You are here:
AustLII >>
Databases >>
Supreme Court of New South Wales >>
2020 >>
[2020] NSWSC 901
Database Search
| Name Search
| Recent Decisions
| Noteup
| LawCite
| Download
| Context | No Context | Help
In the matter of Fearndale Holdings Pty Ltd (in liq) (recs & mgrs apptd) [2020] NSWSC 901 (15 July 2020)
Last Updated: 23 July 2020
|
Supreme Court
New South Wales
|
|
Case Name:
|
In the matter of Fearndale Holdings Pty Ltd (in liq) (recs & mgrs
apptd)
|
|
Medium Neutral Citation:
|
|
|
Hearing Date(s):
|
13 July 2020
|
|
Decision Date:
|
15 July 2020
|
|
Jurisdiction:
|
Equity - Corporations List
|
|
Before:
|
Black J
|
|
Decision:
|
Orders made for remuneration of voluntary administrator, court-appointed
receiver and liquidator
|
|
Catchwords:
|
CORPORATIONS — Voluntary administration - Winding up —
Remuneration — Whether voluntary administrator and liquidator
for
corporate trustee may charge remuneration and expenses against trust property
— Where voluntary administrator’s and
liquidator’s
remuneration and disbursements for investigation, care and preservation of trust
property
|
|
Legislation Cited:
|
|
|
Cases Cited:
|
|
|
Category:
|
Procedural and other rulings
|
|
Parties:
|
Lawrence Richard Harpley (First Plaintiff)
Gary Richard Harpley (Second
Plaintiff)
Timothy James Cook (Applicant)
Australian Lending Investment
Pty Ltd (First Respondent in the application)
Richard Albarran & Brent
Kijurina (Second Respondent in the application)
Equivest Holdings Pty Ltd
(Third Respondent in the application)
Lawrence Harpley & Garry Harpley
(Fourth Respondent in the application)
|
|
Representation:
|
Counsel:
S Golledge SC/ H Somerville
Solicitors:
William
James
|
|
File Number(s):
|
2018/91831 (018)
|
JUDGMENT
Background and evidence
- This
is an application by Mr Cook as voluntary administrator, Court-appointed
receiver and liquidator of Fearndale Holdings Pty Ltd
(in liq)
(“Fearndale”) to establish his entitlement to be paid costs and
remuneration from trust assets and for approval
of the quantum of that
remuneration for the period to 22 May 2020. Although this application is brought
in proceedings which have
been heavily contested, as will emerge below, none of
the parties to the proceedings or the creditors of Fearndale have opposed the
application.
- I
should first set out the background to the application, which I have largely
drawn from my earlier judgment in Re Fearndale Holdings Pty Ltd (admin apptd)
(recs & mgrs apptd) [2019] NSWSC 1810. By way of background, Fearndale
has been, since 10 January 12007, the trustee of the Fearndale Trust
(“Trust”). It was
placed in administration on 12 March 2018 by a
secured creditor, Consolidated Capital and Funding Pty Ltd (“CCF”).
Mr
Cook was initially appointed as voluntary administrator to Fearndale on 2 May
2018, in replacement of the then voluntary administrators
who had been appointed
by CCF and was appointed receiver and manager of the property of the Trust on 4
December 2018.
- Fearndale
owned certain land (“Land”) at Luddenham in New South Wales, which
was sold by Mr Cook on 19 November 2019 in
his capacity as voluntary
administrator appointed to Fearndale. The Plaintiffs in the proceedings, the
Messrs Harpley, are directors
of Fearndale and own a substantial percentage of
its shares. Fearndale guaranteed certain obligations of another entity, Equivest
Holdings Pty Limited (“Equivest”) under two loans made by Australia
and New Zealand Banking Group Limited (“ANZ”)
to Equivest. On or
about 10 December 2014, ANZ assigned the Term Loan, the Overdraft Facility,
Fearndale’s guarantee and the
mortgage and its rights thereunder to a
Defendant in the proceedings, CCF. Equivest and Fearndale did not make payments
to ANZ or
CCF in respect of the relevant loans from at least 19 December 2014.
- Disputes
arose between, inter alia, Fearndale and CCF and, by orders made by consent on 2
May 2018, Leeming JA (sitting at first instance
in the Corporations List)
ordered, inter alia, that there be a referral under rr 20.14, 20.15 and 20.17 of
the Uniform Civil Procedure Rules 2005 (NSW) to a referee for hearing and
determination of the reasonable and proper amounts to which CCF was entitled to
receive out of
the proceeds of the sale of the land owned by Fearndale in
satisfaction of its entitlements under the guarantee and mortgage, including
receivers’ fees and expenses. CCF subsequently assigned its interest in
the relevant loan and securities to Australian Lending
Investments Pty Ltd
(“ALI”). By my judgment in Re Fearndale Holdings Pty Ltd (admin
apptd) (recs & mgrs apptd) above, I adopted the referee’s report
and made certain orders.
- On
19 November 2019, a sale contract for the Land completed at a purchase price of
$14 million plus GST. By orders made by consent,
an amount of just under $3.4
million was then paid to the registered first mortgagee of the Land, ALI as
assignee of a debt and securities,
including real property mortgage, from CCF
and the amount of $10,329,771.72 was paid into Court on or about 19 November
2019.
