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Insolvency Practitioners liaise with the law profession on a daily basis. As in all professions it is easy to communicate with some practitioners and difficult to communicate with others. In such circumstances time and effort is wasted. Increased costs reduce the amount which will be available to creditors and delay any payout. We are invariably happier when the solicitor on the other side has the skill to present his or her clients' case clearly, concisely and in a way we understand.
We have an ongoing case in our office which is an extreme example of what we encounter. The sum of money is comparatively low. The solicitor alleges we hold money in trust but seem to be unable to explain where the mysterious trust funds are held.
All quotes and dates are actual. Only the names have been changed.
DEFINITIONS
"liquidators" - McDonald Vague & Partners
"solicitor" - The legal firm concerned
"creditor" - Their client
"company" - The company in liquidation
A creditor wrote claiming that we as liquidators were holding money in trust. There was an exchange of letters with the creditor culminating as follows -
• 2 October 2001 - liquidators to creditor
"…there are no moneys held in trust… Your claim must rank as that of an unsecured creditor."
The solicitor then came into the act -
• 19 October 2001 - solicitor for creditor
"Please be advised … that we are investigating our client's legal remedies."
The liquidators write back -
• 23 October 2001 - liquidators to solicitor
"There is no money in Trust. You client therefore ranks in the liquidation as an unsecured creditor."
In hindsight, solicitor gets extravagantly optimistic -
• 24 October 2001 - solicitor to liquidators
"… it would be very much appreciated if resolution of this matter could be delayed until Monday or Tuesday of next week."
Monday and Tuesday come and go. Nothing is heard. There is a delay which I will later find out is par for the course -
• 13 November 2001 - liquidators to solicitor
"We have received no correspondence whatsoever from you, and therefore consider the matter closed."
At least we get a prompt response this time -
• 15 November 2001 - solicitor to liquidators
"The matter is not closed…"
We start to get frustrated -
• 15 November 2001 - liquidators to solicitor
"We would have thought that a legal firm should be backing up assertions by either giving us evidence of those assertions or legal opinion in some support of those assertions. Neither has happened."
Another frustrating delay. We write again -
• 28 November 2001 - liquidators to solicitor
"We have not heard from you… We have closed our file."
February the following year another letter. This man never gives up and loves delays -
• 7 February 2002 - solicitor to liquidators
"You will recall we act for [creditor.]"
We could hardly forget. The letter is supported by documentation and a legal analysis. We write back -
• 11 February 2002 - liquidators to solicitors
"Our current position remains that there is no trust in your client's favour and that the money that has been banked into [the company's] bank account cannot be traced to the funds claimed by your client. We … cannot agree that all the cases you mention are relevant."
We then bend over backwards -
"…we could make books and records available to you."
We receive a response remarkably quickly -
• … February 2002 - solicitor to liquidators
"We take it from your letter that you would be prepared to send books and records down to us by post… Who is to pay the cost of transfer from Auckland to South Island return?"
This solicitor is incredible. There are no proceedings on foot. Liquidators do not easily give up records which are under their care and control. The solicitor even suggests that we should pay the cost of transfer. We write back -
• 18 February 2002 - liquidators to solicitor
"… the matter should have been resolved long ago. You have still given us no details as to where these trust moneys are held.. If you would like to look at the books and records it will be necessary for you to either appoint an agent in Auckland or attend Auckland yourself. We will make a room available for you. A member of our staff will be present in the room… We will charge you $50.00 plus GST for each hour spent by that staff member… We will also want 25 cents a copy for any documents you wish photocopied."
The solicitor writes back. His letter is a classic and brightens the day of our staff working on the file. Emphasis is mine -
• 20 February 2002 - solicitor to liquidators
"3. Our client will attend your offices in Auckland to inspect the books and records. We undertake to pay your reasonable costs so as to facilitate that inspection. However our client is not prepared to pay the proposed photocopying charge and will bring its own photocopy.[sic.] It is prepared to pay a reasonable fee for the use of an electrical outlet.
6. …any proposed distribution (without notice) will be opposed."
For heaven's sake. How much wear is there on an electrical outlet every time a plug is pushed in and pulled out. Twenty copies at the most at 25 cents a copy totals only $5.00. I have a mental image of the client coming off the plane from the South Island with a photocopier under his arm. I write back -
• 25 February 2002 - liquidators to solicitor
"3. The proposal as regards the photocopier we find to be somewhat Gilbertian. If the cost of photocopying is really a problem we will reduce the charge to 10 cents a copy."
6. We cannot understand how you can oppose a distribution which is made without notice. The statement seems to confound logic. Perhaps you could explain further."
We try again for informal discovery -
• 26 February 2002 - liquidators to solicitor
"We have two filing boxes full of records. We also have a computer disk which holds most of the company's financial records. Provided you are prepared to sign the usual confidentiality agreement then we would be prepared to let you have a copy of the computer disk."
