An Auckland businessman is claiming victory on behalf of all small business owners, after succeeding in getting a liquidator's charges reduced by more than half in a rare legal battle.
Ram Rai, a former owner of Mission Bay restaurant Jewel of India, found himself embroiled in a dispute with liquidator Gilbert Chapman just before Christmas when he attempted to sell an associated curry business, East Tamaki Curry House Ltd.
Rai was keen to pass on the business, which makes curries for supermarkets and other outlets, to a new owner, and wanted to wind up his own affairs. He hired Chapman after seeing his services advertised through Bartercard.
His plans to use Bartercard credits "did not eventuate", and he became alarmed when the liquidator decided to take over the running of the business himself.
At loggerheads with Chapman over the process and the amount he was being charged, Rai took the battle to court.
The High Court has sided with Rai, and has ordered Chapman to reduce his charges from just under $63,000 to $25,000, exclusive of GST.
According to a decision by Judge Roger Bell, Chapman made a crucial mistake by placing the business in liquidation before the sale process had been finalised.
Given that the business was "seemingly solvent", and was not in receivership, there was no "pressing need" for a liquidator to take over the running of the company, said the judge.
In fact, the move prompted the potential buyer to drop his offer for the business from $250,000 to $175,000.
Rai tried to remove Chapman as the liquidator, but was unsuccessful. He also disputed his charges.
While the judge agreed that $200 an hour plus GST was reasonable for Chapman's services, he questioned the amount of time the liquidator claimed to have spent on the business.
He also questioned the charging out of his secretary's services at $140 an hour plus GST. A more reasonable rate for administrative services would be $50-$70 an hour, exclusive of GST, he said.
He also criticised Chapman for failing to respond to telephone calls and correspondence, and for being "personally responsible for creating a lot of the difficulties that the company got into".
The judge noted that applications challenging liquidators' charges were difficult to bring.
"Most times, it is not worthwhile for a creditor to do so and that, to a certain extent, leaves the liquidator in a position of some immunity."
Rai also had to endure "ill-founded attacks and criticisms by Mr Chapman" for bringing the case. "Mr Rai has done the company's creditors a favour by taking the course that he has."
Chapman said yesterday he planned to appeal against the decision.
"We believe the judge made a fundamental error in that he's made a decision that I recommended the company be placed in liquidation, and there was absolutely zero evidence of that."
Rai told the Business Herald he was heartened the Government planned to improve the regulation of insolvency practitioners.
A bill that gives the Registrar of Companies greater powers over liquidators, receivers, and voluntary administrators was introduced to Parliament in April by Commerce Minister Simon Power.By Karyn Scherer Email Karyn