- On
or about 6 March 2020, an amount of $2,507,162.37 was paid from the funds in
Court to Fearndale, and a balance of $7,822,609.35
remains as funds in Court. In
his ex tempore judgment ordering that payment, Gleeson JA (then sitting at first
instance in the Corporations
List) observed that:
“The
materials before the Court make clear that the money paid into Court came from
the proceeds of sale of land owned by Fearndale
at Luddenham in the State of New
South Wales. The parties have taken a sensible course of identifying the
difference between the
amount of their potential claims and the amount that has
been paid into Court, with the consequence that a residual amount may be
conveniently paid to the owner of at least part of the funds, namely Fearndale,
the owner of the land that generated the funds paid
into Court.
I am satisfied that it is appropriate to make the order sought in relation to
payment out of part of the monies held in Court to Fearndale.
The parties have
agreed to a timetable for preparation of points of claim and points of defence,
and service of evidence and submissions
to enable their competing claims to the
balance of the monies paid into Court to be determined in an expeditious
fashion.”
- Mr
Cook previously sought approval for his remuneration at meetings of creditors
held on 6 March and 12 May 2020 and that approval
was not obtained. Creditors
have been given notice of this application and no creditor has sought to be
heard in opposition to it,
notwithstanding that several of Fearndale’s
creditors and contributories, including ALI, Equivest and the Messrs Harpley
have
been involved in ongoing and wider proceedings in respect of the
liquidation.
- In
a further hearing that commenced on 7 July 2020, the parties have advanced
competing claims to funds paid into Court by Fearndale.
The parties have now
proposed consent orders to be made by the Court, and judgment will be delivered
today in that regard.
- In
this application, made by Amended Interlocutory Process filed, by leave, on 13
July 2020, Mr Cook seeks a determination under s
60-10 of the Insolvency
Practice Schedule (Corporations) that he is entitled to receive remuneration for
work performed in relation
to the external administration of Fearndale for the
period commencing 5 May 2018 and ending 22 May 2020 in the substantial amount
of
$1,213,420, exclusive of GST, and an order that the costs of the application be
costs in the external administration. By his Points
of Claim filed on 16 March
2020, Mr Cook pleads a “salvage” claim, in respect of work done to
secure possession of the
Land; undertake a sale campaign in respect of the Land;
participate in several proceedings concerning claims made by third parties
in
respect of the Land; and conclude a sale of the Land. Mr Cook refers to several
affidavits filed in the proceedings which set
out the work done in that respect.
- By
his Points of Claim, Mr Cook pleads that the sale of the Land was achieved by
reason of the Salvage Efforts (as defined) and the
funds in Court were created
by reason of those efforts. Mr Cook also contends that, by reason of ss
443D-443F of the Corporations Act 2001 (Cth), or a right of indemnity or
exoneration from the property of the Fearndale Trust for remuneration and
expenses, or by reason
of the equitable principle of salvage, he is entitled to
sufficient part of the Balance (as defined) to enable the discharge of his
Salvage Claim (as defined). Mr Cook also pleads the fact of proceedings brought
by a third party, Drama Unit Pty Ltd (“Drama
Unit”) against
Fearndale, and against Mr Cook in his capacity as administrator of Fearndale,
advancing several allegations
in respect of the status of a mining licence in
relation to the Land. Mr Cook notes that he is defending those proceedings and
will
incur costs and expenses in doing so, and claims a right of indemnity from
Fearndale’s property in respect of the defence of
those proceedings.
- By
paragraph 21 of the Points of Claim, Mr Cook pleads that the Salvage Claim has
priority over all other claims to the Balance, including
any of ALI, Equivest,
the former administrators or the Messrs Harpley, under the principles of salvage
described in Re Universal Distributing Company Ltd (in liq) [1933] HCA 2;
(1993) 48 CLR 171 and Stewart v Atco Controls Pty Ltd (in liq) [2014] HCA
15; (2014) 252 CLR 307. Alternatively, Mr Cook pleads that that claim takes
priority after the payment of any priority claims, as defined. The question of
priority between those claimants does not need to be determined since it is not
apparent that the proceeds of sale of the Land are
likely to be insufficient to
meet each of their proper claims.
- Mr
Cook relies on his affidavits dated 1 May 2020 and 22 May 2020 in respect of the
application, and on exhibits TJC-9, TJC-10 and
TJC-11 to those affidavits (now
Exhibits F2, F3 and F4 in the wider application before the Court as well as this
application) and
on a further affidavit of Mr Laba, one of his employees. By his
affidavit dated 1 May 2020, Mr Cook referred to the circumstances
of his
appointment as administrator of Fearndale and to the investigations that led him
to identify the Land as held by Fearndale
as trustee for the Fearndale Trust and
to his subsequent appointment by the Court as receiver and manager of all
property held by
Fearndale as trustee for the Fearndale Trust. His evidence was
that most, if not all, of the tasks undertaken by him or at his direction
were
undertaken in his capacity as administrator of Fearndale and as receiver and
manager of the property held by Fearndale on trust
for the Fearndale Trust (Cook
1.5.20 [13]).