The solicitor writes back -
• 27 February 2002 - solicitor to liquidators
"… we would appreciate your agreeing to Ms Cardinal of our Auckland office visiting your offices tomorrow morning to make inspection… Ms Cardinal will be better placed after a physical inspection to estimate the size and likely time of the inspection… and also the possible photocopying costs."
Good grief. We have reduced photocopying costs to 10 cents a copy and he is still going on about them. We also now find the solicitor has an Auckland office - Why would his client come from the South Island uninvited. Why can't Ms Cardinal simply inspect the records rather than seeing what records there are to inspect? -
• 28 February 2002 - liquidators to solicitor
"We have made arrangements for your Ms Cardinal to attend our offices… We require your undertaking that [your firm] will pay $50.00 plus GST for each hour spent by our staff member. We advised you of this in our letter of 18 February 2002 and 25 February 2002."
Ms Cardinal visits our offices and is efficient and professional. We seem at long last to be getting on track. However, things are too good to last. I quote in full a long extract from the next letter -
• 18 March 2002 - solicitor to liquidators
"2. Following our Ms Cardinal's visit to your office on 28 February 2002 we have provided our client with detailed instructions on the documents in your possession. Our client proposes that (creditors son) together with Maisie Doaks attend your offices this Wednesday to copy documents. Our client will arrange for a rental photocopier to be delivered to your offices for creditor's son's visit. Rather then being "gilbertian" the suggestion that our client bring its own photocopier to the inspection is quite practical and is borne partly out of our client's desire not to tie up your firm's photocopying resources on 20 March 2002. If creditor's son can have access to an electrical outlet for the photocopier he can copy documents quickly and without interrupting your staff."
He is now suggesting the client's son comes to our office. If the client is not welcome what on earth makes him think the client's son will be welcome. Who is Maisie Doaks? She certainly doesn't appear in the list of barristers and solicitors. I write back and get the following answer -
• 19 March 2002 - solicitor to liquidator
"Our client is disappointed with your … negative response. We …agree to signing ….confidentiality agreement provided agreement extends to our client's accounting advertiser [sic]…"
Our reply is quoted in full -
• 20 March 2002 - liquidators to solicitor
"I have received your facsimile of 29 March 2002. I respond as follows:
1. I would ask that in future you read and take note of what I say in my letters to you. I wrote to you on 7 February 2002 and offered to make the books and records available to you. I wrote to you again on 18 February 2002 and stated in that letter, that the records were still available to you or you could appoint an agent in Auckland. I wrote to you yet again on 25 February 2002 and stated clearly that as follows:-
"We did not offer to make the files available to your client."
How you could then suggest that your client's son attend our offices is beyond us. In the circumstances it is not proper of you to talk about a "negative response."
2. We will prepare a confidentiality agreement. It will not be in draft. If the confidentiality agreement is unacceptable to you, then we would suggest you file proceedings or go away.
3. You have still not told us who Maisie Doaks is and why you believe it is appropriate for her to attend our offices. Before we send the confidentiality agreement, we want a reply. We want to know more about Maisie Doaks.
4. Please explain what an "accounting advertiser" is."
• 25 March 2002 - solicitor to liquidators
"Maisie Doaks is [our client's] son's partner."
Now we know -
• 3 April 2002 - liquidators to solicitor
"Please find attached a Confidentiality Agreement requested by yourselves regarding the above named company and your client.
Please sign the Confidentiality Agreement and facsimile/post back to McDonald Vague & Partners in order that we may send you the computer disk by return post."
We are now in the month of June 2002. Further correspondence has taken place. For example, I sent a copy of a draft report to all creditors down to the solicitor. On 3 May 2002 he stated he would provide me with a substantive comment about what I said. I am of course since awaiting that substantive comment. Meantime, I have reported to creditors as follows -
"As previously reported, one creditor had advised that the company held approximately $25,000 in trust and had demanded repayment. The liquidator maintains that no such funds were held in trust, and therefore considers the creditor to be unsecured in their claim in the liquidation.
The solicitors for the creditor are currently still in correspondence with the liquidators. In February 2002 they were given the opportunity to make discovery of the books and records of the company, but they have not yet availed themselves in respect of this opportunity. The liquidators comment that because of these actions costs have been incurred and a distribution to all unsecured creditors has been delayed."
Also there has been a further development. The case is now being handled by a solicitor from the Auckland office of the firm. I am sure that anyone who reads this story will agree that the new solicitor must do better. What I don't understand is why a reputable firm puts itself in a position where its reputation could be at risk.
DISCLAIMER
This article is intended to provide general information and should not be construed as advice of any kind. Parties who require clarification on issues raised in this article should take their own advice.