News High Court Involvement

RITANZ was recently invited by the High Court to intervene in a case concerning liquidators using in-house lawyers to conduct proceedings on behalf of an entity in liquidation.

Vijay Holdings Limited (in liquidation) v Kumar [2026] NZHC 904 involved a breach of director's duties claim against Mr Kumar.  The plaintiff was the company in liquidation (the Company); the liquidators were Damien Grant and Adam Botterill of Waterstone Insolvency and the solicitors acting for the Company were Waterstone’s  in-house lawyers. 

Mr Kumar applied to the Court to debar the lawyers from acting in the proceedings on the grounds that the way the liquidators used in-house lawyers to conduct litigation on behalf of the Company (what the Court called the Waterstone Model):

• was a breach of the regulatory requirements applying to lawyers; or
• alternatively would undermine the public’s confidence in the liquidators and the integrity of the Courts because the liquidators had a direct financial interest in the level of legal fees being incurred in the litigation.

The Court dismissed these arguments.   While RITANZ did not support or oppose the application itself, RITANZ provided submissions on key issues to assist the Court.

The Regulatory argument

The Lawyers and Conveyancers Act 2006 (the LCA) and the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care Rules) 2008 (the Rules) governs the obligations of all lawyers.  The LCA and the Rules provide that:

• Where a lawyer is an employee, they cannot provide regulated services to the public other than in the course of their employment.
• Except as otherwise provided for in the LCA, an in-house lawyer may not provide regulated services to a client or member of the non-lawyer by whom he or she is engaged.

Mr Kumar argued that, as the in-house lawyers were acting for the Company, not the liquidators themselves, the in-house lawyers were providing regulated services to the public, or alternatively to a client of Waterstone, in breach of the LCA and the Rules.

RITANZ submitted that this argument misunderstood the relationship between a liquidator and the company in liquidation, as an entity in liquidation is not a client of an LIP or their practice.  As the liquidator controls the entity in liquidation and is the only person who can commence or continue legal proceedings in the name of, and on behalf of, the liquidated company, any instructions by the company for the proceedings would have to come from the liquidators.   Therefore, when viewed in substance, the in-house lawyers were not providing services to “the public” or a “client” of the liquidators. They were providing services to their employer, the liquidators.   

These submissions were accepted by the Court, in holding that the Waterstone Model did not breach the LCA and the Rules.

Whether the Waterstone Model created an inherent conflict of interest for the liquidators

There is clear authority that an in-house lawyer can, subject to their other duties, represent their employer in court proceedings.[1]  For example, a City Council might use an in-house lawyer to represent it in proceedings.  However, the Waterstone Model is different to the usual circumstance of an in-house lawyer representing their employer in legal proceedings because the liquidators will earn remuneration from the in-house lawyers at commercial rates which are ultimately paid from the assets of the liquidated entity.   Mr Kumar argued that this meant the liquidators had a direct financial interest in the legal fees being incurred in the proceeding and that the proceedings were motivated by profit maximisation for Waterstone (and its shareholders, the liquidators) rather than the merits of the claim.  

RITANZ submitted, and the Court accepted, that a conflict of interest could not arise simply because a liquidator earns income from their fees and the fees they charge for their fee-earning staff members:  otherwise a conflict would arise whenever a liquidator charged fees.   While Mr Kumar’s application was focused on the fees earned by in-house lawyers, there was no good policy reason to distinguish remuneration earned from lawyers employed by liquidators from remuneration earned by other staff employed by the liquidators.  

RITANZ submitted that the use of in-house counsel to conduct legal proceedings would not, of itself, cause liquidators to breach their independence requirements under the RITANZ Code of Conduct.  However, there were some key restrictions and checks on the use of in-house lawyers by LIPs in this way.

• The requirement of liquidators to carry out their duties in a reasonable and efficient manner inherently involves considering (on an on-going basis) the likely cost / benefit of any potential action, including litigation. This meant that a liquidator who commenced legal proceedings without proper regard to the merits, in order to generate additional remuneration for themselves, would breach this duty.
• The need for remuneration to be reasonable and to be in respect of work done that was reasonably necessary for the appointment and properly performed is set out in both the RITANZ Code and NZICA’s IS: Insolvency Services and would apply to fees earned from in-house lawyers.
• The RITANZ Code specifically provides that a practitioner may obtain internal non-insolvency or non-restructuring professional services from parties associated with them or their firm. However, the practitioner can only do so after proper commercial consideration to that decision has been given, the engagement is in the interests of creditors and the efficient conduct of the administration, and the practitioner can demonstrate that the cost of the service is not more than the average market rate.    RITANZ submitted that this commercial consideration would also involve considering whether it is in the interests of creditors to have independent counsel and the professional detachment that comes from independent counsel.
• The courts have the power to review a liquidators’ remuneration (including remuneration earned from the fees of in-house lawyers) and the jurisdiction to make costs awards against liquidators personally in the event a court proceeding was found to lack merit.

The In-house lawyer’s duty of independence in litigation

While it was not the key focus in the application, the Court also addressed the in-house lawyer’s duty of independence in litigation.  In-house lawyers must still comply with their duties under the Rules, including the requirement to exercise independent professional judgement, the requirement to maintain their independence in litigation and to avoid conflicts of interest. 

Although an in-house lawyer is employed by their “client”, that does not, of itself, mean that the lawyer cannot comply with their duty of independence and their duty to avoid conflicts.   The Rules specifically record that an in-house lawyer can provide independent advice to the non-lawyer to whom they provide regulated services.  And the courts have previously recognised that an in-house lawyer can appear for a non-lawyer employer in litigation before the courts.  

RITANZ submitted that the issues in the court application itself can be relevant to the independence of in-house lawyers acting in proceedings in a liquidation context.  The duty for lawyers to be independent in court proceedings is intended to address a concern that a client exerts too much influence over a lawyer, such that the lawyer is not free to meet his or her obligations to the Court.  This may be an issue where the conduct of the in-house lawyer’s employer is being directly challenged in the court proceeding (for example, an application under section 284 of the Companies Act to challenge a liquidator’s conduct or decision).   

As this was not an issue in the Vijay application, the Court did not address this issue in its decision.   Therefore, it may be that the courts will take a closer look at instances where the conduct of the in-house lawyer’s employer is directly in issue in the proceeding.

Key takeaways for LIPs

Although the Court found that Waterstone Model did not, of itself, create an inherent conflict of interest for the liquidators, the Court’s decision makes clear this is because there are duties already imposed on liquidators which need to be discharged when deciding to use in-house counsel to conduct legal proceedings and the Court has the tools to deal with any breaches of those duties.

While the decision might appear to be limited in its application to LIPs (or the Official Assignee) who use in-house counsel to conduct legal proceedings, the provisions in the RITANZ Code requiring proper and ongoing commercial consideration before using internal non-insolvency or non-restructuring professional services apply more broadly and can apply to valuation services, debt recovery services and the like.  

Mr Kumar has applied for leave to appeal this decision, so this may not be the final word on the matter.

[1] See for example Henderson Borough Council v Auckland Regional Council [1984] 1 NZLR 16

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