- Mr
Cook set out an extensive chronology of the administration, over some 10 pages
and 66 paragraphs of his affidavit, which amply
identified the complexity of the
administration. He referred to claims by third parties asserting an interest in
the Land, including
an unregistered leasehold interest claimed by Drama Unit; a
claim by CCF that it was a secured creditor of Fearndale owed a debt
of, at the
time of his appointment, at least $1.618 million; a claim by Epic Mining Pty Ltd
(“Epic Mining”) pursuant
to a lease dated August 2010; a claim by
Equivest that it was also a secured creditor of Fearndale and held security over
the Land;
claims by the Messrs Harpley, who were directors of the Company, to a
vendors’ lien over the Land and a life estate in part
of the Land; and a
claim by the former receivers and managers of the Land, appointed by CCF, to a
lien for their fees. He also refers
to valuation advice he obtained in respect
of the Land as encumbered by Drama Unit’s interest, which indicated a
value significantly
less than he ultimately achieved in the sale process.
- Mr
Cook also referred to steps taken in the conduct of the administration,
including the issue of examination summonses and orders
for production directed
to investigating, inter alia, whether the Land was held by Fearndale as trustee
of the Fearndale Trust and
issues relating to the use of the Land and dealings
between Fearndale and Epic Mining and Drama Unit. There is evidence of the
substantial
analysis which was undertaken by Mr Cook and members of his staff
following the public examinations to identify the conclusions that
could be
drawn from them (Ex F2, 32ff).
- Mr
Cook also refers to proceedings brought by Drama Unit in this Court, the history
of which is evident from the Court file and from
judgments at first instance and
in the Court of Appeal, including Re Fearndale Holdings Pty Ltd (admin
apptd) [2019] NSWSC 478; Re Fearndale Holdings Pty Ltd [2019] NSWSC
645 and Re Drama Unit Pty Ltd [2019] NSWSC 1169. Mr Cook also refers to
steps which he took to restrain ALI from taking enforcement action in respect of
the Land and to the steps
taken to obtain further orders from the Court to
facilitate a sale of the Land. Mr Cook also tendered a printout of Court
attendances
in the matter, which runs for some 50 pages in relatively small
print between 27 March 2018 and 24 February 2020 and does not include
more
recent attendances in the matter (Ex A3).
- Mr
Cook in turn set out the basis of the calculation of his remuneration and time
recording, in categories including attendances at
Court; involvement in the
proceedings brought by Drama Unit against Fearndale and Mr Cook; the examination
process; investigations
of property; dealing with creditors; and conducting the
sale process. Some of these categories reflect the particularly litigious
character of this voluntary administration. Mr Golledge also drew attention to
work-in-progress (“WIP”) schedules maintained
by Mr Cook’s
firm which allocated the work done by person and by category across the several
categories addressed in Mr Cook’s
evidence (Ex F2, 31). Mr Cook also
tendered WIP records, comprising nearly 180 pages, arranged by category,
identifying the person
who did the relevant work and the nature of the work done
(Ex F2, 389ff). I have, consistent with the authorities, undertaken a broad
review of those narratives, without seeking to review each attendance or the
time spent on it. The schedule of work done by category
and by person was
updated by a further schedule for the period from 1 May to 20 May 2020 (Ex F4,
392-393).
- Mr
Cook also addressed the hourly rates that he charged and his experience as to
rates charged by other practitioners in the Sydney
market, and indicated the
basis on which he considered it appropriate to calculate his remuneration on a
time charged basis. Mr Cook’s
hourly rates as at 1 July 2017, and as
increased at 1 July 2018 were in evidence (Ex F2, 26-27). Mr Cook’s
evidence that his
and his firm’s hourly rates were not above market was
supported by evidence that the rates of Fearndale’s former voluntary
administrator, Mr Calabretta, were generally higher than Mr Cook’s rates
(Ex A2) and the hourly rates of Mr Albarran, who was
appointed as receivers and
managers to Epic Mining, also generally exceeded Mr Cook’s hourly rates
(Ex A4). Mr Cook also referred
to the distribution of work between members of
his staff, and the basis on which work was allocated between staff having regard
to
their experience and the complexity of the particular work. I recognise that
in this case, the extent of litigation and the attitude
of claimants to the Land
were such that the work had a higher degree of complexity than would ordinarily
be the case.
- Mr
Cook then addressed, in detail, each of the categories of costs claimed,
including in respect of the particular proceedings brought
by and against the
parties to whom I have referred above, and to the work undertaken in respect of
the sale process and public examinations
and orders for production. Mr Cook also
addressed work done to secure and maintain the Company’s property
including the Land,
including steps taken to restrict unauthorised access to the
Land and dealings with the New South Wales Environmental Protection
Authority.
Mr Cook also referred to steps undertaken, by way of investigation, to address
uncertainties as to the Fearndale Trust
and confirm the position in respect of
the ownership of the Land and steps taken to value the Land and the subsequent
marketing and
sale process for the Land.
