fair and reasonable remuneration reflects the value of the services rendered to the creditors of the company and, if a surplus were achieved, its shareholders. “Value” is an elusive concept which goes beyond mathematical application of hourly rates to hours spent by individuals involved in administering the company's affairs.

14 They also noted that: 7

In seeking retrospective approval, a liquidator must provide sufficient information to the Court for it to make a judgment on whether the amount claimed is fair and reasonable. What constitutes “sufficient” information is a question of judgment for the Court to determine.

15 Mr Colson helpfully summarised the principles relevant to the determination of retrospective applications:

• (a) Liquidators are fiduciaries and their fundamental obligation is a duty to account. There is a conflict between the interests 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 of that remuneration.

• (b) Liquidators are officers of the Court and are subject to its general supervisory function. They must attend diligently to their tasks and make all proper reports and inquiries. They have the same responsibilities as barristers and solicitors.

• (c) Liquidators must justify their claims for remuneration....