The "Achilles Heel" that bit the liquidator in the arse

The "Achilles Heel" that bit the liquidator in the arse
Wednesday November 13, 2013

Liquidators occupy an important position within the economy.  A large number of companies fail each year, leaving hundreds of millions of dollars left owing to creditors.  Creditors rely, to varying degrees, on the integrity and honesty of liquidators to perform their statutory function to gather in the assets of the liquidated company and then distribute them as per the priorities set out in the Sixth Schedule of the Companies Act.  The Act and its regulations prescribe certain duties and obligations on liquidators.  A key obligation, in short, is to pass money from the company to its creditors. Court appointed liquidators are officers of the Court. Liquidations and receiverships can be quite lucrative work for insolvency practitioners.  It is not unheard of for an insolvency practitioner’s fees to exceed a million dollars, although I do accept that does not occur often. It surprises some people that almost anyone can be appointed a liquidator.  While many insolvency practitioners do have some background in accounting there is no legal requirement for them to do so.  In fact, there is no requirement in law that a liquidator can count or even be able to read.  Liquidators are required to produce 6 monthly reports.  It might be implied that they are required to read their own reports before producing them.  A fraud conviction has not stood in the way of at least one insolvency practitioner being able to make himself available for appointments. On the whole, New Zealand is served very well by a number of very capable and able insolvency practitioners.  Unfortunately, a few do tend to bring the insolvency industry into disrepute.  Not the least being Patrick Norris.  Patrick Norris was convicted in October 2013 of an offence under section 220 of the Crimes Act 1961 (Theft by a person in a special relationship).  He had been appointed as the replacement liquidator of Astra Enterprises Ltd (“Astra”).  Astra’s previous liquidator resigned due to other commitments.  Patrick Norris on his appointment requested that Astra’s funds, being $80,960.51, which were held by the previous liquidator be paid into his account.  He received the funds.  Astra had three unsecured creditors totalling approximately $65,000.  Evidence was given that the liquidation should have been straight forward.  On the face of it all, all of the creditors should have been paid out their full debt. The Companies Office became involved in the Astra liquidation during March 2011 following a tip off from one of Patrick Norris’ employees.  On 28 March 2011 the Companies Office inspectors arrived at Patrick Norris’ office.  The inspectors requested the Astra file and related bank statements.  Patrick Norris told them to come back later that day.  After the investigators left there was “a panic and flurry of activity that took place … involving the recreation of invoices for the work Mr Norris said he had done on the Astra liquidation”.  When the investigators returned they took away what they understood was Patrick Norris’ complete file in relation to Astra, including bank statements.  Mr Norris told them that the missing $80,960.51 had been spent on his fees.  However, that was a lie. His business account to which the Astra funds were deposited was in overdraft.  He also used the money to pay his personal and his business debts unrelated to the Astra liquidation. The Court of Appeal this week dismissed Patrick Norris’ appeal against conviction. For good measure the Court of Appeal corrected an error in the sentence and increased the amount of reparation that Patrick Norris was required to pay Astra.  The Court of Appeal capped that amount to only $40,000 because “reparation for the full amount may result in reparation being payable for an unreasonable period.” Patrick Norris is paying reparation at the rate of $100 per week. Evidence was given that Patrick Norris knew what he was doing was wrong prior to the involvement of the Companies Office.  He told one of his staff that he “was always worried that Astra would be” his “Achilles’ heel”.  He told another member of staff, that one liquidation file that “could bite him in the arse” was the Astra file.  It is helpful that Patrick Norris’ conduct has been revealed.  Unfortunately, there is nothing currently stopping him accepting future appointments as a liquidator after the passage of five years from the date of his conviction. Last month the Insolvency Practitioners Bill had its second reading.  The Bill purports to address some of the concerns and lack of confidence in the insolvency industry.  I strongly doubt the Bill, when it is enacted, is going to achieve much. Insolvency practitioners will continue to be able to operate without any minimum qualifications.  Creditors will still have good reason to be concerned as long as the less reputable insolvency practitioners continue to be able to accept appointments.

By Chris Patterson, 2013

 

By Chris Patterson