- By
his further affidavit dated 22 May 2020, Mr Cook addressed the payment of
disbursements and costs included in his claim in respect
of the Land, which
include marketing fees in respect of the Land, legal expenses, accounting and
tax expenses and disbursements such
as valuation expenses that Mr Cook had paid
during the administration. Mr Cook also tendered schedules of disbursements paid
by his
solicitors and by his firm, including substantial disbursements incurred
prior to the availability of any access to funds generated
by the sale of the
Land (Ex A6). Mr Cook also tendered evidence as to the invoices paid by his firm
in the course of the matter (Ex
F4, 1ff) and the narrative of work done by his
solicitors in the conduct of the matter including in the multiple proceedings
(Ex
F4, 6ff). Some of those disbursements and costs have now been paid by the
amount released to Fearndale from funds paid into Court
by the orders made on 3
March 2020 to which I have referred above. Mr Cook identifies the remaining
unpaid disbursements and costs,
including legal fees, accountancy fees and
Counsel’s fees for ongoing work in the proceedings. Mr Cook also responded
to other
evidence led in the wider proceedings, which it is not necessary to
address for the purposes of this application.
- By
a further affidavit dated 6 July 2020, Mr Laba, who is an accountant employed by
Mr Cook, refers to the creditors’ meetings
on 6 March 2020 and 12 May 2020
which rejected resolutions for the approval of Mr Cook’s remuneration.
That affidavit annexes
the remuneration report issued to creditors on 27
February 2020 and a further remuneration report issued to creditors on 5 May
2020.
The remuneration reports in turn provided a detailed account of the work
done by, and costs incurred, by Mr Cook, which are also
addressed in the
affidavit evidence to which I have referred above. I have not neglected the fact
that creditors did not approve
the remuneration claimed at the relevant
meetings, but the Court has jurisdiction to deal with the claim for remuneration
in those
circumstances, and it is plainly not tenable that extensive work should
be undertaken by insolvency practitioners who are not remunerated
for that
work.
- Mr
Laba also refers to notice given to creditors on 12 June 2020 of Mr Cook’s
intention to apply for orders approving his remuneration
from the Court, which
included providing copies of his affidavits dated 1 May 2020 and 22 May 2020,
without exhibits, to creditors.
Many of the major creditors of Fearndale are
aware of the application, in any event, by reason of their involvement in the
wider
proceedings. Mr Cook also notified the Australian Taxation Office of the
application, although it has not sought to be heard in this
application.
- In
submissions, Mr Golledge, who appears with Mr Somerville for Mr Cook, summarises
the affidavit evidence. He points to the fact
that Mr Cook was appointed as
voluntary administrator by a Court order made by Leeming JA (then sitting in
first instance in the
Corporations List) with the consent of the Messrs Harpley,
CCF (which was at the time the first mortgagee of the Land), the then
voluntary
administrators of Fearndale and the receivers of Epic Mining in resolution of
then ongoing litigation. At the time of Mr
Cook’s appointment, the Land
had been valued at a substantially lower amount than was ultimately realised by
Mr Cook on its
sale, and was subject to an existing lease to a third party,
Drama Unit, which Mr Cook considered rendered it less attractive to
a purchaser.
It was also proximate to the site of the proposed second Sydney airport, which
would potentially make it more attractive
to a purchaser.
- Mr
Golledge also refers to the range of claims made by third parties, including
some of the entities to which I have referred above,
seeking to establish rights
to the Land and to the various attempts made by those third parties, at various
times, to challenge the
control of the Land which had been conferred on Mr Cook
by the Court orders. Mr Golledge points to the fact that Mr Cook met, from
his
own resources, the significant costs of a valuer in respect of the Land and also
secured the consent of his solicitors to defer
claims for legal fees and
recoupment of disbursements in respect of the sale process for the Land. Mr
Golledge points out that Mr
Cook ultimately achieved a sale of the land at more
than three times the value that would have been expected had the lease claimed
by Drama Unit remained in place, and that the remuneration he now claims
represents about 8.6% of the sale proceeds of the Land,
in circumstances where
the realisation process has been contested at every step.
Mr
Cook’s claim for remuneration, costs and expenses from trust
property
- As
I noted above, Mr Cook seeks an order to establish his right to remuneration,
costs and expenses from the proceeds of sale of the
land and relies on
Fearndale’s right of exoneration or indemnity from the Fearndale Trust and
on “salvage” principles
to support that order. By clause 10.6 of the
Trust Deed for the Fearndale Trust (Ex A1), Fearndale was entitled to be
indemnified
out of the assets comprising the Trust Fund (as defined) against
liabilities incurred by it in the execution or attempted execution
or as a
consequence of a failure to exercise any of the trust authorities, powers and
discretions under the Trust Deed or by virtue
of being the Trustee. The case
law, which I address below, recognises that the liquidator of a trustee company
may, in a proper case,
be allowed payment of his or her remuneration, costs and
expenses from trust assets.
- Broadly,
Fearndale as trustee of the Trust has a right to be indemnified out of and
exonerated from the assets of the Trust in respect
of all liabilities that it
has properly incurred as trustee of that trust, arising under the trust deed,
under s 59(4) of the Trustee Act 1925 (NSW) and at general law: Octavo
Investments v Knight [1979] HCA 61; (1979) 144 CLR 360 at 367; Commissioner of Stamp
Duties v Buckle [1998] HCA 4; (1998) 192 CLR 226 at [49]); Re Glenvine
Pty Limited (in liq) [2020] NSWSC 866. A right to indemnity and exoneration
constitutes a “proprietary interest” in the assets of the Trust and
that interest
gives Fearndale a charge or right of lien over those assets:
Octavo Investments v Knight above at 367 and 370; Commissioner of
Stamp Duties v Buckle above at [49]-[50]; Bruton Holdings Pty Ltd v
Commissioner of Taxation [2009] HCA 32; 239 CLR 346 at [43]; Carter Holt
Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; (2019)
368 ALR 390 at [32], [80] and [84]. In Carter Holt Harvey Woodproducts
Australia Pty Ltd v Commonwealth above, the plurality observed (at
[32]-[33]) that:
“The power of exoneration, like that of
reimbursement, has been described as conferring upon the trustee “a
proprietary
interest” in the trust assets. These labels, “trust
assets” and the trustee’s “proprietary interest”,
describe the combination and effect of the legal and equitable rights which the
trustee holds on trust. Hence, where a trustee has
legal title, as well as
equitable or statutory powers of indemnity that are concerned with ways in which
the legal title can be used,
the legal title is not independent of those powers
of indemnity. The legal title held by the trustee has thus been described as
subject
to an equitable charge or lien in favour of the trustee to secure the
powers of indemnity. As this Court explained in Chief Cmr of Stamp Duties
(NSW) v Buckle, the “trust assets” are subject to competing
“proprietary rights, in order of priority, of the trustee and the
beneficiaries”. The trustee’s rights take priority over those of the
beneficiaries to the extent of the trustee’s
powers of indemnity. Where
the “trust assets” need to be sold to reimburse or exonerate the
trustee, the beneficiaries’
rights have lower priority than the
trustee’s rights. A court may authorise the sale of assets held by the
trustee so as to
satisfy the power of indemnity, as a step in the process of the
trustee exonerating itself from authorised liabilities, in the same
manner as
any other equitable charge.
This well-established priority that the trustee’s rights have over the
equitable rights of the beneficiaries was justified in
Re Johnson; Shearman v
Robinson [(1880) 15 Ch D 548 at 552] by Jessel MR on the basis that:
“it would not be right that the cestui que trust should get the benefit
of the trade without paying the liabilities; therefore
the Court says to him,
You shall not set up a trustee who may be a man of straw, and make him a
bankrupt to avoid the responsibility
of the assets for carrying on the
trade.”” [citations omitted]
- Mr
Golledge also refers to Re Universal Distributing Co Ltd above as
authority that the remuneration, costs and expenses incurred by a liquidator in
preserving, recovering and realising a fund
on behalf of others would generally
be paid out of, and are secured by an equitable lien over, the relevant fund is
well-recognised
in the case law: Coad v Wellness Pursuit Pty Ltd (in liq)
[2009] WASCA 68; (2009) 40 WAR 53; Re Parbery & Ors as liquidators of
Trio Capital Ltd (in liq) [2012] NSWSC 597 at [18]; [2012] NSWSC 597; (2012) 88 ACSR 700. In
13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [1999] FCA
144; (1999) 30 ACSR 377 at [34], Finkelstein J observed that:
“These cases establish, clearly enough in my opinion, that
provided a liquidator is acting reasonably he is entitled to be indemnified
out
of trust assets for his costs and expenses in carrying out the following
activities: identifying or attempting to identify trust
assets; recovering or
attempting to recover trust assets; realising or attempting to realise trust
assets; protecting or attempting
to protect trust assets; distributing trust
assets to the persons beneficially entitled to them.”
- In
Bastion v Gideon Investments Pty Ltd (in liq) [2000] NSWSC 939; (2000) 35
ACSR 466, where all of a company’s assets were trust assets and the
liquidator had incurred costs and expenses in
investigating the affairs of the
company, Austin J similarly held (at [71]) that:
“the
liquidator is entitled to be paid his reasonable remuneration, costs and
expenses both for the work done to date as liquidator
(including the costs of
these applications), and the work done to date on behalf of the trust, out of
the assets of the company ...
”
- In
Westpac Banking Corporation v ITS Taxation Services Pty Ltd [2004] NSWSC
50; (2004) 183 FLR 273; (2004) 22 ACLC 229 at [26]- [27], Austin J in turn
observed that:
“Where, however, one of the claimants to
priority is a court-appointed receiver seeking to recover remuneration and
costs, there
are some special factors in the equitable calculus. This is a case
... where the principle of salvage applies. In the words of the
Full Federal
Court in Shirlaw, those taking the benefit of the receiver's
administration should not escape bearing the burden of the proper cost of it. Mr
Singleton
has applied his efforts to augmenting and protecting a fund which is
available (subject to his costs and expenses) for the benefit
of secured and
unsecured creditors of the company, including the chargeholders.
The fact that the fund is likely to be inadequate to meet the chargeholders'
claims, after Mr Singleton's costs and disbursements
are deducted, is not a
ground for denying Mr Singleton's claim, for a receiver does not guarantee that
his or her efforts will generate
or preserve sufficient assets to meet all
creditors' claims. The fact that Mr Singleton's claim is in an amount not very
different
from the value of the assets he recovered during his receivership is
coincidental and beside the point. The chargeholders have had
the benefit of Mr
Singleton's efforts in the sense that he has preserved and augmented an asset of
the company which will be available
(subject to deduction of his costs and
expenses) to meet all relevant claims including theirs.”
- In
Stewart (in his capacity as liquidator of Newtronics Pty Ltd (in liq)) v Atco
Controls Pty Ltd (in liq) above, the High Court also considered the
circumstances in which a liquidator’s equitable lien would be available
over a settlement
amount in liquidation, and observed that that principle in
Re Universal Distributing above applies where an insolvent company is in
liquidation; the liquidator has incurred expenses and rendered services in the
realisation
of an asset; the resulting fund is insufficient to meet both the
liquidator’s costs and expenses of realisation and the debt
due to a
secured creditor; and the secured creditor claims the fund. Their Honours noted
that the application of the principle avoids
the result that a secured creditor
would unconscientiously take the benefit of the liquidator’s work without
the liquidator’s
expenses being met and observed (at [41]) that such a
lien arose simply from the fact that the liquidator’s costs and
remuneration
were incurred in realising the assets that created the relevant
fund. Mr Golledge also refers to Re Aberdeen All Farm Pty Ltd (in liq)
[2020] NSWSC 770 where I summarised aspects of these principles.
- There
is not a complete identity between the amount of remuneration claimed by Mr Cook
in the liquidation and the amount claimed from
the trust property by way of the
“salvage” claim and that “salvage” claim also extends to
costs and disbursements
which do not require the Court’s approval under s
60-10 of the Insolvency Practice Schedule (Corporations) (“IPSC”),
which I address below. In particular, the amount of remuneration
claimed by Mr
Cook as incurred to 22 May 2020 in respect of the “salvage” claim is
$990,220 (exclusive of GST), which
is less than the amount of remuneration for
which Mr Cook claims approval under s 60-10 of the IPSC; Mr Cook also identifies
costs and expenses within the salvage claim of $1,980,951.61, inclusive of GST,
which include
substantial legal expenses relating to litigation which do not
require approval under s 60-10 of the IPSC; and he also identifies estimated
future costs and remuneration within the “salvage” claim, which will
be
paid out of Court by reason of a separate judgment but are not addressed by
this judgment. Mr Cook also claims additional remuneration
in the amount of
$223,200 (exclusive of GST) to 22 May 2020 which is not within the
“salvage” claim, relating to creditor
inquiries, adjudicating proofs
of debt, meetings and general administration costs within the liquidation, which
I address as part
of the remuneration claim below.
- I
am satisfied that the remuneration, costs and expenses claimed by Mr Cook in the
salvage claim are properly referable to the steps
to which I referred above to
protect and sell the Land and that he is entitled to recover that remuneration,
costs and expenses from
the sale proceeds of the Land, subject to approval of
the proper quantum of his remuneration to 22 May 2020 to which I now
turn.
Mr Cook’s application for approval of his
remuneration
- Next,
Mr Cook seeks approval of his remuneration under ss 60-5 and s 60-12 of the
IPSC. Section 60-5 of the IPSC provides that an external administrator of a
company is entitled to receive remuneration for necessary work properly
performed by that external administrator in relation to the external
administration, in accordance with any remuneration determinations
for the
external administrator made under s 60-10) of the IPSC.
- Section
60-10 of the IPSC relevantly provides
that:
“(1) A determination, specifying
remuneration that an external administrator of a company (other than an external
administrator
in a members' voluntary winding up) is entitled to receive for
necessary work properly performed by the external administrator in
relation to
the external administration, may be made:
(a) by resolution of the creditors; or
(b) if there is a committee of inspection and a
determination is not made under paragraph (a)--by the committee of inspection;
or
(c) if a determination is not made under paragraph (a) or
(b)--by the Court.
Note: For determinations made by the Court, see also section 60-12 (matters
to which the Court must have regard).
(2) A determination, specifying remuneration that an
external administrator of a company in a members' voluntary winding up is
entitled
to receive for necessary work properly performed by the external
administrator in relation to the external administration, may be
made:
(a) by resolution of the company at a general meeting;
or
(b) if a determination is not made under paragraph (a) - by
the Court.
Note: For determinations made by the Court, see also section 60-12 (matters
to which the Court must have regard).
(3) A determination under this section may specify
remuneration that the external administrator is entitled to receive in either
or
both of the following ways:
(a) by specifying an amount of remuneration;
(b) by specifying a method for working out an amount of
remuneration.
(4) If a determination under this section specifies that the
external administrator is entitled to receive remuneration worked out
wholly or
partly on a time-cost basis, the determination must include a cap on the amount
of remuneration worked out on a time-cost
basis that the external administrator
is entitled to receive. ...”
- Mr
Golledge also draws attention to s 60-12 of the IPSC which provides
that:
“In making a remuneration determination under paragraph
60-10(1)(c) or (2)(b), or reviewing a remuneration determination under
section
60- 11, the Court must have regard to whether the remuneration is reasonable,
taking into account any or all of the following matters:
(a) the extent to which the work by the external
administrator was necessary and properly performed;
(b) the extent to which the work likely to be performed by
the external administrator is likely to be necessary and properly performed;
(c) the period during which the work was, or is likely to
be, performed by the external administrator;
(d) the quality of the work performed, or likely to be
performed, by the external administrator;
(e) the complexity (or otherwise) of the work performed, or
likely to be performed, by the external administrator;
(f) the extent (if any) to which the external administrator
was, or is likely to be, required to deal with extraordinary issues;
(g) the extent (if any) to which the external administrator
was, or is likely to be, required to accept a higher level of risk or
responsibility than is usually the case;
(h) the value and nature of any property dealt with, or
likely to be dealt with, by the external administrator;
(i) the number, attributes and conduct, or the likely
number, attributes and conduct, of the creditors;
(j) if the remuneration is worked out wholly or partly on a
time-cost basis - the time properly taken, or likely to be properly
taken, by
the external administrator in performing the work; ...
(m) any other relevant matters.”
- Mr
Golledge also refers to observations of the Court of Appeal in Sanderson, as
liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017)
118 ACSR 333, which recognise the relevance of “proportionality” in
fixing a practitioner’s remuneration, and to the recognition
by the Full
Court of Federal Court in Templeton v Australian Securities & Investments
Commission [2015] FCAFC 137; (2015) 108 ACSR 545 that proportionality is to
be judged having regard to the complexity of the issues with which an insolvency
practitioner had to deal.
The Full Court there observed at [52] that:
“More generally, in considering the question of
proportionality one also has to bear in mind two other points that may be
overlooked.
First, in performing some work, it may not be entirely clear ex ante
what the precise benefit might be. A situation where work was
being performed to
preserve property of known value is quite different to the situation where work
was being performed to achieve
a return to creditors that was unclear. In the
latter case, it might be inappropriate to use a hindsight analysis of known
returns
after the event to assess whether the work performed was proportional to
the task; in such a situation one would look at the expected
realistic return at
the time the work was performed rather than actual outcomes. Second, some work
may be sufficiently complex and
labour intensive such as to justify a
cost/benefit ratio of 6/10. After all, if the duty of the Receivers is to
maximise returns
and it is necessary to spend $0.60 to achieve $1.00, then
proportionality is satisfied even if the ratio might be high.”
- In
Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2017] NSWSC
540, Gleeson JA, in dealing with a receiver’s claim for remuneration,
noted that common bases for calculation of remuneration included
time-based
charging and a commission based on percentage of recoveries, and that the
approach to be adopted is directed to securing
reasonable remuneration in the
circumstances. Gleeson JA there also referred to the Court of Appeal’s
decision in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq)
v Sakr above and summarised the principles which arose from Bathurst
CJ’s judgment in that case (at [44]-[46]) as
follows:
“First, the onus is on the special purpose receivers
to establish that the remuneration claimed is reasonable. It is the function
of
the Court ... to determine the remuneration by considering the material provided
and bringing an independent mind to bear on the
relevant issues: Sakr at
[54].
Second, many of the factors in s 425(8), in particular, pars (d)-(e) and
(g)-(h) can be seen to have as their unifying theme the concept
of
proportionality. The question of proportionality in terms of work done as
compared with the size of the property the subject of
the insolvency
administration or the benefit to be obtained from the work, is an important
consideration in determining reasonableness:
Templeton v Australian
Securities and Investments Commission (2015) 108 ACSR 545; (2015) FCAFC 137.
The work done must be proportionate to the difficulty and importance of the task
in the context in which it needs to be performed.
This is what is encompassed in
assessing the value of the services rendered: Sakr at [55].
Third, the mere fact that the work performed does not lead to augmentation of
the funds available for distribution does not mean that
the special purpose
receivers are not entitled to be remunerated for it. In the present case, the
Trustee fee application and the
time spent consulting with the committee of
creditors on various issues, including obtaining approval of the special purpose
receivers’
remuneration will not result in the augmentation of the funds
available for distribution. Provided it was reasonable to carry out
the work and
the amount charged is reasonable, there is no reason a liquidator should not
recover remuneration for undertaking the
work: Sakr at
[57]–[58].”
- Mr
Golledge also refers to my decision in Re Sakr Nominees Pty Ltd [2017]
NSWSC 668 at [23]- [25], where I referred to the position as it had developed
following the Court of Appeal's decision in Sanderson, as Liquidator of Sakr
Nominees Pty Ltd (in liq) v Sakr above. I there noted the relevance of
proportionality in an application of this kind, and also noted that the majority
of decisions
had accepted that, at least in some circumstances, time costing may
be an appropriate starting point for a calculation of remuneration,
although the
assessment of proportionality is important in testing the reasonableness of
time-based remuneration. I noted that several
cases had recognised the
significance of the percentage that a liquidator's remuneration bears to the
level of asset realisations
achieved, but that is less relevant in a provisional
liquidation, where the provisional liquidator would not be expected to, and
indeed generally does not have power to, realise the company's assets. I also
noted the recognition in the case law that work may
be necessary, including in
order to comply with a liquidator's or provisional liquidator's obligations,
although it does not in fact
generate any positive return to creditors, although
that is far from the case here. Mr Golledge also points to the recognition in
the case law that time costing can provide a useful and objective starting point
for a claim to remuneration, although it may be
necessary or appropriate to
discount the amount claimed by an insolvency practitioner on a time costing
basis by reference to other
matters including the size of the recoveries or
property dealt with by the practitioner: Re Clout [2016] NSWSC 1146 at
[134]- [135].
- It
is not the Court’s role, as constituted by a judge in an application of
this kind, to undertake a line by line review of
the relevant narratives in an
insolvency practitioner’s billing record, but the Court will generally
review the relevant narratives
in a broad way in order to satisfy itself that
they support the other evidence led in respect of the claimed remuneration, and
I
have taken that course here: Re Idylic Solutions Pty Ltd as trustee for
Super Save Superannuation Fund [2016] NSWSC 1292 at [58]; Re Banksia
Securities Limited (in liq) (recs and mgrs apptd) [2018] NSWSC 229; Re
Aberdeen All Farm Pty Ltd (in liq) above.
- I
have had regard to the matters specified by s 60-12 of the IPSC, including the
period during which the work was, or is likely to be, performed by the external
administrator under s 60-12(c) of the IPSC. Mr Golledge submits, and I accept,
that Mr Cook’s claim for remuneration is strengthened because he was
required
to perform his work over a very considerable period before he was
remunerated. The Court must also have regard under s 60-12(e)-(g) of the IPSC to
the complexity (or otherwise) of the work performed, or likely to be performed,
by the external administrator;
any extent to which the external administrator
was, or is likely to be, required to deal with extraordinary issues; and any
extent
to which the external administrator was, or is likely to be, required to
accept a higher level of risk or responsibility than is
usually the case. The
evidence and the Court’s file demonstrates that this was an
administration, and then a liquidation, of
extraordinary complexity and the sale
proceeds achieved for the land demonstrate, as Mr Golledge points out, the
quality of the result
achieved. That result is emphasised by the fact that, even
after the amount of costs that will have been diverted to the defence
of claims
brought by third parties in the matter, all secured creditors will be paid on a
sale of the Land, and there is a real prospect
that unsecured creditors will
achieve some return, and some possibility of a return to Fearndale’s
shareholders or unitholders
in the Trust. I accept that Mr Cook was also exposed
to a significant level of risk in the conduct of the administration, where the
value of the asset and the multiplicity of claims against it exposed him to
repeated attack by parties with an interest in maximising
their claim to the
value of the Land.
- As
Mr Golledge points out, Mr Cook’s affidavit evidence indicates the basis
of the calculation of his claim for remuneration,
and deals with the identity
and seniority of those within his firm who carried out the relevant work, their
respective charge-out
rates and the time taken for that work, and Mr
Cook’s evidence as to those matters is in turn supported by detailed
work-in-progress
records. Mr Golledge submits, and I accept, that the nature of
this administration and subsequently liquidation, with the very high
degree of
contention involved and the multiple claims to the Land, limited the amount of
routine work which was capable of delegation
to less senior staff. Mr
Cook’s evidence is, and I accept, that the rates charged by his firm are
consistent with hourly rates
charged by other insolvency firms in the Sydney
market (Cook 1.5.20 [83]). Mr Golledge also points out that, when a blended
hourly
rate is calculated, the amount derived is well within the range that
would be allowed in a contentious insolvency: compare Australasian Barrister
Chambers Pty Ltd [2019] NSWSC 799, which was another case in which an
insolvency practitioner faced a high level of dispute in dealing with the
relevant asset.
- Mr
Golledge acknowledges, rightly, that Mr Cook’s claim for remuneration is
very substantial, but rightly also submits that
does not mean that it is
unreasonable in the extraordinary circumstances of this administration and
liquidation. I am satisfied that
the amount claimed represents reasonable
remuneration for the work done, notwithstanding the size of the claim, in the
difficult
circumstances that Mr Cook faced, and given the result which was
achieved, in large part, through his efforts and despite a multitude
of third
parties with interests in maximising their respective positions in respect of
the proceeds of sale of the Land.
Orders
- The
Court makes the following orders and
declaration:
1. A determination pursuant to section
60-10(1)(c) of the Insolvency Practice Schedule (Corporations), being schedule 2
to the Corporations Act 2001 (Cth) (IPS) that Mr Timothy James Cook
(Liquidator), being the former voluntary administrator and current liquidator of
the Third
Plaintiff, is entitled to receive remuneration for necessary work
properly performed in relation to the external administration of
the Third
Plaintiff for the period commencing 5 May 2018 and ending 22 May 2020 in the
amount of $1,213,420.00 (exclusive of GST).
2. An order that the costs of the Liquidator of the Amended
Interlocutory Process be costs in the external administration, within
the
meaning of section 5-15 of the IPS, of the Third Plaintiff.
3. A declaration that any amount paid to the Liquidator or
the Third Plaintiff from the Funds in Court in this proceeding and the
monies
previously paid out to the Liquidator pursuant to the orders made on 2 March
2020 in this proceeding, is charged, in favour
of the Liquidator with payment of
the following:
a. the remuneration amount determined by Order 1;
b the costs the subject of order 2; and
c the reasonable and proper disbursements including legal
costs incurred by the Liquidator in connection with the investigation,
care,
preservation and sale of the land at 275 Adams Road Luddenham ( the
“Land”) and of investigating and protecting
the right of indemnity
of both the Liquidator and the Third Plaintiff against the Land and the proceeds
of sale of the Land.
**********
Amendments
23 July 2020 - Correction to case name.
AustLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.austlii.edu.au/au/cases/nsw/NSWSC/2020/901.html
